<PAGE>


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

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

For the quarterly period ended June 30, 2004
                               -------------

( )   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

Nevada                                      23-2860734
------                                      ----------
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation or organization)

120 North Church Street
West Chester, Pennsylvania 19380            (610) 429-1258
--------------------------------            --------------
(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.

Number of shares outstanding of the issuer's common stock as of June 30, 2004:
28,337,402
Number of shares outstanding of the issuer's Series A preferred stock as of
June 30, 2004: 8,000
Number of shares outstanding of the issuer's Series B preferred stock as of
June 30, 2004: 185,000


<PAGE>


                                      INDEX

                                                                            PAGE
PART I   FINANCIAL INFORMATION

ITEM 1   FINANCIAL STATEMENTS (Unaudited)...................................   3
         Consolidated Balance Sheets........................................   3
         Consolidated Statement Of Loss.....................................   5
         Consolidated Statement Of Deficit..................................   6
         Consolidated Statement Of Cash Flow................................   7
         Notes to Consolidated Financial Statements.........................   8

ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS................................  28

ITEM 3   CONTROLS AND PROCEDURES............................................  31

PART II  OTHER INFORMATION..................................................  32

ITEM 2   CHANGE IN SECURITIES...............................................  32

ITEM 3   SONATA DEBT........................................................  34

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................  34

ITEM 6   Exhibits and Reports on Form 8-K...................................  35

SIGNATURES..................................................................  36

                                      -2-

<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND SEPTEMBER 30, 2003 --
PREPARED BY MANAGEMENT (UNAUDITED) AND SEPTEMBER 30, 2003 (AUDITED)
================================================================================

<TABLE>
<CAPTION>
                                                                                               JUNE 30,          SEPTEMBER 30,
                                                                                                 2004                2003
                                                                                             (UNAUDITED)           (AUDITED)
<S>                                                                                             <C>                  <C>
ASSETS
CURRENT ASSETS
         Cash Accounts                                                                          $277,447             $428,988
         C/Ds                                                                                    138,377              136,000
         Account receivables                                                                     493,888              423,935
         Prepaid Mineral Royalties (note 5c)                                                     300,297              270,297
         Other Current Assets                                                                      4,569                4,569
                                                                                             -----------          -----------
                               TOTAL CURRENT ASSETS                                           $1,214,578           $1,263,789
                                                                                             -----------          -----------
OTHER ASSETS
         Prepaid Mineral Royalties L/T                                                          $265,190             $265,190
         Goodwill                                                                                813,357              813,357
         Accumulated Amortization Goodwill                                                      (813,357)            (813,357)
                  Net Goodwill                                                                         0                    0
         Debt Placements Costs                                                                   869,861              584,815
         Accumulated Amortization                                                               (632,323)            (584,815)
                  Net Debt Placement Costs                                                       237,538                    0
         Equity Placement Costs                                                                        0                    0
         Accumulated Amortization Equity Costs                                                         0                    0
                  Net Equity Placement                                                                 0                    0
                               TOTAL OTHER ASSETS                                               $502,728             $265,190
                                                                                             ===========          ===========
Fixed Assets
         Oil and Gas Properties (note 3)                                                     $12,607,950          $12,607,950
         Accumulated DD&A                                                                     (7,757,950)          (7,307,950)
                  Net Oil and Gas Property                                                     4,850,000            5,300,000
         Mineral Properties (note 5)                                                          12,609,100           12,609,100
         Accumulated DD&A                                                                       (150,000)            (100,000)
                  Net Mineral Property                                                        12,459,100           12,509,100
         Timber Properties (note 4)                                                            1,028,342            1,028.342
         Accumulated DD&A                                                                     (1,028,342)          (1,028,342)
                  Net Timber Property                                                                  0                    0
         Technology/Patent Rights (note 6)                                                     7,767,000            7,767,000
         Accumulated DD&A                                                                     (2,722,158)          (2,166,123)
                  Net Tech./Patent Rights                                                      5,044,842            5,600,877
         Property, Equipment, Furniture & Fixtures                                               514,749              514,749
         Accum. Depr (P, E, P & P)                                                              (502,486)            (493,998)
                  Net (P, E, P & P)                                                               12,263               20,751
         Leasehold Improvements                                                                        0                    0
         Accu. Amort. (Lse. Improvements)                                                              0                    0
                  Net Lse. Improvements                                                                0                    0
                               TOTAL FIXED ASSETS                                            $22,366,205          $23,430,728
                                                                                             ===========          ===========
                               TOTAL ASSETS                                                  $24,083,511          $24,959,707
                                                                                             ===========          ===========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -3-

<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND SEPTEMBER 30, 2003 --
PREPARED BY MANAGEMENT (UNAUDITED) AND SEPTEMBER 30, 2003 (AUDITED)
================================================================================
<TABLE>
<CAPTION>
                                                                                              JUNE 30,          SEPTEMBER 30,
                                                                                                2004                2003
                                                                                            (UNAUDITED)           (AUDITED)
<S>                                                                                           <C>                    <C>
LIABILITIES
CURRENT LIABILITIES
         Trade A/P                                                                            $1,009,211             $970,347
         Notes Payable (note 7)                                                                  142,543              142,543
         Note Due related Pty (note 8).                                                          751,310              733,410
         HFI Financing (note 10a)                                                                      0            5,154,783
         Loans--1st Regional (note 10d)                                                          100,000              100,000
         CAMI Notes                                                                              514,881              514,881
         Sonata and Standard Energy  Financing (notes 7b and 10b)                                221,126                    0
         Accrued Interest Expense (notes 10a and 10b)                                            352,580            1,786,871
         Accrued Dividend Expense (notes 11d and 16)                                           2,265,590            1,248,043
         Accrued Expense Reimbursements                                                           77,865               60,187
         Accrued Salary Expense                                                                  582,582              364,351
                               TOTAL CURRENT LIABILITIES                                      $6,017,688          $11,075,416
                                                                                            ------------         ------------

Long Term Debt                                                                                  $321,208                   $0

         Total Long Term Debt                                                                   $321,208                   $0
                                                                                            ------------         ------------
                               TOTAL LIABILITIES                                              $6,338,896          $11,075,416
                                                                                            ------------         ------------
EQUITY
         Beginning Retained Earnings                                                        $(21,273,518)        $(24,066,365)
         Current Period Income/(loss)                                                           (413,670)          (1,027,383)
         Dividends Paid (Cash & Stock)                                                                 0              (10,000)
         Add. Paid in Capital                                                                 39,146,499           38,722,010
         Preferred Stock (note 11)                                                                 1,930                3,180
         Common Stock (note 11)                                                                  283,374              262,849

                                   TOTAL EQUITY                                              $17,744,615          $13,884,291
                                                                                            ------------         ------------
                               TOTAL LIABILITIES AND EQUITY                                  $24,083,511          $24,959,707
                                                                                            ============         ============
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -4-

<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF LOSS FOR THE QUARTERS ENDING AND THE NINE MONTHS
ENDING June 30, 2004 AND 2003 -- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

