<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

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

For the quarterly period ended June 30, 1997
                               -------------

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

For the transition period from _____________ to ______________

Commission File Number 0-12214
                       -------

                          DALECO RESOURCES CORPORATION
              Name of small business issue as specified in Charter


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


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




                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution under a
plan confirmed by court.
                                                                Yes ___ No ___


                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date.

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


<PAGE>



                                      INDEX
<TABLE>
<CAPTION>

                                                                                                                       PAGE
<S>               <C>                                                                                                   <C>
PART I            FINANCIAL INFORMATION

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

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

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

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

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

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

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

         SIGNATURES..................................................................................................... 19

</TABLE>
<PAGE>



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

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

                                                         ASSET
<S>                                                                               <C>                       <C>  
CURRENT ASSETS
       
Cash                                                                              $    212,457              $    553,530

Receivables                                                                            108,577                   772,176

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

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

                                                                                     1,021,197                 1,325,706

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

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

Property and Equipment                                                                  77,633                      --

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

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

Goodwill (Note 14)                                                                     917,518                      --

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

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

                                                      LIABILITIES

CURRENT LIABILITIES

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

Notes Payable (Note 7)                                                                 688,000                 1,100,000

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

                                                                                     2,818,058                 2,427,833

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

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

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

                                                                                     3,729,269                 3,851,825

                                                 SHAREHOLDERS' EQUITY

CAPITAL STOCK

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

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

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

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $  8,165,033              $  6,541,097
                                                                                  ============              ============

</TABLE>

See Accompanying Notes.                 1


<PAGE>



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


                                                             THREE MONTHS ENDED                      NINE MONTHS ENDED

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

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

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

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

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

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

Management and Administrative Fee                       
Revenues                                                172,836                --               422,302                --

Gain on Litigation Settlement                              --                  --                  --               768,463

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

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

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

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

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

Write-Down of Advances to Mining Joint                  (25,000)               --               (75,000)               --
Venture

Interest  Expense                                       (18,810)            (37,942)           (110,160)           (104,473)
                                                    -----------         -----------         -----------         -----------

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

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

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


See Accompanying Notes.                 2

<PAGE>


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

<TABLE>
<CAPTION>
                                                 Unaudited                   Unaudited
                                               June 30, 1997               June 30, 1996
                                                -----------                 -----------

<S>                                             <C>                          <C>        
BALANCE - BEGINNING OF PERIOD                   $(6,672,105)                 (5,698,296)

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

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










See Accompanying Notes.                 3

<PAGE>



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


                                                                 Three Months Ended                      Nine Months Ended

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

Items not affecting Working Capital -

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

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

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

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

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

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

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

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

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

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

INVESTING ACTIVITIES

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

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

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

FINANCING ACTIVITIES

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

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

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

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

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

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

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

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

See Accompanying Notes.                 4

<PAGE>


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

1.    Reference To Audited Financial Statements. These Financial Statements
      should be read in conjunction with the Notes to the Company's Audited
      Financial Statements as of September 30, 1996.

2.    Summary of Significant Accounting Policies.
      ------------------------------------------

   a.    Use of Estimates.
         ----------------

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

   b.    Basis of Consolidation.
         ----------------------

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

   c.    Oil and Gas Properties and Equipment.
         ------------------------------------

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

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

                                        5

<PAGE>

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

   d.    Site Restoration, Dismantlement and Abandonment Costs.
         -----------------------------------------------------

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

   e.    Investment in Minera La Yesca.
         -----------------------------

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

   f.    Mineral Properties.
         ------------------

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

   g.    Timber Rights.
         -------------

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

   h.    Cash and Cash Equivalent.
         ------------------------

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

   i.    Goodwill.
         --------

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

   j.    Property and Equipment.
         ----------------------

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


                                        6

<PAGE>


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

3.    Investment In And Advances To Mining Joint Venture.
      --------------------------------------------------

      The Company participated in an agreement dated March 12, 1980, (revised
      October 18, 1980) to purchase 25% of the issued shares of Minera La Yesca,
      a Mexican mining corporation. Funds were advanced to Minera La Yesca to
      help finance the costs of placing the Pinabete Silver Mine (the "mine") in
      Mexico into production. The investment in and advances to Minera La Yesca
      have been recorded at cost. Due to operating losses, resulting from the
      continuing low price of silver, the mine was taken out of production
      during 1990.

