<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 June 30, 1997
                               -------------

( )      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


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


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

                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.

26,863,880 shares of common stock as of August 1, 1997
<PAGE>

                                      INDEX
<TABLE>
<CAPTION>
                                                                                PAGE
<S>       <C>                                                                   <C>
PART I    FINANCIAL INFORMATION

ITEM 1    FINANCIAL STATEMENTS (Unaudited)......................................  1
          Consolidated Balance Sheets...........................................  1
          Consolidated Statement Of Income......................................  2
          Consolidated Statement Of Deficit.....................................  3
          Consolidated Statement Of Cash Flow...................................  4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................................  5

         1.   Reference To Audited Financial Statements.........................  5
         2.   Summary of Significant Accounting Policies........................  5
         3.   Investment In And Advances To Mining Joint Venture................  7
         4.   Oil and Gas Properties and Equipment..............................  7
         5.   Timber Rights Acquisition.........................................  8
         6.   Mineral Properties................................................  8
         7.   Note Payable......................................................  8
         8.   Due to (from) Related Parties.....................................  9
         9.   Related Party Transactions........................................  9
         10.  Debentures........................................................ 10
         11.  Capital Stock..................................................... 11
         12.  Income Taxes...................................................... 13
         13.  Segmented Information............................................. 13
         14.  Acquisition of Deven Resources Corporation........................ 14
         15.  Commitment........................................................ 14
         16.  Acquisition of Oil and Gas Properties from Reserve Production Inc.
                Liquidating Trust............................................... 14

ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS............................... 16
         A.   Completion of the acquisition of Deven Resources, Inc............. 16
         B.   Acquisition of Oil and Gas Properties from Reserve Production Inc.
                Liquidating Trust............................................... 17
                  1. Timber Rights.............................................. 17
                  2. Settlements................................................ 18

ITEM 4        SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS................ 18

ITEM 5        OTHER INFORMATION................................................. 18

ITEM 6        EXHIBITS AND REPORTS ON FORM 8-K.................................. 18

SIGNATURES...................................................................... 19
</TABLE>
<PAGE>

                          DALECO RESOURCES CORPORATION
                         CONSOLIDATED BALANCE SHEETS AS
                            OF JUNE 30, 1997 AND 1996
                       Prepared by Management (Unaudited)

<TABLE>
<CAPTION>
                                                                                 Unaudited              Unaudited
                                                                               June 30, 1997          June 30, 1996
                                                                               -------------          -------------
<S>                                                                            <C>                    <C>
                                                         ASSET

CURRENT ASSETS

Cash                                                                            $    212,457            $    553,530

Receivables                                                                          108,577                 772,176

Costs Associated With Acquisition of Oil and Gas Properties                          612,915
From Reserve Production, Inc., Liquidating Trust (Note 16)

Other Current Assets                                                                  87,248                    --
                                                                                ------------            ------------

                                                                                   1,021,197               1,325,706

Investments in and Advances to Mining Joint Venture (Note 3)                          25,000                 300,000

Oil and Gas Properties and Equipment (Note 4)                                      5,079,670               3,771,562

Property and Equipment                                                                77,633                    --

Timber Rights (Note 5)                                                             1,028,342               1,028,342

Mineral Properties (Note 6)                                                           15,673                  15,487

Goodwill (Note 14)                                                                   917,518                    --

Debenture Issue costs (Note 10)                                                         --                   100,000
                                                                                ------------            ------------

TOTAL ASSETS                                                                    $  8,165,033            $  6,541,097
                                                                                ============            ============

                                                      LIABILITIES

CURRENT LIABILITIES

Accounts Payable and Accrued Liabilities                                           1,989,058            $  1,298,833

Notes Payable (Note 7)                                                               800,000               1,100,000

Drilling Deposits                                                                     29,000                  29,000
                                                                                ------------            ------------

                                                                                   2,818,058               2,427,833

Amounts Due to Related Parties (Note 8)                                              571,211                 423,992

Long-Term Debt (Note 5)                                                              250,000                    --

Debentures (Note 10)                                                                  90,000               1,000,000
                                                                                ------------            ------------

                                                                                   3,729,269               3,851,825

                                                 SHAREHOLDERS' EQUITY

CAPITAL STOCK

Issued common shares (Note 11)                                                    12,855,225               8,360,126

Accumulated Deficit                                                               (8,307,461)             (5,670,854)
                                                                                ------------            ------------

Total Shareholders' Equity                                                         4,547,764               2,689,272
                                                                                ------------            ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $  8,165,033            $  6,541,097
                                                                                ============            ============
</TABLE>

See Accompanying Notes.

