<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

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

For the quarterly period ended December 31, 2004

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

For the transition period from __________________ to ______________

Commission File Number 0-12214

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

                 Nevada                                      23-2860734
   ---------------------------------                   ----------------------
      (State or other jurisdiction                          (IRS Employer
   of 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,
2004: 28,693,043
Number of shares outstanding of the issuer's Series A preferred stock as of
December 31, 2004: 8,000
Number of shares outstanding of the issuer's Series B preferred stock as of
December 31, 2004: 185,000

<PAGE>

                                      INDEX

                                                                            PAGE
                                                                            ----
PART I    FINANCIAL INFORMATION

ITEM 1    FINANCIAL STATEMENTS (Unaudited) ...................................3
          Consolidated Balance Sheets ........................................3
          Consolidated Statements Of Income (Loss) ...........................5
          Consolidated Statements Of Cash Flow ...............................6
          Statement of Shareholder's Equity ..................................8
          Notes to Consolidated Financial Statements .........................9

ITEM 2    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS ...............................33

ITEM 3    CONTROLS AND PROCEDURES ...........................................35

PART II   OTHER INFORMATION .................................................38

ITEM 2    CHANGE IN SECURITIES ..............................................38

ITEM 3    HELLER DEBT .......................................................38

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...............41

ITEM 5    OTHER INFORMATION .................................................41

ITEM 6    Exhibits and Reports on Form 8-K ..................................42

SIGNATURES ..................................................................43

                                       -2-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 -- PREPARED BY
MANAGEMENT (UNAUDITED) AND SEPTEMBER 30, 2004 (AUDITED))

<TABLE>
<CAPTION>
                                                      DECEMBER 31,   SEPTEMBER 30,
                                                         2004            2004
                                                      (UNAUDITED)      (AUDITED)
                                                     -------------   -------------
<S>                                                  <C>             <C>
ASSETS
CURRENT ASSETS
         Cash Accounts                               $     242,843   $     265,888
         C/Ds                                              133,120         133,120
         Account receivables                               555,337         578,597
         Prepaid Mineral Royalties S/T (note 5c)           300,297         300,297
         Other Current Assets                                4,569           4,569
                                                     -------------   -------------
                           TOTAL CURRENT ASSETS      $   1,236,166   $   1,282,471
                                                     -------------   -------------
OTHER ASSETS
         Prepaid Mineral Royalties L/T (note 5c)     $     324,270   $     294,270
         Debt Placement Costs                              878,661         869,861
         Accumulated Amortization                         (681,051)       (656,137)
                                                     -------------   -------------
                  Net Debt Placement Costs                 197,610         213,724
                                                     -------------   -------------
         Equity Placement Costs                              1,800              --
         Accumulated Amortization Equity Costs                (225)             --
                                                     -------------
                  Net Equity Placement                       1,575              --
                                                     -------------
                           TOTAL OTHER ASSETS        $     523,455   $     507,994
                                                     =============   =============
Fixed Assets
         Oil and Gas Properties (note 3)             $  12,607,950   $  12,607,950
         Accumulated DD&A                               (8,057,950)     (7,907,950)
                                                     -------------   -------------
                  Net Oil and Gas Property               4,550,000       4,700,000
         Mineral Properties (note 5)                    12,609,100      12,609,100
         Accumulated DD&A                                 (250,000)       (200,000)
                                                     -------------   -------------
                  Net Mineral Property                  12,359,100      12,409,100
         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                               (3,086,598)     (2,904,378)
                                                     -------------   -------------
                  Net Tech./Patent Rights                4,680,402       4,862,622
         Property, Equipment, Furniture & Fixtures         514,749         514,749
         Accum. Depr (P, E, F & F)                        (508,178)       (505,332)
                                                     -------------   -------------
                  Net (P, E, F & F)                          6,571           9,417

                           TOTAL FIXED ASSETS        $  21,596,073   $  21,981,139
                                                     =============   =============
                           TOTAL ASSETS              $  23,355,694   $  23,771,604
                                                     =============   =============
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       -3-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 -- PREPARED BY
MANAGEMENT (UNAUDITED) AND SEPTEMBER 30, 2004 (AUDITED))

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,   SEPTEMBER 30,
                                                                       2004           2004
                                                                   (UNAUDITED)      (AUDITED)
                                                                  -------------   -------------
<S>                                                               <C>             <C>
LIABILITIES
CURRENT LIABILITIES
         Trade A/P                                                $   1,045,897   $     938,609
         Notes Payable (note 7)                                         132,543         132,543
         Note Due related Pty (note 8)                                  781,610         751,310
         HFI Financing (note 10)                                             --              --
         Loans--1st Regional (note 10)                                  100,000         100,000
         CAMI Notes                                                     514,881         514,881
         Sonata and Standard Energy Financing (notes 7 and 10)          218,333         218,334
         Accrued Interest Expense (notes 8 and 10)                      518,000         359,938
         Accrued Dividend Expense (notes 11 and 14)                   1,692,892       1,935,336
         Accrued Expense Reimbursements (notes 8)                        93,975          92,675
         Accrued Salary Expense (note 8)                                730,500         657,583
                                                                  -------------   -------------
                           TOTAL CURRENT LIABILITIES              $   5,828,722   $   5,701,209
                                                                  -------------   -------------
Long Term Liabilities
         Long Term Debt - Sonata & Lucas  (notes 7 and 10)        $     235,477   $     304,628
         Mandatory Redeemable Preferred Stock (note 7(a))               400,000         400,000
                                                                  -------------   -------------
                           TOTAL LONG TERM LIABILITIES                  635,477         704,628
                                                                  -------------   -------------
                           TOTAL LIABILITIES                      $   6,464,199   $   6,405,837
                                                                  -------------   -------------
EQUITY
         Beginning Retained Earnings                              $ (22,239,206)  $ (25,103,748)
         Current Period Income/(loss)                                  (527,145)      3,555,730
         Dividends Paid (Cash & Stock) / Accruals                       (47,276)       (691,188)
         Add. Paid in Capital (See Note 11)                          39,416,342      39,319,453
         Preferred Stock (note 11)                                        1,850           1,850
         Common Stock (note 11)                                         286,930         283,670

                           TOTAL EQUITY                           $  16,891,495   $  17,365,767
                                                                  -------------   -------------
                           TOTAL LIABILITIES AND EQUITY           $  23,355,694   $  23,771,604
                                                                  =============   =============
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       -4-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE THREE MONTHS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

