<PAGE>

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

                                  FORM 10-QSB

(X)      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1998

(  )     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

Commission File Number 0-12214

                         DALECO RESOURCES CORPORATION
                ---------------------------------------------
             Name of small business issue as specified in Charter
<TABLE>
<CAPTION>

<S>                                              <C>       
Delaware                                         23-2860739
-----------------------------------------        ------------------------------------
(State or other jurisdiction of                 (IRS Employer Identification Number)
incorporation or organization)                


435 Devon Park Drive, Suite 410
Wayne, PA 19087                                  (610) 254-4199
----------------------------------------         ------------------------------------
(Address of Principal Executive Offices)         (Issuer's telephone number)

</TABLE>


               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after distribution under
a plan confirmed by court.
                                                      Yes ______  No ______


                     APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date.

2,776,788 shares of common stock as of April 1, 1998


<PAGE>




                                     INDEX



PART I            FINANCIAL INFORMATION                                    Page

         ITEM 1       FINANCIAL STATEMENTS (Unaudited)
                      Consolidated Balance Sheets                            3
                      Consolidated Statement of Loss                         4
                      Consolidated Statement of Deficit                      5
                      Consolidated Statement of Cash Flow                    6
                      Notes to Consolidated Financial Statements             7

         ITEM 2       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS                   19


PART II           OTHER INFORMATION

         ITEM 6       Exhibits and Reports on Form 8-K                      19


SIGNATURES                                                                  20



<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                          1998           1997
                                                                                     ------------    ------------
<S>                                                                                  <C>             <C>         
ASSETS
          Cash and cash equivalents                                                  $    277,796    $     80,484
          Accounts receivable                                                             453,861          73,805
          Costs Associated with Potential acquisition of oil and gas properties            
               from Reserve Production, Inc. (Note 15)                                       --           547,759
          Other                                                                            11,474          87,248
                                                                                     ------------    ------------
                                                Total Current Assets                      743,131         789,296
Investment in and advances to mining joint venture (note 3)                                  --            50,000
Oil and gas properties and equipment (note 4)                                           9,776,006       5,230,227
Property and equipment                                                                     47,368          75,415
Timber rights (note 5)                                                                  1,028,342       1,028,342
Mineral properties (note 6)                                                                23,973          15,673
Goodwill (note 16)                                                                        605,025       1,041,668
Debt Issue Costs                                                                          559,815          10,632
                                                                                     ------------    ------------
                                               Total Assets                          $ 12,783,660    $  8,241,253
                                                                                     ============    ============
LIABILITIES
Accounts payable and accrued liabilities                                             $  2,041,317    $  2,018,356
Current portion of long-term debt                                                         200,000            --
Notes payable (note 7)                                                                       --           688,000
Drilling deposits                                                                            --            29,000
Due to related parties (note 8)                                                           356,256         566,593
                                                                                     ------------    ------------
                                               Total Current Liabilities                2,597,573       3,301,949
Long-term debt (note 10)                                                                5,554,783            --
Debentures (note 9)                                                                        60,000          90,000
                                                                                     ------------    ------------
                                               Total Liabilities                        8,212,356       3,391,949
                                                                                     ------------    ------------
Commitments and Contingencies (note 15 and 16)
Shareholders' Equity
         2,776,788 Common shares, par value $0.01 per share (note 1)                       27,770          27,570
         16,000 Preferred Shares, par value $0.01 per share (note 7)                          160            --
         Additional Paid in Capital                                                    14,103,912      12,760,655
         Accumulated deficit                                                           (9,560,538)     (7,938,921)
                                                                                     ------------    ------------
                                               Total Shareholders' Equity               4,571,304       4,849,304
                                                                                     ------------    ------------
                                        Total Liabilities and Shareholders' Equity   $ 12,783,660    $  8,241,253
                                                                                     ============    ============
</TABLE>

                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)
<TABLE>
<CAPTION>


                                                            Three Months Ended                      Six Months Ended

                                                    March 31, 1998    March 31, 1997       March 31, 1998      March 31, 1997
                                                    --------------    --------------       --------------      --------------

