**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-QSB**

**(Mark      one)**

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

**For      the quarterly period ended **
**March      31, 2007**

**o**
**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 **

| **Nevada**(State                or other jurisdiction of incorporation                or organization) | **23-2860734**(IRS                EmployerIdentification                No.) |
|--------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------|

| **17                Wilmont Mews, 5****th****Floor****West                Chester, Pennsylvania 19382** (Address                of principal executive offices) | **(610)                429-0181**(Issuer’s                telephone number) |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|

**APPLICABLE      ONLY TO CORPORATE ISSUERS**

----

**DALECO      RESOURCES CORPORATION AND SUBSIDIARIES**

**TABLE      OF CONTENTS**

|                                              |                                                                                                                      |   | **PAGE** |
|---------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|--------|----------|
| **PART                I - FINANCIAL INFORMATION** |                                                                                                                      |   |
|                                              |                                                                                                                      |   |     |
| ITEM                1.                            | CONSOLIDATED                FINANCIAL STATEMENTS                                                                          |   | 3        |
|                                              | Consolidated                Balance Sheets                                                                                |   | 3        |
|                                              | Consolidated                Statements of Income                                                                          |   | 5        |
|                                              | Consolidated                Statements of Cash Flows                                                                      |   | 6        |
|                                              | Consolidated                Statements of Shareholders’ Equity                                                      |   | 7        |
|                                              | Notes                to Consolidated Financial Statements                                                                 |   | 8        |
|                                              |                                                                                                                      |   |     |
| ITEM                2.                            | MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                OPERATIONS |   | 13       |
|                                              |                                                                                                                      |   |     |
| ITEM                3.                            | CONTROLS                AND PROCEDURES                                                                                    |   | 18       |
|                                              |                                                                                                                      |   |     |
| **PART                II - OTHER INFORMATION**    |                                                                                                                      |   |
|                                              |                                                                                                                      |   |     |
| ITEM                1.                            | LEGAL                PROCEEDINGS                                                                                          |   | 21       |
|                                              |                                                                                                                      |   |     |
| ITEM                2.                            | UNREGISTERED                SALE OF EQUITY SECURITIES AND USE OF PROCEEDS                                                 |   | 21       |
|                                              |                                                                                                                      |   |     |
| ITEM                3.                            | DEFAULTS                UPON SENIOR SECURITIES                                                                            |   | 21       |
|                                              |                                                                                                                      |   |     |
| ITEM                4.                            | SUBMISSION                OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                        |   | 22       |
|                                              |                                                                                                                      |   |     |
| ITEM                5.                            | OTHER                INFORMATION                                                                                          |   | 22       |
|                                              |                                                                                                                      |   |     |
| ITEM                6.                            | EXHIBITS                                                                                                                  |   | 22       |
|                                              |                                                                                                                      |   |     |
| **SIGNATURES**                                    |                                                                                                                      |   | 23       |

