<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                 FIRST AMENDMENT
                                   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, 2001
                               -----------------

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

For the transition period from __________________ to ______________

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

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

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


          120 North Church Street
      West Chester, Pennsylvania 19380                  (610) 429-1258
--------------------------------------------      ---------------------------
(Address of Principal Executive Offices)          (Issuer's telephone number)


                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

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

Number of shares outstanding of the issuer's common stock as of December 31,
2001: 16,337,614
Number of shares outstanding of the issuer's Series A preferred stock as of
December 31, 2001: 8,000.
Number of shares outstanding of the issuer's Series B preferred stock as of
December 31, 2001: 713,000


<PAGE>


                                      INDEX
<TABLE>
<CAPTION>

                                                                                                                       PAGE
PART I   FINANCIAL INFORMATION

<S>                 <C>                                                                                                  <C>
ITEM 1            FINANCIAL STATEMENTS (Unaudited)......................................................................  3
                  Consolidated Balance Sheets...........................................................................  3
                  Consolidated Statement Of Income......................................................................  4
                  Consolidated Statement Of Deficit.....................................................................  5
                  Consolidated Statement Of Cash Flow...................................................................  6
                  Notes to Consolidated Financial Statements............................................................  7

ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS..................................................................  16

PART II  OTHER INFORMATION

ITEM 6   Exhibits and Reports on Form 8-K

SIGNATURES


</TABLE>





                                      -2-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000 -- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>

<S>                                                                                           <C>                     <C>
                                                                                                 2001                 2000
ASSETS                                                                                       ----------           ----------
Current Assets
         Cash Accounts                                                                       $ 1,353,670          $    70,995
         C/Ds                                                                                    375,000               75,000
         Account receivables                                                                     383,383              502,422
         Jib Receivables                                                                           -----                -----
         Prepaid Mineral Royalties (note 5c)                                                     409,642                -----
         Other Current Assets                                                                     18,274               11,474
                                                                                              ----------             --------
                               Total Current Assets                                          $ 2,539,968             $659,891
                                                                                              ----------             --------
Other Assets
         Investment in Mining Joint Venture                                                  $     -----          $     -----
         Goodwill                                                                                813,357              813,357
         Accumulated Amortization Goodwill                                                      (813,357)             813,357
                  Net Goodwill                                                                     -----                -----
         Debt Placement Costs                                                                    584,815              584,815
         Accumulated Amortization                                                              (584,815)            (532,970)
                  Net Debt Placement Costs                                                         -----               51,845
         Equity Placement Costs                                                                    -----                -----
         Accumulated Amortization Equity Costs                                                     -----                -----
                  Net Equity Placement                                                             -----                -----
         Other Assets                                                                              -----                -----
                                                      Total Other Assets                     $     -----          $    51,845
                                                                                             ===========          ===========
Fixed Assets
         Oil and Gas Properties (note 3)                                                     $12,607,950          $12,607,950
         Accumulated DD&A                                                                     (5,877,950)          (5,589,412)
                  Net Oil and Gas Property                                                     6,730,000            7,018,538
         Mineral Properties (note 5)                                                          12,609,100           12,609,100
         Accumulated DD&A                                                                          -----                -----
                  Net Mineral Property                                                        12,609,100           12,609,100
         Timber Properties (note 4)                                                            1,028,342            1,028,342
         Accumulated DD&A                                                                     (1,028,342)            (803,342)
                  Net Timber Property                                                              -----              225,000
         Technology/Patent Rights (note 6)                                                     7,767,000            7,767,000
         Accumulated DD&A                                                                       (824,958)          (1,205,000)
                  Net Tech./Patent Rights                                                      6,942,042            6,592,000
         Property, Equipment, Furniture & Fixtures                                               510,533              485,648
         Accum. Depr (P, E, P &  P)                                                             (193,555)            (140,878)
                  Net (P, E, P & P)                                                              316,977              344,770
         Leasehold Improvements                                                                    -----                -----
         Accu. Amort. (Lease  Improvements)                                                        -----                -----
                  Net Lease Improvements                                                           -----                -----
                                                                                                   -----                -----
                  a)  Total Fixed Assets                                                     $26,598,119          $26,759,408
                                                                                             ===========          ===========
                  b)  Total Assets                                                           $29,138,088          $27,471,144
                                                                                             ===========          ===========