<TABLE>
<CAPTION>
                                                                      3 Months Ending                    9 Months Ending
                                                                   2004             2003              2004             2003
                                                                   ----             ----              ----             ----
<S>                                                            <C>              <C>               <C>            <C>
REVENUE
     O&G Sales                                                 $328,271         $380,984          $958,036       $1,053,044
     N P I Receipts                                               -----            -----             -----            -----
     Royalty Receipts                                             8,924           11,019            25,913           23,038
     Timber Sales                                                 -----           20,000             -----           20,000
     Mineral Sales                                                  271            -----            25,670            -----
              Total Operating Income                           $337,467         $412,004        $1,009,619       $1,096,082
                                                              ---------        ---------       -----------      -----------
     Interest Income                                              -----            -----             -----            -----
     Well Management                                             41,506           16,505            99,517           50,122
     Ptr. Management   -----                                      -----            -----             -----            -----
     Other Income                                                 -----           20,000         5,823,250           20,000
              Total Other Income                                $41,506          $36,505        $5,922,767          $70,122
                                                              ---------        ---------       -----------      -----------
              Total Income                                     $378,973         $448,509        $6,932,386       $1,166,204
                                                              =========        =========       ===========      ===========
EXPENSES
     LOE - Oil and Gas                                         $101,565         $125,311          $575,516         $431,536
     LOE--Timber                                                    950              600             6,950            9,600
     LOE--Minerals                                                8,209           18,109            79,084           67,247
     N P I Exp.                                                   -----            -----             -----            -----
     Prod Tax                                                    27,695           29,626            73,804           83,141
     DD&A (Fixed Assets)                                        360,066          346,256         1,064,523          988,768
     Third Party Distributions                                    8,582            7,040            24,726           16,877
              Total Operational Expense                        $507,066         $526,942        $1,824,604       $1,597,169
                                                              ---------        ---------       -----------      -----------
     Interest Expense                                            37,544          215,698           222,997          560,446
     General and Administrative Expenses                        178,384          162,482           516,927          387,944
     Legal and Professional Fees                                 41,575           28,736           181,383          261,119
     Financial Advisor Fees                                       -----            -----             -----            -----
     Shareholder Information                                      4,321            2,686            31.220            4,527
     Amortization of Debt Costs                                  23,754            -----            47,508            -----
     Amortization of Goodwill                                     -----            -----             -----            -----
              Total Expenses                                   $792,643         $936,544        $2,824,638       $2,811,206
                                                              ---------        ---------       -----------      -----------
      Net Income (Loss) before Extraordinary Item (Note 10)   $(413,670)       $(488,035)      $(1,679,938)     $(1,645,003)
      Basic and Fully Diluted Net Loss per Common Share          ($0.01)          ($0.02)           ($0.06)          ($0.06)
      Extraordinary Item, Gain On Debt forgiveness (Note 10)        N/A              N/A        $5,787,687              N/A
      Basic / Fully Diluted Net Effect Gain (Loss)/Share (Note 10)  N/A              N/A       $0.20/$0.15              N/A
      Net Income (Loss) After Extraordinary Item (Note 10)          N/A              N/A        $4,107,748              N/A
      Basic / Fully Diluted Net Loss per Common Share (Note 10)     N/A              N/A       $0.15/$0.10              N/A
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -5-

<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE NINE MONTHS
ENDED JUNE 30, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

<TABLE>
<CAPTION>
                                                                                    2004              2003
                                                                                    ----              ----
<S>                                                                        <C>               <C>
DEFICIT - BEGINNING OF PERIOD                                               $(25,103,748)     $(22,421,366)
Net loss for the 9 month period                                                4,107,748        (1,645,002)
Dividends on Preferred Stock                                                    (691,188)          (10,000)
DEFICIT - END OF PERIOD                                                     $(21,687,188)     $(24,076,368)
                                                                            ============      ============
</TABLE>








                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -6-

<PAGE>



DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE QUARTERS ENDING AND NINE MONTHS
ENDING JUNE 30, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

<TABLE>
<CAPTION>
                                                                      3 Months Ending                    9 Months Ending
                                                                   2004             2003              2004             2003
                                                                   ----             ----              ----             ----
<S>                                                          <C>              <C>               <C>            <C>
OPERATING ACTIVITIES
Net Income/( loss) for the period                             $(413,670)       $(488,035)       $4,107,748      $(1,645,002)
Items not affecting working capital
     Change in DD & A for period                               $360,066         $346,306        $1,065,523         $988,768
     Debt Amortization                                           23,754            -----            47,508            -----
     Extraordinary Item                                           -----            -----        (5,787,687)           -----
                  Sub Total                                    $383,819         $346,306       $(4,675,657)        $988,768
                                                              ---------        ---------       -----------      -----------
Items affecting Working Capital:
     (Increase) Decrease in other assets                         $-----           $-----         $(261.293)            $800
     (Increase) Decrease in Pre-paid Royalties                    -----            -----           (30,000)
     (Increase) Decrease in accounts receivable                  18,209           (5,849)          (69,953)         457,487
     Increase/(Decrease) in Partnership Accrued Distribution      -----            -----             -----            -----
     Increase (Decrease) in Trade payables                       44,461          115,787            38,864         (251,557)
     Increase.(Decrease) in other Accrued Expenses               88,027           33,787           235,909          128,667
     Gain/(loss) on Sale of Properties                            -----           17,268            34,700           17,268
                  Sub Total                                    $150,697         $161,180          $(51,773)        $352,685
                                                              ---------        ---------       -----------      -----------

CASH PROVIDED (USED) FOR OPERATING ACTIVITIES                  $120,846          $19,451         $(619,682)       $(303,669)
                                                              ---------        ---------       -----------      -----------

INVESTING ACTIVITIES
     (Increase)/decrease in Investment in Subsidiaries          $------           $-----            $-----           $-----
     Leasing, Acquisition and Well Costs Incurred                ------           ------             -----

CASH PROVIDED FROM/(USED FOR) INVESTING ACTIVITIES              $------           $-----            $-----           $-----

FINANCING ACTIVITIES
     Increase/(decrease) Notes due Related Parties               $8,900           $8,000           $17,900          $27,000
     Increase/(decrease) Other Notes due                        (65,762)           -----           542,334            -----
     Increase/(decrease) Accrued Interest                        22,898          (50,928)       (1,434,291)         (82,817)
     Increase/(decrease) Accrued Dividends                      (67,361)          75,000         1,017,547          245,000
     Dividends Paid                                               -----          (10,000)             -----         (10,000)
     Proceeds of Equity Issuance                                  -----            -----           287,029          357,075
     Proceeds of L/ Debt   -                                      -----            -----            40,000         (300,000)
CASH PROVIDED FROM/(USED FOR) FINANCING ACTIVITIES            $(101,326)         $22,072          $470,518         $236,268
                                                              ---------        ---------       -----------      -----------
NET INCREASE/(DECREASE) IN CASH FOR PERIOD                      $19,520          $41,623         $(149,164)        $(67,311)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                $396,304         $518,848          $564,988         $625,682
                                                              ---------        ---------       -----------      -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD                      $415,824         $558,371          $415,824         $558,371
                                                              =========        =========       ===========      ===========
     CHANGE IN CASH FY  3RD QTR.                                $19,520          $41,523         $(149,164)        $(67,311)
                                                              =========        =========       ===========      ===========
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                      -7-

<PAGE>


DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
1. CONTINUED OPERATIONS

         The financial statements have been prepared on the basis of a going
concern, which contemplates that the Company will be able to realize assets and
discharge liabilities in the normal course of business. Accordingly, they do not
give effect to adjustments that would be necessary should the Company be
required to liquidate its assets. For the quarter ending June 30, 2004, the
Company reported a loss of $413,670. The ability of the Company to meet its
total liabilities of $6,338,896, and to continue as a going concern is dependent
upon the availability of future funding, achieving profitable timber operations
and successful development its mineral assets. On July 24, 2002 ("Closing
Date"), the Company entered into a $10,000,000 Equity Line of Credit Agreement
with Cornell Capital Partners, L.P. ("CCP"). As part of the transaction, the
Company issued to CCP a two year convertible debenture in a face amount of
$300,000. The debenture is convertible into common stock at a price equal to the
lesser of 120% of the final bid price on the Closing Date or 80% of the average
lowest three closing bid prices as reported by Bloomberg of the Company's common
stock for the five trading days immediately preceding the date of the
conversion. The equity line provides for the Company to draw down $75,000 per
week over a three year period. In accordance with the provisions of the Equity
Line of Credit, the Company filed a registration statement on Form SB-2 with the
Securities and Exchange Commission, which became effect on November 7, 2002.
Commencing in November 2002 and concluding in January 2003, CCP converted the
entire Debenture in 5,027,881 shares of common stock at an average price per
share of $0.117 when including all other fees and costs associated with the
issuance of the debentures and $0.06 if just the conversion price without
including other fees and costs.

         The Company will continue to seek and evaluate "project specific"
funding commitments and other capital funding alternatives if and as they become
available.

         As of June 30, 2004, the Company was in default of certain debt
obligations (See Notes 7, 8 and 14 below). The holders of these instruments are
working with the Company to achieve the extinguishment of the obligations.


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.

                                      -8-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         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, Sustainable Forest
Industries Inc., Deven Resources, Inc., Tri-Coastal Energy, Inc., Tri-Coastal
Energy, L.P., Clean Age Minerals Incorporated, CA Properties, Inc. 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. The Companies investments in
minerals are accounted for using purchasing accounting methods.

         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.

         The Company assesses 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 un-discounted 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 including $20,000,000 in mineral
properties.

                                      -9-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         D.       SITE RESTORATION, DISMANTLEMENT AND ABANDONMENT COSTS

         The salvage value of producing wells or mining deposits is expected to
exceed the cost of site restoration and abandonment. As a result, no such costs
are accrued in these financial statements. The Company has not accrued any costs
associated with the potential abandonment and restoration of mineral extraction
mine sites to date. Any required site-specific restoration cost accruals will be
made once mineral extraction is initiated.