----

**PART        I - FINANCIAL INFORMATION**

**Item        1. Consolidated Financial Statements.**

**DALECO        RESOURCES CORPORATION**

**CONSOLIDATED        BALANCE SHEETS**

|                                                                                                   |   | **March                31**** ****2007** |       | **September                30****2006** |   |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|------------|-----------------------------------------|--------|
|                                                                                                   |   | **(Unaudited)**                               |       |                                    |   |
| **ASSETS**                                                                                             |   |                                          |       |                                    |   |
| **Current                Assets****:**                                                                 |   |                                          |       |                                    |   |
| Cash                and Equivalents                                                                    |   | $                                             | 174,840    |                                    | $      | 463,842 |   |
| Accounts                Receivable - net of allowance for doubtful accounts                of $150,000 |   |                                          | 403,509    |                                    |   | 394,323 |   |
| Other                Current Assets                                                                    |   |                                          | 6,700      |                                    |   | 8,813 |   |
| Total                Current Assets                                                                    |   |                                          | 585,049    |                                    |   | 866,978 |   |
| **Other                Assets:**                                                                       |   |                                          |       |                                    |   |   |   |
| Equity                Placement Costs                                                                  |   |                                          | 35,750     |                                    |   | 35,750 |   |
| Accumulated                Amortization of Equity Placement Costs                                      |   |                                          | (18,940    | )                                       |   | (13,282 | ) |
| Net                Equity Placement Costs                                                              |   |                                          | 16,810     |                                    |   | 22,468 |   |
| Securities                Available for Future Sale                                                    |   |                                          | 19,001     |                                    |   | 38,001 |   |
| Prepaid                Mineral Royalties - Long-term                                                   |   |                                          | 749,835    |                                    |   | 719,835 |   |
| Notes                Receivable                                                                        |   |                                          | 576,000    |                                    |   | 576,000 |   |
| Interest                Receivable                                                                     |   |                                          | 73,250     |                                    |   | 49,556 |   |
| Total                Other Assets                                                                      |   |                                          | 1,434,896  |                                    |   | 1,405,860 |   |
| **Fixed                Assets:**                                                                       |   |                                          |       |                                    |   |   |   |
| Oil                and Gas Properties                                                                  |   |                                          | 5,360,166  |                                    |   | 5,324,222 |   |
| Accumulated                Depreciation, Depletion and Amortization                                    |   |                                          | (4,252,592 | )                                       |   | (4,138,292 | ) |
| Net                Oil and Gas Properties                                                              |   |                                          | 1,107,574  |                                    |   | 1,185,930 |   |
| Mineral                Properties                                                                      |   |                                          | 12,609,100 |                                    |   | 12,609,100 |   |
| Accumulated                Depreciation, Depletion and Amortization                                    |   |                                          | (700,000   | )                                       |   | (600,000 | ) |
| Net                Mineral Properties                                                                  |   |                                          | 11,909,100 |                                    |   | 12,009,100 |   |
| Technology                and Patent Rights                                                            |   |                                          | 6,594,500  |                                    |   | 6,594,500 |   |
| Accumulated                Amortization                                                                |   |                                          | (3,755,986 | )                                       |   | (3,467,260 | ) |
| Net                Technology and Patent Rights                                                        |   |                                          | 2,838,514  |                                    |   | 3,127,240 |   |
| Equipment,                Furniture and Fixtures                                                       |   |                                          | 191,151    |                                    |   | 162,708 |   |
| Accumulated                Depreciation                                                                |   |                                          | (160,467   | )                                       |   | (156,782 | ) |
| Net                Equipment, Furniture and Fixtures                                                   |   |                                          | 30,684     |                                    |   | 5,926 |   |
| Total                Fixed Assets                                                                      |   |                                          | 15,885,872 |                                    |   | 16,328,196 |   |
|                                                                                                   |   |                                          |       |                                    |   |   |   |
| **TOTAL                ASSETS**                                                                        |   | $                                             | 17,905,817 |                                    | $      | 18,601,034 |   |

----

**DALECO      RESOURCES CORPORATION**

**CONSOLIDATED      BALANCE SHEETS**

|                                                                                                                                                                                                                              |   | **March                31**** ****2007** |        | **September                30****2006** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|-------------|-----------------------------------------|--------|
|                                                                                                                                                                                                                              |   | **(Unaudited)**                               |        |                                    |   |
| **LIABILITIES                AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                     |   |                                          |        |                                    |   |
| **Current                Liabilities:**                                                                                                                                                                                           |   |                                          |        |                                    |   |
