<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  THIRD AMENDED
                                   FORM 10-QSB

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

For the quarterly period ended December 31, 2003

[ ]  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
     incorporation or organization)                 Identification Number)

        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
December 31, 2003: 28,307,975
Number of shares  outstanding  of the  issuer's  Series A preferred  stock as of
December 31, 2003: 8,000
Number of shares  outstanding  of the  issuer's  Series B preferred  stock as of
December 31, 2003: 185,000

<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                   PAGE
                                                                                                   ----
<S>                                                                                                 <C>
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.... 27

ITEM 3    CONTROLS AND PROCEDURES.................................................................. 28

PART II   OTHER INFORMATION........................................................................ 29

ITEM 2    CHANGE IN SECURITIES..................................................................... 29

ITEM 3    HELLER DEBT.............................................................................. 30

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 32

ITEM 6    Exhibits and Reports on Form 8-K......................................................... 33

SIGNATURES......................................................................................... 34
</TABLE>

                                       -2-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003-- PREPARED BY MANAGEMENT
(UNAUDITED) AND SEPTEMBER 30, 2003 (REAUDITED) PREPARED BY MANAGEMENT

                                                  DECEMBER 31,    SEPTEMBER 30,
                                                      2003            2003
                                                   (UNAUDITED)     (REAUDITED)
                                                  ------------    -------------
ASSETS
CURRENT ASSETS
   Cash Accounts                                  $    232,266    $     428,988
   C/Ds                                                171,994          136,000
   Account receivables                                 521,126          423,935
   Prepaid Mineral Royalties S/T (note 5c)             300,297          270,297
   Other Current Assets                                  4,569            4,569
                                                  ------------    -------------
         TOTAL CURRENT ASSETS                     $  1,230,252    $   1,263,789
                                                  ------------    -------------
OTHER ASSETS
   Prepaid Mineral Royalties  L/T (mote 5c)       $    265,190    $     265,190
   Debt Placement Costs (note 10)                      869,861          584,815
   Accumulated Amortization                           (584,815)        (584,815)
      Net Debt Placement Costs                         285,046               --
   Equity Placement Costs                                   --               --
   Accumulated Amortization Equity Costs                    --               --
      Net Equity Placement                                  --               --
   Other Assets                                             --               --
         TOTAL OTHER ASSETS                       $    550,236    $     265,190
                                                  ============    =============
FIXED ASSETS
   Oil and Gas Properties (note 3)                $ 12,607,950    $  12,607,950
   Accumulated DD&A                                 (7,457,950)      (7,307,950)
      Net Oil and Gas Property                       5,150,000        5,300,000
   Mineral Properties (note 5)                      12,609,100       12,609,100
   Accumulated DD&A                                   (100,000)        (100,000)
      Net Mineral Property                          12,509,100       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                                   --               --
   Technology/Patent Rights (note 6)                 7,767,000        7,767,000
   Accumulated DD&A                                 (2,357,718)      (2,166,123)
      Net Tech./Patent Rights                        5,409,282        5,600,877
   Property, Equipment, Furniture & Fixtures           514,749          514,749
   Accum. Depr (P, E, P &  P)                         (496,844)        (493,998)
      Net (P, E, P & P)                                 17,905           20,751
   Leasehold Improvements                                   --               --
   Accu. Amort. (Lease Improvements)                        --               --
      Net Lease Improvements                                --               --
                                                  ------------    -------------
      a)Total Fixed Assets                        $ 23,086,287    $  23,430,728
                                                  ============    =============
      b)Total Assets                              $ 24,866,774    $  24,959,707
                                                  ============    =============

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       -3-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003-- PREPARED BY MANAGEMENT
(UNAUDITED) AND SEPTEMBER 30, 2003 (REAUDITED) PREPARED BY MANAGEMENT