         E.       PROPERTY AND EQUIPMENT

         Property and equipment are recorded at cost and depreciated over the
straight-line method over a period of five years. The carrying value of property
and equipment is impaired from time to time in addition to typical depreciation
charges based on independent appraisals of the operational condition of the
specific unit of property and/or equipment.

         F.       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.

         G.       MINERAL ACQUISITION

         The Company has recorded the acquisition of Clean Age Minerals
Incorporated and associated mineral rights at cost.

         H.       DEBT ISSUE COSTS

         Debt issue costs of $285,046 were capitalized in the quarter ending
December 31, 2003, and represent those costs associated with Sonata Investment
Company, Ltd.'s acquisition of Heller Financial, Inc. loan ("Heller Loan") and
the restructuring of the Heller Loan (see Note 10).

         I.       CASH AND CASH EQUIVALENTS

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

                                      -10-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         J.       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.
loan 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. The fair value of all debt is based on
discounted cash flow analysis.

3.       OIL AND GAS AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                June 30,          June 30,
                                                                                    2004              2003
                                                                             -----------       -----------
<S>                                                                           <C>               <C>
Proven lease acreage costs                                                    $5,429,996        $5,429,996

Proven undeveloped lease acreage costs                                        $1,745,810        $1,745,810

Well costs                                                                    $5,432,145        $5,432,145
                                                                             -----------       -----------
                                                                             $12,607,950       $12,607,950

Accumulated depletion, depreciation and amortization                           7,757,950         6,707,950
                                                                             -----------       -----------
                                                                              $4,850,000        $5,900,000
                                                                             ===========       ===========
</TABLE>

(A)      SALE OF OIL AND GAS PROPERTIES

         On or about July 31, 2002 but effective as of July 1, 2002, the Company
sold certain oil and gas properties in Oklahoma, consisting of 11 gross wells
and 1.08 net wells, to the operator. These properties were marginal properties
and wells with the revenues from production being just slightly above lease
operating costs. Since these properties were part of the collateral for the
Heller Loan (See Note 10(a)), all the proceeds from the sale went to Heller.

         In January, 2004, the Company sold certain inactive oil wells in
Pontotoc County, Oklahoma for net proceeds amounting to $30,500 and the
assumption of all residual abandoning liabilities. The proceeds from the sale of
these wells went to reduce the Sonata Loan (See Note 10(a)).

4.       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 150,000 shares of Common Stock
of the Company.

                                      -11-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         The acquisition has been accounted for by the purchase method. The
purchase price of $962,500 was determined based on the fair value of the 150,000
common shares of the Company given 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. The
Company has fully written off its investment in Sustainable.

         The Company has maintained its concession rights since the inception of
timber operations in 1997.

5.       MINERAL PROPERTIES

A.       CLEAN AGE MINERALS INCORPORATED. CLEAN AGE MINERALS INCORPORATED. In
         September 2000, the Company acquired Clean Age Minerals Incorporated
         ("CAMI") by way of merger with the Company's wholly owned subsidiary;
         Strategic Minerals, Inc. CAMI has three (3) subsidiaries, CA
         Properties, Inc., Matrix-Loc, Inc. and Lone Star Minerals, Inc.
         (collectively "CAP").

         CAP owns or has under long-term lease: (a) 5,200 acres (+/-) in Marfa,
         Presidio County, Texas, containing high grade Zeolite; (b) 5,020
         acres(+/-) of Calcium Carbonate deposits located in the Oro Grande
         area, Cibola County, New Mexico; (c) twenty eight (28) mining claims
         located in Sierra County, New Mexico covering 2,675 acres(+/-) of
         Kaolin; and (d) eleven (11) Zeolite mining claims covering
         approximately 220 acres(+/-) located in Beaver County, Utah.

                                      -12-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         B.       MINERALS AND EQUIPMENT
                                                 JUNE 30, 2004     JUNE 30, 2003
         Proven undeveloped lease costs            $12,609,100       $12,609,100
         Mine development costs                          -----                --
         Accumulated depletion and                    (150,000)               --
         Depreciation
                                                   $12,459,100       $12,609,100
                                                   -----------       -----------

                   (1). The Company has begun to amortize its mineral properties
         at a nominal amortization rate of $100,000 per year subject to higher
         adjustments per year as production increases. During the quarter ending
         June 30, 2004, the Company took a charge of $25,000 towards the annual
         amount. The Company is utilizing a modified unit of production basis in
         determining its amortization rates for its mineral properties.


C.       PREPAID ROYALTIES. The Company receives a credit in the nature of
         "prepaid royalties" for rents paid on the Marfa Zeolite Lease, Presidio
         County, Texas, and a portion of the New Mexico Oro Grande Limestone
         Lease in Cibola County, New Mexico. During Fiscal year 2003 the Company
         conducted mining activities on its Kaolin deposits in Sierra County,
         New Mexico for the purpose of testing the minerals and producing
         samples for sales. The Company commenced production of its New Mexico
         Calcium Carbonate properties in Fiscal Year 2003. It anticipates the
         commencement of the commercial production of its Kaolin deposits in
         Fiscal Year 2004, and has commenced production of its Zeolite deposit
         in the first quarter of Fiscal Year 2004. The Company did make limited
         sales of its CA Series products in Fiscal Year 2003 primarily for
         testing to confirm their suitability for certain applications. The
         Company began the commercial sales of one of its CA Series Products
         under the tradename "ReNuGen" in the first quarter of 2004. Testing of
         the Company's Kaolin was commenced in December 2002 to confirm its
         properties in various applications in the paper, paint and coating
         industries. A portion of the Prepaid royalties ($265,190) attributable
         to the Calcium Carbonate deposits are not anticipated to be fully
         recovered in Fiscal Year 2004 and are carried as Long Term Assets. The
         remainder of the prepaid royalties ($300,297) are anticipated to be
         fully used in Fiscal Year 2004 and are listed as Current Assets.

6.       PATENTS & TECHNOLOGY


         As part of the acquisition of Clean Age Minerals Incorporated (See Note
         5(a) above), the Company also acquired U.S. Patent No: 5387738. This
         patent, owned by Clean Age Minerals Incorporated (previously owned by
         Matrix-Loc, Inc. which was acquired by Clean Age Minerals Incorporated
         as a result of Matrix-Loc's merger with Clean Age Minerals as of March
         18, 2002), deals with a reagent and process for the remediation of
         water and contaminated soils. The Company's subsidiary 16/6, Inc.

                                      -13-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         patent application on its I(2) Technology as denied by the United
         States Patent Office on June 13, 2003. The Company has elected, at this
         time, not to appeal the Patent Office Examiner's decision or proceed
         with the "independent build-out" of the technology in a proprietary but
         unpatented form.

7.       NOTES PAYABLE

a.       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. In fiscal 1996, the Company repaid $300,000 of the outstanding
         balance. In fiscal 1997, the remaining $800,000 was converted into
         16,000 shares of 10% cumulative preferred stock, at $50.00 per share
         ("Series A Preferred Stock"). The Series A Preferred Stock was subject
         to a put on August 20, 1999. The holders of the Series A Preferred
         Stock filed a lawsuit in the Los Angeles Superior Court, California
         against the Company, as well as Mr. Amir and Mr. Erlich as guarantors.
         Mr. Amir satisfied his obligation under his guarantee and purchased
         one-half, or 8,000 shares of the Series A Preferred Stock, of the
         16,000 shares of the Series A Preferred Stock owned by the Kanes. The
         Company and Mr. Erlich entered into a Stipulation for the Entry of
         Judgment granting the Company until August 1, 2001 in which to satisfy
         the put for the remaining 8,000 shares of Series A Preferred Stock plus
         accumulated interest. (See Litigation Note 14). Mr. Amir converted his
         Series A Preferred shares into 408,163 shares of Company common stock.
         A portion of the dividends ($32,213) due Mr. Amir on the Series A
         Preferred Stock was paid to Mr. Amir in the third quarter of fiscal
         2002. (See Note 8(a)). As of June 30, 2004, the Company owed the Kanes
         $80,000 of accrued but unpaid interest.

b.       During fiscal 1998, the Company borrowed $145,000 from four (4)
         persons. The debt was evidenced by Notes that matured on November 21,
         1998. The Notes earned interest at 2% over the prime rate charged by
         the Huntingdon National Bank of Columbus, Ohio, through the maturity
         date, and 18% thereafter. The Note holders were also given warrants.
         (See Note 11(b)-- Warrants) $75,000 in principal amount plus accrued
         interest due to Sonata Investment Company, Ltd. ("Sonata") was paid to
         Sonata on November 30, 2001. On June 7, 2002, Mr. Lincoln converted his
         Note in the amount of $20,000, plus accrued and unpaid interest of
         $13,528, into 49,818 shares of common stock. The debt was converted at
         a price of $.673 per share, which represented the average of the bid
         and closing prices for the five day period prior to the conversion.
         Presently, only two of the 4 Notes comprising $50,000, in the
         aggregate, of the original $145,000 remain outstanding. On August 1,
         2001, the Company borrowed $42,000 from Standard Energy Company. This
         loan earned interest at 2% per annum. The Standard Energy Company loan
         was satisfied on November 30, 2001. Since June 30, 2002, only two of
         the original four (4) notes, each in the face amount of $25,000, remain
         outstanding. The accrued but unpaid interest on these two notes as of
         June 30, 2004 is $ 32,488.