<S>                                                  <C>                 <C>                 <C>                 <C>           
Gross Oil and Gas Operating Revenue                  $   627,977         $   722,462         $ 1,196,759         $ 1,249,919   
Less: Lease Operating Expenses                           278,283             146,070             387,723             274,881
         Severance taxes                                  11,731               5,962              20,370              18,852
         Net Profits Interest and Related Expenses       236,470             383,189             521,361             672,100
         Depletion, depreciation and amortization         85,000             102,500             160,000             194,634
                                                     -----------         -----------         -----------         -----------
Net Income from Oil and Gas Operations                    16,493              84,741             107,305              89,452
                                                     -----------         -----------         -----------         -----------
Timber Revenues                                           22,032                --                22,032                --
Timber Operating Costs                                   100,548              93,175             185,981             182,520
                                                     -----------         -----------         -----------         -----------
Net Loss From Timber Operations                          (78,516)            (93,175)           (163,949)           (182,520)
                                                     -----------         -----------         -----------         -----------
Management and Administrative Fee Revenues               111,080             127,555             197,209             249,466
Administration Expense                                  (258,699)           (294,619)           (480,060)           (812,470)
Amortization of Debenture Issue Costs                     (9,250)            (15,000)            (18,500)            (32,233)
Financial Advisors Expense                                  --              (135,178)               --              (228,829)
Amortization of Goodwill                                (104,166)           (104,166)           (208,332)           (208,332)
Write-Down of Advances to Mining Joint Venture              --               (50,000)               --               (50,000)
Interest expense                                         (91,224)            (47,081)           (152,248)            (91,350)
                                                     -----------         -----------         -----------         -----------
TOTAL                                                   (352,259)           (518,489)           (661,931)         (1,173,748)
                                                     -----------         -----------         -----------         -----------
NET (LOSS)                                           $  (414,282)        $  (526,923)        $  (718,575)        $(1,266,816)
                                                     ===========         ===========         ===========         ===========
PRIMARY AND FULLY DILUTED NET (LOSS)                                                                           
   PER COMMON SHARE                                  $     (0.15)        $     (0.20)        $     (0.26)        $     (0.60)
                                                     ===========         ===========         ===========         ===========
                                                                                                          

</TABLE>






















                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE PERIODS
ENDED MARCH  31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                                                1998                 1997
                                           ------------         ------------
Deficit - Beginning of Period               ($8,801,963)         $(6,672,105)
Net loss for the period                        (718,575)          (1,266,816)
Dividends on Preferred Stock                    (40,000)                  --
                                           ------------         ------------

Deficit - End of Year                       ($9,560,538)         $(7,938,921)
                                           ============         ============






                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)

<TABLE>
<CAPTION>


                                                                Three Months Ended             Six Months Ended
                                                              March 31,     March 31,      March 31,      March 31,
                                                               1998            1997          1998            1997
                                                            -----------    -----------    -----------    -----------
OPERATING ACTIVITIES
<S>                                                         <C>            <C>            <C>            <C>         
Net (Loss)                                                  $  (414,282)   $  (526,923)   $  (718,575)   $(1,266,816)
Items not affecting Working Capital
Depletion, Depreciation, and Amortization and Write-Downs       198,416         60,066        386,832        152,500
                                                            -----------    -----------    -----------    -----------
                                                               (215,866)      (466,857)      (331,743)    (1,114,316)
(Increase) Decrease in Other Assets                                --         (291,719)          --         (629,943)
(Increase) Decrease in Receivables                             (191,972)       885,310       (145,278)       797,325
Increase (Decrease) in Accounts Payable                         927,384       (185,641)       908,882        708,508
                                                            -----------    -----------    -----------    -----------
Cash provided (used) for Operations                             519,546        (58,907)       431,861       (238,426)
                                                            -----------    -----------    -----------    -----------
INVESTING ACTIVITIES
Leasing Acquisition and Well Costs incurred                  (3,455,104)          --       (4,612,459)      (124,406)
                                                            -----------    -----------    -----------    -----------
Cash provided from/(used for) Investing Activities           (3,455,104)          --       (4,612,459)      (124,406)
                                                            -----------    -----------    -----------    -----------
FINANCING ACTIVITIES
Increase in amounts due to Related Parties                        6,666         61,500          6,666        175,131
Dividends Paid                                                  (20,000)          --          (40,000)          --
Proceeds From Long-term debt                                  2,666,137           --        3,964,968           --
                                                            -----------    -----------    -----------    -----------
Cash Provided From (used by) Financing Activities             2,652,803         61,500      3,931,634        175,131
                                                            -----------    -----------    -----------    -----------
NET INCREASE (DECREASE) IN CASH                                (282,755)         2,593       (248,964)      (187,701)
CASH - BEGINNING OF PERIOD                                      560,551         77,891        526,760        268,185
                                                            -----------    -----------    -----------    -----------
CASH - END OF PERIOD                                        $   277,796    $    80,484    $   277,796    $    80,484
                                                            ===========    ===========    ===========    ===========
</TABLE>



                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 -  PREPARED BY MANAGEMENT (UNAUDITED)


         1.       Reference to Audited Financial Statements

                  These Financial Statements should be read in conjunction
                  with the notes to the Company's audited Financial Statements
                  as of September 30, 1997.

         2.       Summary of Significant Accounting Policies

                  a.       Use of estimates

                           The preparation of financial statements in
                           conformity with generally accepted accounting
                           principles requires management to make estimates
                           and assumptions that affect the reported amounts of
                           assets and liabilities and disclosure of contingent
                           assets and liabilities at the date of the financial
                           statements and the reported amounts of revenues and
                           expenses during the reporting period. Actual
                           results could differ from those estimates.

                  b.       Basis of consolidation

                           The consolidated financial statements of Daleco
                           Resources Corporation (the "Company") have been
                           prepared in accordance with generally accepted
                           accounting principles and include the accounts of
                           the Company and its wholly-owned subsidiaries
                           Westlands Resources Corporation ("Westlands"),
                           Sustainable Forest Industries Inc. ("Sustainable"),
                           Deven Resources, Inc. ("Deven"), Tri-Coastal
                           Energy, Inc., ("TCE"), Tri-Coastal Energy, L.P.
                           ("TCELP"), and Haly Corp. The Company's investments
                           in oil and gas leases are accounted for using
                           proportionate consolidation whereby the Company's
                           prorata share of each of the assets, liabilities,
                           revenues and expenses of the investments are
                           aggregated with those of the Company in its
                           financial statements.