<TABLE>
<CAPTION>
                                                         FY05             FY04
                                                      12/31/2004       12/31/2003
                                                     -------------   --------------
<S>                                                  <C>             <C>
REVENUE
Oil and Gas Sales                                    $     294,740   $      343,660
Royalty Receipts                                            11,124            8,016
Mineral Sales                                               13,039           18,481
                                                     -------------
         Total Operating Income                      $     318,903   $      370,158
                                                     -------------   --------------
Well Management                                             41,506           16,505
Gain from debt extinguishment                                   --        5,787,687
Other income                                                24,800              863
                                                     -------------   --------------
         Total Other Income                                 66,306        5,805,055
                                                     -------------   --------------
         Total Income                                $     385,209   $    6,175,213
                                                     -------------   --------------
EXPENSES
Lease Operating Expenses--Oil and Gas                $     191,236   $      213,843
Lease Operating Expenses--Timber                                --            3,300
Lease Operating Expenses--Minerals                          15,500           59,484
Prod Tax                                                    22,831           25,139
DD&A (includes Depreciation)                               385,066          344,441
Third Party Distributions                                   10,308            8,921
                                                     -------------   --------------
         Total Property Expense                      $     624,941   $      655,128
                                                     -------------   --------------

Interest Expense                                            38,489          141,688
General and Administrative Expenses                        162,729          174,961
Legal and Professional Expenses                             56,858           75,715
Shareholder Information                                      4,198            3,197
Amortization of Debt Costs (Note 10)                        24,914               --
Amortization of Equity Cost                                    225               --
                                                     -------------   --------------
         Total Expenses                                    912,354        1,050,689
                                                     -------------   --------------
Net Income (loss), (see Note 10)                     $    (527,145)  $    5,124,523
                                                     =============   ==============
Basic/Fully Diluted Net Income (Loss)/ (based on     $       (0.02)  $ 0.18 / $0.13
weighted-average outstanding common stock of
28,441,695 and fully diluted of 37,891,274 in
FY05 and 27,829,106 weighted-average outstanding
and 37,118,685 fully diluted in FY04)(See Note 10)
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       -5-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED))

<TABLE>
<CAPTION>
                                                                      2004            2003
                                                                  ------------    ------------
<S>                                                               <C>             <C>
OPERATING ACTIVITIES
Net income loss for the year                                      $   (527,145)   $  5,124,523
Items not affecting working capital:
  Depletion, depreciation, and amortization for the period             385,066         344,441
  Amortization of Debt Costs                                            24,914               0
  Amortization of Equity Costs                                             225               0
  Net Gain on Forgiveness of Debt                                           --      (5,787,687)
                                                                  ------------    ------------
    Sub Total :                                                   $    410,205    $ (5,443,246)
                                                                  ------------    ------------
Items affecting working capital:
  (Increase)/Decrease in Other Assets                             $     (9,275)   $   (285,046)
  (Increase)/Decrease in pre-paid royalties                            (30,000)        (30,000)
  (Increase)/Decrease in account receivables                            32,260         (97,191)
  Increase/(Decrease) in Trade Payables                                107,288         846,311
  Increase/(Decrease) in other Accrued Expenses                         74,214          81,855
  Gain/(loss) on Sale of Properties                                     15,160               0
    Sub Total:                                                    $    189,647    $    515,929
                                                                  ------------    ------------
CASH USED BY OPERATING ACTIVITIES                                 $     72,707    $    197,206
                                                                  ------------    ------------
INVESTING ACTIVITIES
(Increase)/Decrease in subsidiary/other investments               $      8,000    $          0
Leasing, Acquisition and Well Costs Incurred                          (180,143)              0
                                                                  ------------    ------------
CASH PROVIDED FROM/(USED FOR) INVESTING ACTIVITIES                $   (172,143)   $          0
                                                                  ------------    ------------
FINANCING ACTIVITIES
Increase/(decrease) in Notes due Related Parties (Note 8)         $     30,300    $          0
Increase/(decrease) in accrued interest                                158,062      (1,527,115)
Increase/(decrease) Sonata Note Due                                    (69,152)        631,702
Increase/(decrease) in accrued Dividends (Notes 11 and 14)            (242,446)        234,317
Dividends Paid (Note 11)                                                     0               0
Proceeds of Equity Issuance                                            199,627         260,162
Proceeds of Long Term Debt                                                   0          43,000
                                                                  ------------    ------------
CASH PROVIDED FROM FINANCING ACTIVITIES                           $     76,391    $   (357,934)
                                                                  ------------    ------------
NET INCREASE/(DECREASE) IN CASH FOR PERIOD                        $    (23,045)   $   (160,728)
                                                                  ============    ============
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       -6-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

                                                         2004          2003
                                                      -----------   -----------
DECREASE IN CASH AND CASH EQUIVALENTS                 $   (23,045)  $  (160,728)
Cash and Cash Equivalents - Beginning of Period       $   399,008   $   564,988
Cash and Cash Equivalents - End of Period Cash        $   375,963   $   404,260

Supplemental Information:

INCOME TAXES PAID                                     $         0   $         0
INTEREST PAID IN PERIOD                               $    11,096   $     1,141


SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS

Issuance of common stock for services                 $    74,827   $         0
CONVERSION FROM PREFERRED TO COMMON SHARE             $         0   $ 1,250,000

Conversion of debt to common shares                   $    34,800   $         0

Dividends paid on preferred stock with common share   $         0   $   691,188

Issuance of common stock under Private Placement      $    90,000        25,760


             ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       -7-
<PAGE>

DALECO RESOURCES CORPORATION
STATEMENT OF SHAREHOLDER'S EQUITY
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

                                                    12/31/2004      12/31/2003
                                                  -------------   -------------
COMMON STOCK OUTSTANDING
       Shares
               Beginning of Period                   28,367,043      26,284,856
               Issued                                   326,000       2,023,119
               Cancelled                                      0               0
               End of Period                         28,693,043      28,307,975
       VALUE AT PAR ($0.01/SHARE)                 $     283,670   $     262,849

PREFERRED STOCK OUTSTANDING

       Shares Class "A"
               Beginning of Period                            0               0
               Presented as Debt                              0               0
               End of Period                                  0               0
       VALUE AT PAR ($0.01/SHARE)                 $           0   $           0