                                      -14-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
c.       Pursuant to Paragraph 5.1 of the Agreement and Plan of Merger by and
         among Clean Age Minerals Incorporated ("CAMI") and Strategic Minerals,
         Inc. ("SMI") and the Company dated September 19, 2000, obligations of
         CAMI to certain officers, directors and third parties were to have been
         satisfied by SMI or the Company within one (1) year of the merger. The
         indebtedness totaled (including the Martin Debt as defined in Note 8(b)
         below) $514,881 and was evidenced by Notes dated September 19, 2000.
         The Notes were due and payable on or before September 18, 2001 and
         provide for interest at the rate of 8% per annum. These Notes remain
         outstanding. As of June 30, 2004, the total amount payable on these
         notes is $669,345 representing principal of $514,881 and accrued but
         unpaid interest of $154,464.


8.       DUE TO (FROM) RELATED PARTIES

         (A)      DUE TO (FROM) AMIR

         Mr. Amir has entered into four (4) Notes with the Company as follows:

         (1) Note dated October 1, 1995, bearing interest at the rate of prime
         plus 3 percent in the principal amount of $91,062. This amount remains
         outstanding as of March 31, 2004.

         (2) Note dated October 1, 1995 bearing interest at the rate of 7% as a
         result of various advances as to the Company in the principal amount of
         $498,248 as of March 31, 2004.

         (3) Note dated July 20, 1998 in the face amount of $25,000 (See Note
         7(b)) bearing interest at the rate of 2% over the prime rate charged by
         the Huntingdon National Bank of Columbus, Ohio, through the maturity
         date, November 21, 1998 and 18% thereafter.

         (4) Note dated June 17, 2002 bearing interest at the rate of 7% in the
         principal amount of $137,000.

         As of June 30, 2004, the outstanding principal and accrued but unpaid
         interest on the obligations listed under numbers 1 through 4 to Mr.
         Amir amounted to $863,204.

         Mr. Amir was also entitled to a cash payment of $25,000 under his Key
         Man Contract on June 30, 2002. This bonus has not been paid (See Note
         13(b)).

                                      -15-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         Prior to conversion of his Series A Preferred Stock into common stock,
         Mr. Amir was entitled to have received dividends in the amount of
         $91,551 of which $59,338 remains outstanding (See Note 7(a)).

         As of June 30, 2004, the Company owed Mr. Amir $25,255 in un-reimbursed
         business expenses and $162,502 in accrued but unpaid salary.

         During 2002, the Company paid Mr. Amir $170,000 in partial payment of
         the accrued and unpaid interest on his notes, unreimbursed expenses and
         dividends attributable to the Class A Preferred Stock. These payments
         were reflected in the prior financial statements. Mr. Amir subsequently
         advanced the Company an additional $137,000 (see 8(a)(4) above).

         Mr. Amir converted $10,000 of indebtedness into 71,942 shares of Common
         Stock as of December 3, 2002. The conversion was at the average of the
         closing bid and asking price for the Common Stock for the five trading
         days prior to the date of conversion.

         As of June 30, 2004, the Company was indebted to Mr. Amir in the
         aggregate amount of $1,110,299.

(b)      By virtue of the merger of Clean Age Minerals Incorporated ("CAMI")
         with Strategic Minerals, Inc. on September 19, 2000, Strategic
         Minerals, Inc. assumed the obligation of CAMI to Mr. Robert E. Martin
         in the amount of $134,811 ("Martin Debt"). The Martin Debt was to have
         been satisfied on or before September 18, 2001 but was not and remains
         outstanding. As of June 30, 2004, the Martin Debt amounts to $175,197
         representing $134,811 in principal and $40,386 in accrued but unpaid
         interest. The Martin Debt is evidenced by a Note providing for an
         annual rate of interest of 8%. These amounts are included in the
         amounts shown for the Company's obligation to the former officers and
         directors of Clean Age Minerals Incorporated. (See Note 7(c)). As of
         June 30, 2004, the Company owed Mr. Martin $162,501 in accrued but
         unpaid salary and $16,164 in accrued and unpaid reimbursable business
         expenses.

(c)      Novinskie Debt. Under the terms of Mr. Novinskie's employment agreement
         (See Note 13(b)), Mr. Novinskie was to have received a cash bonus of
         $25,000 as of September 30, 2002. This bonus was not paid. As of June
         30, 2004, the Company owed Mr. Novinskie $47,290 in unreimbursed
         expenses and $162,505 in accrued but unpaid salary and $25,000 in
         accrued and unpaid bonuses (as discussed previously).

         Mr. Novinskie converted $10,000 of indebtedness into 71,942 shares of
         Common Stock as of December 3, 2002. The conversion was at the average
         of the closing bid and asking price for the Common Stock for the five
         trading days prior to the date of conversion. As of June 30, 2004, the
         Company was indebted to Mr. Novinskie in the aggregate amount of
         $209,795.

                                      -16-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

9.       DEBENTURES

                                                        2004             2003
                                                        ----             ----

                  8% Convertible Debentures          $30,000          $30,000

         A.       8% CONVERTIBLE DEBENTURES

         On September 11, 1996, the Company issued $1,310,000 worth of 8%
         convertible debentures with interest payable in stock only and accruing
         until conversion or redemptions after the term of two years. The
         placement agent's fees were 10% of the gross proceeds and 12,111
         warrants at $10.07 expiring November 16, 2001. The debentures may be
         converted after a holding period of 45 days after closing at the lessor
         of: (1) the fixed conversion price ($10.171875), or (2) 75% of the
         average closing bid price for the five trading days immediately
         preceding the date of conversion. As of March 31, 2004, $1,280,000 of
         the 8% debentures had been converted into 981,322 common shares.


10.      LONG-TERM DEBT

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

         A.       SONATA LOAN

                  In August 1997, the Company entered into an arrangement with
         Heller Financial, Inc. ("Heller") whereby Heller agreed to provide the
         Company with up to $15,000,000 to rework existing horizontal wells,
         re-complete 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 Energy, Inc. The amount outstanding (principal and accrued
         interest) under this arrangement as of September 30, 2003 and 2002, was
         $6,708,474 and $6,967,975, respectively. Interest on the borrowings was
         at prime plus 2%. Principal was paid out of 85% of the net cash flow
         from the properties. Additional interest was payable from 50% of the
         net cash flow from these properties after the payment of principal. In
         January 1999, Heller declared the loan to be in default, due to the
         pledged properties failure to generate the required interest payments.
         This failure was solely attributable to the low worldwide prices for
         oil. As a result, the full amount of the Heller Loan had been
         reclassified as current debt. With the recovery of oil prices, the
         Heller Loan had come back into compliance and on October 15, 2003,
         Heller declared the Heller Loan to be in full compliance. The
         obligations to Heller were non-recourse to the Company and payable

                                      -17-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         solely out of the oil and properties pledged to Heller as collateral.
         By agreement between Heller and Tri-Coastal, the Termination Date of
         the Heller Loan was extended from October 15, 2003 until January 31,
         2004. In the Company's third fiscal quarter (March through June 2003)
         Heller advised Tri-Coastal that it was desirous of liquidating
         Tri-Coastal's oil and gas properties in full satisfaction of the Heller
         Loan. Heller had previously wanted Tri-Coastal to sell its oil and gas
         properties, however, a purchase price acceptable to Heller could not be
         obtained.

                  At Heller's request, Tri-Coastal engaged Madison Energy
         Advisors to assist in marketing Tri-Coastal's properties.

                  Through Tri-Coastal's efforts, Sonata Investment Company,
         Ltd., ("Sonata") an affiliate of Standard Energy Company of Columbus,
         Ohio, became aware of Heller's desire to either sell the Tri-Coastal
         properties or sell the Heller Loan.

                  Sonata is an independent, privately held company that is not
         affiliated with the Company in management, ownership or in any other
         fashion. The Company has done other financings (see Note 10(b) below)
         with Sonata previously, and the Company has consulted for Sonata and/or
         its affiliated entities regarding oil and gas projects, acquisitions,
         exploration and development plays.