| Accounts                Payable                                                                                                                                                                                                   |   | $                                             | 1,444,496   |                                    | $      | 1,142,398 |   |
| Federal                Income Taxes Payable                                                                                                                                                                                       |   |                                          | 86,046      |                                    |   | 86,046 |   |
| Note                Payable                                                                                                                                                                                                       |   |                                          | 0           |                                    |   | 35,284 |   |
| Note                Payable - Related Party                                                                                                                                                                                       |   |                                          | 45,485      |                                    |   | 45,485 |   |
| EV&T                Note - Current Portion                                                                                                                                                                                    |   |                                          | 156,000     |                                    |   | 156,000 |   |
| Note                Payable - First Regional                                                                                                                                                                                      |   |                                          | 100,000     |                                    |   | 100,000 |   |
| CAMI                Note                                                                                                                                                                                                          |   |                                          | 514,881     |                                    |   | 514,881 |   |
| Accrued                Interest Expense                                                                                                                                                                                           |   |                                          | 442,359     |                                    |   | 420,172 |   |
| Accrued                Dividends Payable                                                                                                                                                                                          |   |                                          | 1,602,915   |                                    |   | 1,802,915 |   |
| Accrued                Expense Reimbursements                                                                                                                                                                                     |   |                                          | 60,555      |                                    |   | 100,446 |   |
| Accrued                Bonus Expense                                                                                                                                                                                              |   |                                          | 130,000     |                                    |   | 0 |   |
| Accrued                Salary Expense                                                                                                                                                                                             |   |                                          | 897,635     |                                    |   | 904,267 |   |
| ** **Total                Current Liabilities                                                                                                                                                                                |   |                                          | 5,480,372   |                                    |   | 5,307,894 |   |
| **Long-term                Liabilities:**                                                                                                                                                                                         |   |                                          |        |                                    |   |   |   |
| Long-term                Debt - EV&T                                                                                                                                                                                          |   |                                          | 415,649     |                                    |   | 496,524 |   |
|  **TOTAL                LIABILITIES**                                                                                                                                                                                        |   |                                          | 5,896,021   |                                    |   | 5,804,418 |   |
|                                                                                                                                                                                                                              |   |                                          |        |                                    |   |   |   |
| **SHAREHOLDERS’                EQUITY:**                                                                                                                                                                                    |   |                                          |        |                                    |   |   |   |
| Preferred                Stock - 20,000,000 shares authorized                                                                                                                                                                     |   |                                          |        |                                    |   |   |   |
| Series                B Preferred Stock - par value of $0.01 per share (outstanding: March                31,                2007 - 145,000 shares; September 30, 2006 - 165,000 shares)                                          |   |                                          | 1,450       |                                    |   | 1,650 |   |
| Common                Stock - 100,000,000 shares authorized - par value                of $0.01 per share (outstanding:                March 31, 2007 - 42,354,676 shares; September 30, 2006 - 41,423,635                shares) |   |                                          | 423,547     |                                    |   | 414,236 |   |
| Additional                Paid in Capital                                                                                                                                                                                         |   |                                          | 44,501,401  |                                    |   | 43,759,251 |   |
| Retained                Earnings (Deficit)                                                                                                                                                                                        |   |                                          | (32,750,973 | )                                       |   | (31,231,893 | ) |
| Accumulated                Other Comprehensive Income (Loss)                                                                                                                                                                      |   |                                          | (165,629    | )                                       |   | (146,629 | ) |
| **TOTAL                SHAREHOLDERS’ EQUITY**                                                                                                                                                                               |   |                                          | 12,009,796  |                                    |   | 12,796,616 |   |
|                                                                                                                                                                                                                              |   |                                          |        |                                    |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                               |   | $                                             | 17,905,817  |                                    | $      | 18,601,034 |   |