       Shares Class "B"
               Beginning of Period                      185,000         310,000
               Issued                                         0               0
               Converted to Common                            0        (125,000)
               Cancelled                                      0               0
               End of Period                            185,000         185,000
       VALUE AT PAR ($0.01/SHARE)                 $       1,850   $       1,850

ADDITIONAL PAID IN CAPITAL
               Beginning of Period                $  39,319,453   $  38,722,010
               Equity Issuance Other                     96,889         885,949
               Excess of Redemption Amount                    0        (399,920)
               End of Period                      $  39,416,342   $  39,061,476

ACCUMULATED RETAINED
EARNINGS/(DEFICIT)
               Beginning of Period                $ (22,239,204)  $ (25,103,748)
               Income/(Loss) for Period                (527,145)      5,124,523
               Dividends                                (47,276)       (691,188)
               End of period                      $ (22,813,625)  $ (20,704,413)

EQUITY
               Beginning of Period                $  17,365,767   $  13,884,291
               End of Period                      $  16,891,495   $  18,676,073

               Change in Equity for Period        $    (474,272)  $   4,791,782

             ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       -8-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED))

1.      CONTINUED OPERATIONS

        The financial statements have been prepared on the basis of a going
concern, which contemplates that the Company will be able to realize assets and
discharge liabilities in the normal course of business. Accordingly, they do not
give effect to adjustments that would be necessary should the Company be
required to liquidate its assets. As of September 30, 2004, the Company reported
a gain of $ 3,555,730 (including the gain from forgiveness of debt of
$5,787,687). The Company incurred a loss of $527,145 for the three-months ended
December 31, 2004. The ability of the Company to meet its total liabilities of
$6,232,683 as of December 31, 2004, and to continue as a going concern is
dependent upon the availability of future funding, achieving profitable timber
operations and successful development of its acquired 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 was convertible into common stock at a
price equal to the lessor 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. The Company filed a registration
statement on Form SB-2 with the Securities and Exchange Commission, which became
effective 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 research and entertain project specific
funding commitments and other capital funding alternatives if and as they become
available.

        As of September 30, 2004, the Company and certain of its subsidiaries
were in default of certain debt obligations (See Notes 7, 8 and 10(a) below).
The holders of these instruments are working with the Company to achieve the
ultimate 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

                                       -9-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

        B.      BASIS OF CONSOLIDATION

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

        Effective August 2001, the Company began assessing the impairment of
capitalized costs of proved oil and gas properties and other long-lived assets
in

                                      -10-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144),
Accounting for the Impairment or Disposal of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. Under this method, the Company generally
assesses its oil and gas properties on a field-by-field basis utilizing its
current estimate of future revenues and operating expenses. In the event net
un-discounted cash flow is less than the carrying value, an impairment loss is
recorded based on estimated fair value, which would consider discounted future
net cash flows. SFAS 144 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 the Company's producing wells or mining deposits
are 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. Since, to date, all mining and
exploration of the Company's mineral deposits is conducted by contract mining
companies, the Company has not accrued any specific mine restoration costs. As
the mining activity increase, the Company may accrue site restoration costs as
appropriate.

        E.      PROPERTY AND EQUIPMENT

        Property and equipment are recorded at cost and depreciated using the
straight-line method over a period of five years. The carrying value of property
and equipment may be 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. The
Company has completely written down the costs of the timber rights acquisition.

        G.      MINERAL ACQUISITION

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

                                      -11-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        H.      DEBT ISSUE COSTS

        Debt issue costs, represent those costs associated with the initial
Heller Financial, Inc. loan and its restructuring and conversion to the Sonata
Note in Fiscal 2004 (see Note 10(a)). The debt issuance costs associated with
the original Heller Loan were fully amortized as of March 31, 2002. In
conjunction with Sonata Investment Company, Ltd.'s acquisition of the Heller
Loan and the negotiation of an Amended and Restated Loan Agreement, the Company
booked additional debt issuance costs of $285,046 as reported in the first
quarter of fiscal year 2004. These costs are being amortized over a three (3)
year period. As of December 31, 2004, the un-amortized debt issuance costs on
the Company's books amounted to $197,610.

        I.      CASH AND CASH EQUIVALENTS

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

        J.      STOCK-BASED COMPENSATION

        The Company accounts for stock-based compensation in accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, which establishes a fair
value method of accounting for stock-based compensation awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to apply the provisions
of Accounting Principle Board (APB) Opinion No. 25 and provide pro forma net
income disclosures for stock option grants made in future years as if the
fair-value-based method defined in SFAS 123 had been applied. The Company has
elected to apply the provisions of APB Opinion No. 25 and provide disclosure
provisions of SFAS No. 123 for its issued stock options.

        K.      FAIR VALUE OF FINANCIAL INSTRUMENTS

        Cash and cash equivalents, receivables, and all liabilities have fair
values approximating carrying amounts, except for the Heller Financial, Inc.
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.

                                      -12-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

3.      OIL AND GAS AND EQUIPMENT

<TABLE>
<CAPTION>
                                                           2004           2003
                                                       ------------   ------------
<S>                                                    <C>            <C>
Proven lease acreage costs                             $  5,429,995   $  5,429,995

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      8,057,950      7,457,950
                                                       ------------   ------------
                                                       $  4,550,000   $  5,150,000
                                                       ============   ============
</TABLE>

(A)     SALE OF OIL AND GAS PROPERTIES

        On September 28, 2001, but effective January 1, 2001, the Company's
sponsored partnership, Developing Energy Partners I, L.P. sold all of its wells
in Pennsylvania and West Virginia for $3,250,000, of which $2,234,722 was
received at closing and $1,015,278 was attributed to production revenues
collected between January 1, 2001 and September 28, 2001.

        Since the Company, as managing general partner, was responsible for the
receipt and distribution of all funds from the sales of these assets, 100% of
the proceeds were tabulated as part of the gross revenues of the Company on its
financial statements for the relevant periods. As indicated on those statements,
net funds attributable to the limited partners of Developing Energy Partners I,
L.P. were shown as both a line item, "Third Party Distributions", and within the
appropriate notes to those financial statements.

        On or about July 31, 2002 but effective as of July 1, 2002, the Company
sold all of its operated oil and gas properties in Pontotoc County, Oklahoma,
consisting of 11 gross wells and 1.08 net wells, to the contract operator. These
properties were marginal properties and wells with the revenues from production
being just slightly above lease operating costs. Since these properties were
part of the collateral for the Heller Loan (See Note 10(a)), all the proceeds
from the sale went to Heller. In fiscal 2004, the Company divested certain
non-operated interests in 34 wells also located in Potontoc County, Oklahoma. In
total, the value of this group of wells to the Company did not exceed their net
abandonment liabilities. As such, the wells were sold for the assumption of
those contingent liabilities.