                  Sonata and Heller arrived at an agreement by which Sonata
         would purchase the Heller Loan for $605,000. Sonata simultaneously
         entered into an agreement with Tri-Coastal and the Company whereby
         Sonata would advance to Tri-Coastal/Daleco an additional $50,000 for
         working capital and reduce the amount of the Heller Loan to $655,000
         ("Sonata Loan"). In consideration of Sonata's reduction of the Heller
         Loan from $5,154,783 to $655,000, Daleco agree to:

                  (1) issue to Sonata or its nominee 250,000 shares of Daleco
         Common Stock (see Note 11);

                  (2) grant Sonata or its nominee warrants for 250,000 shares of
         Daleco Common Stock at $.906 per share with an expiration date of
         December 31, 2007 (see Note 11(b)); and

                  (3) extend the expiration dates for the warrants currently
         held by Sonata until December 31, 2007 (see Note 11 (b))

                  On December 31, 2003, Sonata acquired the Heller Loan from
         Heller Financial, Inc. for $605,000. Tri-Coastal made a principal
         reduction payment of $23,298 to Sonata on December 31,2003. This
         payment was consistent with the provisions of both the Heller Loan and
         the Sonata Loan and was made in the ordinary course.

                                      -18-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
                  Tri-Coastal, Sonata and Daleco entered into a Second Amended
         Loan Agreement amending the Heller Loan Agreement dated August 22, 1997
         ("Heller Loan Agreement") and the First Amended Loan Agreement dated
         March 27, 1998 ("First Amended Loan Agreement") (hereinafter the Heller
         Loan Agreement, First Amended Loan Agreement and the Seconded Amended
         Loan Agreement are collectively referred to as the "Sonata Loan
         Agreement").

                  The Sonata Loan Agreement provides that the Heller Loan: (i)
         was reduced to a three (3) year loan in the principal amount of
         $655,000 plus interest at the prime rate, to move, as established by
         the National City Bank, Columbus, Ohio plus three percent ("Sonata
         Loan"); (ii) will be repaid out of 85% of the net revenues from
         Tri-Coastal's oil and gas properties, but in no event will the amount
         of interest and principal paid in any six month period be less than
         one-sixth of the original face amount of the Sonata Loan, less any
         prepayments, plus all accrued and unpaid interest with the full amount
         of the Sonata Loan plus all accrued and unpaid interest paid in full on
         or before December 30, 2006; (iii) 66 2/3rds of the net cash flow from
         production from Tri-Coastal's assets after satisfaction of the Sonata
         Loan; (iv) the issuance of stock and warrants as set forth above; and
         (v) Daleco's guaranty of the Sonata Loan.

                  Under the terms of the Sonata Loan Agreement, the Sonata Loan
         will become a general obligation of the Company.

                  As a result of the purchase of the Heller Loan and the entry
         into the Sonata Loan Agreement in the first quarter of fiscal year
         2004, the Company realized:

                  (1) Reduction of the Heller Loan from $5,154,783 to $655,000;

                  (2) Reduction in accrued interest payable of $1,572,000;

                  (3) Transaction costs recorded as Debt Placement Costs on the
         Balance Sheet of $285,046 consisting of:

                      (a)  $226,500 for issuance of the 250,000 shares of common
                           stock;

                      (b)  $48,546 for the extension of warrants held by Sonata;
                           and

                      (c)  $10,000 in legal costs associated with the
                           transaction.

                  The transaction resulted in an extraordinary net benefit
         amounting to $5,787,687.

                  As a result of the extraordinary benefit resulting from
         Sonata's acquisition of the Heller Loan as set forth above, the

                                      -19-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         "Earnings Per Share Calculations" for the quarter ending December 31,
         2003, the fiscal quarter when the transaction occurred, was recorded as
         follows:

                                                           Fiscal Quarter Ending
                                                           ---------------------
                                                                 12/31/03
                                                                 --------

Net Income (loss) (before extraordinary gain)                    $(663,163)
Basic and Fully Diluted Income (loss)/Share,                         ($.02)
(calculated on 28,307,975 shares outstanding)

Extraordinary Item, Gain on debt forgiveness                    $5,787,687
Net Gain (Loss)/share, Basic and fully Diluted                   $.20/$.15

Net Income (loss)(including extraordinary gain)                 $5,124,523
Basic and Fully Diluted Income (loss)/Share                      $.18/$.13
     (calculated on 28,307,975 shares outstanding, Basic &
     39,327,554 shares, Fully Diluted Basis)

                  THE COMPANY VIEWS THE SONATA ACQUISITION OF THE HELLER LOAN
         AND THE SONATA LOAN AGREEMENT AS AN UNUSUAL AND INFREQUENT
         (NON-RECURRING) EVENT AND THEREFORE TREATED THE NET FINANCIAL IMPACT ON
         THE COMPANY'S FINANCIAL STATEMENTS AS AN EXTRAORDINARY GAIN.

         As of June 30, 2004, $112,666 of principal and $20,531 of interest had
         been paid to Sonata on the Sonata Loan.

         B.       SONATA INVESTMENT COMPANY, LTD. (See also Note 10(a) above).

         During the third quarter of fiscal 1997, Sustainable entered into a
         loan agreement with Sonata Investment Company, LTD. for $250,000, which
         remained outstanding as of December 31, 2000. Sustainable had the right
         to request an additional $250,000 prior to December 31, 1999, which was
         not exercised. The Company and Westlands were guarantors of the loan
         with Westland's (now Tri-Coastal Energy, L.P.) wells being pledged as
         collateral, subordinated to the Heller Financing. The loan was to have
         been 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 received a profits participation of 25% of the net
         profits of Sustainable while the loan was outstanding and 20% after the
         loan is repaid (after payout). While the obligations were outstanding,
         Sonata sought and the Company agreed to grant Sonata additional
         collateral to secure its loan in the nature of a security interest in
         the Patent then owned by Matrix-Loc and the mineral leases owned by
         subsidiaries of CAMI. The totality of the Sonata debt, plus all accrued
         and unpaid interest was satisfied on November 30, 2001, and all
         collateral for the loan was released.

                                      -20-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         C.       FIRST REGIONAL BANK

         In September 1998, the Company assumed a $100,000 loan with First
         Regional Bank when it acquired Haly Corporation. Interest is at 6.9%
         and the loan matures December 12, 2004. The loan is secured by personal
         assets of Dov Amir an officer and Director of the Company.

         d. Mr. Erlich, a former officer and director of the Company loaned
         $87,543 ("Loan Amount") to the Company. This loan is evidenced by a
         Note dated February 1, 2000 and has no maturity date. The Note provides
         that the Loan Amount shall earn interest at the rate of nine percent
         (9%) per annum. As of June 30, 2004, the total principle and accrued
         interest on the Note amounts were $132,847.


                                      -21-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
11.      CAPITAL STOCK

<TABLE>
<CAPTION>
                                                                                                          NUMBER OF
                                                                                                           SERIES B
                                                                               NUMBER OF SERIES           PREFERRED
                                                  NUMBER OF COMMON                  A PREFERRED          SHARES PAR
                                                 SHARES, PAR VALUE             SHARES PAR VALUE         VALUE $0.01
                                                   $0.01 PER SHARE          $0.01 PER SHARE (1)       PER SHARE (1)
                                                   ---------------          -------------------       -------------
<S>                                               <C>                        <C>                      <C>
Balance as of June 30, 2003                             25,754,261                        8,000             375,000
Issuance on the conversion of (2)                        1,520,000                                         (190,000)
     Series B Preferred
Issuance on Payment of Dividends (2)                       552,950
     On Series B Preferred
Issuance to Sonata as payment for (3)                      250,000
     L/T Debt Financing
Issuance on Terms of Terra Silex Financing(4)              220,169
Issuance on payment of obligations (5)                      40,022
     By H. P. Pryor, a Director of the Company &
     Mr. Lyons, a printer used by the Company
     R.A. Lenser and Associates

Ending Balance as of June 30, 2004                      28,337,402                        8,000             185,000
                                                        ----------                        -----             -------
</TABLE>

(1)  On February 28, 2002, the Shareholders approved an amendment to the
     Articles of Incorporation of the Company, providing for an increase in the
     authorized common stock of the Company from 20,000,000 shares to 50,000,000
     shares of Common Stock. The Shareholders also approved the change of the
     Company's state of incorporation from Delaware to Nevada. This was effected
     through the merger of Daleco Resources Corporation, a Delaware corporation
     ("Old Daleco") with and into Daleco Resources Corporation of Nevada, a
     Nevada corporation ("New Daleco"). The merger was consummated as of March
     26, 2002. The Articles of Incorporation of New Daleco provide for
     authorized capital stock of 50,000,000 shares of common stock, par value
     $0.01 and 20,000,000 shares of preferred stock, par value $0.01.