                                                  DECEMBER 31,    SEPTEMBER 30,
                                                      2003            2003
                                                   (UNAUDITED)     (REAUDITED)
                                                  ------------    -------------
LIABILITIES
Current Liabilities
   Trade A/P                                      $  1,816,658    $     970,347
   Notes Payable (note 7)                              142,542          142,543
   Note Due related Pty (note 8)                       736,410          733,410
   HFI Financing (note 10a)                                 --        5,154,783
   Loans--1st Regional (note 10d)                      100,000          100,000
   CAMI Notes                                          514,881          514,881
   Sonata Financing (note 10)                          195,472               --
   Accrued Interest Expense (notes 10a and 10b)        259,756        1,786,871
   Accrued Dividend Expense (notes 11d and 16)       1,482,360        1,248,043
   Accrued Expense Reimbursements                       65,480           60,187
   Accrued Salary Expense                              440,913          364,351
                                                  ------------    -------------
       TOTAL CURRENT LIABILITIES                  $  5,754,471    $  11,075,416
                                                  ------------    -------------

Long Term Liabilities
   Long Term Debt (note 10)                       $    436,230    $          --
   Mandatory Redeemable Preferred Stock                400,000          400,000
   Total Long Term Liabilities                    $    836,230    $          --
                                                  ------------    -------------
       TOTAL LIABILITIES                          $  6,590,701    $  11,475,416
                                                  ------------    -------------
EQUITY
   Beginning Retained Earnings                    $(25,103,748)   $ (22,421,362)
   Current Period Income/(loss)                      5,124,523       (2,672,386)
   Dividends Paid (Cash & Stock)                      (691,188)         (10,000)
   Add. Paid in Capital                             38,661,556       38,322,090
   Preferred Stock (note 11)                             1,850            3,100
   Common Stock (note 11)                              283,080          262,849

            TOTAL EQUITY                          $ 18,276,073    $  13,484,291
                                                  ------------    -------------
       TOTAL LIABILITIES AND EQUITY               $ 24,866,774    $  24,959,707
                                                  ============    =============

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       -4-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 -- PREPARED BY MANAGEMENT (UNAUDITED)

<TABLE>
<CAPTION>
                                                                             2003            2002
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
REVENUE
   O&G Sales                                                             $    343,660    $    344,457
   N P I Receipts                                                                  --              --
   Royalty Receipts                                                             8,016           5,308
   Timber Sales                                                                    --              --
   Mineral Sales                                                               18,481              --
         Total Operating Income                                          $    370,158    $    349,765
                                                                         ------------    ------------
   Interest Income                                                                 --              --
   Well Management                                                             16,505          17,111
   Other Income                                                                   863              --
         Total Other Income                                              $     17,368    $     17,111
                                                                         ------------    ------------
   Total Income                                                          $    387,526    $    366,876
                                                                         ============    ============
EXPENSES
   LOE - Oil and Gas                                                     $    213,843    $    158,223
   LOE--Timber                                                                  3,300           5,500
   LOE--Minerals                                                               59,484          35,000
   N P I Exp                                                                       --              --
   Prod Tax                                                                    25,139          27,538
   DD&A (Fixed Assets)                                                        344,441         321,256
   Third Party Distributions                                                    8,921           4,029
         Total Operational Expense                                       $    655,130    $    551,546
                                                                         ------------    ------------

   Interest Expense                                                      $    141,688    $    180,350
   General and Administrative Expenses                                   $    174,961    $     93,682
   Legal and Professional Fees                                                 75,715         120,021
   Financial Advisor Fees                                                          --              --
   Shareholder Information                                                      3,197           1,841
   Amortization of Debt Costs                                                      --              --
   Amortization of Goodwill                                                        --    $         --
         Total Expenses                                                  $  1,050,690    $    947,440
                                                                         ------------    ------------
   Net Income (loss) Before gain on debt forgiveness (see Note 10(a))    $   (663,163)   $   (580,564)
                                                                         ============    ============
   Basic/Fully Diluted Income (Loss)/Share                               $       (.02)   $       (.03)
   Gain On Debt Forgiveness (see Note 10(a))                             $  5,787,687
   Basic/Fully Diluted Net Effect Gain (Loss)/Share                         $.20/$.15

   Net Income (Loss) After gain on debt forgiveness (see Note 10(a))     $  5,124,523    $   (580,564)
                                                                         ============    ============
   Basic/Fully Diluted Income (Loss)/Share (see Note 10(a))                 $.18/$.13    $       (.03)
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       -5-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