                                        1
<PAGE>



                          DALECO RESOURCES CORPORATION
                     CONSOLIDATED INCOME STATEMENTS FOR THE
                      PERIODS ENDED JUNE 30, 1997 AND 1996

<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED                    NINE MONTHS ENDED

                                                       JUNE 30,           JUNE 30,            JUNE 30,           JUNE 30,
GROSS OPERATING REVENUE                                 1997               1996                1997                1996
                                                    -----------         -----------         -----------         -----------
<S>                                                 <C>                 <C>                 <C>                 <C>        
Oil and Gas Sales                                   $   602,181         $   110,248         $ 1,852,100         $   608,655

Less: Operating Expenses (Note 4)                       101,093             126,581             383,477             295,852

Net Profits Interest and Associated Expenses            321,022                --               985,619                --

Severance Taxes                                           3,218               7,444              22,070              19,018

Depletion, Depreciation and Amortization                148,317              44,651             342,951             172,745
                                                    -----------         -----------         -----------         -----------

NET OPERATING REVENUE                                    28,531             (68,428)            117,983             121,040

Management and Administrative Fee                       
Revenues                                                172,836                --               422,302                --
                                                        
Gain on Litigation Settlement                              --                  --                  --               768,463

Administration Expense                                 (316,946)           (412,793)         (1,129,416)           (757,588)

Amortization of Debenture Issue Costs                   (10,632)               --               (42,865)               --

Financial Advisors Expenses                             (56,000)               --              (284,829)               --

Timber Operating Costs                                  (38,369)               --              (220,889)               --

Amortization of Goodwill                               (104,150)               --              (312,482)               --

Write-Down of Advances to Mining Joint                  
Venture                                                 (25,000)               --               (75,000)               --
                                                        
Interest  Expense                                       (18,810)            (37,942)           (110,160)           (104,473)
                                                    -----------         -----------         -----------         -----------

TOTAL                                                  (397,071)           (450,735)         (1,753,339)            (93,598)
                                                    -----------         -----------         -----------         -----------

NET INCOME (LOSS)                                   $  (368,540)        $  (519,163)        $(1,634,856)        $    27,442
                                                    ===========         ===========         ===========         ===========

PRIMARY AND FULLY DILUTED NET                       
INCOME (LOSS) PER COMMON SHARE                      $     (0.02)        $     (0.04)        $     (0.09)        $      0.01
                                                    ===========         ===========         ===========         ===========
</TABLE>
                                                    
See Accompanying Notes.

                                        2
<PAGE>

                          DALECO RESOURCES CORPORATION
                    CONSOLIDATED STATEMENT OF DEFICIT FOR THE
                    NINE MONTHS ENDED JUNE 30, 1997 AND 1996
                       Prepared by Management (Unaudited)

                                          Unaudited             Unaudited
                                        June 30, 1997         June 30, 1996
                                        -------------         -------------

BALANCE - BEGINNING OF PERIOD           $(6,672,105)            (5,698,296)

NET INCOME (LOSS) FOR THE PERIOD         (1,635,356)                27,442
                                        -----------            -----------

BALANCE - END OF PERIOD                 $(8,307,461)           $(5,670,854)
                                        ===========            ===========

See Accompanying Notes.