----

**DALECO      RESOURCES CORPORATION**

**CONSOLIDATED      STATEMENTS OF INCOME**

**(UNAUDITED)**

|                                                                                        |   | **Three                Months Ended****March                31** |       | **Six                Months Ended****March                31** |   |
|---------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|----------------------------------------------------------------|--------|
|                                                                                        |   | **2007**                                                         |       | **2006**                                                       |   | **2007** |   | **2006** |   |
| **Revenues:**                                                                               |   |                                                             |       |                                                           |   |   |   |   |   |
| Oil                and Gas Sales                                                            |   | $                                                                | 224,226    |                                                           | $      | 520,760 |   | $ | 437,265 |   | $ | 932,103 |   |
| Royalty                Receipts                                                             |   |                                                             | 12,784     |                                                           |   | 22,505 |   |   | 23,584 |   |   | 41,741 |   |
| Mineral                Sales                                                                |   |                                                             | 2,611      |                                                           |   | 1,145 |   |   | 8,311 |   |   | 9,481 |   |
| Well                Management Revenue                                                      |   |                                                             | 63,879     |                                                           |   | 40,006 |   |   | 127,757 |   |   | 80,012 |   |
| Total                Operating Revenues                                                     |   |                                                             | 303,500    |                                                           |   | 584,416 |   |   | 596,917 |   |   | 1,063,337 |   |
| **Expenses:**                                                                               |   |                                                             |       |                                                           |   |   |   |   |   |   |   |   |   |
| Lease                Operating Expenses - Oil and Gas                                       |   |                                                             | 94,052     |                                                           |   | 209,977 |   |   | 249,751 |   |   | 332,168 |   |
| Exploration                Expenses - Minerals                                              |   |                                                             | 46,191     |                                                           |   | 0 |   |   | 46,191 |   |   | 0 |   |
| Lease                Operating Expenses - Minerals                                          |   |                                                             | 3,980      |                                                           |   | 150 |   |   | 19,516 |   |   | 9,733 |   |
| Production                and Severance Taxes - Oil and                Gas                  |   |                                                             | 3,554      |                                                           |   | 60,551 |   |   | 21,781 |   |   | 94,197 |   |
| Depreciation,                Depletion and Amortization                                     |   |                                                             | 253,805    |                                                           |   | 350,504 |   |   | 506,710 |   |   | 698,509 |   |
| Third                Party Distributions - Oil and Gas                                      |   |                                                             | 4,915      |                                                           |   | 0 |   |   | 9,371 |   |   | 27,636 |   |
| Stock                Based Compensation Expense                                             |   |                                                             | 142,000    |                                                           |   | 0 |   |   | 281,000 |   |   | 0 |   |
| Bonus                Expense                                                                |   |                                                             | 50,000     |                                                           |   | 0 |   |   | 130,000 |   |   | 0 |   |
| General                and Administrative Expenses                                          |   |                                                             | 332,716    |                                                           |   | 257,810 |   |   | 587,844 |   |   | 460,199 |   |
| Legal                and Professional Fees and Expenses                                     |   |                                                             | 77,586     |                                                           |   | 49,047 |   |   | 212,909 |   |   | 124,110 |   |
| Shareholder                Information Expenses                                             |   |                                                             | 27,285     |                                                           |   | 26,068 |   |   | 30,498 |   |   | 32,966 |   |
| Amortization                of Debt Placement Costs                                         |   |                                                             | 0          |                                                           |   | 31,164 |   |   | 0 |   |   | 62,329 |   |
| Amortization                of Equity Placement Costs                                       |   |                                                             | 2,829      |                                                           |   | 3,054 |   |   | 5,658 |   |   | 5,525 |   |
| Total                Expenses                                                               |   |                                                             | 1,038,913  |                                                           |   | 988,325 |   |   | 2,101,229 |   |   | 1,847,372 |   |
| **Other                Income (Expense):**                                                  |   |                                                             |       |                                                           |   |   |   |   |   |   |   |   |   |
| Interest                Income                                                              |   |                                                             | 13,339     |                                                           |   | 4,489 |   |   | 25,988 |   |   | 4,489 |   |
| Interest                Expense                                                             |   |                                                             | (21,724    | )                                                              |   | (28,082 | ) |   | (40,756 | ) |   | (59,573 | ) |
| Cost                of Other Services Performed                                             |   |                                                             | 0          |                                                           |   | 0 |   |   | 0 |   |   | (311,400 | ) |
| Total                Other Income (Expense), Net                                            |   |                                                             | (7,935     | )                                                              |   | (23,593 | ) |   | (14,768 | ) |   | (366,484 | ) |
| Income                (Loss) Before Income Taxes                                            |   |                                                             | (743,348   | )                                                              |   | (427,502 | ) |   | (1,519,080 | ) |   | (1,150,519 | ) |
| Taxes                based on Income                                                        |   |                                                             | 0          |                                                           |   | 0 |   |   | 0 |   |   | 0 |   |
| Net                Income (Loss)                                                            |   |                                                             | (743,348   | )                                                              |   | (427,502 | ) |   | (1,519,080 | ) |   | (1,150,519 | ) |
| Less                Dividends (Property)                                                    |   |                                                             | 0          |                                                           |   | 0 |   |   | 0 |   |   | 0 |   |
| Net                Income (Loss) Attributable to Common Shareholders                        |   | $                                                                | (743,348   | )                                                              | $      | (427,502 | ) | $ | (1,519,080 | ) | $ | (1,150,519 | ) |
| Basic                and Fully Diluted Net Income (Loss) per                Share           |   | $                                                                | (0.02      | )                                                              | $      | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) |
| Weighted-average                number of shares of Common                Stock outstanding |   |                                                             | 42,354,676 |                                                           |   | 41,032,178 |   |   | 42,161,850 |   |   | 40,710,647 |   |

----

**DALECO        RESOURCES CORPORATION**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**FOR        THE SIX MONTHS ENDED MARCH 31, 2007 AND 2006 **