</TABLE>
                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      -3-
<PAGE>
DALECO RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000 -- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
                                                                                                 2001                 2000
LIABILITIES                                                                                  -----------           ----------
<S>                                                                                             <C>                <C>
Current Liabilities
         Trade A/P                                                                         $     158,103        $   1,627,059
         Notes Payable (note 7)                                                                  559,881              559,881
         Note Due related Pty (note 8).                                                          639,489              551,946
         HFI Financing (note 10a)                                                              5,154,783            5,154,783
         Loans--1st Regional (note 10d)                                                          100,000              100,000
         Sonata and Standard Energy  Financing (notes 7b and 10b)                                  -----              307,092
         Accrued Interest Expense (notes 10a and 10b)                                          2,142,391            1,863,254
         Accrued Dividend Expense (notes 11d and 16)                                           1,611,991              306,390
         Accrued Expense Reimbursements                                                           43,454               43,454
         Accrued Salary Expense                                                                  120,595              111,220
                        Total Current Liabilities                                          $  10,530,688        $  10,625,079
                                                                                             -----------          -----------

Long Term Debt                                                                             $       -----        $       -----

         Total Long Term Debt                                                              $       -----        $       -----
                                                                                           -------------        -------------
                        Total Liabilities                                                  $  10,530,688        $  10,625,079
                                                                                           -------------        -------------
EQUITY
         Beginning Retained Earnings                                                       $ (18,185,097)        $(17,198,287)
         Current Period Income/(loss)                                                           (709,325)            (505,593)
         Add. Paid in Capital                                                                 37,331,240           34,395,742
         Preferred Stock (note 11)                                                                 7,210               20,178
         Common Stock (note 11)                                                                  163,372               34,025

                        Total Equity                                                       $  18,607,400        $  16,846,065
                                                                                           -------------        -------------
                        Total Liabilities and Equity                                       $  29,138,088        $  27,471,144
                                                                                           =============        =============

</TABLE>




                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS



                                      -4-
<PAGE>

DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF LOSS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 -- PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>

                                                                                    2001              2000
                                                                                    ----              ----
<S>                                                                             <C>               <C>
Revenue
         O&G Sales                                                              $243,695          $693,288
         N P I Receipts                                                            -----             -----
         Royalty Receipts                                                          4,079             5,848
         Timber Sales                                                              -----             -----
                           Total Operating Income                             $  247,775          $699,136
                                                                              ----------        ----------
         Interest Income                                                           -----             -----
         Well Management                                                          17,111           137,786
         Ptr. Management                                                           -----             -----
         Other Income                                                              -----             -----
                           Total Other Income                                 $   17,111        $  137,786
                                                                                 -------          --------
                           Total Income                                       $  264,886        $  836,922
                                                                              ==========        ==========
Expenses
         LOE - Oil and Gas                                                       196,392           611,929
         LOE--Timber                                                               -----             -----
         LOE--Minerals                                                             -----             -----
         N P I Exp.                                                                -----             -----
         Prod Tax                                                                 19,066            42,196
         DD&A (Fixed Assets)                                                     283,945           295,725
         Third Party Distributions                                                32,241             -----
                           Total Well Expense                                 $  531,645        $  949,850
                                                                              ----------        ----------
         Interest Expense                                                        184,316           184,157

         General and Administrative Expenses                                     132,512           191,227
         Legal and Professional Fees                                              90,224             -----
         Financial Advisor Fees                                                   30,000             -----
         Shareholder Information                                                   5,512             -----
         Amortization of Debt Costs                                                -----            17,281
         Amortization of Goodwill                                             $    -----             -----
                           Total Expenses                                     $  974,209        $1,342,515
                                                                              ----------        ----------
                           Net Income (Loss)                                  $ (709,324)       $ (505,593)
                                                                              =========         ==========
         Basic and Fully Diluted Net Loss per Common Share                        ($.04)            ($.16)