                                                2003             2002
                                           -------------    -------------
DEFICIT - BEGINNING OF PERIOD              $ (25,103,748)   $ (22,421,362)
Net loss for the period                        5,124,523         (580,564)
Dividends on Preferred Stock                    (691,188)             (--)
DEFICIT - END OF PERIOD                    $ (20,670,413)   $ (23,086,926)
                                           =============    =============

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       -6-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

<TABLE>
<CAPTION>
                                                                    2003              2002
                                                               --------------    --------------
<S>                                                            <C>               <C>
OPERATING ACTIVITIES
Net Income/( loss) for the period                              $    5,124,523    $     (580,564)
Items not affecting working capital
    Change in DD & A for period                                $      344,441    $      321,256
    Debt Amortization -                                                     0                 0
    Amortization of Good Will
    Gain On Debt Forgiveness                                       (5,787,687)                0
               Sub Total                                       $   (5,443,246)   $      321,256
                                                               --------------    --------------
Items affecting Working Capital:
    (Increase) / Decrease in other assets                      $     (285,046)   $            0
    (Increase) / Decrease in Pre-paid Royalties                       (30,000)                0
    (Increase) / Decrease in accounts receivable                      (97,191)          237,603
    Increase / (Decrease) in Trade payables                           846,311          (212,637)
    Increase / (Decrease) in other Accrued Expenses                    81,855            61,477
    Gain/(loss) on Sale of Properties                                       0                 0
               Sub Total                                       $      515,929    $       86,443
                                                               --------------    --------------

CASH PROVIDED (USED) FOR OPERATING ACTIVITIES                  $      197,206    $     (172,865)
                                                               --------------    --------------

INVESTING ACTIVITIES
    (Increase)/decrease in Investment in Subsidiaries          $            0    $            0
    Leasing, Acquisition and Well Costs Incurred               $            0    $            0

CASH PROVIDED FROM/(USED FOR) INVESTING ACTIVITIES             $            0    $            0

FINANCING ACTIVITIES
    Increase / (decrease) Other Notes due                                   0                 0
    Increase / (decrease) Sonata Notes due                            631,702                 0
    Increase / (decrease) Accrued Interest                         (1,527,115)           (2,854)
    Increase / (decrease) Accrued Dividends                           234,317            85,000
    Dividends Paid                                                          0                 0
    Proceeds of Equity Issuance                                       260,162            95,000
    Proceeds of LT Debt -                                              40,000           (75,000)
CASH PROVIDED FROM/(USED FOR) FINANCING ACTIVITIES             $     (357,934)   $      102,146
                                                               --------------    --------------
NET INCREASE/(DECREASE) IN CASH FOR PERIOD                     $     (160,728)   $      (70,719)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                $      564,988    $      625,682
                                                               --------------    --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD                      $      404,260    $      554,963
                                                               ==============    ==============
    CHANGE IN CASH FY 1ST QTR.                                 $     (160,728)   $      (70,719)
                                                               ==============    ==============
</TABLE>

                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS

                                       -7-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

1.      CONTINUED OPERATIONS

        The Company's audited financial statements for its fiscal year ending
September 30, 2003, were re-audited by the accounting firm of Vasquez & Company,
LLP and filed with the Securities and Exchange Commission on January 11, 2005.
Vasquez & Company was retained by the Company to replace its prior auditor, Jay
J. Shapiro, who resigned as the Company's auditor on September 9, 2004. (See the
Company's Form 8-K dated September 14, 2004. Form 8-K dated December 2, 2004 and
Form 8-K dated December 3, 2004). The Company filed its First Amendment to its
Annual Report on Form 10-KSB for the period ending September 30, 2003 on January
11, 2005. The Audited Numbers referenced herein are taken from the Company's
Audited Financial Statements as filed on January 11, 2005.

        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 December 31, 2003, the
Company reported a loss of $663,163, before gain on debt forgiveness and a
non-recurring quarterly income of $5,124,523 after gain on debt forgiveness is
accounted for (see Note 10(a)). The ability of the Company to meet its total
liabilities of $6,190,701, 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 December 31, 2003, the Company and certain of it subsidiaries were
in default of certain debt obligations (See Notes 7 and 8 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

                                       -8-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

revenues and expenses during the reporting period. Actual results could differ
from those estimates.

        b.      BASIS OF CONSOLIDATION

        The consolidated financial statements of Daleco Resources Corporation
(the "Company") have been prepared in accordance with generally accepted
accounting principles and include the accounts of the Company and its
wholly-owned subsidiaries Westlands Resources Corporation, Sustainable Forest
Industries Inc., Deven Resources, Inc., Tri-Coastal Energy, Inc., Clean Age
Minerals Incorporated, CA Properties, Inc. and 16/6, 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.