(2)  During Fiscal Year 2003, the holders of Series B Preferred Stock converted
     190,000 shares of Preferred Stock for 1,520,000 shares of Common Stock. The
     stock was converted at the price of $1.25 per share of Common Stock. The
     Series B Preferred Stock has a face value of $10.00 per share. Interest was
     also paid in common stock or accrued at the time of conversion in
     accordance with the election of the holder.

(3)  On December 31, 2003, Sonata Investment Company, Ltd. ("Sonata") acquired
     the Heller Loan (See Note 10(a)) and reduced the face amount of the Loan.
     As a condition of and as part of the fee for acquiring the Heller Loan (See
     Note 10(a)) and reducing the loan to $655,000 Sonata was given 250,000
     shares of common stock. The closing price for the Company's common stock on
     December 30, 2003, he day prior to the award, was $.906 per share. The
     value of the stock given to Sonata was thus $226,500.

                                      -22-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
(4)  Terra Silex Holding, LLC was issued 220,169 shares of Common Stock in
     accordance with Paragraph 6.3 of the Terra Silex Stock Purchase Agreement
     at a price of $.117 per share. Paragraph 6.3 of the Terra Silex Stock
     Purchase Agreement, Antidilution, gives Terra Silex Holdings, LLC the right
     to purchase stock should the Company sell over 500,000 shares in "one
     block". The conversion of the Cornell Capital Debenture triggered Terra
     Silex's right to exercise the antidilution provisions of its agreement with
     the Company.

(5)  As of February 28, 2003, Mr. Pryor, a director of the Company, converted
     $450.75 of debt owed to him by the Company into 3,563 shares of common
     stock. Mr. Lyons accepted 7,032 shares in full satisfaction of the
     Company's obligation to his printing company. R.A. Lenser and Associates
     accepted 29,472 shares of Common Stock in satisfaction of $26,867 owed by
     the Company for oil and gas engineering services.

     During the period ending June 30, 2004, the Company did not issue any
     shares.

         A.       COMMON STOCK OPTIONS
<TABLE>
<CAPTION>
                                                                June 30, 2004         June 30, 2003
                                                                -------------         -------------
<S>                                                               <C>                   <C>
                  Outstanding and Exercisable(1)
                   at beginning of period                         5,500,000             6,110,000

                  Canceled                                            -----              (524,384)

                  Granted (2)                                       400,000                 -----

                  Reclassified                                        -----               (85,616)

                  Exercised                                           -----                  (---)

                  Outstanding and Exercisable (3)
                   at end of period                               5,900,000             5,500,000
                                                                  ---------             ---------
</TABLE>

         (1) Of the 5,900,000 options outstanding, 4,830,000 are held by current
         officers, directors and employees of the Company. The exercise price
         for the options held by insiders range from $0.25 per share to $1.08
         per share.

         (2) Options for 400,000 shares of Common Stock at a price of $.853 were
         granted to two independent directors, Mr. Pryor (200,000) and Lord
         Gilbert (200,000) under the Company's Non-Qualified Independent
         Director Stock Option Plan as approved by the Shareholders of the
         Company at it's the Annual Shareholder's Meeting on March 25, 2004.

         (3) The Company accounts for all stock-based compensation (options) in
         accordance with the Financial Accounting Standard Boards Statement of
         Financial Accounting Standards No. 123 (SFAS 123). SFAS 123 permits the
         Company's use of the intrinsic value method prescribed by Accounting
         Principles Board Opinion No. 25. Under SFAS 123, the fair value of
         stock options and compensation costs are measured as of the grant date.

                                      -23-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
                  B.       COMMON STOCK WARRANTS

         Common Stock warrants outstanding at June 30, 2004, consist of the
following(1):

<TABLE>
<CAPTION>
                                                                             PRICE PER
ISSUANCE                          EXPIRATION DATE          AMOUNT (1)          SHARE
--------                          ---------------          ----------          -----
<S>                             <C>                        <C>            <C>
Financing Sources (1) & (2)     November 20, 2005 to                         $0.55 to
                                 December 31, 2007          699,579            $1.05

Terra Silex Warrant (3)          December 31, 2006          250,000            $1.25

SCOA Warrants(4)                 November 15, 2006         2,240,000      $2.00 to $3.00
</TABLE>



         (1)      FINANCING SOURCES

         On July 21, 1998, a total of 263,638 warrants expiring on November 20,
         2005 were granted to four persons who loaned the Company a total of
         $145,000 in July 1998. (See Note 7b). The warrants may be exercised at
         any time before the expiration date, November 20, 2005, at an exercise
         price of $0.55.

         (2)      On November 28, 2001, a total of 435,941 warrants to purchase
         common stock were granted to Sonata Investment Ltd. (warrants for
         395,273 shares of common stock ("Sonata Warrant")) and Standard Energy
         (warrants for 40, 668 shares of common stock ("Standard Warrant")) as
         consideration for entering into the Loan Conversion Agreement dated
         August 1, 2001. The Loan Conversion Agreement extended the date by
         which the Company had to satisfy its obligations to both Sonata
         Investment Company, Ltd. ("Sonata") (See Note 10(b)) and Standard
         Energy Company ("Standard") and granted both Sonata and Standard the
         right to convert the debt into common stock of the Company at such time
         as the Company advised Sonata and Standard of its intent to satisfy the
         Company's obligations to one or both entities. Sonata and Standard are
         affiliated entities. The exercise price was fixed at $1.05. The Sonata
         and Standard Warrants were to have expired August 1, 2002. However, the
         Company agreed to extend the termination date of the Sonata and
         Standard Warrants until July 31, 2004 in exchange for Sonata's
         relinquishing its twenty percent (20%) interest in the net profits of
         the Company's subsidiary Sustainable Forest Industries, Inc. (See Note
         10(b)). As additional consideration for the acquisition of the Heller
         Loan, the expiration date for the Sonata and Standard Warrants was
         extended until December 31, 2007. 250,000 warrants were also issued to
         Sonata Investment Company as additional consideration for acquisition
         the Heller Loan at an exercise price of $.906 per share with an
         expiration date of December 31, 2007 (See Note 10(a)).

                                      -24-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         (3)      TERRA SILEX WARRANT

         Under a Stock Purchase Agreement dated September 11, 2001 by and among
         the Company and Terra Silex Holding, LLC, Terra Silex was granted a
         warrant for 250,000 shares ("Terra Silex Warrant") at an exercise price
         of $1.25 The Terra Silex Warrant expires on December 31, 2006.

         (4)      SUMITOMO WARRANTS

         Under a Stock Purchase Agreement by and among Sumitomo Corporation of
         America ("SCOA") and the Company dated as of November 16, 2001, SCOA
         was granted warrants for 1,700,000 shares of common stock with a five
         (5) year term at exercise prices ranging from $2.00 per share for the
         first 850,000 shares, $2.50 per share for the next 510,000 shares and
         $3.00 per share for the remaining 340,000 shares. The Company and SCOA
         also entered into a Master Distribution and Marketing Agreement dated
         as of November 16, 2001 under which SCOA was granted warrants for
         540,000 shares. These warrants have a five (5) year term and have an
         exercise price of $2.00 per share for the first 108,000 shares, $2.50
         pen share for the next 162,000 shares and $3.00 per share for the
         remaining 270,000 shares.

         C.       NET INCOME PER SHARE

         Net income per share (primary basis) was calculated on the primary
         basis of the weighted average number of common shares outstanding that
         amounted to 28,337,402 (Fully Diluted--39,756,981) for the period
         ending June 30, 2004 (June 30, 2003 - 25,764,261). For the periods
         ending June 30, 2004 and 2003, the exercise of the options and warrants
         outstanding as at year end did not have a dilutive effect on the net
         income per share (see also Note 10(a)).

         D.       PAYMENT OF ACCRUED DIVIDENDS

         $1,384,021 of accrued dividends attributable to the 8% Cumulative
         Convertible Preferred Stock issued in the acquisition of CAMI ("CAMI
         Preferred") was paid in 1,058,168 shares of Common Stock upon
         conversion of 1,816,800 shares of the CAMI Preferred Stock to Common
         Stock commencing October, 2001 through June 30, 2004. See also Note
         14(b), regarding payment of accrued dividends on the Series A Preferred
         Stock held by the Kanes through June 30, 2004.