</TABLE>
                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      -5-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF DEFICIT FOR THE THREE MONTHS
ENDED DECEMBER 31, 1998 AND 1997 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

                                                     2001              2000
                                                     ----              ----
Deficit - Beginning of Period                   ($18,185,097)     ($16,754,287)
Net loss for the period                            (709, 325)         (529,593)
Dividends on Preferred Stock                        (328,060)         (420,000)
Deficit - End of Period                         ($19,222,482)     ($17,703,880)
                                                =============      ============



















                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      -6-
<PAGE>


DALECO RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>

                                                                                 2001              2000
                                                                                 ----              ----
<S>                                                                             <C>             <C>
Operating Activities
Net loss for the period                                                     $    709,325         ($505,593)
Items not affecting working capital
         Change in DD & A for period                                        $   (257,246)          295,725
         Debt Amortization -                                                           -            17,281
         Amortization of Good Will                                                     -                 -
                                                                                       -                 -
                           Sub Total                                           (257, 246)         (313,006)
                                                                              ----------          --------
Items affecting Working Capital:
         (Increase) Decrease in other assets                                $   (300,000)                -
         (Increase) Decrease in Pre-paid Royalties                                     -                 -
         (Increase) Decrease in accounts receivable                               72,447           324,753
         Increase (Decrease) in Trade payables                                (2,420,824)         (154,962)
         Increase.(Decrease) in other Accrued Expenses                           (30,207)          (24,000)
         Gain/(loss) on Sale of Properties                                             -                 -
                           Sub Total                                        $ (2,420,824)       $  145,791
                                                                            ------------           -------

Cash provided (used) for operating activities                               $ (1,968,745)         ($46,796)
                                                                            ------------          --------

Investing Activities
         (Increase)/decrease in Investment in Subsidiaries                             -                 -
         Leasing, Acquisition and Well Costs Incurred                                  -                 -

Cash Provided from/(used for) Investing Activities                                     -                 -

Financing Activities
         Increase/(decrease) Notes due Related Parties                      $      6,000                 -
         Increase/(decrease) Other Notes due                                    (349,092)        $  417,082
         Increase?(decrease) Accrued Interest                                    (45,835)                -
         Increase/(decrease) Accrued Dividends                                   (89,689)         (420,000)
         Dividends Paid                                                                -                 -
         Proceeds of Equity Issuance                                           1,300,000                 -
         Proceeds of L/ Debt                                                           -                 -
Cash provided from/(used for) financing activities                               821,375          ($2,918)
                                                                                 -------           -------
Net Increase/(decrease) in cash for period                                  $ (1,147,370)         ($49,714)
Cash and Cash Equivalents - Beginning of Period                             $  2,501,040           195,709
                                                                            -----------         ----------
Cash and Cash Equivalents - End of Period                                   $  1,353,670        $  145,995
                                                                            ============        ==========

         Change in Cash FY 1st Qtr.                                         $ (1,147,370)       $  (49,714)
                                                                            ============        ==========
</TABLE>
                 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS


                                      -7-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - 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 it assets. As of
        December 31, 2001 the Company has reported a loss of $709,324. The
        ability of the Company to meet its total liabilities of $10.5 Million
        and to continue as a going concern is dependent upon the availability of
        future funding, achieving profitable timber operations and successful
        development of newly acquired mineral assets.

        As of December 31, 2001, certain of the Company's subsidiaries were in
        default of certain debt obligations.