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

                                      -13-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

held Delaware company, in exchange for 150,000 shares of Common Stock of the
Company.

        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 $1,028,342 which has been recorded as timber rights. To reflect
adjustments for possible impairment of these assets, the Company has taken
charges accumulating $1,028,342 as of September 30, 2001.

        As a result of the "in-country" economics for harvesting and ready
access to available raw timber supplies through inter-entity arrangements, the
Company is evaluating the benefits of maintaining its direct ownership of
concession rights.

5.      MINERAL PROPERTIES

A.      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

                                                        2004           2003
                                                    ------------   ------------
        Proven undeveloped lease costs              $ 12,609,100   $ 12,609,100
        Mine development costs                                --             --
        Accumulated depletion and depreciation (1)      (250,000)      (100,000)
                                                    ------------   ------------
                                                    $ 12,359,100   $ 12,509,100
                                                    ------------   ------------


        (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.

                                      -14-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        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 2004 the Company conducted mining
        activities on its kaolin deposits in Sierra County, New Mexico for the
        purpose of testing the minerals and producing samples for sales. The
        Company commenced production of its New Mexico calcium carbonate
        properties in Fiscal Year 2004. It anticipates the commencement of the
        commercial production of its kaolin deposits in Fiscal Year 2005, and
        has commenced production of its zeolite deposit in the first quarter of
        Fiscal Year 2005. 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 trade name "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 ($324,270) attributable to the Calcium Carbonate and Zeolite
        deposits that are not anticipated to be fully recovered in Fiscal Year
        2005, are carried as Long Term Assets. The remainder of the prepaid
        royalties ($300,297) are anticipated to be fully used in Fiscal Year
        2005 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 former subsidiary's, 16/6, Inc.,
        patent application on its I(2) Technology was denied by the United
        States Patent Office on June 13, 2003. The Company has elected not to
        appeal the Patent Office Examiner's decision pertaining to the I(2)
        Technology filing. The Company has proceeded with the monetization of
        the technology in a proprietary but unpatented form. 16/6, Inc. was
        merged into Daleco as of September 3, 2004 and ceases to exist.

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

                                      -15-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        collateral. Interest of 10% per annum was due monthly. In fiscal 1996,
        the Company repaid $300,000 of the outstanding balance. In fiscal 1997,
        the remaining $800,000 was converted into 16,000 shares of 10%
        cumulative preferred stock, at $50.00 per share ("Series A Preferred
        Stock"). The Series A Preferred Stock was subject to a put on August 20,
        1999. The holders of the Series A Preferred Stock filed a lawsuit in the
        Los Angeles Superior Court, California against the Company, as well as
        Mr. Amir and Mr. Erlich as guarantors. Mr. Amir satisfied his obligation
        under his guarantee and purchased one-half, or 8,000 shares of the
        Series A Preferred Stock, of the 16,000 shares of the Series A Preferred
        Stock owned by the Kanes. The Company and Mr. Erlich entered into a
        Stipulation for the Entry of Judgment granting the Company until August
        1, 2001 in which to satisfy the put for the remaining 8,000 shares of
        Series A Preferred Stock plus accumulated interest. (See Litigation Note
        14). Mr. Amir converted his Series A Preferred shares into 408,163
        shares of Company common stock. A portion of the dividends ($32,212.97)
        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., one of the Noteholders, ("Sonata")
        was paid to Sonata on November 30, 2001. On June 7, 2002, another
        noteholder converted his Note in the amount of $20,000, plus accrued and
        unpaid interest of $13,528.17, 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 each in the face
        amount of $25,000, 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.

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

                                      -16-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        September 18, 2001 and provide for interest at the rate of 8% per annum.
        These Notes remain outstanding. As of December 31, 2004, the total
        amount payable on these notes is $689,941 representing principal of
        $514,881 and accrued but unpaid interest of $175,060.

d.      On or about September 1, 2004, the Company's wholly-owned subsidiary, CA
        Properties, Inc. borrowed $40,000 from Herbert L. Lucas, an individual
        and former director of Clean Age Minerals, Inc. Mr. Lucas is owed
        additional sums from the Company's acquisition of Clean Age Minerals,
        Inc. in September 2000 (See Note 8(b) below). The note is due on or
        before August 31, 2006 and earns interest at the Prime Rate of interest
        charged from time to time by PNC National Bank, Philadelphia,
        Pennsylvania, plus three percent (3%). Payments of principal were to
        have commenced on October 1, 2004 in 24 equal installments plus accrued
        and unpaid interest through the date of payment. In consideration for
        making the Loan, Mr. Lucas was granted Warrants for 20,000 shares of
        common stock. The exercise price of the Warrants is $0.44 per share. The
        warrants expire on August 31, 2006.

        As of December 31, 2004, $20,000 of total amount owed to Mr. Lucas is
        classified as long-term debt. The total amount payable on this note is
        $41,000 representing principal of $40,000 and accrued but unpaid
        interest of $1,000.

8.      DUE TO RELATED PARTIES

(a)     Due to 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, 2004.

        (2)     Note dated October 1, 1995 bearing interest at the rate of 7% as
        a result of various subsequent advances to the Company the principal
        amount as of December 31, 2004 is $528,548.

        (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.

                                      -17-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

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

        As of December 31, 2004, the outstanding principal and accrued but
        unpaid interest on the obligations listed under numbers 1 through 4 to
        Mr. Amir amounted to $919,273.

        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, 2004, the Company owed Mr. Amir $29,692 in
        un-reimbursed business expenses and $183,336 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, un-reimbursed expenses and
        dividends attributable to the Class A Preferred Stock. These payments
        were reflected in the prior financial statements. Mr. Amir subsequently
        advanced the Company an additional $137,000 (see 8(a)(4) above).

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

        As of December 31, 2004, the Company was indebted to Mr. Amir in the
        aggregate amount of $1,216,648.

(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, 2004, the Martin Debt amounts to $180,551 representing
        $134,811 in principal and $45,740 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, 2004, the
        Company owed Mr. Martin $212,501 in salary and $22,764 in unpaid

                                      -18-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        reimbursable business expenses. As of December 31, 2004, the Company was
        indebted to Mr. Martin in the aggregate amount of $415,816.