        Effective in the first quarter of 1997, the Company began assessing the
impairment of capitalized costs of proved oil and gas properties and other
long-lived assets in accordance with Statement of Financial Accounting Standards
No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. Under this method, the Company generally
assesses its oil and gas properties on a field-by-field basis utilizing its
current estimate of future revenues and operating expenses. In the event net
un-discounted cash flow is less than the carrying

                                       -9-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

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.

        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 and represent those costs
associated with Sonata Investment Company, Ltd.'s acquisition of Heller
Financial, Inc. loan and the restructuring of the Note (see Note 10).

                                      -10-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        i.      CASH AND CASH EQUIVALENTS

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

        j.      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>
                                                                    2003             2002
                                                               --------------   --------------
<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                7,457,950        6,432,950
                                                               --------------   --------------
                                                               $    5,150,000   $    6,175,000
                                                               ==============   ==============
</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.

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 THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - 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.

        b.      MINERALS AND EQUIPMENT

                                               12/31/2003      12/31/2002
                                              ------------    ------------
        Proven undeveloped lease costs        $ 12,609,100    $ 12,609,100
        Mine development costs                          --              --
        Accumulated depletion and                 (100,000)             --
         Depreciation
                                              $ 12,509,100    $ 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. 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

                                      -12-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        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. 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

                                      -13-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        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)).

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 December 31, 2003 is $40,072.

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 December 31, 2003, the total amount payable on these
        notes is $648,749 representing principal of $514,881and accrued but
        unpaid interest of $ 133,868.

                                      -14-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

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 December 31, 2003.

        (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 $483,348 as of December 31, 2003.

        (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 December 31, 2003, the outstanding principal and accrued but
        unpaid interest on the obligations listed under numbers 1 through 4 to
        Mr. Amir amounted to $ 816,553.

        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)).

        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 December 31, 2003, the Company owed Mr. Amir $ 18,963 in
        un-reimbursed business expenses and $91,667 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).

                                      -15-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        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 December 31, 2003, the Company was indebted to Mr. Amir in the
        aggregate amount of $1,011,521.

(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
        December 31, 2003, the Martin Debt amounts to $169,843representing
        $134,811 in principal and $35,032 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 December 31, 2003, the
        Company owed Mr. Martin $112,501 in accrued but unpaid salary and
        $10,764 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
        December 31, 2003, the Company owed Mr. Novinskie $35,006 in
        unreimbursed expenses and $91,670 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 December 31, 2003,
        the Company was indebted to Mr. Novinskie in the aggregate amount of
        $151,676.

9.      DEBENTURES

                                                       2003       2002
                                                     --------   --------
                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

                                      -16-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        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 December 31, 2003, $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.      HELLER FINANCIAL, INC.

                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
        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.

                                      -17-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

                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 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.

                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").

                                      -18-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

                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 rates, 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, 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.

                                      -19-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

                As a result of the extraordinary benefit resulting from Sonata's
        acquisition of the Heller Loan as set forth above, the "Earnings Per
        Share Calculations" should be compared as follows:

<TABLE>
<S>                                                          <C>              <C>
Net Income (loss) (before gain on debt forgiveness)          $    (663,163)   $    (580,564)
Basic and Fully Diluted Income (loss)/Share,                 $        (.02)   $        (.03)
(calculated on 28,307,975 shares outstanding)

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

Net Income (loss)(including gain on debt forgiveness)        $   5,124,523    $    (580,564)
Basic and Fully Diluted Income (loss)/Share                      $.18/$.13    $        (.03)
  (calculated on 28,307,975 shares outstanding, Basic &
   39.327,554 shares, Fully Diluted Basis)
</TABLE>

        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 THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - 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, 2003. The loan is secured by personal
        assets of Dov Amir an officer and Director of the Company.