                                        3
<PAGE>

                          DALECO RESOURCES CORPORATION
                       CONSOLIDATED STATEMENT OF CASH FLOW
                  FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996
                       Prepared by Management (Unaudited)

<TABLE>
<CAPTION>
                                                                Three Months Ended                     Nine Months Ended

                                                             June 30,           June 30,            June 30,             June 30,
OPERATING ACTIVITIES                                          1997               1996                 1997                 1996
                                                          -----------         -----------         -----------         -----------
<S>                                                       <C>                 <C>                 <C>                 <C>        
Net Income (Loss)                                         $  (368,540)        $  (519,163)        $(1,635,356)        $    27,442

Items not affecting Working Capital -

Depreciation, Depletion and Amortization and                  288,099              44,651             440,599             172,745
Write-Downs

Loss on Development and Resale of Wells                          --                71,468                --                  --

Loss/(Gain) on Sale of Oil & Gas Properties                      --                  --                  --                  --
                                                          -----------         -----------         -----------         -----------

                                                              (80,441)           (403,044)         (1,194,757)            200,187

(Increase) Decrease in Other Assets                            21,866              12,191            (608,577)               --

(Increase) Decrease in Receivables                            (34,772)               --               762,553             (43,297)

Increase (Decrease) in Accounts Payable                       (29,298)            249,997             679,210            (892,039)

Drilling and Workover Costs                                      --              (251,993)               --              (271,838)

Proceeds of Drilling Program                                     --                  --                  --               525,500
                                                          -----------         -----------         -----------         -----------

Cash provided from/(used for) Operations                     (122,645)           (392,849)           (361,571)           (481,487)
                                                          -----------         -----------         -----------         -----------

INVESTING ACTIVITIES

Leasing Acquisition and Well Costs incurred                      --               (52,255)           (124,406)            (59,006)
                                                                                                  -----------

Lease Acquisition and Well costs surrendered                     --               (70,770)               --              (180,251)
                                                          -----------         -----------         -----------         -----------

Cash provided from/(used for) Investing Activities               --               123,025            (124,406)           (239,257)
                                                          -----------         -----------         -----------         -----------

FINANCING ACTIVITIES

Increase (Decrease) in Notes Payable                          250,000                --               250,000                --

Issuance of Debentures                                           --             1,000,000                --             1,000,000

Debentures Costs                                                 --              (100,000)               --              (100,000)

Increase (Decrease) in amounts due to Related                   4,618             112,331             180,249             294,262
                                                          -----------         -----------         -----------         -----------
Parties

Cash provided from/(used for) Financing Activities            254,618           1,012,331             430,249           1,194,262
                                                          -----------         -----------         -----------         -----------

NET INCREASE (DECREASE) IN CASH                               131,973            (496,457)            (55,728)            473,518

CASH - BEGINNING OF PERIOD                                     80,484              57,073             268,185              80,012
                                                          -----------         -----------         -----------         -----------

CASH - END OF PERIOD                                      $   212,457         $   553,530         $   212,457         $   553,530
                                                          ===========         ===========         -----------         ===========
</TABLE>

See Accompanying Notes.

                                        4
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

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, 1996.

2.  Summary of Significant Accounting Policies.

   a. Use of Estimates.

      The preparation of financial statements in conformity with general
      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.

      These 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), and Deven Resources,
      Inc.("Deven"). 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. Cost of undeveloped
      leases on which proved reserves are found are transferred to proven oil
      and gas properties. Each undeveloped lease with significant acquisition
      costs 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 undiscounted future net
      revenues from proven reserves less operating and production expenses.

                                        5
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

   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. Investment in Minera La Yesca.

      The investment in Minera La Yesca (the "Venture") is recorded at costs
      less certain impairment provisions. At each balance sheet date the
      estimated net recoverable value of the investment is calculated based upon
      the underlying assets of the Venture.

   f. Mineral Properties.

      The Company has recorded the acquisition of mineral claims at cost. These
      costs along with any future exploration and developments 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 undiscounted future net revenues from sale of
      timber less operating and production expenses.

   h. Cash and Cash Equivalent.

      Cash and cash equivalent includes cash and investments with original
      maturities of three months or less.

   i. Goodwill.

      Goodwill related to the acquisition of the assets of Deven will be
      amortized over a period of three years.

   j. Property and Equipment.

      Property and Equipment are recorded at cost and will be depreciated over a
      period of five years.

                                        6
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

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 costs 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 1990.

    The investment in the advances to Minera La Yesca, which were recorded at
    cost, have been written down to approximate their net recoverable value
    based on the value of equipment owned by Minera La Yesca.