                                      -25-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
12.      INCOME TAXES

         The Company has no current and deferred taxes payable. The Company and
its subsidiaries 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 $26.1
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.      EMPLOYMENT CONTRACTS AND COMMITMENTS

a.       On November 16, 2001, the Company entered into a Stock Purchase
         Agreement with SCOA ("SCOA SPA"). As a condition to the closing of the
         SCOA SPA, SCOA required that the Company enter into Key Man Employment
         Contracts ("Key Man Contracts") with Messrs. Robert E. Martin, Gary J.
         Novinskie and Dov Amir. The Key Man Contracts are for an initial three
         (3) year term. The Key Man Contracts provide for acceleration of the
         vesting of incentive options should the Key Man be terminated prior to
         the expiration of the term of the Key Man Contracts. Each of Messrs.
         Novinskie and Amir are granted options for 500,000 shares of Company
         Common Stock while Mr. Martin was granted options for 1,000,000 shares
         of Common Stock. There are like provisions for the acceleration of the
         salary due each employee over the life of the Contract. (See Note 11a.)
         The Key Man Contract also provided for a bonus to Messrs. Novinskie and
         Amir of $50,000 to be paid one-half in cash and one-half in stock. (See
         Note 13(a) above). Mr. Novinskie's cash bonus has not been paid. Mr.
         Amir's bonus also has not been paid. (See Note 8.) Under Mr. Martin's
         Key Man Contract, he was granted a salary of $50,000 for the six month
         period April 1, 2002 through September 30, 2002 ($8,333.34 per month),
         and $100,000 per year for the remaining two (2) years of his Key Man
         Contract. In accordance with his contract, the Company commenced paying
         Mr. Martin's salary as of April 1, 2002. (See Note 8(b).


14.      LITIGATION SETTLEMENT AND PENDING LITIGATION

a.       Kane v. Daleco Resources Corp., et. al. On or about January 14, 2000,
         Stanley B. Kane, et. al. commenced an action in the Superior Court, Los
         Angeles, California to enforce their right to have the Company
         repurchase 16,000 shares (stated value $50,000 purchase) of Series A,
         10% Cumulative Preferred Stock. The Plaintiffs had the right to put the
         stock to the Company on August 20, 1999, which they did. Although the
         Company continued to pay quarterly dividends on the Series A Preferred
         Stock, it did not redeem the shares due to its lack of liquidity. Also
         named in the suit were Messrs. Dov Amir (a current officer and director
         of the Company) and Mr. Louis Erlich (who was an officer and director
         of the Company at the time of the issuance of the Series A Preferred
         Stock) who had given personal guaranties to the Plaintiffs.

                                      -26-

<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED JUNE 30, 2004 AND 2003--PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
         Mr. Amir satisfied his obligation under his guaranty to purchase
         one-half on 8,000 shares from the Plaintiffs. The Company entered into
         Stipulation for the Entry of Final Judgment and Judgment thereon as to
         Daleco Resources Corporation, pursuant to which the Company shall have
         until August 1, 2001 in which to redeem the remaining 8,000 shares for
         $400,000 plus accrued dividends through the date of settlement at a
         rate of ten percent (10%) per annum. The Kanes have been granting the
         Company an extension of the August 1, 2001 date on a month-to-month
         basis. On December 7, 2001, the Company paid the Kanes $90,000
         representing all accrued and unpaid dividends on the Series A Preferred
         Stock through December 31, 2001. The Company has paid all dividends due
         and payable to the Kanes for periods through the fiscal quarter ending
         June 30, 2002. Payments for the last seven quarters ending June 30,
         2004, in the amount of $80,000, are still outstanding.

         Mr. Erlich has filed a Cross Complaint against the Company for payment
         of his obligation under his guarantee and his loans to the Company.
         (See Note 7(a)). The Company and Mr Erlich have agreed to stay his
         counterclaim until January 1, 2005 during which time the Company can
         satisfy the Erlich Note (See Note 7(d)) and the suit will be dismissed.


15.      ACQUISITIONS

         DALECO'S 16/6, INC.

         Effective July 7, 2001, Daleco acquired 16/6, Inc., a software
development firm The I(2) technology covers the ability to extract certain text
documentation from existing published documents from the Internet and
micro-payments thereof.

         Daleco acquired all of the outstanding capital stock of 16/6, Inc. in
exchange for 1,000,000 shares of common stock of Daleco.

         As of June 30, 16/6, Inc. was merged with and into Daleco Resources
Corporation and ceased to exist as a separate entity.

                                      -27-

<PAGE>

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

         The Private Securities Litigation Reform Act of 1995 (the "Reform Act")
         provides a safe harbor for forward-looking statements made by or on
         behalf of the Company. All statements, other than statements of
         historical facts, which address activities, events 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 affect 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
         and/or economic 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.

         During the third fiscal quarter, ending June 30, 2004, the Company
         continue to focus its efforts to commercialize the mineral holdings of
         its wholly owned subsidiary, Clean Age Minerals, Inc. However, while
         these efforts take hold, the Company continued to rely on its energy
         sector to provide essentially all of the Company's operating revenues
         for the quarter. Operations relating to the Company's timber segment
         remained at nominal levels for the period ending June 30, 2004.

         The Company's performance during the third quarter remained dependent
         on its revenues derived from the production and sale of oil and natural
         gas. The operating results from this segment are influenced by a
         variety of factors that are beyond the control of management. The
         variability of the demand for and the pricing of crude oil and natural

                                      -28-

<PAGE>

         gas within the Company's operating areas as well as the pricing and
         availability of quality vender services all impact the attainable
         results of the Company and its competitors. During the quarter ended
         June 30, 2003, the Company's energy segment's performance, as measured
         by its direct operating cash flows, declined slightly (2%) as compared
         to the prior year's period. These results were directly influenced by
         significant reductions in the Company's ability to secure competent oil
         field services. The demand for quality service contractors far out
         exceeded the existing supply within the Company's operating areas
         resulting in extended well downtime during the period. The negative
         impact of these shortages was partially offset by a continuation of
         favorable energy product prices, the Company's ability to stabilize
         production levels from the remaining active producing wells and the
         continuation of the successful well operating cost control measures of
         the Company's subsidiaries involved within the oil and gas sector.

         During the quarter, the Company continued to invest capital and
         manpower resources into the ongoing development of the technical and
         operational platforms required to effectively monetize the three plus
         (3+) billion tons of industrial minerals controlled by Clean Age
         Minerals, Inc., the Company's wholly owned subsidiary. These efforts
         were "geared" to addressing the various factors associated with the
         acceptance of each of the minerals and the development stage of the
         respective deposits.

         Clean Age's efforts during the quarter relative to its New Mexico
         Calcium Carbonate (Travertine) deposit were focused on capitalizing on
         the extraction operations that were initiated earlier in the fiscal
         year. During the period, "raw product" inventories were maintained at
         levels sufficient, when coupled with extraction capabilities to sustain
         an active sale program in the "commodity stone" markets. Sales volumes
         have begun to improve as awareness and acceptance of the Company's
         stone within the regional market place is enhanced. As of June 30,
         2003, Clean Age has recorded only nominal revenues from the sale of
         stone product under its initial contracts.

         The Company is continuing to pursue opportunities to introduce its
         Calcium Carbonate material into other product applications other than
         those currently being serviced.

         Relative to its Sierra Kaolin(TM) deposit in New Mexico, the Company
         focused on developing a commercially viable processing method during
         the quarter. This ongoing process work was complimented by efforts to
         identify and target potential end-users for the Company's Sierra
         Kaolin(TM) products in various industries such as the paper, paint,
         adhesive and specialty industries. The Company believes that these
         efforts have lead to key innovative proprietary process methodologies
         for its Sierra Kaolin (TM). During the period, the Company was also
         involved in preparing "application specific" product samples for
         submittal to potential clients. Indications are that the potential size
         of the North American market for Kaolin is in excess of five (5)
         million tons annually.

                                      -29-

<PAGE>

         To facilitate the introduction of its Sierra Kaolin(TM) products the
         Company stepped up its investigations of various potential private and
         public financing sources to fund the construction of a processing
         facility capable of producing a suite of Sierra Kaolin (TM) products
         meeting the specific needs of the various industry applications.

         In addition to its efforts to independently introduce its Sierra
         Kaolin(TM) products, the Company has entered into a Confidentiality and
         Non-Circumvention Agreement and Memorandum of Understanding with
         another entity with the goal of establishing a potential long-term
         relationship that will serve as the framework for the mining,
         processing and distribution of the Company's Sierra Kaolin(TM).