**(UNAUDITED)**

|                                                                                                                             |   | **2007** |       | **2006** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| **Cash                Flows From Operating Activities:**                                                                         |   |     |       |     |   |
| Net                Income (Loss)                                                                                                 |   | $        | (1,519,080 | )        | $      | (1,150,519 | ) |
| Adjustments                to Reconcile Net Income (Loss) to Net Cash Provided by (Used                in) Operating Activities: |   |     |       |     |   |   |   |
| Depreciation,                Depletion and Amortization                                                                          |   |     | 506,710    |     |   | 698,509 |   |
| Amortization                of Debt and Equity Placement Costs                                                                   |   |     | 5,658      |     |   | 67,854 |   |
| Bonus                Expense                                                                                                     |   |     | 130,000    |     |   | 0 |   |
| Stock                Based Compensation Expense                                                                                  |   |     | 281,000    |     |   | 0 |   |
| Non-cash                Charge for Issuance of Securities                                                                        |   |     | 0          |     |   | 311,400 |   |
| Changes                in operating assets and liabilities:                                                                      |   |     |       |     |   |   |   |
| Other                Current Assets                                                                                              |   |     | 2,113      |     |   | 0 |   |
| Pre-paid                Royalties                                                                                                |   |     | (30,000    | )        |   | 0 |   |
| Receivables                                                                                                                      |   |     | (32,880    | )        |   | 176,782 |   |
| Accounts                Payable                                                                                                  |   |     | 302,098    |     |   | 481,761 |   |
| Other                Accrued Expenses                                                                                            |   |     | (46,523    | )        |   | (21,084 | ) |
| Net                Cash Provided by (Used in) Operating Activities                                                               |   |     | (400,904   | )        |   | 564,703 |   |
| **Cash                Flows From Investing Activities:**                                                                         |   |     |       |     |   |   |   |
| Additions                to Property                                                                                             |   |     | (64,386    | )        |   | (110,135 | ) |
| Net                Cash Used in Investing Activities                                                                             |   |     | (64,386    | )        |   | (110,135 | ) |
| **Cash                Flows From Financing Activities:**                                                                         |   |     |       |     |   |   |   |
| Increase                (decrease) in Notes due Related Parties                                                                  |   |     | 0          |     |   | (25,000 | ) |
| Increase                (decrease) in Other Notes Due and Debt                                                                   |   |     | (116,159   | )        |   | (322,028 | ) |
| Increase                (decrease) in Accrued Interest                                                                           |   |     | 22,187     |     |   | 13,789 |   |
| Proceeds                of Equity Issuances                                                                                      |   |     | 270,260    |     |   | 45,307 |   |
| Net                Cash Provided by (Used in) Financing Activities                                                               |   |     | 176,288    |     |   | (287,932 | ) |
| Net                Change in Cash and Equivalents                                                                                |   |     | (289,002   | )        |   | 166,636 |   |
| Cash                and Equivalents at Beginning of Year                                                                         |   |     | 463,842    |     |   | 1,550,962 |   |
| Cash                and Equivalents at End of Period                                                                             |   | $        | 174,840    |     | $      | 1,717,598 |   |
|                                                                                                                             |   |     |       |     |   |   |   |
| **Supplemental                Information:**                                                                                     |   |     |       |     |   |   |   |
| Income                Taxes Paid                                                                                                 |   | $        | 0          |     | $      | 0 |   |
| Interest                Paid                                                                                                     |   | $        | 18,568     |     | $      | 45,785 |   |
| **Supplemental                Disclosure of Non-cash Transactions:**                                                             |   |     |       |     |   |   |   |
| Conversion                of Debt to Equity                                                                                      |   | $        | 0          |     | $      | 25,000 |   |
| Issuance                of Common Stock for Services Performed                                                                   |   | $        | 0          |     | $      | 331,701 |   |
| Payment                of Dividends in-kind                                                                                      |   | $        | 200,000    |     | $      | 0 |   |
| Conversion                from Preferred Stock to Common Stock                                                                   |   | $        | 200,000    |     | $      | 0 |   |