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 December 31, 2002                         21,101,630                    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 in satisfaction of obligations (5)              4,257,374
     Under CCP Debenture & Equity Financing
Issuance on payment of obligations (6)                      10,595
     By H. P. Pryor, a Director of the Company &
     Mr. Lyons, a printer used by the Company
Issuance on Conversion of debt by Mr. Trainor (7)          395,257
     Counsel to the Company

Ending Balance as of December 31, 2003                  28,307,975                    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.

                                      -21-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

(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 at the time of
        conversion.

(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.

(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)     The issuance of the shares resulted for Cornell Capital's conversion of
        its $300,000 debenture into common stock of the Company. Cornell Capital
        converted the Debenture into common stock at an amount equal to eighty
        percent (80%) of the average of the three (3) lowest bid Closing Bid
        Prices of the Company's common stock for the five (5) trading days
        immediately preceding the date of the conversion of the Debenture into
        common stock.

(6)     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

(7)     On January 28, 2003, the Company converted $30,000 of debt owed to Mr.
        Trainor, counsel to the Company, into 395,257 shares of Common Stock.

        During Fiscal 2003, the Company issued share of it common stock in-lieu
        of monetary payments to certain third party venders, directors,
        attorneys and/or employees of the Company for services, debt and/or
        products provided. In accordance with procedures established SFAS 123,
        the Company values the stock consideration paid for all such market
        priced services, debt and/or products at the fair market value of the
        security issued at the time of its issuance. The Company has followed
        the practice of utilizing the average of the bid and offer closing
        prices for its

                                      -22-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        stock for the five business days immediately preceding the issuance date
        as a measure of the fair market value of its securities

                a.      COMMON STOCK OPTIONS

<TABLE>
<CAPTION>
                                                           DECEMBER 31,   DECEMBER 31
                                                               2003           2002
                                                           ------------   ------------
                <S>                                           <C>            <C>
                Outstanding and Exercisable(1)
                 at beginning of period                       5,500,000      6,110,000

                Canceled                                             --       (524,384)

                Granted                                              --             --

                Reclassified                                         --        (85,616)

                Exercised                                            --            (--)

                Outstanding and Exercisable (2)
                 at end of period                             5,500,000      5,500,000
                                                           ------------   ------------
</TABLE>

                (1)  Of the 5,500,000 options outstanding, 4,450,000 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. On November 12, 2002, 110,000
                options awarded under the Company's Non-Qualified Stock Plan
                expired. These options had an exercise price of $2.19 per share.

                (2)  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.

                b.      COMMON STOCK WARRANTS

        Common Stock warrants outstanding at December 31, 2003, consist of the
following(1):

<TABLE>
<CAPTION>
ISSUANCE                             EXPIRATION DATE         AMOUNT (1)       PRICE PER SHARE
---------------------------       --------------------      -----------      ------------------
<S>                               <C>                        <C>              <C>
Financing Sources (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>

                                      -23-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        (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 at an exercise price of $0.55. On
        August 9, 2001, the expiration date for a total of 25,000 warrants was
        extend to August 10, 2002 for warrants previously granted (August
        26,1997) to Kane interests as consideration for extending the time
        period on the redemption of their remaining Class "A" Preferred Shares.
        The exercise price of the "Kane Warrants" at any time before the
        expiration date is $2.50.

        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)).

        On August 10, 2002, warrants for 25,000 shares issued to the Kanes in
        consideration for forbearance on the redemption of the Series A
        Preferred Stock expired.

                                      -24-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - 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 29,936,136 for the period ended December 31, 2003
        (12/31/2002 - 20,101,630). For the periods ending December 31, 2003 and
        2002, 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 December 31, 2003. See also Note 14(b),
        regarding payment of accrued dividends on the Series A Preferred Stock
        held by the Kanes through December 31, 2003.

12.     INCOME TAXES

        The Company has no current and deferred taxes payable. The Company and
its subsidiary have significant tax losses to be applied against future income.
The subsidiary Company's tax filings show net operating losses to be applied
against future

                                      -25-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

taxable income in the amount of approximately $27 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.

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.