                  c.       Oil and gas properties and equipment

                           The Company follows the successful efforts method
                           of accounting for the costs of exploration and
                           development activities. Direct acquisition costs of
                           developed and undeveloped leases are capitalized.
                           Costs of undeveloped leases on which proved
                           reserves are found are transferred to proven oil
                           and gas properties. Each undeveloped lease with
                           significant acquisition cost is reviewed
                           periodically and a valuation allowance provided for
                           any estimated decline in value. Capitalized costs
                           of proved developed leases are charged to income on
                           the units of production basis based upon total
                           proved reserves. The capitalized costs of these
                           proved developed leases are written down to their
                           projected net recoverable amount.

                           Costs of exploratory wells found to be dry during
                           the year or before the issuance of these financial
                           statements are charged against earnings in that
                           year. Costs of successful exploration wells and
                           development wells are capitalized. All costs of
                           development wells and successful exploration wells
                           are charged to earnings on a unit-of-production
                           basis based upon proved developed reserves. Where
                           the costs of developed wells and successful
                           exploration wells exceed projected net recoverable
                           amounts, such wells are written down to their
                           projected net recoverable amount. Net recoverable
                           amount is the aggregate of estimated un-discounted
                           future net revenues from proven reserves less
                           operating and production expenses.



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                           Effective in the first quarter of 1997, the Company
                           began assessing the impairment of capitalized costs
                           of proved oil and gas properties and other
                           long-lived assets in accordance with Statement of
                           Financial Accounting Standards No. 121 (SFAS 121),
                           "Accounting for the Impairment of Long-Lived Assets
                           and for Long-Lived Assets to be Disposed of." Under
                           this method, the Company generally assesses its oil
                           and gas properties on a field-by-field basis
                           utilizing its current estimate of future revenues
                           and operating expenses. In the event net
                           undiscounted cash flow is less than the carrying
                           value, an impairment loss is recorded based on
                           estimated fair value, which would consider
                           discounted future net cash flows. SFAS 121 did not
                           have any impact on the Company's change in method
                           of assessing impairment of oil and gas properties
                           and other long-lived assets.

                  d.       Site restoration, dismantlement and abandonment costs

                           The salvage value of producing wells is expected to
                           exceed the cost of site restoration and
                           abandonment. As a result, no such costs are accrued
                           in these financial statements.

                  e.       Property and Equipment

                           Property and equipment are recorded at cost and
                           depreciated over the straight-line method over a
                           period of five years.

                  f.       Mineral Properties

                           The Company has recorded the acquisition of mineral
                           claims at cost. These costs along with any future
                           exploration and development costs relating to
                           mineral properties are deferred until the
                           properties are brought into production, at which
                           time they are amortized on a unit-of-production
                           basis, or until the properties are abandoned or
                           sold or management determines that the mineral
                           property is not economically viable, at which time
                           the deferred costs are written off.

                  g.       Timber Rights

                           The Company has recorded the acquisition of timber
                           rights at cost. These costs are deferred until
                           commercial production commences. Where the costs
                           exceed projected net recoverable amounts, the
                           timber rights are written down to the projected net
                           recoverable amount. Net recoverable amount is the
                           aggregate of estimated un-discounted future net
                           revenues from the sale of timber less operating and
                           production expenses.

                  h.       Debt Issue Costs

                           Debt issue costs as of March 31, 1998, represent
                           those associated with the Heller Financial, Inc.
                           loan (see Note 10) and will be amortized over a
                           period of five years. Costs as of March 31, 1997
                           were associated with the Company's two offerings of
                           debentures in Fiscal 1996 (see note 9) and were
                           written off upon conversion of the debentures into
                           common stock.



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                  I.       Cash and Cash Equivalents

                           Cash and cash equivalents include cash and
                           investments with original maturities of three
                           months or less.

                  j.       Goodwill

                           Goodwill associated with the acquisition of Deven
                           Resources, Inc. is being amortized over a period of
                           three (3) years.

                  k.       Fair Value of Financial Instruments

                           Cash and cash equivalents, receivables, and all
                           liabilities have fair values approximating carrying
                           amounts, except for the Heller Financial, Inc., and
                           Sonata Investment Company, LTD., loans for which it
                           is not practicable to estimate fair values. The
                           loans are to be repaid out of net cash flows.
                           Additional interest or profit participation is
                           payable after the payment of principal.

                  l.       Reverse Stock Split

                           Effective Febraury 24, 1998, the majority of
                           stockholders of the Company approved a reverse
                           ten-for-one stock split. The effect of the reverse
                           stock split has been retroactively reflected in
                           these financial statements. All reference to the
                           number of common and preferred shares, stock
                           options, warrants, and per share amounts elsewhere
                           in these financial statements and related footnotes
                           have been restated as appropriate to reflect the
                           effect of the reverse split for all periods
                           presented.


