<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 December 31, 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, PA 19087                                      (610) 254-4199
----------------------------------------             ---------------------------
(Address of Principal Executive Offices)             (Issuer's telephone number)

               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.

27,767,880 shares of common stock as of February 1, 1998


<PAGE>

                                     INDEX



PART I      FINANCIAL INFORMATION                                          Page

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

    ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS                           18


PART II     OTHER INFORMATION

    ITEM 6    Exhibits and Reports on Form 8-K


SIGNATURES


<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>


                                                                                           1997                      1996
<S>                                                                                    <C>                       <C>
ASSETS
Current Assets
          Cash and cash equivalents                                                      $560,551                   $77,891
          Accounts receivable                                                             261,889                 1,071,115
          Other                                                                            11,474                   137,031
                                                                                           ------                   -------
                                     Total Current Assets                                 833,914                 1,286,037

Investment in and advances to mining joint venture (note 3)                             ---------                   100,000
Oil and gas properties and equipment (note 4)                                           7,018,296                 5,302,945
Property and equipment                                                                     57,632                    87,654
Timber rights (note 5)                                                                  1,028,342                 1,028,342
Mineral properties (note 6)                                                                23,973                    15,673
Goodwill (note 16)                                                                        709,191                 1,145,834
Debt Issue Costs                                                                          559,815                   120,632
                                                                                          -------                   -------
                                    Total Assets                                      $10,231,163                $9,087,117
                                                                                      ===========                ==========
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities                                               $1,113,933                $2,210,553
Current portion of long-term debt                                                         200,000                     -----
Notes payable (note 7)                                                                      -----                   800,000
Drilling deposits                                                                         613,408                    29,000
Due to related parties (note 8)                                                           349,590                   498,537
                                                                                          -------                   -------
                                    Total Current Liabilities                           2,276,931                 3,538,090
Long-term debt (note 10)                                                                2,888,646                    ------
Debentures (note 9)                                                                        60,000                   880,000
                                                                                           ------                   -------
                                    Total Liabilities                                   5,225,577                 4,418,090
                                                                                        ---------                 ---------
Commitments and Contingencies (note 15 and 16)
Shareholders' Equity
                                                                                          277,699                   275,699
         27,767,880 Common shares, par value $0.01 per share
         160,000 Preferred Shares, par value $0.01 per share (note 7)                       1,600                     -----
         Additional Paid in Capital                                                    13,852,543                11,805,026
         Accumulated deficit                                                          (9,126,256)               (7,411,698)
                                                                                      -----------               -----------
                                    Total Shareholders' Equity                          5,005,586                 4,669,027
                                                                                        ---------                 ---------
                                    Total Liabilities and Shareholders' Equity        $10,231,163                $9,087,117
                                                                                      ===========                ==========
</TABLE>
                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
                                                                                           1997                      1996
<S>                                                                                    <C>                       <C>
Gross Operating Revenue                                                                $568,782                  $527,457
Less:     Lease operating expenses                                                      109,440                   128,811
          Severance taxes                                                                 8,639                    12,590
          Depletion, depreciation and amortization                                       75,000                    92,134
          Net profits interest and related expenses                                     284,891                   288,911
                                                                                        -------                   -------
          Net income from oil and gas operations                                         90,812                     5,011
                                                                                        -------                  --------
Administration expense                                                                  221,361                   517,851
Amortization of debenture issue costs                                                     9,250                    17,233
Financial advisory expense                                                                -----                    93,651
Timber operations costs (note 5)                                                         85,433                    89,345
Interest expense                                                                         61,024                    44,269
Amortization of goodwill                                                                104,166                   104,166
                                                                                        -------                   -------
                                                                                        481,234                   866,515
Other Income
Management and administrative fees                                                       86,129                   121,911
                                                                                        -------                   -------
                                                                                      (395,105)                 (744,604)
                                                                                      ---------                 ---------
Net Loss for the Period                                                              $(304,293)                $(739,593)
                                                                                     ==========                ==========
Basic and Fully Diluted Net Loss per Common Share                                 $      (0.01)             $      (0.04)
                                                                                  =============             =============
</TABLE>

                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
                                                                            1997                       1996
<S>                                                                 <C>                        <C>
Deficit - Beginning of Period                                       $(8,801,963)               $(6,672,105)
Net loss for the period                                                (304,293)                  (739,593)
Dividends on Preferred Stock                                            (20,000)                      -----
                                                                    ------------               ------------

Deficit - End of Year                                               $(9,126,256)               $(7,411,698)
                                                                    ============               ============
</TABLE>