2.       Summary of Significant Accounting Policies

         a.       Use of estimates

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

         b.       Basis of consolidation

                  The consolidated financial statements of Daleco Resources
                  Corporation (the "Company") have been prepared in accordance
                  with generally accepted accounting principles and include the
                  accounts of the Company and its wholly-owned subsidiaries
                  Westlands Resources Corporation ("Westlands", Sustainable
                  Forest Industries Inc. ("Sustainable"), Deven Resources,
                  Inc.("Deven"), Tri-Coastal Energy, Inc., Haly Corp., Clean Age
                  Minerals, Incorporated, CA Properties, Inc., Lone Star
                  Properties, Inc., Matrix-Loc, Inc. and 16/6, Inc. The
                  Company's investments in oil and gas leases are accounted for
                  using proportionate consolidation whereby the Company's
                  prorata share of each of the assets, liabilities, revenues and
                  expenses of the investments are aggregated with those of the
                  Company in its financial statements. The Companies investments
                  in minerals are accounted for using purchasing accounting
                  methods.

         c.       Oil and gas properties and equipment

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

                                      -8-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

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

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

         d.       Site restoration, dismantlement and abandonment costs

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

         e.       Property and Equipment

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

         f.       Timber Rights

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

         g.       Mineral Acquisition

                  The Company has recorded the acquisition of CAMI and
                  associated mineral rights at cost.

                                      -9-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         h.       Debt Issue Costs

                  Debt issue costs as of December 31, 1998, represent those
                  associated with the Heller Financial, Inc. loan (see Note 10)
                  and are being amortized over a period of five years. As of
                  December 31, 2001, all debt issuance costs have been fully
                  amortized.

         i.       Cash and Cash Equivalents

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

         j.       Fair Value of Financial Instruments

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

         k.       Reverse Stock Split

                  Effective February 24, 1998, the majority of stockholders of
                  the Company approved a reverse ten-for-one stock split. The
                  effect of the reverse stock split has been retroactively
                  reflected in these financial statements. All reference to the
                  number of common and preferred shares, stock options,
                  warrants, and per share amounts elsewhere in these financial
                  statements and related footnotes have been restated as
                  appropriate to reflect the effect of the reverse split for all
                  periods presented.

3.       Oil and Gas and Equipment
<TABLE>
<CAPTION>
                                                                         2001               2000
                                                                         ----               ----
<S>                                                                   <C>                <C>
Proven lease acreage costs                                           $ 5,429,996        $ 5,429,996

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

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

Accumulated depletion, depreciation and amortization                   5,577,950          5,589,412

                                                                     $6, 730,000         $7,018,538
                                                                     -----------         ----------
</TABLE>

         (a)      Sale of Oil and Gas Properties

                  $878,685 in cash was received from the sale of the Company's
                  coalbed methane properties in Alabama in December 1999 (First
                  Quarter of Fiscal 2000). The Company reported the depreciation
                  of these properties in its audited financial statements for
                  the fiscal year ending September 30, 1999, but could not
                  report the income until the net amounts were actually received
                  during fiscal year 2000.

DD&A for FY 00 included adjustments for the divestment of certain of the
Company's interests/wells located in Kansas and Oklahoma.

                                      -10-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

On September 28, 2001, effective January 1, 2001, the Company's sponsored
partnership, DEP, 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.

4.       Timber Rights Acquisition

         Effective September 29, 1995, the Company entered into an agreement
         ("Acquisition Agreement") to purchase 100% of the issued and
         outstanding shares of the Common Stock of Sustainable Forest Industries
         Inc. ("Sustainable"), a privately held Delaware Company, in exchange
         for 150,000 shares of Common Stock of the Company.

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

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

         The acquisition has been accounted for by the purchase method. The
         purchase price of $962,500 was determined based on the fair value of
         the 150,000 common shares of Daleco given up to acquire Sustainable.
         The fair value of the net liabilities of Sustainable acquired was
         $65,842 resulting in consideration of approximately $1,028,500 which
         has been recorded as timber rights. To reflect adjustments to the carry
         value of these assets, the Company has taken charges accumulating
         $1,028,500 as of September 30, 2001.

         The Company has  maintained it concession  rights since the inception
         of timber operations in 1997. (see Note 10).

5.       Mineral Properties

         a.       Clean Age Minerals, Incorporated. In September 2000, the
                  Company acquired Clean Age Minerals, Inc. ("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) five (5)
                  mining claims located in Sierra County, New Mexico covering
                  800 acres(+/-) of kaolin; (d) seventeen (17) mining claims
                  covering 1,360 acres(+/-) in Grant County, New Mexico
                  containing perlite; and (e) eleven (11) zeolite mining claims
                  covering approximately 220 acres(+/-) located in Beaver
                  County, Utah.