         3.       Investment In and Advances to Mining Joint Venture

                  The Company participated in an agreement dated March 12,
                  1980, (revised October 18, 1980) to purchase 25% of the
                  issued shares of Minera La Yesca, a Mexican mining
                  corporation. Funds were advanced to Minera La Yesca to help
                  finance the cost of placing the Pinabete Silver Mine (the
                  "mine") in Mexico into production. The investment in and
                  advances to Minera La Yesca have been recorded at cost. Due
                  to operating losses resulting from the continuing low price
                  of silver, the mine was taken out of production during 1991.

                  The investment in the advances to Minera La Yesca, which
                  were recorded at cost, has been written off during fiscal
                  1997.


         4.       Oil and Gas and Equipment
<TABLE>
<CAPTION>

                                                                                     1998           1997
                                                                                ------------     ----------

<S>                                                                             <C>              <C>       
                  Proven lease acreage costs                                    $  6,359,400     $3,762,091

                  Proven undeveloped lease acreage costs                           1,906,220      1,906,220

                  Well costs                                                       4,243,918      1,636,803
                                                                                ------------     ----------
                                                                                  12,509,538      7,305,114

                  Accumulated depletion, depreciation, and amortization            2,733,532      2,074,887
                                                                                ------------     ----------
                                                                                $  9,776,006     $5,230,227
                                                                                ============     ==========
</TABLE>


<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


         5.       Timber Rights Acquisition

                  Effective September 29, 1995, the Company entered into an
                  agreement ("Acquisition Agreement") to purchase 100% of the
                  issued and outstanding shares of the common stock of
                  Sustainable Forest Industries Inc. ("Sustainable"), a
                  privately held Delaware Company, in exchange for 1,500,000
                  shares of common stock of the Company.


                  Prior to this, Sustainable entered into a Timber Acquisition
                  Agreement on September 27, 1995 with Oreu Timber and Trading
                  Co., Ltd. ("Oreu"), a Guyana Corporation which is an
                  affiliate of May Joy Agricultural Cooperative Society Ltd.
                  ("May Joy"). Under the terms of the agreement, Sustainable
                  has been assigned the exclusive harvesting and cutting
                  rights for the timber concession issue by Permit No. 1367.
                  This permit was originally granted to May Joy who
                  subsequently assigned harvesting rights to Oreu as per an
                  agreement dated January 3, 1995. In April 1997, Sustainable
                  was assigned the timber concession rights under Permit
                  #4975.

                  In exchange for the timber rights, Oreu received a 10%
                  ownership of Sustainable. This ownership was subsequently
                  converted to equivalent shares of the Company as a result of
                  the acquisition of Sustainable.

                  The acquisition has been accounted for by the purchase
                  method. The purchase price of $962,500 was determined based
                  on the fair value of the 150,000 common shares of Daleco
                  given up to acquire Sustainable. The fair value of the net
                  liabilities of Sustainable acquired was $65,842 resulting in
                  consideration of approximately $1,028,500 which has been
                  recorded as timber rights.

                  During fiscal 1997, the Company obtained funds to permit
                  Sustainable to begin implementation of its business plan
                  (see Note 10).

         6.       Mineral Properties

                  In February 1995, the Company acquired 109 mining claims
                  from shareholders of the Company for $15,673 representing
                  their cost to acquire the claims. Additional costs of $8,300
                  were incurred during fiscal 1997 to maintain these claims.
                  The Company is seeking interest from third parties for the
                  development of these claims.

         7.       Notes Payable

                  During the year ended September 30, 1995, the Company
                  received $1,100,000 in return for two notes payable, with
                  the producing wells of the Company used as collateral.
                  Interest of 10% per annum was due monthly.

                  During fiscal 1996, the Company repaid $300,000 of the
                  outstanding balance. During fiscal 1997, the remaining
                  $800,000 was converted into 16,000 shares of 10% cumulative
                  preferred stock, at $50.00 per share.


<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


         8.       Due to (from) Related Parties

                                                           1998       1997
                                                         --------   --------
                  Net due to Haly Corporation
                         Bearing interest at prime +1%   $   --     $308,334
                                                         --------   --------
                  Net due (from) to Amir and Erlich
                         Bearing interest at prime +3%     91,062     91,062
                         Bearing interest at 7%           265,194    167,197
                                                         --------   --------
                                                          356,256    258,259
                                                         --------   --------
                                                         $356,256   $566,593
                                                         ========   ========


                  The amounts due to Haly Corporation were eliminated through
                  the acquisition of Haly as of September 30, 1997 (see Note
                  17). Amir and Erlich are officers and shareholders of the
                  Company. These amounts have no fixed repayment terms.