(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, 2004, the Company owed Mr. Novinskie $40,768 in
        un-reimbursed expenses and $183,336 in salary and $25,000 in 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, 2004,
        the Company was indebted to Mr. Novinskie in the aggregate amount of
        $249,104.

9.      DEBENTURE

                                              2004       2003
                                            --------   --------
                8% Convertible Debentures   $      0   $ 30,000
                                            --------   --------

        On September 11, 1996, the Company issued $1,310,000 worth of 8%
        convertible debentures with interest payable in stock only and accruing
        until conversion or redemptions after the term of two years. The
        placement agent's fees were 10% of the gross proceeds and 12,111
        warrants at $10.07 expiring November 16, 2001. The debentures may be
        converted after a holding period of 45 days after closing at the lessor
        of: (1) the fixed conversion price ($10.17), or (2) 75% of the average
        closing bid price for the five trading days immediately preceding the
        date of conversion. As of December 31, 2004, $1,310,000 of the 8%
        debentures and its accrued interest had been converted into 990,963
        common shares.

10.     DEBT

                Debt of the Company consists of the following:

        SONATA/HELLER LOAN

                In August 1997, the Company entered into an arrangement with
        Heller Financial, Inc. ("Heller") whereby Heller agreed to provide the
        Company with up to $15,000,000 to rework existing horizontal wells,
        re-complete its vertical wells as horizontal wells, and develop
        additional acreage. Under the terms of the

                                      -19-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        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 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

                                      -20-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        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 agreed 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 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 Second 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 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.

                                      -21-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

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

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

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

                As a result of the benefit resulting from Sonata's acquisition
        of the Heller Loan as set forth above, the "Earnings Per Share
        Calculations" recorded in the Company's first fiscal quarter of 2004 and
        at 9/30/04 are as follows:

<TABLE>
<CAPTION>
                                                            1st Fiscal        Fiscal
                                                             Quarter         Year End
                                                             12/31/03        9/30/04
                                                           ------------    ------------
        <S>                                                <C>             <C>
        Net loss (before gain on debt forgiveness)         $   (663,164)   $ (2,231,957)
        Basic and Fully Diluted Income (loss)/Share,       $       (.02)   $       (.08)
        (calculated on 28,307,975 shares outstanding)

        Net Gain on debt forgiveness                       $  5,787,687    $  5,787,687

        Net Gain (Loss)/share, Basic and fully Diluted     $ 0.20/$0.15    $ 0.20/$0.15

        Net income (including gain on debt forgiveness)    $  5,124,523       3,555,730
        Basic and Fully Diluted Income (loss)/Share          0.18/$0.13    $ 0.13/$0.09
        (calculated on 27,829,106 weighted average
        shares outstanding, Basic & 39,327,554 shares,
        Fully Diluted at 12/31/03 and 28,206,666
        weighted shares outstanding, Basic & 37,816,622
        shares, Fully Diluted Basis at 9/30/04)
</TABLE>

                                      -22-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

                As of December 31, 2004, amount owed to Sonata under the above
        Loan Agreement is $433,810, of which $215,477 is classified as long-term
        debt

        FIRST REGIONAL BANK

        In September 1998, the Company assumed a $100,000 loan with First
        Regional Bank when it acquired Haly Corporation. Interest is at 6.9% and
        the loan matures December 12, 2004. The loan is secured by the 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, 2003                  28,307,975                8,000              185,000
Issuance on payment of obligations                   29,427
To R.A. Lenser & Associates (2)
Issuance on payment of obligations                   20,000
To Murphy Communications, Inc. (2)
Issued on Conversion of Debentures                    9,641
Issuance on payment of obligations                   20,000
To W. Smith (5)
Issuance under Regulation-D Private                 306,000
Placement (4)

Ending Balance as of December 31, 2004           28,693,043                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 affected 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

                                      -23-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

    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.

    The Company issued 29,427 shares of common stock to RA Lenser & Associates
    in consideration and payment of its consulting activities on behalf of the
    Company. The Company issued 20,000 shares of common stock to Murphy
    Communications in consideration of its undertaking and assisting the Company
    with shareholder relations and communications.

(3) The Company issued 9,641 shares of Common stock to the remaining holders of
    its 8% Debenture under the Debenture's required redemption terms.

(4) On December 13, 2004, the Company sold 300,000 shares of common stock to
    three individuals pursuant to a private placement under Section 506 of
    Regulation D, promulgated under the Securities Act of 1933, as amended. The
    price per share was $0.30. The proceeds of the sale were used to cover the
    costs of the Company's audit for fiscal 2004, and re-audit of fiscal year
    2003. In addition to the legal fees associated with the offering, 6,000 were
    issued to the selling broker as consideration for its selling commission.

(5) On December 1, 2004, the Company issued 20,000 shares to William Smith in
    consideration and compensation for his work in promoting the Company's
    patented product marketed under the Trademark ReNuGen(TM). The shares were
    registered utilizing Form S-8. (See the Company's Form 8-K dated December 1,
    2004).

                                      -24-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

The Company granted the following options / warrants to purchase common stock as
of December 31, 2004.

                                                                     Weighted
                                                      Number of       Average
                                                      Options /      Price per
                                                      Warrants         Share
                                                    ------------   ------------
OPTIONS / WARRANTS OUTSTANDING - DECEMBER 31, 2003     8,689,579   $       0.96

Employee Stock Option
Granted                                                  400,000   $       0.85
Expired                                                       --             --
Exercised                                                     --             --
Cancelled                                                     --             --

Stockholder Warrants
Granted                                                  520,000   $       0.77
Expired                                                       --             --
Exercised                                                     --             --
Cancelled                                             (2,240,000)  $       2.42

OPTIONS / WARRANTS OUTSTANDING - DECEMBER 31, 2004     7,369,579   $       0.53

STOCK BASED COMPENSATION

In March 2004, the shareholders of the Company approved the Independent
Director's Incentive Stock Option Plan. Two Directors, Messrs. Pryor and Lord
Gilbert qualified for option awards under the plan during fiscal 2004. Each of
these Directors received option for 200,000 common shares at an exercise price
equal to $0.85 per share. These option rights vest over a three-year period (but
only while the recipient is a Director), 100,000 shares in the first year, and
50,000 shares in each of years two and three. The options expire five (5) years
after issuance.