        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

                                      -26-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2003 AND 2002 - PREPARED BY MANAGEMENT (UNAUDITED)

        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 March 31, 2003. Payments for the last three
        quarters ending December 31, 2003, in the amount of $40,000, are still
        outstanding.

        Mr. Erlich has filed a Cross Complaint against the Company for payment
        of his obligation under his guarantee.

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.

16.     NEW ACCOUNTING STANDARD

        In May 2003, the Financial Accounting Standards Board (FASB) issued SFAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. This Statement establishes standard for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances). The financial instruments affected include
mandatory redeemable stock, certain financial instruments that require or may
require the issuer to buy back some of its shares in exchange for cash or other
assets, and certain obligations that can be settled with shares of stock.

        Effective July 1, 2003, Daleco adopted the Statement as required, for
its mandatory redeemable Series A, 10% Cumulative Convertible Preferred Stock,
stated value $50.00 and par value $.01, in line with the satisfaction of its
$400,000 obligation to Mr. Kane, as mentioned under Note 14(b). As a result,
Long-term Debt (see Note 10(c) above) included the preferred securities which
had been previously included as part of the Shareholders' Equity.

        In accordance with the requirements of SFAS No. 150, prior period
amounts have not been reclassified to be in conformity with the current
presentation.

                                      -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 factors over which the Company has
        no control, actual results may differ from those in the forward-looking
        statements. Consequently, all of the forward-looking statements made are
        qualified in their entirety by these cautionary statements and there can
        be no assurance that the actual results or developments anticipated by
        the Company will be realized or, even if substantially realized, that
        they will have the expected effect on the business and/or operations of
        the Company.

        The first fiscal quarter, ending December 31, 2003 continued the
        Company's planned efforts to commercialize the mineral holdings of its
        wholly owned subsidiary, Clean Age Minerals, Inc. and the tropical
        hardwood timber interests of its wholly owned subsidiary Sustainable
        Forest Industries, Inc. The Company also took steps to address the
        financing structure available to its subsidiaries active in the oil and
        natural gas production sector.

        Being a natural resource centric company, The Company's performance
        during its first fiscal quarter ended December 31, 2003, was influenced
        by a variety of factors which were beyond the control of management,
        such as the variability of the demand for and the pricing of crude oil
        and natural gas within the Company's

                                      -28-
<PAGE>

        operating areas and the demand and pricing, both domestically or
        internationally, for the Company's timber and industrial minerals. As in
        previous periods, the Company remained highly dependent on the revenues
        derived from the sale of its oil and natural gas production. During the
        quarter ending December 31, 2003, the Company's energy segments provided
        in excess of 95% of the cash receipts to the Company. The segment's
        performance as measured by operating cash flows declined from the prior
        year period despite the continuation of favorable oil and gas prices.
        The decline was the direct result of an increase in well workover costs
        required to maintain production levels from the Company's managed
        properties.

        During the quarter, the Company's direct expenditures related to the
        commercialization of its mineral holdings increased by 70% over the
        prior year's period to $59,484. This increase was partially offset by
        the receipt of the initial revenues derived from the sale of mineral
        based products. Clean Age Minerals was able to commence extraction
        operations and make initial deliveries of products from both its Calcium
        Carbonate mine in New Mexico and its Zeolite deposit in Texas. The
        Zeolitic material was utilized as a base mineral for the formulation of
        the Company's ReNuGen(TM) product that is based on its CA-Series
        environmental technology. The Company's efforts to commercialize the
        Sierra Kaolin products from its New Mexico Kaolin deposit are ongoing
        and are focused on product development as well as identified
        opportunities for both joint venturing and/or internal development of
        Kaolin processing capabilities.

        Within its timber segment, Sustainable Forest Industries has continued
        its efforts to commercially market tropical hardwoods into domestic
        markets. As a result of these efforts, plans are to introduce a
        construction shingles product utilizing the Wallaba tropical hardwood
        species later this fiscal year. Market surveys and certification testing
        have indicated that the Wallaba Roofing and Siding Shingles have
        significant performance capabilities as compared to products currently
        available on the market.