         9.       Debentures

                                                         1998           1997
                                                         ----           ----
                           8% Convertible Debentures   $ 60,000       $90,000
                                                       --------       -------


                  a.       7% Convertible Debentures

                           On May 31, 1996 the Company issued $1,000,000 of 7%
                           convertible debentures with interest payable in
                           cash or stock on a semi-annual basis, and a term of
                           three years. The placement agent's fees were 10% of
                           the gross proceeds and 10,000 warrants at $10.00,
                           with an expiration date of May 30, 2001 (see Note
                           11). The debentures could be converted after a
                           holding period of: (a) as to 50% of the principal
                           amount, 40 days (July 10, 1996), and (b) the
                           remaining 50%, 60 days (July 30, 1996). The
                           debentures are convertible into the Company's
                           common stock at the lessor of (1) a 35% discount on
                           the previous five day average closing bid price at
                           conversion, or; (2) the previous day average
                           closing bid price at closing (May 31, 1996). As of
                           September 30, 1996, $600,000 of the 7% debentures
                           had been converted into 107,712 common shares. The
                           remaining balance was converted into 90,580 common
                           shares during 1997.


<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED March 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                  b.       8% Convertible Debentures

                           On September 11, 1996, the Company issued
                           $1,310,000 worth of 8% convertible debentures with
                           interest payable in stock only and accruing until
                           conversion or redemptions after the term of two
                           years. The placement agent's fees were 10% of the
                           gross proceeds and 12,211 warrants at $10.07
                           expiring November 16, 2001. The debentures may be
                           converted after a holding period of 45 days after
                           closing at the lessor of: (1) the fixed conversion
                           price ($10.171875), or (2) 75% of the average
                           closing bid price for the five trading days
                           immediately preceding the date of conversion. As of
                           September 30, 1997, $1,250,000 of the 8% debentures
                           had been converted into 765,015 common shares.

         10.      Long-Term Debt

                  Long-term debt of the Company consists of the following:

                  a.       Heller Financial, Inc.

                           During the fourth quarter of fiscal 1997, the
                           Company entered into an arrangement with Heller
                           Financial, Inc. ("Heller") whereby Heller has
                           agreed to provide the Company with up to
                           $15,000,000 to rework existing horizontal wells,
                           recomplete its vertical wells as horizontal wells,
                           and develop additional acreage. This facility was
                           increased to $19 million in March 1998 to
                           accomodate the purchae of additional properties
                           (see note 16). Under the terms of the agreement,
                           all of the properties of Westlands were transferred
                           to a newly formed Limited Partnership, Tri-Coastal
                           Energy, L.P., the general partner of which is
                           Tri-Coastal Energy, Inc., ("Tri-Coastal") and the
                           sole limited partner of which is Westlands.
                           Westlands is also the sole shareholder of
                           Tri-Coastal. The amount outstanding under this
                           arrangement as of March 31, 1998 was $5,154,783.
                           Interest on the borrowings is at prime plus 2%.
                           Principal is paid out of 85% of the net cash flow
                           from the properties. Additional interest is payable
                           from 50% of the net cash flow from these properties
                           after the payment of principal.

                  b.       Sonata Investment Company, LTD.

                           During the third quarter of fiscal 1997,
                           Sustainable entered into a loan agreement with
                           Sonata Investment Company, LTD. for $250,000, which
                           remains outstanding as of March 31, 1998.
                           Sustainable has the right to request an additional
                           $250,000 prior to December 31, 1999. The Company
                           and Westlands are guarantors of the loan with
                           Westlands (now Tri-Coastal Energy, L.P.) wells
                           being pledged as collateral, subordinated to the
                           Heller Financing. The loan is to be repaid out of
                           25% of Sustainable's net cash flow with any
                           remaining balance due by December 31, 1999.
                           Interest is at 12%. In addition, Sonata will
                           receive a profit's participation of 25% of the net
                           profits of Sustainable while the loan is
                           outstanding and 20% after the loan is repaid
                           ("after payout"). Should Sustainable request the
                           additional $250,000 from Sonata and should Sonata
                           elect not to make said advance, then the after
                           payout rate reduces from 20% to 15%.



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                  c.       PNC Bank Loan

                           During the fourth quarter of fiscal 1997, Deven
                           Resources, Inc. obtained a term loan of $300,000
                           with interest at prime plus 1 1/2%. Principal is
                           due at $25,000 per quarter. The loan is secured by
                           specific properties owned by Deven.

                  d.       First Regional Bank

                           As of September 30, 1997, the Company assumed a
                           $100,000 loan with First Regional Bank when it
                           acquired Haly Corporation (see Note 17). Interest
                           is at 6.9% and the loan matures December 12, 1998.
                           The loan is secured by personal assets of an
                           officer of the Company.