4.  Oil and Gas Properties and Equipment.


                                                 1997                   1996
                                                 ----                   ----
   Proven lease acreage cost                  $3,756,637             $2,423,093
   Proven undeveloped lease acreage
    cost                                       1,906,220              2,065,084
   Well costs                                  1,636,803              1,261,034
                                              ----------             ----------
                                               7,299,660              5,749,211
   Accumulated depletion,
    depreciation and amortization              2,225,444              1,938,103
                                              ----------             ----------
                                               5,074,216              3,766,108
                                              ----------             ----------
   Other equipment                                 6,060                  6,060
   Accumulated depreciation                          606                    606
                                              ----------             ----------
                                                   5,454                  5,454
                                              ----------             ----------
                                              $5,079,670             $3,771,562
                                              ==========             ==========

    Westlands has carried interests in producing oil wells which have been
    acquired at no cost and are not included on the balance sheet.

    During the years ended September 30, 1996 and 1995, Westlands farmed out a
    portion of its undeveloped gas acreage in Brazos County, Texas, to a
    non-affiliated entity. The farmee has drilled two successful horizontal
    wells on such acreage in which the Company was carried for a free 5% Working
    Interest. The farmee has the right to drill another 794 acre tract for a
    consideration of $158,864. The undeveloped lease costs were reduced by this
    amount.

    Operating expenses include the lease operating expenses for and the net
    profits interests paid to a partnership sponsored by Deven Resources, Inc.
    This amounted to $985,619 for the nine months ended June 30, 1997.

                                        7
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

5.  Timber Rights Acquisition.

    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 issued 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.

    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 1,500,000
    common shares of Daleco given up to acquire Sustainable. The fair value of
    the net liabilities of Sustainable acquired is $65,842 resulting in
    consideration of approximately $1,028,500 which has been recorded as timber
    rights.

    Under the terms of the Company's acquisition of Sustainable, the Company was
    obligated to contribute up to $750,000 to support the operation of
    Sustainable. As of June 30, 1997, this condition has been partially met. The
    Company has entered into new agreements with Oreu for the funding of the
    harvesting of the timber concessions. Due to excess sawmill capacity in
    Guyana, the Company has decided not to build a sawmill at this time and will
    use such excess capacity in its operations.

    During the quarter ended June 30, 1997 the Company completed negotiations
    with an external funder to provide financing for Sustainable's Guyana
    operations. Under the terms of agreement, an initial tranche of $250,000 was
    provided in the form of a participatory loan bearing interest at 12% and
    payable out of the net operating cash flow of Sustainable.

6.  Mineral Properties.

    In February, 1995, the Company acquired 109 mining claims from shareholders
    of the Company for $15,487 representing their cost to acquire the claims.
    These claims adjoin properties owned by Regent Ventures, Ltd. ("Regent").
    Effective February 28, 1995, the Company entered into an option joint
    venture agreement with Regent to acquire up to an undivided 50% interest in
    Regent's holdings by spending up to $2,500,000 on the property. The Company
    did not make the investment and the option expired on December 31, 1995. The
    Company is awaiting the results of tests on adjoining claims prior to the
    formulation of a plan of exploration which may or may not include third
    parties.

7.  Note Payable.

    During the year ended September 30, 1995, the Company received $1,100,000 in
    return for a note payable, with the producing wells of the Company used as
    collateral. Interest of 10% per annum is due monthly. The balance
    outstanding on this loan as of June 30, 1997 was $800,000.

                                        8
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

8.  Due to (from) Related Parties.

                                               June 30,          June 30, 
                                                 1997             1996   
                                               --------          --------
   Net due to Haly Corporation -
     Bearing interest at prime +1%             $312,952           141,570
     Bearing interest at TCD +1.5%                   --                --
                                               --------           -------
                                                312,952           141,570
                                               --------           -------
   Net due (From) to Amir and Erlich
     Bearing interest at prime +3%               91,062           159,552
     Bearing interest at 7%                     167,197                --
     Non-interest bearing                            --           122,870
                                               --------           -------
                                                258,259           282,422
                                               --------           -------
                                               $571,211           423,992
                                               ========           =======

    There are no fixed repayment terms for these amounts.