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

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

                                                            1997                          1996
                                                            ----                          ----

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

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

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

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


                                        7

<PAGE>


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

5.    Timber Rights Acquisition.
      -------------------------

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

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

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

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

6.    Mineral Properties.
      ------------------

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

7.    Note Payable.
      ------------

      During the year ended September 30, 1995, the Company received $1,100,000
      in return for a note payable, with the producing wells of the Company used
      as collateral. Interest of 10% per annum is due monthly. The balance
      outstanding on this loan as of June 30, 1997 was $688,000.


                                        8

<PAGE>


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

8.    Due to (from) Related Parties.

<TABLE>
<CAPTION>
                                                       June 30,                June 30,
                                                         1997                    1996
                                                         ----                    ----
<S>                                                   <C>                      <C>    
      Net due to Haly Corporation -
        Bearing interest at prime +1%                  $312,952                 141,570
        Bearing interest at TCD +1.5%                      --                      --
                                                       --------                --------
                                                        312,952                 141,570

      Net due (From) to Amir and Erlich
        Bearing interest at prime +3%                    91,062                 159,552
        Bearing interest at 7%                          167,197                    --   
        Non-interest bearing                               --                   122,870
                                                       --------                --------
                                                        258,259                 282,422
                                                       --------                --------
                                                       $571,211                 423,992
                                                       ========                ========
</TABLE>

      There are no fixed repayment terms for these amounts.

9.    Related Party Transactions.
      --------------------------

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

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

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


                                        9

<PAGE>


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

10.   Debentures.
      ----------
                                                      As Of         As Of
                                                     June 30,      June 30,
                                                       1997          1996
                                                       ----          ----
                                                       
   7% Convertible Debentures                            --            -- 
   8% Convertible Debentures
                                                      $90,000         --
                                                        

   a.    7% Convertible Debentures
         -------------------------

         On May 31, 1996 the Company issued $1,000,000 of 7% convertible
         debentures with interest payable in cash or stock on a semi-annual
         basis, and a term of three years. The placement agent's fees ere 10% of
         the gross proceeds, and 100,000 warrants at U.S. $1.00 and a five year
         term (see note 12(b)). The debentures may be converted after a holding
         period of: (a) as to 50% of the principal amount, 40 days (July 10,
         1996), and (b) the remaining 50%, 60 days (July 30, 1996). The
         debentures are convertible into the Company's common stock at the
         lessor of: (1) a 35% discount on the previous five day average closing
         bid price at conversion, or; (2) the previous five day average closing
         bid price at closing (May 31, 1996). As of December 31, 1996 the 7%
         debentures have been converted into 2,406,285 common shares.

   b.    8% Convertible Debentures
         -------------------------

         On September 11, 1996 the Company issued $1,310,000 worth of 8%
         convertible debentures with interest payable in stock only and accruing
         until conversion or redemption after the term of two. The placement
         agent's fees were 10% of the goss proceeds, and 122,111 warrants
         discussed in not 12(c). the debentures may be converted after a holding
         period of: (a) as to 50% of the principal amount, 45 days after closing
         (October 2, 1996), and (b) as to the remaining 50%, 65 days after
         closing (November 16, 1996). The debentures and accrued interest are
         convertible into the Company's common stock at the less of : (1) the
         fixed conversion price ($1.0171875), or (2) 75% of the average closing
         bid price for the five trading days immediately preceding the date of
         conversion. As of June 30, 1997, $1,220,000 of the 8% debentures have
         been converted into 5,573,338 shares of common stock.