        For the three month period ending December 31, 2003, total operating
        revenues increased nominally by $19,787 (5.4%) while direct operating
        expenses increased by $103,584 (20.6%) as compared with the same quarter
        last year. The increase in direct operating expense is associated with
        increased levels of activity in all business segments but was most
        impacted by higher levels of expenditures for producing well maintenance
        within the oil and natural gas sector. For the period, the Company
        recorded a loss before the reported gain on debt forgiveness of $663,123
        as compared to a loss of $580,564 for the prior fiscal year's first
        quarter. In addition, the Company views the gain recorded in the quarter
        ($5,787,687) as having a nonrecurring impact on the Company. This
        significant financial item is the direct result of the Company's
        successful efforts relating to the renegotiation of certain debt
        obligations.

                                      -29-
<PAGE>

        When the gain on debt forgiveness is included, the Company recorded a
        non-recurring income for the quarter of $5,124,523.

Item 3 -        Controls and Procedures

                Sarbanes-Oxley Act

        On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act
        of 2002 ("SOA"). The SOA 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 SAO, 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 SOA is applicable to all publicly traded reporting companies no
        matter how small or large. The SOA 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.

        The SOA also suggests but does not presently require that a "Disclosure
        Committee" be established. Rules of the exchange on which the Company's
        Common Stock, NASDAQ, will require the establishment of "disclosure
        controls." 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 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

                                      -30-
<PAGE>

        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 SOA 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 SOA 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 SOA.

        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 SOA
        and Regulations promulgated by the SEC.

PART II.        OTHER INFORMATION

Item 1.         None

Item 2.         Change in Securities.

        Pursuant to the Second Amended Loan Agreement dated December 31, 2003
        between Sonata Investment Company, Ltd. ("Sonata"), Tri-Coastal Energy,
        L.P. and Daleco, Sonata, or its nominee was given 250,000 shares of
        Daleco common stock. The average of the closing bid and asking price on
        December 30, 2003 for Daleco common stock was $.906. The Company
        recorded a cost of $226,500 for the issuance of these shares. The
        Company also issued to Sonata, or its nominees, warrants for $250,000
        shares of Daleco common stock at an exercise price of $.906 per share.
        These warrants have an expiration date of December 31, 2007. Daleco also
        extended the expiration date for other warrants held by Sonata with
        exercise prices ranging from $.55 to $1.05 until December 31, 2007. The
        Company recorded a cost of $48,546 resulting from the extension of these
        warrants.

                In October 2003, Terra Silex Holdings, Inc. exercised its rights
        under Paragraph 6.3 of the Terra Silex Stock Acquisition Agreement,
        dated September 11, 2001 ("Terra Silex Agreement"). Paragraph 6.3 of the
        Terra Silex Agreement gives Terra Silex the right to acquire additional
        shares of Daleco common stock if

                                      -31-
<PAGE>

        Daleco were to sell more than 500,000 shares in one block. The
        conversion of the Cornell Capital debenture was the event that triggered
        Terra Silex's right under Paragraph 6.3 Terra Silex purchased 220,169
        shares at a price of $.117 per share.

Item 3          Heller Debt.

                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
        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 any fashion. The Company has done other
        financings (see Note 10(b) below) with Sonata previously, and the
        Company has consulted for Sonata

                                      -32-
<PAGE>

        and/or its affiliated entities regarding oil and gas projects,
        acquisitions, exploration and development.

                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;

                (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; and

                (3)     extend the expiration dates for the warrants currently
        held by Sonata until December 31, 2007.

                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 both the provisions of the Heller Loan and
        the Sonata Loan and was made in the ordinary course.

                Tri-Coastal, Sonata and Daleco entered into a Second Amended
        Loan Agreement amended 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 rates, 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

                                      -33-
<PAGE>

        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, 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 "Earnings Per
        Share Calculations" should be compared as follows:

<TABLE>
<S>                                                          <C>              <C>
Net Income (loss) (before gain on debt forgiveness)          $    (663,163)   $    (580,564)
Basic and Fully Diluted Income (loss)/Share                  $        (.02)   $        (.03)
(calculated on 28,307,975 shares outstanding)

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

Net Income (loss)(including gain on debt forgiveness)        $   5,124,523    $    (580,564)
Basic and Fully Diluted Net Income (Loss)/Share                  $.18/$.13    $        (.03)
  (calculated on 28,307,975 shares outstanding, Basic &
   39.327,554 shares, Fully Diluted Basis)
</TABLE>