9.  Related Party Transactions.

    Remuneration of directors for the periods ended June 30, 1997 and June 30,
    1996 was $0 and $2,748, respectively. Remuneration for the years September
    30, 1992 through 1996 in the amount of $54,761 have yet to be paid to the
    directors.

    Haly Corporation (whose shareholders are shareholders and directors of the
    Company) has charged, after amounts recovered from third parties, for the
    periods ended June 30, 1997 and June 30, 1996 the sum of $302,926 and
    $404,500, respectively for administrative services including remuneration of
    Dov Amir and Louis Erlich who both were officers and directors of the
    Company.

    In February, 1995 the Company acquired 109 mining claims from Messrs. Amir
    and Erlich, directors and shareholders of the Company at their original cost
    of acquisition of $15,487.

                                        9
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

10. Debentures.

                                              As Of             As Of 
                                            June 30,          June 30,
                                              1997              1996  
                                            --------          --------
   7% Convertible Debentures                   --                --          
   8% Convertible Debentures                $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 ere 10% of the gross proceeds,
      and 100,000 warrants at U.S. $1.00 and a five year term (see note 12(b)).
      The debentures may 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 five day average closing bid price at closing (May 31, 1996). As
      of December 31, 1996 the 7% debentures have been converted into 2,406,285
      common shares.

   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 redemption after the term of two. The placement
      agent's fees were 10% of the goss proceeds, and 122,111 warrants discussed
      in not 12(c). the debentures may be converted after a holding period of:
      (a) as to 50% of the principal amount, 45 days after closing (October 2,
      1996), and (b) as to the remaining 50%, 65 days after closing (November
      16, 1996). The debentures and accrued interest are convertible into the
      Company's common stock at the less of : (1) the fixed conversion price
      ($1.0171875), or (2) 75% of the average closing bid price for the five
      trading days immediately preceding the date of conversion. As of June 30,
      1997, $1,220,000 of the 8% debentures have been converted into 5,573,338
      shares of common stock.

      The fair value of the debentures is not materially different from the
      carrying amount on the balance sheet.

                                       10
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

11. Capital Stock.

<TABLE>
<CAPTION>
                                                                        NUMBER OF                NUMBER OF
                                                                      COMMON SHARES          PREFERRED SHARES
                                                                     PAR VALUE $.01           PAR VALUE $.01
                AUTHORIZED                             Ref.                                                             AMOUNT
<S>                                                  <C>              <C>                     <C>                     <C>
                                                                       50,000,000               50,000,000

Balance as at September 30, 1996                                       13,154,854                   -0-               $ 8,860,984

Issued upon conversion of Debentures                   (1)              8,722,525                   -0-                 1,427,241

Issued upon Acquisition of Deven Resources,            (2)              2,600,000                   -0-                 2,500,000
Inc. 

Issued For Services                                    (3)                702,666                   -0-                    67,000

Exercise of Warrants                                   (4)                400,000                   -0-                        --
                                                                       ----------
Balance as at June 30, 1997                                            25,580,045                   -0-               $12,855,225
                                                                       ==========                                     ===========
</TABLE>

(1)   During the period ended June 30, 1997, $790,000 of the 8% convertible
      Debentures were converted into 5,246,966 shares of common stock.

(2)   Effective October 1, 1996, the Company acquired all of the issued and
      outstanding stock of Deven Resources, Inc. ("Deven") for 2,600,000 shares
      of the Company's common stock. Mr. David F. Lincoln was the principal
      shareholder of Deven and received 1,820,000 of the 2,600,000 shares of
      Daleco common stock. (See Note 16)

(3)   In November, 1996, the Company issued 265,000 shares to consultants, those
      included: 25,000 shares to Rodney C. Hill, Esquire, former general counsel
      to the Company; 200,000 to Joel Brownstein, a financial consultant; and,
      40,000 shares to Financial Futures Corporation, a financial consulting
      firm.

      By Agreement dated March 12, 1997, Avonwood agreed to accept 187,666
      shares of the Company's common stock, par value $.01, in exchange for the
      amounts due Avonwood under its Financial Consulting Services Agreement for
      the months of January, February, and March, 1997.