----

**DALECO      RESOURCES CORPORATION**

**CONSOLIDATED      STATEMENTS OF SHAREHOLDERS’ EQUITY**

**FOR      THE SIX MONTHS ENDED MARCH 31, 2007 AND 2006**

**(UNAUDITED)**

|                                                              |   | **2007** |            | **2006** |   |
|-------------------------------------------------------------------|--------|----------|-----------------|----------|--------|
| **Preferred                Stock Outstanding:**                   |   |     |            |     |   |
| Shares                of Series “B”:                  |   |     |            |     |   |
| Beginning                of Period                                |   |     | 165,000         |     |   | 185,000 |   |
| Issued                                                            |   |     | 0               |     |   | 0 |   |
| Converted                to Common                                |   |     | (20,000         | )        |   | 0 |   |
| Cancelled                                                         |   |     | 0               |     |   | 0 |   |
| End                of Period                                      |   |     | 145,000         |     |   | 185,000 |   |
| **Preferred                Stock - Value at Par ($.01/Share)**    |   | **$**    | **1,450**       |     | **$**  | **1,850** |   |
|                                                              |   |     |            |     |   |   |   |
| **Common                Stock Outstanding:**                      |   |     |            |     |   |   |   |
| Shares:                                                           |   |     |            |     |   |   |   |
| Beginning                of Period                                |   |     | 41,423,635      |     |   | 40,343,043 |   |
| Issued                                                            |   |     | 931,041         |     |   | 754,655 |   |
| Cancelled                                                         |   |     | 0               |     |   | 0 |   |
| End                of Period                                      |   |     | 42,354,676      |     |   | 41,097,698 |   |
| **Value                at Par ($.01/Share)**                      |   | **$**    | **423,547**     |     | **$**  | **410,977** |   |
|                                                              |   |     |            |     |   |   |   |
| **Additional                Paid in Capital:**                    |   |     |            |     |   |   |   |
| Beginning                of Period                                |   | $        | 43,759,251      |     | $      | 42,415,834 |   |
| Equity                Issuances                                   |   |     | 270,260         |     |   | 356,162 |   |
| Stock                Based Compensation                           |   |     | 281,000         |     |   | 0 |   |
| Preferred                Excess Amount                            |   |     | 190,890         |     |   | 0 |   |
| End                of Period                                      |   | **$**    | **44,501,401**  |     | **$**  | **42,771,996** |   |
|                                                              |   |     |            |     |   |   |   |
| **Accumulated                Retained Earnings (Deficit):**       |   |     |            |     |   |   |   |
| Beginning                of Period                                |   | $        | (31,231,893     | )        | $      | (25,062,929 | ) |
| Income                (Loss) for the Period                       |   |     | (1,519,080      | )        |   | (1,150,519 | ) |
| End                of Period                                      |   | **$**    | **(32,750,973** | **)**    | **$**  | **(26,213,448** | **)** |
|                                                              |   |     |            |     |   |   |   |
| **Accumulated                Other Comprehensive Income (Loss):** |   |     |            |     |   |   |   |
| Beginning                of Period                                |   | $        | (146,629        | )        | $      | (25,617 | ) |
| Other                Comprehensive Loss for the Period            |   |     | (19,000         | )        |   | (45,009 | ) |
| End                of Period                                      |   | **$**    | **(165,629**    | **)**    | **$**  | **(70,626** | **)** |
|                                                              |   |     |            |     |   |   |   |
| **Total                Equity:**                                  |   |     |            |     |   |   |   |
| Beginning                of Period                                |   | $        | 12,796,616      |     | $      | 17,732,568 |   |
| End                of Period                                      |   |     | 12,009,796      |     |   | 16,900,749 |   |
| Change                in Equity for the Period                    |   | **$**    | **(786,820**    | **)**    | **$**  | **(831,819** | **)** |

----

**DALECO        RESOURCES CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**1.      Continued Operations**

**2.      Summary of Significant Accounting Policies**

***Basis      of Presentation***

***Significant      Accounting Policies***

----

**DALECO        RESOURCES CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

***Use      of Estimates***

**3.      Capital Stock**

***Common      Stock***

|                                                                             |   | Common                  Shares |       |
|----------------------------------------------------------------------------------|--------|--------------------------------|------------|
| Balance                  as of September 30, 2006                                |   |                           | 41,423,635 |   |
| Issued                  Pursuant to a Private Placement (1)                 |   |                           | 400,000    |   |
| Issued                  upon conversion of Series B Preferred Stock (2)          |   |                           | 160,000    |   |
| Issued                  for payment of dividends on Series B Preferred Stock (2) |   |                           | 160,000    |   |
| Issued                  to Terra Silex (3)                                       |   |                           | 200,241    |   |
| Issued                  for payment of certain debt (4)                          |   |                           | 10,800     |   |
| Balance                  as of March 31, 2007                                    |   |                           | 42,354,676 |   |

| ***Series                  B Preferred Stock***                             |   |                              |    |
|-----------------------------------------------------------------------------|--------|-----------------------------------|---------|
|                                                                        |   | Preferred                  Shares |    |
| Balance                  as of September 30, 2006                           |   |                              | 165,000 |   |
| Conversion                  of Series B Preferred Stock to Common Stock (2) |   |                              | (20,000 | ) |
| Balance                  as of March 31, 2007                               |   |                              | 145.000 |   |

| (1) | In                October 2006, the Company concluded a Private Placement of 400,000                shares                of Common Stock at a price of $0.51 per share. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | In                  November 2006, 20,000 shares of Series B Preferred Stock were converted                  to                  160,000 shares of Common Stock and 160,000 shares of Common Stock                  were                  issued in payment of accrued but unpaid dividends due on the Series                  B                  Preferred Stock. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | In                  December 2006, the Company issued 200,241 shares of Common Stock                  at a                  price of $0.25 per share to Terra Silex Holdings, LLC, pursuant                  to the                  anti-dilution provision of the Stock Purchase Agreement dated September                  20, 2001. See Exhibit 10.13 to the Annual Report on Form 10-KSB                  for the                  year ended September 30, 2006. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | In                  November 2006, the Company issued 10,800 shares of Common Stock                  in payment                  of certain debt owed to a previous director of the                  Company. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**DALECO      RESOURCES CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