                                      -11-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         b.       Minerals and Equipment

<TABLE>
<CAPTION>

        --------------------------------------------------------------------------------------------------------------------
                                                                 2001                                   2000
        --------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                                    <C>
        Proven undeveloped lease costs                        $12,609,100                            $12,609,100
        --------------------------------------------------------------------------------------------------------------------
        Mine development costs                                     0                                       0
        --------------------------------------------------------------------------------------------------------------------
        Accumulated depletion and Depreciation                     0                                       0
        --------------------------------------------------------------------------------------------------------------------
                                                              $12,609,100                            $12,609,100
        --------------------------------------------------------------------------------------------------------------------
</TABLE>

         c.       Prepaid Royalties.

                  The Company received 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.

6.       Patents & Technology

         As part of the acquisition of Clean Age Minerals, Inc. (See Note 6(a)
         above), the Company also acquired U.S. Patent No: 5387738. This patent,
         owned by Matrix-Loc, Inc. deals with a reagent and process for the
         remediation of water and contaminated soils.

7.       Notes Payable

         a. During the year ended September 30, 1995, the Company received
         $1,100,000 in return for two notes payable, with the producing wells of
         the Company used as collateral. Interest of 10% per annum was due
         monthly. In fiscal 1996, the Company repaid $300,000 of the outstanding
         balance. In fiscal 1997, the remaining $800,000 was converted into
         16,000 shares of 10% cumulative preferred stock, at $50.00 per share
         ("Series A Preferred Stock"). The Series A Preferred Stock was subject
         to a put on August 20, 1999. The holders of the Series A Preferred
         Stock filed a lawsuit in the Los Angeles Superior Court, California
         against the Company, as well as Mr. Amir and Mr. Erlich as guarantors.
         Mr. Amir satisfied his obligation and purchased his, or 8,000 shares of
         the Series A Preferred Stock. 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 has not made a demand on the Company for payment.

         b. During fiscal 1998, the Company borrowed $145,000 from four (4)
         persons. The debt was evidenced by Notes which 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 Noteholders were also given warrants.
         (See Note 11(b)--Warrants) $75,000 in principal amount plus accrued
         interest due to Sonata Investment Company, Ltd. ("Sonata") was paid to
         Sonata on November 30, 2001. On 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.


                                      -12-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


8.       Due to (from) Related Parties
                                                    2001              2000
                                                    ----              ----
Net due (from) to Amir and Erlich
         Bearing interest at prime +3%           $ 91,062          $ 91,062
         Bearing interest at 7%                   548,429           463,854
                                                  -------           -------
                                                 $639,489          $554,916
                                                 --------          --------


         Mr. Amir is an officer and shareholder of the Company. Mr. Erlich is a
         shareholder and former officer and director of the Company. These
         amounts have no fixed repayment terms.

                                      2001          2000
                                      ----          ----
8% Convertible Debentures            $30,000       $30,000
                                     -------       -------

         a.       7% Convertible Debentures

                  On May 31, 1996 the Company issued $1,000,000 of 7%
                  convertible debentures with interest payable in cash or stock
                  on a semi-annual basis, and a term of three years. The
                  placement agent's fees were 10% of the gross proceeds and
                  10,000 warrants at $10.00, with an expiration date of May 30,
                  2001 (see Note 12). The debentures could be converted after a
                  holding period of: (a) as to 50% of the principal amount, 40
                  days (July 10, 1996), and (b) the remaining 50%, 60 days (July
                  30, 1996). The debentures are convertible into the Company's
                  Common Stock at the lessor of (1) a 35% discount on the
                  previous five day average closing bid price at conversion, or;
                  (2) the previous day average closing bid price at closing (May
                  31, 1996). As of December 31, 1996, $600,000 of the 7%
                  debentures had been converted into 107,712 common shares. The
                  remaining balance was converted into 132,916 common shares
                  during 1997.