      By Agreement dated October 31, 1996, by and among Wall Street Equities,
      Inc. and the Company. Wall Street Equity was entitled to receive 250,000
      shares of the Company's stock, par value $.01 in exchange for financial
      consulting services.

(4)   The Company entered into a Financial Consulting Services Agreement with
      Avonwood Capital Corporation ("Avonwood") which provided as part of the
      compensation to Avonwood warrants for 800,000 shares at $.35 per share
      expiring May 8, 2001. On October 18, 1996, Avonwood conveyed its warrants
      equally to two of its principles, Thomas R. Smith and James Porter, Jr. On
      November 24, 1996, Mr. Smith exercised his warrants for 400,000 shares of
      common stock by issuing a Note Payable to the Company.

                                       11
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

   (a) Common Stock Options

       In January, 1995, the Company granted common stock purchase options
       expiring on January 6, 2000 for 850,000 common shares at $.25 per share.
       On the same date, the common stock purchase options previously
       outstanding, which expire on September 5, 1995 for 356,704 common shares
       at $.38 per share, were gifted back to the Company and cancelled. The
       following summary sets out the activity in common stock purchase options:


                                                     1997               1996
                                                     ----               ----
       Outstanding at beginning of year            850,000             850,000
       Cancelled                                  (150,000)           (150,000)
                                                  --------            --------
       Outstanding at end of period                700,000             700,000
                                                  ========            ========
 
   (b) Effective September 29, 1995, the Company granted 500,000 common stock
       purchase warrants expiring on September 30, 2000. Each warrant may be
       exercised for one common share at $.25 per share. The Company entered
       into various consulting agreements dated March 27, 1996, with financial
       advisors. As part of these agreements, effective May 8, 1996, the Company
       granted 2,400,000 common stock purchase warrants expiring on May 8, 2001.
       Each warrant may be exercised for one common share; 2,300,000 warrants
       have an exercise price of $.35 each and 100,000 warrants have an exercise
       price of $1.00 each. The exercise price of the warrants exceeded the
       March market value of the Company's common stock. The following summary
       details the activity of the common stock warrants:


                                                 1997                 1996
                                              ---------            ---------
       Outstanding at beginning of year         500,000              500,000
       Granted                                2,400,000            2,400,000
       Exercised                                400,000              400,000
                                              ---------            ---------
       Outstanding at end of period           2,500,000            2,500,000
                                              =========            =========

   (c) Common Stock Warrants Attached to Debentures

       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. As of
       June 30, 1997, the number of warrants outstanding is indeterminable due
       to the exercise formula which is based upon a number of variables and
       future transactions.

                                       12
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

       With respect to the warrants granted to the debentures holders and
       subagents, the warrants are granted in three equal installments on
       September 11, 1996; November 26, 1996; and June 8, 1997. These warrants
       will expire five years from the date of each instalment; 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 will be 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 122,111 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 $1.073 or (2) all a portion of the warrants may 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.

   (d) Net Income Per Share

       Net income per share was calculated on the basis of the weighted average
       number of shares outstanding which amounted to 19,465,358 of the period
       ended June 30, 1997 (12,077,732 shares for the period ended June 30,
       1996). For the periods ended June 30, 1997 and June 30, 1996 the exercise
       of the options and warrants outstanding as at year end did not have a
       dilative effect on the net income per share.

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 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.

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.

                                       13
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

    The following table identifies customers of the Company who purchased
    greater than ten percent (10%) of the oil and gas produced by the Company:

<TABLE>
<CAPTION>
                                                                  1997            1996   
                                                               Percentage      Percentage
                                                                Of Total        Of Total 
                                                                  Sales           Sales  
<S>                                                            <C>             <C>
     Oil Production
         Pride Pipeline Company                                    100%            100%

     Gas Production
         Aquila Southwest Pipeline Corporation                      57%             50%
         Austin Chalk National Gas Marketing Services               34%             50%
         SONAT                                                       9%
</TABLE>