***Options      and Warrants***

|                                                                             |   | Number                of Options/Warrants |       | Weighted                Average Price per Share |   |
|----------------------------------------------------------------------------------|--------|-------------------------------------------|------------|-------------------------------------------------|--------|
| Options                and Warrants Outstanding at September 30, 2006            |   |                                      | 14,222,305 |                                            | $      | 1.05 |   |
| Stock                Options Granted (1)                (2)                      |   |                                      | 800,000    |                                            |   |   |   |
| Options                and Warrants Outstanding                at March 31, 2007 |   |                                      | 15,022,305 |                                            | $      | 1.02 |   |

| (1)   | In                October 2006, Mr. Blackstone was granted an option to purchase 200,000                shares of Common Stock under his employment                agreement. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | In                March 2007, Mr. Benediktson was granted an option to purchase 600,000                shares of Common Stock. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------|

|    Exercise                price |   |   Options                Outstanding |      | Weighted                Average ExercisePrice |   | Weighted                Average Remaining Life (Years) |   |   Options                Exercisable |   | Weighted                Average ExercisePrice |   |
|-------------------------------------------------|--------|------------------------------------------------|-----------|-----------------------------------------------|--------|--------------------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|--------|
| $0.43-$1.08                                     |   |                                           | 5,200,000 |                                          | $      | 0.68                                                   |   |                                           | 2.75   |                                          |   | 3,775,000 |   | $ | 0.94 |   |

***Stock      Based Compensation***

----

**DALECO        RESOURCES CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**Net        Income (Loss) Per Share**

**Payment      of Accrued Dividends**

**4.**
**Employment      Contracts and Commitments**

----

**DALECO        RESOURCES CORPORATION**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**5.**
**Litigation      Settlement and Pending Litigation**

----

**Item      2. Management’s Discussion and Analysis of Financial Condition and Results of      Operations.**

**Forward      Looking Statements**

----

|  | · | volatility                of the market price for both crude oil and natural                gas; |
|--|--------|--------------------------------------------------------------------------------------------------|

|  | · | volatility                  of the market price for the Company’s                  minerals; |
|--|--------|----------------------------------------------------------------------------------------------------|

|  | · | market                  capacity and demand for the Company’s                  minerals; |
|--|--------|------------------------------------------------------------------------------------------------|

|  | · | the                  timing, effects and success of the Company’s acquisitions, exploration and                  development activities; |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | the                  timing, quantity and marketability of                  production; |
|--|--------|-----------------------------------------------------------------------------------------|

|  | · | effectiveness                  of management’s strategies and                  decisions; |
|--|--------|-------------------------------------------------------------------------------------------------|

|  | · | competition; |
|--|--------|--------------|

|  | · | changes                  in the legal and/or regulatory environment and/or changes in accounting                  standards; |
|--|--------|------------------------------------------------------------------------------------------------------------------------------|

|  | · | policies                  and practices or related interpretations by auditors and/or regulatory                  agencies; |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------|

|  | · | climatic                  conditions; and |
|--|--------|-------------------------------------------|

|  | · | unanticipated                  problems, issues or events. |
|--|--------|------------------------------------------------------------|

----

**Results      of Operations**
**:**

*For      the three and six months ended March 31, 2007, compared to the three and six      months ended March 31, 2006:*

|                                                               |   | **Three                Months Ended** |     | **Six                Months Ended** |   |
|--------------------------------------------------------------------|--------|---------------------------------------|----------|-------------------------------------|--------|
|                                                               |   | **2007**                              |     | **2006**                            |   | **2007** |   | **2006** |   |
| **Revenues**                                                       |   | $                                     | 303,500  |                                | $      | 584,416 |   | $ | 596,917 |   | $ | 1,063,337 |   |
| **Net                Income (Loss)**                               |   | $                                     | (743,348 | )                                   | $      | (427,502 | ) | $ | (1,519,080 | ) | $ | (1,150,519 | ) |
| **Oil                and Gas Production and Cost Information:**    |   |                                  |     |
| Production:                                                        |   |                                  |     |                                |   |   |   |   |   |   |   |   |   |
| Oil                (Bbl)                                           |   |                                  | 1,711    |                                |   | 3,434 |   |   | 2,890 |   |   | 6,647 |   |
| Gas                (Mcf)                                           |   |                                  | 17,025   |                                |   | 26,703 |   |   | 38,099 |   |   | 52,855 |   |
| Average                Price:                                      |   |                                  |     |                                |   |   |   |   |   |   |   |   |   |
| Oil                (per Bbl)                                       |   | $                                     | 53.11    |                                | $      | 61.28 |   | $ | 55.17 |   | $ | 62.58 |   |
| Gas                (per Mcf)                                       |   | $                                     | 7.83     |                                | $      | 11.62 |   | $ | 7.29 |   | $ | 9.76 |   |
| Lease                Operating Expense and Production Tax per Mcfe |   | $                                     | 3.58     |                                | $      | 5.72 |   | $ | 4.90 |   | $ | 4.60 |   |