         11.      Capital Stock
<TABLE>
<CAPTION>

                                                                         NUMBER OF PREFERRED
                                                 NUMBER OF COMMON         SHARES PAR VALUE
                                                 SHARES, PAR VALUE         $0.01 PER SHARE
                                                  $0.01 PER SHARE

<S>                                                 <C>                      <C>       
<S>                                                 <C>                      <C>       
Authorized                                          20,000,000               10,000,000
                                                    ----------               ----------

Balance as at September 30, 1997                     2,756,788                   16,000

Issued for Professional Services Rendered               20,000                     ---
                                                    ----------               ----------
Balance as at March 31, 1998                         2,776,788                   16,000
                                                    ==========               ==========

</TABLE>

                  Upon redomestication of the Company into the U.S. as of
                  October 1, 1997, par value was established at $0.01 per
                  share for both common and preferred stock.

                  a.       Common Stock Options

                           In January 1995, the Company granted fully vested
                           common stock purchase options expiring on January
                           6, 2000 for 85,000 common shares at $2.50 per
                           share. On the same date, the common stock purchase
                           options previously outstanding, which expired on
                           September 5, 1995 for 35,670 common shares at $3.20
                           per share, were gifted back to the Company and
                           canceled. The following summary sets out the
                           activity in common stock purchase options:



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                                                         Fiscal

                                                1998              1997
                                               ------            ------
Outstanding and Exercisable                    35,000             85,000
   at beginning of year
-------------------------------------------------------------------------
Canceled                                          --             (15,000)
-------------------------------------------------------------------------
Granted                                       120,000                --
                                              -------             -------
-------------------------------------------------------------------------
Outstanding and Exercisable
   at end of period                           155,000             70,000
-------------------------------------------------------------------------
                             



                           In the first quarter of fiscal 1998, the Company
                           issued 120,000 Common Stock options at $2.1875 per
                           share.


                  In October 1995, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 123,
                  Accounting for Stock-Based Compensation," (SFAS 123). SFAS
                  123 permits the Company's continued use of the intrinsic
                  value based method prescribed by Accounting Principles Board
                  Opinion No. 25 (APB 25). FAS 123 requires additional
                  disclosures, including proforma calculations of net earnings
                  and earnings per share, as if the fair value method of
                  accounting prescribed by SFAS 123 had been applied. The fair
                  value of stock options and compensation cost are measured at
                  the date of grant.

                  The common stock purchase options were issued for past
                  services at an exercise price of $2.50 per share when the
                  underlying stock was at $2.245 per share. Had compensation
                  cost been determined based on the fair value of the common
                  stock purchase options using the provisions of SFAS 123, the
                  Company's net loss and loss per share in 1995 would have
                  increased by $161,500 and $0.10, respectively.

                  For the proforma calculation, the fair value of each option
                  on the date of grant was estimated using the Black-Scholes
                  option pricing model and the following assumptions for
                  awards in 1995: zero dividend yield expected volatility of
                  119.64%, risk-free interest rate of 7.84%, and expected
                  life of 5 years. Using these assumptions, the grant-date
                  fair value per share of the options granted in 1995 was
                  $1.90.


                  b.       Common Stock Warrants

                           Common stock warrants outstanding at March 31,
1998, consist of the following:
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------
<S>                                   <C>                            <C>               <C>   
           Issuance                    Expiration Date                Amount               Price Per Share
---------------------------------------------------------------------------------------------------------------
Acquisition of Sustainable           September 30, 2000               50,000                    $3.50
---------------------------------------------------------------------------------------------------------------
Consulting Agreements                   May 8 2001 to
                                       October 1, 2001               160,000                    $3.50
---------------------------------------------------------------------------------------------------------------
Consulting Agreement                 September 30, 2001               10,000                   $10.00
---------------------------------------------------------------------------------------------------------------
8% Debenture Holders and            September 11, 2001 to                                     $4.386 to
   Placement Agents (I.)                June 8, 2002                 186,471                   $10.81
---------------------------------------------------------------------------------------------------------------
</TABLE>




<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)



                           (1.)     Common Stock Warrants Attached to Debenture

                                    In connection with the issuance of the 8%
                                    convertible debentures in September 1996;
                                    a number of warrants were granted to the
                                    holders of the debentures, the agents, and
                                    subagents who placed the debentures.

                                    With respect to the warrants granted to
                                    the debenture holders and subagents, the
                                    warrants were granted in three equal
                                    installments of September 11, 1996;
                                    November 26, 1996; and June 8, 1997. These
                                    warrants will expire five years from the
                                    date of each installment: September 11,
                                    2001; November 26, 2001; and June 8, 2002.
                                    The number of shares of common stock into
                                    which the warrants may be converted and
                                    the exercise price of the warrants were
                                    determined by (among other variables and
                                    future events) the amount of debentures
                                    still outstanding on each date of grant,
                                    and the average closing bid price of the
                                    Company's common stock for the five
                                    trading days immediately preceding each
                                    date of grant.

                                    On September 11, 1996, a total of 12,211
                                    warrants expiring on September 11, 2001
                                    were granted to the agents. The warrants
                                    may be exercised at any time before the
                                    expiration date by either of the two
                                    methods as follows: (1) each warrant may
                                    be exercised for one common share with an
                                    exercise price of $10.73, or (2) all or a
                                    portion of the warrants may be exercised
                                    on a cashless basis where a reduced number
                                    of shares of common stock will be issued
                                    based upon the difference between the
                                    average closing price of the Company's
                                    common stock for the five business days
                                    immediately preceding the date of exercise
                                    and the exercise price, divided by the
                                    average closing market price, times the
                                    number of warrants being exercised.

                  c.       Net Income Per Share

                           Net income per share was calculated on the basis of
                           the weighted average number of shares outstanding
                           which amounted to 2,776,788 for the period ended
                           March 31, 1998.