14. Acquisition of Deven Resources Corporation.

    Under the Stock Purchase Agreement effective October 1, 1996, the Company
    acquired 100% of the issued and outstanding capital stock of Deven
    Resources, Inc. in exchange for 2.6 million shares of common stock with a
    market value of approximately $2.5 million and cash of $150,000. The Company
    accounted for the acquisition under the purchase method of accounting with
    significant categories recorded as follows:

                                                        (In Millions)

      Oil and Gas Properties                                $1.50
      Goodwill                                               1.25
      Less -Net Liabilities Assumed                         ( .10)
                                                            -----
                                                            $2.65
                                                            =====

15. Commitment.

    The Company was committed under an agreement with a financial advisor for
    services at the rate of $20,000 per month through May, 1997. In October,
    1996, the Company entered into a one year agreement, expiring September,
    1997, with a financial public relations firm, at the rate of $16,000 per
    month.

16. Acquisition of Oil and Gas Properties from Reserve Production Inc.
    Liquidating Trust.

    Effective November 27, 1996, a binding letter of intent was signed with
    Reserve Production Inc. Liquidating Trust ("Trust") to acquire oil and gas
    properties with approximately 3 million barrels of oil equivalent and a
    projected annual operating cash flow of $1.5 million. At the time of
    signing, the Company made a deposit of $100,000 ("Earnest Money Deposit").
    On December 20, 1996, the Company entered into a definitive agreement
    ("Definitive Agreement") for the acquisition of these properties, subject to
    Bankruptcy Court approval and the Seller's meeting certain conditions to

                                       14
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

    closing, at a purchase price of $5 Million. Although Bankruptcy Court
    approval was obtained on February 13, 1997, the Trust was unable to meet its
    conditions to closing and the transaction has terminated. The Company has
    made demand for return of the Earnest Money Deposit and other costs expended
    by the Company all in accordance with the Definitive Agreement. The Trust
    has refused to return the Earnest Money Deposit and to reimburse the Company
    for certain costs in accordance with the Definitive Agreement. On April 24,
    1997, the Company commenced a law suit against the Trust to recover the
    Earnest Money Deposit, other reimbursable costs and other unspecified
    damages. On July 23, 1997, Reserve Production Liquidating Partnership, an
    affiliate of the Trust, filed a complaint in the United States District
    Court for the Eastern District of Texas, Tyler Division, against the
    Company, Westlands Resources Corporation and three of its officers and/or
    directors Messrs: Lincoln, Novinskie and Trainor. The suit is essentially a
    counter claim to the Company's cause of Action filed in the Bankruptcy court
    and seeks unspecified damages. The Company is moving to have the complaint
    joined with its complaint, have it treated as a counter claim and filing
    appropriate motions in respect thereto. The complaint is without merit and
    the Company is taking appropriate actions to defend same. The Company,
    consistent with the provisions of its By-Laws, is paying for the defense of
    Messrs: Lincoln, Novinskie, and Trainor in this matter.











                                       15
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

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 than 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 June 30, 1997 was marked by a number of events which,
       in the long run, will strengthen the Company and enable it to sustain
       future growth. These events include:

A. Completion of the acquisition of Deven Resources, Inc.

   Effective October 1, 1996, the Company acquired all the outstanding capital
   stock of Deven Resources, Inc. ("Deven") in exchange for 2.6 million shares
   of the Company's common stock plus $150,000 in cash advances. Deven
   contributed $407,302 in management and overhead fees for first nine months of
   the current fiscal year and $1,088,289 in oil and gas sales during the period
   ended June 30, 1997. In addition, Deven's interests in oil and gas properties
   will provide positive cash flow in future years. Consolidation of the
   Company's administrative and accounting functions into Deven's operations has
   been completed during the second quarter of Daleco's fiscal year ending
   September 30, 1997.

                                       16
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

B. Acquisition of Oil and Gas Properties from Reserve Production Inc.
   Liquidating Trust.

   On April 24, 1997, the Company commenced an Adversary Action against Reserve
   Production, Inc. Liquidating Trust ("Trust") in the United States Bankruptcy
   Court for the Eastern District of Texas, Tyler Division, Case No.: 97-6036A
   (Suit) to recover costs, damages and return of the Company's Earnest Money
   Deposit.