                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>

                                                                                  1997              1996
<S>                                                                             <C>              <C>
Operating Activities
Net loss for the period                                                         $(304,293)       $(739,593)
Items not affecting working capital
         Depletion, depreciation, and amortization                                179,166           92,134
         Amortization of debt issue costs                                           9,250           17,233
                                                                                ---------        ---------
                                                                                 (115,877)        (630,226)
Decrease (increase) in accounts receivable                                         46,694         (105,218)
(Decrease) increase in accounts payable                                           (18,502)         894,149
Increase in advances received on well costs                                       345,408            -----
Decrease in other assets                                                            -----         (338,224)
                                                                                ----------       ---------
Cash provided (used) for operating activities                                     257,723         (179,519)
                                                                                ----------       ---------
Investing Activities
Drilling and lease acquisition costs incurred                                  (1,502,763)        (124,406)
                                                                                ----------       ---------
Cash used for investing activities                                             (1,502,763)        (124,406)
                                                                                ----------       ---------
Financing Activities
Increase (decrease) in amounts due to related parties                               -----          113,631
Dividends Paid                                                                    (20,000)           -----
Proceeds from long-term debt                                                    1,298,831            -----
                                                                                ----------       ---------
Cash provided from financing activities                                         1,278,831          113,631
                                                                                 ---------       ---------
Increase (Decrease) in Cash and Cash Equivalents                                   33,791         (190,294)
Cash and Cash Equivalents - Beginning of Period                                   526,760          268,185
                                                                                  -------        ---------
Cash and Cash Equivalents - End of Period                                       $ 560,551        $  77,891
                                                                                 ========       ==========

</TABLE>


                SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 -  PREPARED BY MANAGEMENT (UNAUDITED)
======================================================================


 1. Reference to Audited Financial Statements

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

 2. Summary of Significant Accounting Policies

    a. Use of estimates

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

    b. Basis of consolidation

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

    c. Oil and gas properties and equipment

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

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


<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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

    d. Site restoration, dismantlement and abandonment costs

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

    e. Property and Equipment

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

    f. Mineral Properties

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

    g. Timber Rights

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

    h. Debt Issue Costs

       Debt issue costs as of December 31, 1997, represent those associated
       with the Heller Financial, Inc. loan (see Note 10) and will be
       amortized over a period of five years. Costs as of December 31, 1996,
       were associated with the debentures and were written off upon
       conversion of the debentures into common stock.

    i. Cash and Cash Equivalents

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


<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

    j. Goodwill

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

    k. Fair Value of Financial Instruments

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


 3. Investment In and Advances to Mining Joint Venture

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

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


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

                                                                         1997            1996
                                                                         ----            ----
<S>                                                                  <C>              <C>
   Proven lease acreage costs                                        $ 5,259,400      $  3,726,855

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

   Well costs                                                          2,501,208         1,642,257
                                                                     -----------      ------------
                                                                     $ 9,666,828         7,275,332

   Accumulated depletion, depreciation and amortization                2,648,532         1,972,387
                                                                     -----------      ------------
                                                                     $ 7,018,296      $  5,302,845
                                                                     ===========      ============
</TABLE>

 5. Timber Rights Acquisition

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


<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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

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

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

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

 6. Mineral Properties

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

 7. Notes Payable

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

    During fiscal 1996, the Company repaid $300,000 of the outstanding
    balance. During fiscal 1997, the remaining $800,000 was converted into
    160,000 shares of 10% cumulative preferred stock, at $5.00 per share.



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

 8. Due to (from) Related Parties

                                                       1997             1996
    Net due to Haly Corporation
         Bearing interest at prime +1%              $  -----          $283,993
                                                    --------          --------
    Net due (from) to Amir and Erlich
         Bearing interest at prime +3%                91,062            91,062
         Bearing interest at 7%                      258,528           123,482
                                                    --------          --------
                                                     349,590           214,544
                                                    --------          --------
                                                    $349,590          $498,537
                                                    ========          ========


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


 9. Debentures


                                     1997             1996
                                     ----             ----
    8% Convertible                 $ 60,000        $ 880,000
                                   ========        =========
    Debentures


    a. 7% Convertible Debentures

       On May 31, 1996 the Company issued $1,000,000 of 7% convertible
       debentures with interest payable in cash or stock on a semi-annual
       basis, and a term of three years. The placement agent's fees were 10%
       of the gross proceeds and 100,000 warrants at $1.00, with an expiration
       date of May 30, 2001 (see Note 11). The debentures could be converted
       after a holding period of: (a) as to 50% of the principal amount, 40
       days (July 10, 1996), and (b) the remaining 50%, 60 days (July 30,
       1996). The debentures are convertible into the Company's common stock
       at the lessor of (1) a 35% discount on the previous five day average
       closing bid price at conversion, or; (2) the previous day average
       closing bid price at closing (May 31, 1996). As of September 30, 1996,
       $600,000 of the 7% debentures had been converted into 1,077,122 common
       shares. The remaining balance was converted into 905,796 common shares
       during 1997.