         b.       8% Convertible Debentures

                  On September 11, 1996, the Company issued $1,310,000 worth of
                  8% convertible debentures with interest payable in stock only
                  and accruing until conversion or redemptions after the term of
                  two years. The placement agent's fees were 10% of the gross
                  proceeds and 12,111 warrants at $10.07 expiring November 16,
                  2001. The debentures may be converted after a holding period
                  of 45 days after closing at the lessor of: (1) the fixed
                  conversion price ($10.171875), or (2) 75% of the average
                  closing bid price for the five trading days immediately
                  preceding the date of conversion. As of September 30, 2000,
                  $1,280,000 of the 8% debentures had been converted into
                  981,322 common shares.


                                      -13-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


10.      Long-Term Debt

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

         a.       Heller Financial, Inc.

                  During the forth quarter of fiscal 1997, the Company entered
                  into an arrangement with Heller Financial, Inc. ("Heller")
                  whereby Heller agreed to provide the Company with up to
                  $15,000,000 to rework existing horizontal wells, re-complete
                  its vertical wells as horizontal wells, and develop additional
                  acreage. Under the terms of the agreement, all of the
                  properties of Westlands were transferred to a newly formed
                  limited partnership, Tri-Coastal Energy, L.P., the general
                  partner of which is Tri-Coastal Energy, Inc., (Tri-Coastal)
                  and the sole limited partner of which is Westlands. Westlands
                  is also the sole shareholder of Tri-Coastal. The amount
                  outstanding (principle and accrued interest) under this
                  arrangement as of December 31, 2001 and 2000 , was $7,017,390
                  and $6,945,150, respectively. Interest on the borrowings is at
                  prime plus 2%. Principal is paid out of 85% of the net cash
                  flow from the properties. Additional interest is payable from
                  50% of the net cash flow from these properties after the
                  payment of principal. In January 1999, Heller declared the
                  loan to be in default, as a result of the pledged properties
                  failure to generate the required interest payments. This was
                  solely attributable to the decrease in the low worldwide
                  prices for oil. As a result, the full amount of the Heller
                  Loan has been reclassified as current debt. With the recovery
                  of oil prices, the Heller Loan has come back into compliance,
                  However, Heller has not rescinded its default notice. The
                  obligations to Heller are non-recourse to the Company and
                  payable solely out of the oil and properties pledged to Heller
                  as collateral.

         b.       Sonata Investment Company, LTD.

                  During the third quarter of fiscal 1997, Sustainable entered
                  into a loan agreement with Sonata Investment Company, LTD. for
                  $250,000, which remained outstanding as of December 31, 2000.
                  Sustainable had the right to request an additional $250,000
                  prior to December 31, 1999, which was not exercised. The
                  Company and Westlands were guarantors of the loan with
                  Westland's (now Tri-Coastal Energy, L.P.) wells being pledged
                  as collateral, subordinated to the Heller Financing. The loan
                  was to have been repaid out of 25% of Sustainable's net cash
                  flow with any remaining balance due by December 31, 1999.
                  Interest is at 12%. In addition, Sonata received a profits
                  participation of 25% of the net profits of Sustainable while
                  the loan was outstanding and 20% after the loan is repaid
                  (after payout). The full amount of this loan had been
                  reclassified as current debt. Sonata sought and the Company
                  agreed to grant Sonata additional collateral to secure its
                  loan in the nature of a security interest in the Patent owned
                  by Matrix-Loc and the mineral leases owned by subsidiaries of
                  CAMI. The totality of the Sonata debt, plus all accrued and
                  unpaid interest was satisfied on November 30, 2001, and all
                  collateral for the loan was released.

         c.       PNC Bank Loan

                  During the fourth quarter of fiscal 1998, Deven Resources,
                  Inc. obtained a term loan of $300,000 with interest at prime
                  plus 12%. Principal is due at $25,000 per quarter. The loan
                  was secured by specific properties owned by Deven. This loan
                  was paid off on December 15, 1999 through the sale of Deven's
                  Net Profits interests in certain properties in Armstrong and
                  Fayette Counties, Pennsylvania.