         12.      Income Taxes

                  The Company has no current and deferred taxes payable. The
                  Company and its subsidiary have significant tax losses to be
                  applied against future income. The subsidiary Company's tax
                  filings show net operating losses to be applied against
                  future taxable income in the amount of approximately $25
                  million to be utilized in various years through 2009. The
                  tax benefit of these losses is estimated to be approximately
                  $10 million. No potential benefit of these losses has been
                  recognized in the accounts.





<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


         13.      Segmented Information

                  Substantially all of the Company's operating activities are
                  in oil and gas exploration and development in the United
                  States which is considered to be the Company's domestic
                  segment. In addition, the Company has a 100% owned
                  subsidiary involved in the harvesting of timber Concessions
                  in Guyana. There were no revenues from timber operations in
                  1997 and 1996.


                  The following table identifies customers of the Company who
                  purchased greater than ten percent of the oil and gas
                  produced by the Company:

<TABLE>
<CAPTION>

                                                              1998 PERCENTAGE OF             1997 PERCENTAGE OF
                                                               TOTAL SALES (%)                TOTAL SALES (%)
<S>                                                                  <C>                            <C> 
Oil Production
         Pride Pipeline Company                                      100%                           100%

Gas Production
         Aquila Southwest Pipeline Corporation                      11.5%                          17.3%
         Austin Chalk National Gas Marketing Services               31.3%                          27.0%

         New Brenen Corporation                                       .7%                            --%

             Southern Natural Gas                                   56.5%                          55.7%
</TABLE>


         14.      Employment Contracts and Commitments

                  In connection with the acquisition of Sustainable and under
                  Management Agreement dated April 17, 1995, the Company
                  agreed to engage two key officers for a period of seven
                  years ending April 17, 2002. The two key officers are
                  entitled to a base salary of $75,000 plus additional
                  incentive payments each based upon a percentage of net
                  income of Sustainable. At the time of termination for any
                  reason, the key officers are entitled to a severance payment
                  equal to the total of the annual base salary plus additional
                  annual incentive payments he is then receiving multiplied by
                  the remaining years, or portions thereof, of the contract
                  period. During fiscal 1997, the Company reached a settlement
                  with one of the officers in the total amount of $60,000 to
                  be paid at $5,000 per month through February 1998.

                  In connection with the acquisition of Deven and under the
                  Stock Purchase Agreement dated October 1, 1996, the Company
                  agrees that should certain Deven officers be involuntarily
                  terminated, other than in response to the Deven Officer's
                  gross negligence, willful misconduct, ineptitude or
                  inability to perform the duties of his position,
                  ("Involuntary Personnel Action") on or before September 30,
                  2001 ("Coverage Period"), the said Deven Officer who was the
                  object of said Involuntary Personnel Action shall be
                  entitled to receive a sum equal to 150% of the aggregate
                  base salary plus the cash equivalent of all benefits for the
                  period of time between the date of the Involuntary Personnel
                  Action and the remaining portion of the Coverage Period
                  ("Settlement Consideration").




<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                  However, the Settlement Consideration shall not be less than
                  two years severance even though the period between the
                  Involuntary Personnel Action and the expiration of the
                  Coverage Period be less than two years.

                  The Company had two contracts with financial advisors during
                  fiscal 1997. The first expired in May 1997; the second
                  expired October 31, 1997. Neither contract was renewed.

                  The Company had two office leases as of March 31, 1998. The
                  first calls for rent of $3,864 per month through June 30,
                  1998. The second lease calls for rent of $3,354 per month
                  through December 31, 1999.

         15.      Litigation Settlement

                  In April 1997, the Company commenced an Adversary Action
                  styled Daleco Resources Corporation v. Reserve Production
                  Inc., Liquidating Trust and Leonard Pipkin, Trustee, in the
                  United States Bankruptcy Court for the Eastern District of
                  Texas, Tyler Division, Case No. 97-6036. The case was
                  commenced to enforce the Company's rights under that certain
                  Asset Purchase Agreement dated December 20, 1996 ("Asset
                  Purchase Agreement") as approved by the Bankruptcy Court on
                  February 13, 1997. In the Adversary Action, the Company
                  alleged that the defendants' had failed to meet their
                  conditions to Closing under the Asset Purchase Agreement and
                  were thus required to refund the Company's $100,000 Earnest
                  Money Deposit and pay for the reworking of the Jody Well.
                  Subsequent to the commencement of the Company's adversary
                  action, a case was commenced in the United States District
                  Court for the Eastern District of Texas, Tyler Division,
                  styled Reserve Production Liquidating Trust v. Daleco
                  Resources Corporation, Westlands Resources Corporation,
                  David F. Lincoln, Gary J. Novinskie and C. Warren Trainor,
                  C.A. No.: 6:97 CV 705 ("District Court Action"). The
                  District Court Action was in essence a counter claim against
                  the Company and three of is directors asserting matters
                  which should have been addressed in an answer to the
                  Adversary Action. The Company filed a motion to dismiss the
                  District Court Action; however, prior to ruling on the
                  Company's Motion, the Adversary Action was resolved through
                  Court mandated mediation. Under the terms of the settlement,
                  the Company's Earnest Money Deposit was returned and the
                  Reserve Production Inc., Liquidating Trust, Reserve
                  Production Liquidating partnership, and Leonard Pipkin,
                  trustee, were required to resolve all outstanding claims for
                  the reworking of the Jody Well.