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

    b. 8% Convertible Debentures

       On September 11, 1996, the Company issued $1,310,000 worth of 8%
       convertible debentures with interest payable in stock only and accruing
       until conversion or redemptions after the term of two years. The
       placement agent's fees were 10% of the gross proceeds and 122,111
       warrants at $1.07 expiring November 16, 2001. The debentures may be
       converted after a holding period of 45 days after closing at the lessor
       of: (1) the fixed conversion price ($1.0171875), or (2) 75% of the
       average closing bid price for the five trading days immediately
       preceding the date of conversion. As of September 30, 1997, $1,250,000
       of the 8% debentures had been converted into 7,650,150 common shares.

10. Long-Term Debt

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

    a. Heller Financial, Inc.

       During the forth quarter of fiscal 1997, the Company entered into an
       arrangement with Heller Financial, Inc. ("Heller") whereby Heller has
       agreed to provide the Company with up to $15,000,000 to rework existing
       horizontal wells, recomplete its vertical wells as horizontal wells,
       and develop additional acreage. Under the terms of the agreement, all
       of the properties of Westlands were transferred to a newly formed
       Limited Partnership, Tri-Coastal Energy, L.P., the general partner of
       which is Tri-Coastal Energy, Inc., ("Tri-Coastal") and the sole limited
       partner of which is Westlands. Westlands is also the sole shareholder
       of Tri- Coastal. The amount outstanding under this arrangement as of
       December 31, 1997, was $2,463,646. Interest on the borrowings is at
       prime plus 2%. Principal is paid out of 85% of the net cash flow from
       the properties. Additional interest is payable from 50% of the net cash
       flow from these properties after the payment of principal.

    b. Sonata Investment Company, LTD.

       During the third quarter of fiscal 1997, Sustainable entered into a
       loan agreement with Sonata Investment Company, LTD. for $250,000, which
       remains outstanding as of September 30, 1997. Sustainable has the right
       to request an additional $250,000 prior to December 31, 1999. The
       Company and Westlands are guarantors of the loan with Westlands (now
       Tri-Coastal Energy, L.P.) wells being pledged as collateral,
       subordinated to the Heller Financing. The loan is to be repaid out of
       25% of Sustainable's net cash flow with any remaining balance due by
       December 31, 1999. Interest is at 12%. In addition, Sonata will receive
       a profit's participation of 25% of the net profits of Sustainable while
       the loan is outstanding and 20% after the loan is repaid ("after
       payout"). Should Sustainable request the additional $250,000 from
       Sonata and should Sonata elect not to make said advance, then the after
       payout rate reduces from 20% to 15%.

    c. PNC Bank Loan

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



<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

    d. First Regional Bank

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


11. Capital Stock
<TABLE>
<CAPTION>
                                                                                      NUMBER OF PREFERRED
                                                      NUMBER OF COMMON                 SHARES PAR VALUE
                                                      SHARES, PAR VALUE                 $0.01 PER SHARE
                                                       $0.01 PER SHARE                                               AMOUNT
<S>                                                     <C>                              <C>                      <C>
Authorized                                               50,000,000                       50,000,000
                                                         ----------                       ----------

Balance as at September 30, 1997                         27,567,880                          160,000                $14,086,131

Issued for Professional Services Rendered                   200,000                            -----                     45,711
                                                         ----------                       ----------                -----------
                                                         27,767,880                          160,000                $14,131,842
                                                         ==========                       ==========                ===========
</TABLE>



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


    a. Common Stock Options

       In January 1995, the Company granted fully vested common stock purchase
       options expiring on January 6, 2000 for 850,000 common shares at $0.25
       per share. On the same date, the common stock purchase options
       previously outstanding, which expired on September 5, 1995 for 356,704
       common shares at $0.32 per share, were gifted back to the Company and
       canceled. The following summary sets out the activity in common stock
       purchase options:

                                                         Fiscal

                                                  1998              1997
------------------------------------------------------------------------------
  Outstanding and Exercisable                   350,000            850,000
     at beginning of year
------------------------------------------------------------------------------
  Canceled                                        -----           (150,000)
------------------------------------------------------------------------------
  Granted                                     1,200,000            -------
------------------------------------------------------------------------------
  Exercised                                     -------            -------
                                              ---------           --------
------------------------------------------------------------------------------
  Outstanding and Exercisable
     at end of year                           1,550,000            700,000
                                              =========            =======
------------------------------------------------------------------------------

       In the first quarter of fiscal 1998, the Company issued 1.2 million
       Common Stock options at 21.875(cent) per share.