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

                                       10

<PAGE>


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

11.   Capital Stock.
      -------------
<TABLE>
<CAPTION>
                                                                        NUMBER OF         NUMBER OF
                                                                      COMMON SHARES    PREFERRED SHARES
                                                                      PAR VALUE $.01    PAR VALUE $.01
                      AUTHORIZED                            Ref.                                                    AMOUNT
<S>                                                        <C>            <C>                   <C>              <C>      
                                                                        50,000,000        50,000,000
  
Balance as at September 30, 1996                                        13,154,854            -0-               $ 8,860,984

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

Issued upon Acquisition of Deven Resources, Inc.            (2)          2,600,000            -0-                 2,500,000
 
Issued For Services                                         (3)            702,666            -0-                    67,000

Exercise of Warrants                                        (4)            400,000            -0-                      --
                                                                       -----------                              -----------

Balance as at June 30, 1997                                             25,580,045            -0-               $12,855,225
                                                                        ==========                              ===========
</TABLE>


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

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

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

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

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

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

                                       11

<PAGE>


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

      Mr. Smith exercised his warrants for 400,000 shares of common stock by 
      issuing a Note Payable to the Company.

   (a)   Common Stock Options
         --------------------

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


                                                      1997              1996
                                                      ----              ---- 
                                                    
      Outstanding at beginning of year              850,000           850,000
      Cancelled                                    (150,000)         (150,000)
                                                    -------           -------
      Outstanding at end of period                  700,000           700,000
                                                    =======           =======
                                                    

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


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


   (c)   Common Stock Warrants Attached to Debentures
         --------------------------------------------

         In connection with the issuance of the 8% convertible debentures in
         September, 1996; a number of warrants were granted to the holders of
         the debentures, the agents, and subagents who placed the debentures. As
         of June 30, 1997, the number of warrants outstanding is indeterminable
         due to the exercise formula which is based upon a number of variables
         and future transactions.


                                       12

<PAGE>

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

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

         On September 11, 1996, a total of 122,111 warrants expiring on
         September 11, 2001 were granted to the agents. The warrants may be
         exercised at any time before the expiration date by either of the two
         methods as follows: (1) each warrant may be exercised for one common
         share with an exercise price of $1.073 or (2) all a portion of the
         warrants may exercised on a cashless basis where a reduced number of
         shares of common stock will be issued based upon the difference between
         the average closing price of the Company's common stock for the five
         business days immediately preceding the date of exercise and the
         exercise price, divided by the average closing market price, times the
         number of warrants being exercised.

   (d)   Net Income Per Share

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

12.   Income Taxes.
      ------------

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

13.   Segmented Information.
      ---------------------

      Substantially all of the Company's operating activities are in oil and gas
      exploration and development in the United States which is considered to be
      the Company's domestic segment. In addition, the Company has a 100% owned
      subsidiary involved in the harvesting of Timber Concessions in Guyana.


                                       13

<PAGE>


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

      The following table identifies customers of the Company who purchased
      greater than ten percent (10%) of the oil and gas produced by the Company:
<TABLE>
<CAPTION>
                                                                  1997                 1996
                                                               Percentage           Percentage
                                                                Of Total             Of Total
                                                                  Sales                Sales
                                                   
<S>                                                             <C>                     <C>
Oil Production
     Pride Pipeline Company                                       100%                  100%
                                                                  
Gas Production
     Aquila Southwest Pipeline Corporation                         57%                   50%
     Austin Chalk National Gas Marketing Services                  34%                   50% 
     SONAT                                                          9%
                                                                   
</TABLE>



14.   Acquisition of Deven Resources Corporation.

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

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

15.   Commitment.
      ----------

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

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

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

                                       14

<PAGE>


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

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




                                       15

<PAGE>


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

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

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

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

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

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

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


                                       16

<PAGE>


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

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

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

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

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

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

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

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

                                       17

<PAGE>


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

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

      2.    Settlements.
            -----------

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


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

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

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


ITEM 5      OTHER INFORMATION.
            -----------------

            None.


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

            None.


                                       18

<PAGE>

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

                                   SIGNATURES

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


                          DALECO RESOURCES CORPORATION

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


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

                                       19