----

**Minerals      Exploration Expenses**

----

**Depreciation,      Depletion and Amortization: Oil and Gas**

**Depreciation,      Depletion and Amortization: Minerals**

**Stock      Based Compensation Expense**

**Bonus      Expense**

**General      and Administrative Expenses, Legal and Professional Fees and Shareholder      Information Expenses**

**Interest      Expense**

----

**Liquidity      and Capital Resources**

**Acquisition      and Growth**

**Off      Balance Sheet Arrangements**

----

**Historical      Cash Flow**

**Other      Sources of Cash**

**Item      3. Controls and Procedures.**

***EVALUATION      OF DISCLOSURE CONTROLS AND PROCEDURES***

----

***CHANGES      IN INTERNAL CONTROL OVER FINANCIAL REPORTING***

***DISCLOSURE      CONTROLS***

----

----

**PART      II. OTHER INFORMATION**

**Item      1. Legal Proceedings.**

**Item      2. Unregistered Sales of Equity Securities and Use of      Proceeds.**

**Item      3. Defaults Upon Senior Securities.**

----

**Item      4. Submission of Matters to a Vote of Security Holders.**

| a. | Election                  of Directors for a term expiring in                  2008: |
|----|--------------------------------------------------------------------------------------|

| **Name                of Nominee**    |   | **For** |       | **Against** |   | **Abstain** |   |
|---------------------------------------|--------|---------|------------|-------------|--------|-------------|--------|
| Dov                Amir               |   |    | 27,936,078 |        |   | 0           |   |   | 2,166,697 |   |
| Stephan                V. Benediktson |   |    | 25,065,822 |        |   | 0           |   |   | 5,036,953 |   |
| Lord                Gilbert [John}    |   |    | 25,337,151 |        |   | 0           |   |   | 4,765,624 |   |
| Charles                T. Maxwell     |   |    | 28,459,307 |        |   | 0           |   |   | 1,643,468 |   |
| William                Pipkin         |   |    | 28,447,407 |        |   | 0           |   |   | 1,655,368 |   |
| Nathan                K. Trynin       |   |    | 25,195,825 |        |   | 0           |   |   | 4,906,950 |   |

| b. | Proposal                  to Ratify the Selection of Vasquez & Company, LLP, as the Company’s                  Independent Registered Public Accounting Firm for the fiscal year                  ending                  September 30, 2007: |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **For**    |   | **Against** |   | **Abstain** |
|------------|--------|-------------|--------|-------------|
| 28,386,957 |   | 1,652,405   |   | 63,413      |

**Item      5. Other Information.**

**Item      6. Exhibits.**

| Exhibit |   |                                                                                      |   |                            |
|---------|--------|-------------------------------------------------------------------------------------------|--------|---------------------------------|
| Number  |   | Description                                                                               |   | Located                  at     |
|    |   |                                                                                      |   |                            |
| 31.1    |   | Certification                  of CEO under Section 302 of the Sarbanes-Oxley Act of 2002 |   | Filed                  Herewith |
|    |   |                                                                                      |   |                            |
| 31.2    |   | Certification                  of CFO under Section 302 of the Sarbanes-Oxley Act of 2002 |   | Filed                  Herewith |
|    |   |                                                                                      |   |                            |
| 32.1    |   | Certification                  of CEO under Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed                  Herewith |
|    |   |                                                                                      |   |                            |
| 32.2    |   | Certification                  of CFO under Section 906 of the Sarbanes-Oxley Act of 2002 |   | Filed                  Herewith |

----

**SIGNATURES**

|                             |                                                                                 |                                            |
|----------------------------------|--------------------------------------------------------------------------------------|-------------------------------------------------|
|                             | **DALECO                RESOURCES CORPORATION**                                      |
|                        |                                                                            |                                       |
| Dated:              May 15, 2007 |                                                                                 | /s/              Gary              J. Novinskie |
|                             | Gary                J. NovinskiePresident                and Chief Financial Officer |

|                                 |                                                                                                                                  |                                    |
|---------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|
|                            | **DALECO                RESOURCES CORPORATION**                                                                                       |
|                       |                                                                                                                             |                               |
| Date:              May 15, 2007 |                                                                                                                             | /s/              Stephan V. Benediktson |
|                            | Stephan                V. BenediktsonChairman                  of the Board of Directors and Chief Executive                  Officer |

|                                 |                                                                                 |                                            |
|---------------------------------|--------------------------------------------------------------------------------------|-------------------------------------------------|
| Date:              May 15, 2007 |                                                                                 | /s/              Gary              J. Novinskie |
|                            | Gary                J. NovinskiePresident                and Chief Financial Officer |

----