Of the 5,900,000 options outstanding, 4,781,300 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.

                                      -25-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

All stock options issued to employees have an exercise price not less than the
fair value of the Company's common stock on the date of grant, and in accounting
for such options utilizing the intrinsic value method there is no related
compensation expense recorded in the Company's financial statements. Had the
Company determined compensation cost based on the fair value of the stock option
on their dates of grant pursuant to SFAS 123, the Company's net income (loss)
and earnings (loss) per share would have changed to the pro forma amounts
presented below:

                                          For the three-months
                                           ended December 31
                                      ---------------------------
                                          2004           2003
                                      ------------   ------------
Net income (loss) (as reported)       $   (527,145)  $  5,124,523

Stock based employee
 compensation expense determined
 under fair value based method for
 all awards                               (157,529)      (148,605)

Pro forma net income (loss)           $   (684,674)  $  4,975,918
                                      ============   ============
Per Share
        As reported                   $      (0.02)  $ 0.18/$0.13
        Pro forma                     $      (0.03)  $ 0.18/$0.13

There were no options granted during the first quarter ended December 31, 2004.

The fair value of the options granted during the first quarter ended
December 31, 2003 was estimated using the Black-Scholes option-pricing model
with the following assumptions: risk free interest rates between 3.14%, expected
life of five (5) years and expected volatility between 102%. The weighted
average fair value of the options granted during this quarter was approximately
$ 270,000.

                                      -26-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

WARRANTS

(1)     COMMON STOCK WARRANTS ATTACHED TO DEBENTURE

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

On June 8, 2002, warrants for 65,500 shares with an exercise price of $10.81 per
share expired. Those warrants were issued as part of the Company's issuance of
8% convertible debentures in 1996. With the expiration of these warrants, no
warrants remain outstanding from the issuance of the 8% convertible debentures.

On September 15, 2004, the Company entered into the First Amendment to Master
Distribution and Marketing Agreement (See Exhibit 10.36 to the Company's Annual
Report) ("First Amendment"). Under the terms of the First Amendment, Sumitomo's
2,240,000 warrants were cancelled.

(2)     FINANCING SOURCES

On July 21, 1998, a total of 263,638 warrants expiring on November 20, 2003 were
granted to four persons who loaned the Company a total of $145,000 in July 1998.
(See Note 7b). The expiration date for these warrants was extended from
November 20, 2003 to November 20, 2005 in Fiscal Year 2000. The warrants may be
exercised at any time before the expiration date at an exercise price of $0.55

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

                                      -27-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

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 of the Heller Loan at an
exercise price of $.906 per share with an expiration date of December 31, 2007
(See Note 10(a)).

On September 1, 2004, the Company granted to Herbert L. Lucas warrants for
20,000 shares of common stock with an exercise price of $.44 per share. The
warrants expire on August 31, 2006. The Warrants were given in consideration for
Mr. Lucas having made a loan of $40,000 to the Company's wholly-owned
subsidiary, CA Properties, Inc. (See Note 7(d) above.)

(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)     SMITH WARRANTS

On September 1, 2004, the Company granted Mr. William Smith, a recognized expert
in sewage treatment facilities and the processing of municipal waste, warrants
for 250,000 shares of common stock at an exercise price of $.65 per share. The
warrants granted to Mr. Smith expire on August 31, 2007. They were issued to
Mr. Smith in consideration for his assistance and expertise in the marketing and
development of the Company's potential product ReNuGen(TM) used in sewage waste
facilities.

(5)     CONLEY & ANTHONY WARRANTS

On February 27, 2003, warrants for 300,000 shares of Stock at a price of $0.13
per share were granted to each of Mr. Robert Conley and Mr. Bob Anthony in
consideration for their consultation and individual expertise in regard to
product development and application market identification with regard to the
Company's potential Sierra Kaolin(TM) and Zeolite products respectively.

                                      -28-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

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 which amounted to
28,441,695 (fully diluted 37,891,274) for the period ended December 31, 2004
(2003 -- 27,829,106 outstanding and 37,118,685 fully diluted). For the periods
ended December 31, 2004 and 2003, the exercise of the options and warrants
outstanding as at year- end did not have a dilutive effect on the net income per
share.

PAYMENT OF ACCRUED DIVIDENDS

There were no cash dividend payments on either Series of Preferred Stock made
during the period December 31, 2003 to December 31, 2004. See also Note 14(b),
regarding payment of accrued dividends on the Series A Preferred Stock held by
the Kanes through December 31, 2004.

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 Companies' tax filings show net operating losses to be applied
against future taxable income in the amount of approximately $26.7 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.      As of June 30, 2002, Mr. Novinskie and Mr. Amir's employment contracts
        provided for bonuses of $50,000 each to be paid one-half in common stock
        and one-half in cash. The price of the stock to be issued was determined
        by taking the closing average of the bid and asked price for the
        Company's stock for the five (5) trading days preceding June 30, 2002.
        (See Note 13(b) below).

b.      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.)

                                      -29-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        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 was debited against an advance given to Mr. Amir in the
        third quarter. (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 interest 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 or 8,000 shares from the Plaintiffs. The Company entered into
        Stipulation for the Entry of Final Judgment and Judgment thereon as to
        Daleco Resources Corporation, pursuant to which the Company shall have
        until August 1, 2001 in which to redeem the remaining 8,000 shares for
        $400,000 plus accrued interest 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 ended March 31, 2003.
        Payments for the quarters ended June 30, 2003 through December 31, 2004
        are still outstanding. As of December 31, 2004, total unpaid dividends
        are approximately $100,000.

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

                                      -30-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

        On January 12, 2005, the Kanes initiated action to force the total
        payment of all sums due. The Kanes were seeking to recover payment on
        the outstanding obligation of Daleco to them pursuant to their Judgment
        dated September 18, 2000 ("Writ"). As of the date of its Writ, the Kanes
        were owed $400,000 in principal obligation plus $231,148.69 in
        dividends, interest and attorney's fees. The Company has agreed in
        principal with the Kanes to either satisfy the obligation in full by
        May 1, 2005 or to commence payments of $75,000 per week until the entire
        obligation plus all accrued interest is paid in full. If not
        extinguished by other means, this obligation may require the Company to
        utilize its Equity Line of Credit.

b.      Erlich Litigation: On February 5, 2004, Mr. Erlich commenced an action
        in the Superior Court of the State of California Beverly Hills District,
        Case No: SC080498 against the Company demanding payment of an unsecured
        loan to the Company in the principal amount of $98,048. The loan has no
        maturity date. On March 24, 2004, Mr. Erlich dismissed the Complaint
        without prejudice, but reserved the right to re-file his complaint
        should the loan not be satisfied by January 1, 2005. The Company
        believes the complaint to be without merit. However, should the funds be
        available to satisfy Mr. Erlich's loan as well as other obligations of
        the Company, the Company intends to satisfy all of its indebtedness in
        full.