                                      -34-
<PAGE>

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

                None

Item 5          Other Information

                The Company's prior auditor resigned in September 2004. Prior to
his resignation, it was determined that the Company's prior auditor was not
registered with the PCAOB as required by the Sarbanes Oxley Act of 2002, as
amended. The Company replaced its prior auditor with Vasquez & Company (see the
Company's Form 8-K dated September 14, 2004, Form 8-K dated December 2, 2004 and
Form 8-K dated December 3, 2004). As such, the financials previously reported in
the Company's prior filings listing the financial statements as of September 30,
2003 as audited were incorrect. This Third amendment properly notes that the
financial statements as of September 30, 2003 originally filed by the Company in
January 2004 were not "audited" due to the Company's prior auditor not being
registered in accordance with the PCAOB. The Company's new auditor, Vazquez &
Company, LLP, has re-audited the Company's financial statements for its fiscal
year ending, September 30, 2003, which were filed by the Registrant in its First
Amended Annual Report on Form 10-KSB for the period ending September 30, 2003 on
or about January 11, 2005.

ITEM 6          Exhibits and Reports on Form 8-K

                None.

                                      -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: February 22, 2005                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:  February 22, 2005                           /s/ Gary J. Novinskie
                                            ------------------------------------
                                            Gary J. Novinskie
                                            President and Director

Date: February 22, 2005                                /s/ Dov Amir
                                            ------------------------------------
                                            Dov Amir
                                            Chief Executive Officer and
                                            Chairman of the Board of Directors

                                      -36-
<PAGE>

                                  CERTIFICATION

        I, Gary J. Novinskie, certify that:

        1.      I have reviewed this Third Amended quarterly report on
Form 10-QSB of Daleco Resources Corporation for the quarter ending
December 31, 2003.

        2.      Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this annual report;

        3.      Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;

        4.      The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                (a)     designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;

                (b)     evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

                (c)     presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

        5.      The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                (a)     all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weakness in internal controls; and

                                      -37-
<PAGE>

                (b)     any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

        6.      The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: February 22, 2005                            /s/ Gary J. Novinskie
                                           -------------------------------------
                                           Gary J. Novinskie
                                           President and Chief Financial Officer

                                      -38-
<PAGE>

                                  CERTIFICATION

        I, Dov Amir, certify that:

        1.      I have reviewed this Third Amended quarterly report on Form
10-QSB of Daleco Resources Corporation for the quarter ending December 31, 2003.

        2.      Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this annual report;

        3.      Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;

        4.      The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                (a)     designed such disclosure controls and procedures to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being prepared;

                (b)     evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

                (c)     presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

        5.      The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                (a)     all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weakness in internal controls; and

                                      -39-
<PAGE>

                (b)     any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

        6.      The registrant's other certifying officers and I have indicated
in this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: February 22, 2005                                 /s/ Dov Amir
                                            ------------------------------------
                                            Dov Amir
                                            Chief Executive Officer

                                      -40-
<PAGE>

In connection with the Third Amended Quarterly Report of Daleco Resources
Corporation (the "Company") on Form 10-QSB for the period ending December 31,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Gary J. Novinskie, President and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

        (1)     The Report fully complies with the requirements of Section 13(a)
                or 15(d) of the Securities Exchange Act of 1934; and

        (2)     The information contained in the Report fairly presents, in all
                material respects, the financial condition and result of
                operations of the Company.

                                                   /s/ Gary J. Novinskie
                                           -------------------------------------
                                           Gary J. Novinskie
                                           President and Chief Financial Officer
                                           February 22, 2005

                                      -41-
<PAGE>

In connection with the Third Amended Quarterly Report of Daleco Resources
Corporation (the "Company") on Form 10-QSB for the period ending December 31,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Dov Amir, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

        (3)     The Report fully complies with the requirements of Section 13(a)
                or 15(d) of the Securities Exchange Act of 1934; and

        (4)     The information contained in the Report fairly presents, in all
                material respects, the financial condition and result of
                operations of the Company.

                                                       /s/ Dov Amir
                                            ------------------------------------
                                            Dov Amir
                                            Chief Executive Officer
                                            February 22, 2005

                                      -42-