         The Company considers this effort key to the success of its Sierra
         Kaolin(TM) commercialization strategy and intends to pursue them
         aggressively to facilitate the introduction of its Sierra Kaolin(TM) at
         the earliest practical time.

         The Company has continued to support the efforts of various independent
         engineering firms to evaluate and confirm the various applications for
         Clean Age Minerals' Patented CA Series Products, Certain of these tests
         produced results which have been highly favorable to date, in areas
         such as the treatment of bio-organic, agricultural and petro-chemical
         waste streams. The Company introduced its Patented CA-Series based
         ReNuGen (TM) product as a direct result of these ongoing efforts.

         In addition, to its use as a component in the Company's Patented
         CA-Series products, Clean Age Minerals is continuing its investigations
         of various potential alternate applications for the one and half (1.5)
         billion tons of high quality Zeolite under its control. The Company
         believes that the composite market potential for its base Zeolite and
         Patented CA-Series products is well in excess of one (1) million tons
         annually, once market acceptance is established.

         As a result of the general progress made regarding the market potential
         of the minerals and Patented CA Series Products, the Company remains
         optimistic on the potential for material sales of its minerals and
         Patented CA Series Products and looks forward to their economic impact
         on the Company.

         Within the Company's timber segment, operations during the quarter were
         limited. The Company is currently assessing the various resource
         requirements necessary to effectively participate in this segment in
         light of its other activities.

         For the three-month period ending June 30, 2004, total Company revenues
         decreased by $69,536 (15%) while direct operating expenses decreased by
         $19,876 (4%) as compared with the same quarter last year. The decrease
         in revenues during the period is directly attributable to the loss of
         production resulting from increased well downtime do to the limited
         availability of quality third oilfield service and equipment
         contractors during the fiscal quarter. The negative impact of the

                                      -30-

<PAGE>

         production declines was offset by improvement in product prices for our
         oil and gas sales volume and reductions in direct well operating costs.
         For the period ending June 30, 2004, the Company recorded a net loss of
         $413,670 as compared to $488,035 for the period ending June 30, 2003.
         The current quarter's book loss represents an improvement of $73,365 or
         15% over the prior year's period and includes non-cash charges of
         $384,820. These non-cash charges amount to roughly 93% of the recorded
         loss for the period. A key factor that impacted the Company's financial
         performance during the quarter was a significant reduction ($178,154)
         in the interest expense recorded during the period. This decrease is
         the direct result of the Company's successful restructuring of certain
         of its debt obligations at the end of the first quarter of fiscal year
         2004 and should have an ongoing favorable impact throughout the
         remainder of the current and subsequent fiscal years. Corporate
         administrative costs for the quarter ending June 30, 2004 were
         $224,280. This represents an increase of 15% from the prior year's
         period and is a direct result of Company's increase in activities year
         to year.

Item 3.     Controls and Procedures

            Sarbanes-Oxley Act

         On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
         of 2002 ("SOX"). The SOX is the first major revision to the securities
         laws since the enactment of the Securities Act of 1933 and the
         Securities and Exchange Act of 1934. The SOX, promulgated in large part
         in response to the collapse of Enron/Worldcom demise, covers a variety
         of measures all of which will not be covered here.

         The SOX is applicable to all publicly traded reporting companies no
         matter how small or large. The SOX provides for additional controls
         such as the chief executive officer's certificate regarding the
         accuracy of the Company's financial statements and providing for a
         criminal penalty for making a false statement to the certification by
         an executive officer that the financial statements do not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements, in light of the circumstances under
         which the statement were made, not misleading with respect to the
         period covered by the annual report. The certification also requires
         that the executive officer of the company certify that the financial
         statements and other materials presented in the annual report fairly
         present all material respects the financial condition, results of
         operations and cash flows of the Company as of and for the periods
         covered by the annual report. This requirement exceeds the previous
         requirement that the financial statements merely be presented in
         accordance with generally accepted accounting principles.

         The Company believes that it has historically provided its financials
         in this fashion, having separately reported and presented each segment
         of the Company's business for the past few years.

                                      -31-

<PAGE>

         The SOX also suggests but does not presently require that a "Disclosure
         Committee" be established. This committee would consider the
         materiality of information and determine disclosure obligations on a
         timely basis. This committee would, in essence, become the Company's
         "watchman" for public disclosures. The Company has not, as of the date
         of this annual report, established such a committee. The Company has
         only six employees, and three independent directors. All parties are
         intricately involved in the decision making processes at the Company
         and no disclosure or decision not to disclose information is made
         without the input of inside management, counsel and at least one, if
         not more, independent directors. At such time as the Company changes
         its method of operation and/or increases the number of employees, it
         will reconsider the creation of a "Disclosure Committee."

         Because the drafting and approval of all the Company's reports is a
         collective process, the suggestions of the SOX to establish Disclosure
         Committees, a Disclosure Controls Monitor, conduct internal drafting
         sessions, distribution of draft reports and dealing with internal
         trading policies are presently either not applicable or are already
         implemented, have been and are part of the Company's operating
         procedures.

         The SOX also provides for certain controls on auditors and the
         accounting industry. The Company only utilizes its auditors for
         auditing purposes. As such, the Company feels that it is and will be in
         full compliance with the final regulations promulgated by the
         Securities and Exchange Commission ("SEC") under the SOX.

         The SEC has acknowledged that a "one-size fits all" approach to
         establishing effective disclosure controls and procedures and has not
         prescribed any specific disclosure controls and procedures. Rather, the
         SEC expects "each company to develop a process that is consistent with
         its business and internal management and supervisory practice." The
         Company believes that it has fully complied with the intent of the SOX
         and Regulations promulgated by the SEC.

PART II.    OTHER INFORMATION

Item 1.     None

Item 2.     Change in Securities.

         There were no sales of securities by the registrant during the quarter
         ending June 30, 2004.

         On November 27, 2002, Cornell Capital Partners ("CCP") converted
         $10,000 of the $300,000 debenture issued as part of its Equity Line of
         Credit transaction ("Debenture") into 85,470 shares, on December 9,
         2002, CCP converted $40,000 of the Debenture into 366,972 shares, on
         December 30, 2002 CCP converted $25,000 of the Debenture into 318,066

                                      -32-

<PAGE>

         shares, on January 8, 2003, CCP converted $10,000 of the Debenture into
         144,927 shares, on January 13, 2003, CCP converted $15,000 of the
         Debenture into 238,095 shares, on January 22, 2003, CCP converted
         $25,000 of the Debenture into 454,545 shares, on January 23, 2003, CCP
         converted $100,000 of the Debenture into 1,923,077 shares, on January
         24, 2003 CCP converted the remaining $75,000 of the Debenture into
         1,442,307 shares, and on January 28, 2003 CCP converted the interest
         due on the Debenture for the period August 2002 through December 2002
         into 54,423. The entire Debenture has been converted into a total of
         5,027,882 shares of common stock. On July 24, 2002, the Company entered
         into a $10,000,000 equity line of credit with CCP. As part of the
         transaction, the Company issued a $300,000 Debenture to CCP. The
         Debenture issued interest at six percent (6%) per annum and matured in
         two years. CCP had the right to convert the Debenture into Common Stock
         of the Company at a price equal to the lessor of either (a) an amount
         equal to one hundred twenty percent (120%) of the closing bid price of
         the Common Stock on July 24, 2002, or (b) an amount equal to eighty
         percent (80%) of the average of the three (3) lowest Closing Bid Prices
         of the Common Stock for the five (5) trading days immediately preceding
         the date of CCP's conversion of the debenture into Common Stock.

                                      -33-

<PAGE>


Item 3      None

            (See Note 10 to the Company's Financial Statements)

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

            There were no matters submitted to a vote of Shareholders during the
period covered by this report.



                                      -34-

<PAGE>


Item 5      Other Information:

            None.

ITEM 6      Exhibits and Reports on Form 8-K:

            31.1 Section 302 Certification
            32.1 Section 906 Certification



                                      -35-

<PAGE>




                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                            DALECO RESOURCES CORPORATION


Dated:  August 12, 2004             By:  /S/ Gary J Novinskie
                                         --------------------
                                         Gary J. Novinskie, President


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

                          DALECO RESOURCES CORPORATION


Date:  August 12, 2004                   /S/ Gary J. Novinskie
                                         ---------------------
                                         Gary J. Novinskie
                                         President and Director


Date: August 12, 2004                    /S/ Dov Amir
                                         --------------------
                                         Dov Amir
                                         Chief Executive Officer and Chairman of
                                         the Board of Directors


                                      -36-