15.     ACQUISITIONS/MERGERS

        DALECO'S 16/6, INC.

        As of September 3, 2004, 16/6, Inc., a wholly-owned subsidiary of
Daleco, was merged with and into Daleco Resources Corporation. 16/6, Inc. no
longer exists as a separate entity.

16.     SUBSEQUENT EVENTS

        (a)     On December 13, 2004, the Company sold 300,000 shares of Common
Stock under a Private Placement to two (2) accredited investors pursuant to an
exception to register under Regulation D of the Securities Act of 1933, as
amended ("Private Placement"). The proceeds of the Private Placement $90,000
were used to pay the Company's auditor, professional fees associated with the
offering and working capital.

        (b)     On November 30, 2004, the Company entered into a Memorandum of
Understanding (Sierra Kaolin(TM) Development) with Tecumseh Professional
Associates, Inc. ("TPA"), which provides the terms under which TPA may become


                                      -31-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS
ENDED DECEMBER 31, 2004 AND 2003 - PREPARED BY MANAGEMENT (UNAUDITED)

the "Site Manager" for the exploitation, production, marketing and monetization
of the Company's kaolin deposits in Sierra County, New Mexico. The parties are
presently negotiating the Operating License governing operations of the
Company's Kaolin deposit.

17.     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.

                                      -32-
<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 ended December 31, 2004 marked several key
        milestones in the Company's efforts to monetize it asset base. These
        events included the finalization of the Purchase and Sales Agreement
        with Ostara Corporation, f/d/b/a PSNet Communications, Inc. covering the
        information technology assets held by the Company and the execution of
        the various documents with Tecumseh Professional Associates covering the
        development of the Kaolin deposit controlled by the Company's
        wholly-owned subsidiary Clean Age Minerals, Inc. The financial impact of
        these transactions will be seen in subsequent quarters.

        During the quarter ended December 31, 2004, the Company's primary source
        of revenues continued to be its oil and natural gas production
        operations. These types

                                      -33-
<PAGE>

        of operations are influenced by a variety of factors which are 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 operating
        areas as well as the demand and pricing, both domestically or
        internationally, for the Company's timber and industrial minerals. The
        segment's performance as measured by operating cash flows improved from
        the prior year period primarily due to the continuation of favorable oil
        and gas prices. The financial performance of the segment was negatively
        impacted by higher well servicing costs and decreased production levels
        from the Company's managed properties.

        During the quarter, the Company entered into a Memorandum of
        Understanding with Tecumseh Professional Associates, Inc. ("TPA") for
        the operation of its Sierra Kaolin(TM) properties in Sierra County,
        New Mexico. (See the Company's Form 8-K dated December 3, 2004) Under
        this Agreement, TPA will bear all costs for the first year of operations
        of the Sierra Kaolin(TM) with all costs and profits thereafter split 65%
        to TPA and 35% to the Company.

        Subsequent to the period's end, the Company expanded its relationship
        with TPA to include a Development and Operating Agreement covering Its
        Calcium Carbonate holdings in Cibola County, New Mexico. Under this
        agreement, TPA will be responsible to ensure the annual production
        quotas required under the Company's lease. In the interim the Company
        has been selling its Calcium Carbonate for use as ground cover under the
        trade name, Oro Grande Gold(TM), and has continued its efforts to test
        market its crushed stone as road bases and for use in coal fired power
        plants.

        In December 2004, the Company finalized the sales of its information
        technology holding (16/6, Inc.) to PSNet Communications, Inc. (P.K.A.
        Data Base Control Systems Inc) ("PSNet"). On January 13, 2005, PSNet was
        acquired, subject to its existing obligations, by Ostara Corporation
        ("Ostara"). Under the Agreement with Ostara, the Company will receive
        3,000,000 shares of Ostara common stock and warrants to acquire an
        additional 15,000,000 share of Ostara common stock (hereafter the common
        stock and warrants of Ostara are sometimes collectively referred to as
        the "Ostara Securities"). The Ostara common stock to be received and the
        Ostara common stock to be received upon execution of an Ostara warrant
        will either be included in a registration statement to be filed by
        Ostara with the Securities and Exchange Commission or other freely
        trading stock held by Ostara. Upon receipt of the Ostara Securities, the
        Company's plan is to distribute approximately 2,000,000 "Units" of the
        Ostara Securities consisting of one (1) share of Ostara common stock and
        a warrant to purchase five (5) shares of Ostara common as a special
        dividend to the Daleco common shareholders of record as of January 6,
        2005.

        The Company continues to expand the sales and utilization of its
        ReNuGen(TM) products in the waste treatment industry. Additional testing
        is being conducted by

                                      -34-
<PAGE>

        third parties on the efficacy of utilizing the Company's zeolite in a
        variety of agricultural and environmental roles.

        All of the negotiations, testing and agreements are the product of
        lengthy negotiations and breaking traditional barriers to accepting new
        and innovative products. The Company believes that now that the door has
        been opened, the continued expansion of the demand for ReNuGen(TM), its
        Sierra Kaolin(TM) and its Oro Grande Gold(TM) stone products will
        substantially increase and become a major contributor to the overall
        performance of the Company.

        For the three-month period ended December 31, 2004, total operating
        revenues declined nominally by $1,453 (<1%) while direct operating
        expenses declined by $30,187 (5%) as compared with the same quarter last
        year. The decline in direct operating expense is associated with lower
        levels of activity in the Company's oil and natural gas segment brought
        on by the limited availability of well servicing equipment. This decline
        was partially offset by higher expenditures associated with the
        Company's mineral operations. For the period, the Company recorded a
        loss of $527,145 as compared to an income of $5,124,523 for the prior
        fiscal year's first quarter including the Company's net gain realized on
        the forgiveness of certain debt obligation. Excluding this gain, the
        Company had a loss of $663,163 for the first quarter of fiscal 2003.