   On November 27, 1996, the Company entered into a Letter of Intent to acquire
   the Trust's interests in oil and gas properties with approximately 3 million
   barrels of oil equivalent. On December 20, 1996, the Company entered into a
   Definitive Agreement ("Definitive Agreement") for the acquisition of these
   properties the purchase was conditional upon Bankruptcy Court approval, which
   was obtained on February 13, 1997, and the Trust meeting certain conditions
   to closing, which the Trust was unable to do.

   Under the terms of the Definitive Agreement, the Company was required to
   conduct a workover of the Jody No. 2 Well, Fayette County, Texas, which the
   Company did. The Definitive Agreement provided that should the Company not
   acquire the Jody No. 2 Well, for any reason, then the Trust would reimburse
   the Company for the cost of the Jody No. 2 Well workover.

   Since the Trust was unable to meet its conditions to closing as set forth in
   the Definitive Agreement, closing on the transaction did not occur and the
   Company was entitled to repayment of its Earnest Money Deposit made at the
   time of the signing of the Letter of Intent and the cost of the Jody No. 2
   Well workover. After the Trust's refusal to abide by the terms of the
   Definitive Agreement, the Company commenced the Suit. The Company has also
   alleged that the inability of the Trust to meet its Conditions to Closing was
   the result of the intentional acts of the Trustee for which it is seeking
   damages of an unspecified amount.

   On or about July 23, 1997, Reserve Production, Inc., Liquidating Partnership,
   a partnership comprised of Reserve Production, Inc., Liquidating Trust and CT
   Energy, LLC, a Texas limited liability company, filed an action in the United
   States District Court for the Eastern District of Texas, Tyler Division,
   seeking unspecified damages from the Company and there of its officers and
   directors. The District Court Suit, which should have been filed as a counter
   claim to the Company's suit, is believed by the Company and its counsel to be
   without merit. The Company, under the provision of its By-Laws, is
   undertaking the defense of its officers and director in this matter.

   1. Timber Rights.

      During the period ended June 30, 1997, the Company's subsidiary,
      Sustainable Forest Industries ("Sustainable"), completed the development
      of a business plan to utilize its tropical hardwood forest concession in
      Guyana, South America. This plan calls for commercial quantities of timber
      sales by the quarter ending June 30, 1997. Sustainable closed its first
      sale of timber during the quarter. Although small in size, 425 utility
      poles, the sale represents the beginning of sales in the Caribbean basin
      area. The Company has also completed its on-site inventory of marketable

                                       17
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================

      timber on its Phase II 4,200 acre concession in the Waurauboo area of
      Guyana. With the addition of this block, the company's holdings in Guyana
      now stand at over 6,000 acres and have a gross appraised value in excess
      of $15,000,000. During the quarter the Company entered into discussion to
      provide project financing for Sustainable. It is anticipated that this
      financing will be in place during the third fiscal quarter. With the funds
      from the project financing, Sustainable will have the necessary working
      capita to take the next step in the harvesting of timber necessary to meet
      larger orders for wood. At present, Sustainable is in negotiations with
      several US and foreign purchasers of raw and rough cut wood that if
      consummated would return a substantial profit to the Company.

   2. Settlements.

      During the period ended March 31, 1997, the Company entered into an
      agreement with Avonwood Capital Corporation to satisfy the Company's
      monthly obligation of $15,000 for stock. The exchange covered the months
      of January, February and March, 1997, for which Avonwood was issued
      187,666 shares of common stock.


ITEM 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.

       On March 20, 1997, the Annual Meeting of Shareholders was held. At this
       meeting there were two matter to be acted upon by the Shareholders: (i)
       election of directors; and, (ii) ratification of accounts.

       Seven persons were nominated to serve as directors for the coming year
       and until their successors are elected and qualified. The nominees and
       votes for, against or withheld are as follows:

ITEM 5 OTHER INFORMATION.

       None.


ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.

       None.



                                       18
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
===============================================================================


                                   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:  August 11, 1997                              GARY J. NOVINSKIE
                                                    -------------------------
                                                    Gary J. Novinskie
                                                    President


Date:  August 11, 1997                              EDWARD J. FURMAN
                                                    -------------------------
                                                    Edward J. Furman
                                                    Chief Financial Officer

                                       19