                  The Company incurred $224,875 in costs to settle this
                  litigation in Fiscal 1997.

         16.      Acquisitions

                  During fiscal 1997, the Company completed the acquisitions of
                  Deven Resources, Inc. and Haly Corporation.

                  All of the outstanding stock of Deven was acquired on
                  October 1, 1996 in exchange for 2.6 million shares of Daleco
                  stock plus $150,000 in cash. The market value of the stock
                  was approximately $2.4 million. The acquisition was
                  accounted for as a purchase resulting in oil and gas
                  properties of $1.5 million, goodwill of $1.25 million less
                  liabilities assumed of $200,000. Deven receives an annual
                  management fee of $200,000 from a partnership of which it
                  has a 1% general partner interest.




<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)


                  All of the outstanding stock of Haly, a related party, was
                  acquired on September 30, 1997. Daleco issued 3 million
                  shares of common stock to Messrs. Amir and Erlich along with
                  $1,000 cash. In exchange, the Company received and retired 3
                  million shares of common stock owned by Haly along with
                  interests in wells owned by Haly. The acquisition was
                  accounted for as a purchase. The amounts due Haly were
                  written off into common stock less the First Regional Bank
                  loan assumed by Daleco (see Note 11).

                  On March 27, 1998, the Company acquired oil and gas
                  properties located in Kansas and Oklahoma for approximately
                  $2.4 million.



<PAGE>



DALECO RESOURCES CORPORATION



ITEM 2 -          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                  ------------------------------------------------------------
                  AND RESULTS OF OPERATIONS.
                  --------------------------

                  The Private Securities Litigation Reform Act of 1995 (the
                  "Reform Act") provides a safe harbor for forward-looking
                  statements made by or on behalf of the Company. All
                  statements, other then statements of historical facts, which
                  address activities, event or developments that the Company
                  expects or anticipates will or may occur in the future,
                  including such things as the anticipated development of
                  revenues, acquisition of additional properties or the
                  obtaining of capital, business strategy, development trends
                  in the industry segments in which the Company is active,
                  expansion and growth of the Company's business and
                  operations and other such matters are forward-looking
                  statements. To take advantage of the safe harbor provisions
                  provided by the Reform Act, the Company is identifying
                  certain factors that could cause actual results to differ
                  materially from those expressed in any forward-looking
                  statements, whether oral or written, made by or on behalf of
                  the Company. Many of these factors have previously been
                  identified in filings or statements made by or on behalf of
                  the Company.

                  All phases of the Company's operations are subject to
                  influences outside of the Company's control. Any one, or a
                  combination, of these factors could materially affecting the
                  results of the Company's operations. These factors include:
                  competitive pressures, inflation, trade restrictions,
                  interest rate fluctuations and other capital market
                  conditions, weather, future and options trading in, and the
                  availability of natural resources and services from other
                  sources. Forward-looking statements are made by or on behalf
                  of the Company's knowledge of its business and the
                  environment in which it operates, but because of the factors
                  listed above, as well as other environmental factors over
                  which the Company has no control, actual results may differ
                  from those in the forward-looking statements. Consequently,
                  all of the forward-looking statements made are qualified in
                  their entirety by these cautionary statements and there can
                  be no assurance that the actual results or developments
                  anticipated by the Company will be realized or, even if
                  substantially realized, that they will have the expected
                  effect on the business and/or operations of the Company.

                  The Quarter ended March 31, 1998, was marked by a number of
                  significant events. These events include: the successful
                  completion of the drilling operations in the initial three
                  (3) wells (Phase I) of the planned twenty-five (25) well
                  drilling program on the Company's subsidiary's 7,300 acre
                  lease block along the Upper Texas Coast Austin Chalk Trend.
                  In addition, the Company took steps to expand its oil and
                  gas holdings by acquiring various producing and development
                  properties located in Kansas and Oklahoma. However, the
                  Company was impacted by falling oil and gas prices and
                  workover expenses incurred on existing wells and the
                  properties acquired in Oklahoma and Kansas.

                  The Company's Sustainable Forest Industries subsidiary also
                  was able to advance its sales and marketing program
                  specifically in its marine industrial and outdoor
                  residential construction product lines. Commercial sales
                  were recorded in the quarter ended March 31, 1998.

PART II.          OTHER INFORMATION

ITEM 6            Exhibits and Reports on Form 8-K

                  None.


<PAGE>



                                  SIGNATURES

                  In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                         DALECO RESOURCES CORPORATION



Date:    May 12, 1998                            Gary J. Novinskie
                                                 ------------------------------
                                                 Gary J. Novinskie
                                                 President



Date:    May 12, 1998                            Edward J. Furman
                                                 ------------------------------
                                                 Edward J. Furman
                                                 Chief Financial Officer