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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

       The common stock purchase options were issued for past services at an
       exercise price of $0.25 per share when the underlying stock was at
       $0.2245 per share. Had compensation cost been determined based on the
       fair value of the common stock purchase options using the provisions of
       SFAS 123, the Company's net loss and loss per share in 1995 would have
       increased by $161,500 and $0.01, respectively.

       For the proforma calculation, the fair value of each option on the date
       of grant was estimated using the Black-Scholes option pricing model and
       the following assumptions for awards in 1995: zero dividend yield
       expected volatility of 119.64%, risk -free interest rate of 7.84%, and
       expected life of 5 years. Using these assumptions, the grant-date fair
       value per share of the options granted in 1995 was $0.19.


    b. Common Stock Warrants

       Common stock warrants outstanding at September 30, 1997, consist of the
       following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
           Issuance                      Expiration Date                     Amount                      Price Per Share
------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                                 <C>                             <C>
Acquisition of Sustainable             September 30, 2000                    500,000                          $0.35
------------------------------------------------------------------------------------------------------------------------------
Consulting Agreements                     May 8 2001 to
                                         October 1, 2001                    1,600,000                         $0.35
------------------------------------------------------------------------------------------------------------------------------
Consulting Agreement                   September 30, 2001                    100,000                          $1.00
------------------------------------------------------------------------------------------------------------------------------
8% Debenture Holders and              September 11, 2001 to                                                $0.4386 to
   Placement Agents (I.)                  June 8, 2002                      1,864,705                        $1.081
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

       (1.) Common Stock Warrants Attached to Debenture

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



<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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

            On September 11, 1996, a total of 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 or a
            portion of the warrants may be exercised on a cashless basis where
            a reduced number of shares of common stock will be issued based
            upon the difference between the average closing price of the
            Company's common stock for the five business days immediately
            preceding the date of exercise and the exercise price, divided by
            the average closing market price, times the number of warrants
            being exercised.

    c. Net Income Per Share

       Net income per share was calculated on the basis of the weighted
       average number of shares outstanding which amounted to 27,767,880 for
       the period ended December 31, 1997.

12. Income Taxes

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

13. Segmented Information

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







<PAGE>



DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
===============================================================================

    The following table identifies customers of the Company who purchased
    greater than ten percent of the oil and gas produced by the Company:
<TABLE>
<CAPTION>
                                                               1997 PERCENTAGE                1996 PERCENTAGE
                                                                      OF                             OF
                                                               TOTAL SALES (%)                TOTAL SALES (%)
<S>                                                            <C>                            <C>
Oil Production
         Pride Pipeline Company                                     100%                           100%

Gas Production
         Aquila Southwest Pipeline Corporation                     12.8%                          16.6%
         Austin Chalk National Gas Marketing                       29.1%                          27.4%
         Services
         New Brenen Corporation                                      .8%                           1.4%
         Southern Natural Gas                                      57.3%                          56.6%
</TABLE>


14. Employment Contracts and Commitments

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

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

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



<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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

    The Company had two office leases as of December 31, 1997. The first calls
    for rent of $3,864 per month through June 30, 1998. The second lease calls
    for rent of $3,354 per month through December 31, 1999.

15. Litigation Settlement

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

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

16. Acquisitions

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

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

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



<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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

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

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

         The Quarter ended December 31, 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: the successful
         completion of the drilling operations in the initial three (3) wells
         (Phase I) of the planned twenty-five (25) well drilling program on
         the Company's subsidiary's 7,300 acre lease block along the Upper
         Texas Coast Austin Chalk Trend. In addition, the Company took steps
         to expand its oil and gas holdings by entering into Letters of Intent
         to acquire various producing and development properties located in
         Kansas and Oklahoma.

         The Company's Sustainable Forest Industries subsidiary also was able
         to advance its sales and marketing program specifically in its marine
         industrial and outdoor residential construction product lines.
         Commercial sales were recorded in January 1998. The reduction in
         administration expenses reflects the consolidation of accounting
         operations into one location in Wayne, Pennsylvania. In addition, no
         Financial Advisory Agreements were renewed subsequent to September
         30, 1997.

PART II. OTHER INFORMATION
         -----------------

ITEM 6   Exhibits and Reports on Form 8-K
         --------------------------------

         None.


<PAGE>
                                  SIGNATURES

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


                         DALECO RESOURCES CORPORATION



Date:    February 11, 1998                              Gary J. Novinskie
                                                        -----------------------
                                                        Gary J. Novinskie
                                                        President



Date:    February 11, 1998                              Edward J. Furman
                                                        -----------------------
                                                        Edward J. Furman
                                                        Chief Financial Officer