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 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
        statements 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 in 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

                                      -35-
<PAGE>

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

        Because the drafting and approval of all the Company's reports is a
        collective process, the suggestions of the 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 believes 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 is not
        appropriate 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.

        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

                                      -36-
<PAGE>

        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.

                                      -37-
<PAGE>

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 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.

                Effective September 15, 2004, the Company entered into the First
        Amendment to the Master Distribution and Marketing Agreement ("First
        Amendment") with Sumitomo Corporation of America ("Sumitomo"). (See the
        Company's Form 8-K dated September 15, 2004). Under the First Amendment,
        the warrants to purchase up to 1,700,000 shares of the Company's common
        stock granted in the Company's Stock Purchase Agreement with Sumitomo
        dated as of November 16, 2001 and the warrants to purchase up to 540,000
        shares of the Company's common stock granted in the Company's Master
        Distribution and Marketing Agreement with Sumitomo dated as of
        November 16, 2001 were cancelled.

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

                                      -38-
<PAGE>

        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) above) with Sonata previously, and the
        Company has consulted for Sonata 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 agreed to:

                                      -39-
<PAGE>

                (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 amending the Heller Loan Agreement dated August 22, 1997
        ("Heller Loan Agreement") and the First Amended Loan Agreement dated
        March 27, 1998 ("First Amended Loan Agreement") (hereinafter the Heller
        Loan Agreement, First Amended Loan Agreement and the Seconded Amended
        Loan Agreement are collectively referred to as the "Sonata Loan
        Agreement").

                The Sonata Loan Agreement provides that the Heller Loan: (i) was
        reduced to a three (3) year loan in the principal amount of $655,000
        plus interest at the prime 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;

                                      -40-
<PAGE>

                (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 a 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:

                                                    1st Fiscal       Fiscal
                                                     Quarter        Year End
                                                     12/31/03        9/30/04
                                                   ------------   ------------
Net Income (loss) (before gain on forgiveness
  of debt.)                                        $   (663,164)  $ (2,231,957)
Basic and Fully Diluted Income (loss)/Share        $       (.02)  $       (.08)
(calculated on 28,307,975 shares outstanding)

Net Gain on debt forgiveness                       $  5,787,687   $  5,787,687
Basic and Fully Diluted Net Gain (Loss)/share      $ 0.20/$0.15   $ 0.20/$0.15

Net Income (including gain on debt forgivness)     $  5,124,523   $  3,555,730
Basic and Fully Diluted Net Income (Loss)/Share    $ 0.18/$0.13   $ 0.13/$0.09
  calculated on 27,829,106 weighted
  average shares outstanding, Basic &
  39,327,554 shares, Fully Diluted at
  12/31/03 and 28,206,666 weighted shares
  outstanding, Basic & 37,816,622 shares,
  Fully Diluted Basis at 9/30/04)

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

                None

Item 5          Other Information

                The Company's common stock was trading on the Over the Counter
Market, Bulletin Board ("OTCBB"). On December 12, 2004, the Company's securities

                                      -41-
<PAGE>

were assigned to trade on the "Pink Sheets Market." This change was the result
of the Company's filing its re-audited financial statements for the fiscal year
ended September 30, 2003 late. The refilling of the Company's 2003 audited
statements was necessitated by the Company's prior auditor not being qualified
under the PCAOB (as required by the Sarbanes-Oxley Act of 2002) at the time of
the issuance of the Company's financial statements in January 2004. (See the
Company's Form 8-K's dated September 14, 2004, and December 2, 2004.) The
Company has subsequently filed all required financial statements and has taken
and continues to take steps to return its securities to the OTCBB market. The
Company has never received official written notice from any party as to the
formal removal of its securities from the OTCBB and only learned of this move
from securities traders.

ITEM 6          Exhibits and Reports on Form 8-K

        The Registrant incorporates by reference the following reports on
Form 8-K:

        1.      Form 8-K dated December 1, 2004, announcing the execution of its
Memorandum of Understanding with Tecumseh Professional Associates.

        2.      First Amendment to Form 8-K dated December 2, 2004, revising its
Form 8-K dated September announcing the resignation of the Company's Auditor.

        3.      Form 8-K dated December 3, 2004 announcing the retention of
Vasquez & Company LLP as the Company's new Auditor.

        4.      Form 8-K dated December 3, 2004 announcing the Company's
Memorandum of Understanding with Tecumseh Professional Associates, Inc.
governing the Company's Sierra Kaolin(TM) deposit.

        The Registrant incorporates by reference its Exhibit List as attached to
its First Amendment to its Form 10-KSB dated February 3, 2005.

                                      -42-
<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 18, 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 18, 2005                 /s/ Gary J. Novinskie
                                         ---------------------------------------
                                         Gary J. Novinskie
                                         President and Director

Date: February 18, 2005                  /s/ Dov Amir
                                         ---------------------------------------
                                         Dov Amir
                                         Chief Executive Officer and Chairman of
                                         the Board of Directors

                                      -43-
<PAGE>

                                  CERTIFICATION

        I, Gary J. Novinskie, certify that:

        1.      I have reviewed this quarterly report on Form 10-QSB of Daleco
Resources Corporation for the quarter ended December 31, 2004.

        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

                                      -44-
<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 18, 2005                 /s/ Gary J. Novinskie
                                         ---------------------------------------
                                         Gary J. Novinskie
                                         President and Chief Financial Officer

                                      -45-
<PAGE>

                                  CERTIFICATION

        I, Dov Amir, certify that:

        1.      I have reviewed this quarterly report on Form 10-QSB of Daleco
Resources Corporation for the quarter ended December 31, 2004.

        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

                                      -46-
<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 18, 2005                 /s/ Dov Amir
                                         ---------------------------------------
                                         Dov Amir
                                         Chief Executive Officer

                                      -47-
<PAGE>

In connection with the Quarterly Report of Daleco Resources Corporation (the
"Company") on Form 10-QSB for the period ended December 31, 2004 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:

        (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/ Dov Amir
                                         ---------------------------------------
                                         Dov Amir
                                         Chief Executive Officer
                                         February 18, 2005

                                      -48-
<PAGE>

In connection with the Quarterly Report of Daleco Resources Corporation (the
"Company") on Form 10-QSB for the period ended December 31, 2004 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:

        (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/ Gary J. Novinskie
                                         ---------------------------------------
                                         Gary J. Novinskie
                                         President and Chief Financial Officer
                                         February 18, 2005

                                      -49-