                                      -14-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         d.       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, 2002.
                  The loan is secured by personal assets of an officer of the
                  Company.

11.      Capital Stock
<TABLE>
<CAPTION>
                                                                                                                NUMBER OF SERIES
                                                      NUMBER OF COMMON SHARES,       NUMBER OF SERIES A           B PREFERRED
                                                             PAR VALUE              PREFERRED SHARES PAR        SHARES PAR VALUE
                                                          $0.01 PER SHARE         VALUE $0.01 PER SHARE (1)    $0.01 PER SHARE (1)
                                                      -----------------------     --------------------------   -------------------
<S>                                                            <C>                           <C>                    <C>
      Authorized                                              20,000,000
                                                              ----------
      Balance as of December 31, 2000                          3,102,574                     16,000                 2,017,800
                                                               =========                     ======                 =========
      Issued pursuant to the Terra Silex Agreement               817,728
                                                                 -------
      Issued for the acquisition of 16/6th                     1,000,000
                                                               ---------
      Issued for development of Natural Resource Exchange        300,000
                                                                 -------
      Issuance to Kanes                                           50,000
                                                                  ------
      Issuance to SCOA                                           640,000
                                                                 -------
      Issuance on conversion of Series A Preferred Stock         408,163
                                                                 -------
      Issuance on the  conversion of Series B Preferred       10,069,149
                                                              ----------
      Balance as of December 31, 2001                         16,337,614                      8,000                   713,000
                                                              ----------                      =====                   =======
</TABLE>


Upon re-domestication of the Company into the U.S. as of October 1, 1997, par
value was established at $0.01 per share for both common and preferred stock. On
February 24, 1998, the Company conducted a reverse 10 for 1 stock split.

(1) The Articles of Incorporation of the Company authorize a total of
10,000,000 shares of Preferred Stock. Both the Series A and Series B Preferred
shares are part of the authorized Preferred Shares.


                                      -15-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================


        a.       Common Stock Options

                                              2001              2000
------------------------------------------------------------------------
Outstanding and Exercisable                 3,610,000           235,000
   at beginning of period
------------------------------------------------------------------------
Canceled                                        -----         (125,000)
------------------------------------------------------------------------
Granted                                     2,500,000         3,500,000
------------------------------------------------------------------------
Exercised                                       -----             -----
                                                -----             -----
                                            ---------         ---------
------------------------------------------------------------------------
Outstanding and Exercisable                 6,110,000         3,610,000
 at end of period                           =========         =========
------------------------------------------------------------------------

                  On November 16, 2001, the Company entered into key man
                  employment agreements with Mr. Dov Amir, Chairman of the Board
                  of Directors and Chief Executive Officer of the Company, Mr.
                  Gary J. Novinskie, President and Chief Operating Officer of
                  the Company, and Mr. Robert E. Martin, a Director and
                  President of Strategic Minerals, Inc. Under the employment
                  agreements (see Note 13 below), Messrs. Amir and Novinskie
                  were granted options for 500,000 shares of common stock and
                  Mr. Martin was granted options for 1,000,000 shares of common
                  stock. All these options expire on the third anniversary of
                  the vesting of the options or two years after the key man
                  ceases to be an employee of the Company. The exercise price
                  for Mr. Martin's options is 90% of the average closing price
                  for the common stock for the five business days prior to
                  October 1, 2001. The exercise price for Messrs. Amir's and
                  Novinskie's options is the average closing price for the
                  common stock at the close of business for the five trading
                  days immediately preceding June 30, 2002.

                  On September 11, 2000 the Board of Directors of the Company
                  granted options to three directors (Messrs., Amir, Novinskie
                  and Trainor), two of whom are also officers of the Company and
                  two employees. The options are exercisable at a price of $.25
                  per share which was the fair market value of the Company's
                  stock at the time of issue. The options were granted for
                  service and dedication to the Company by persons who were
                  either not being paid currently and/or continued to work for
                  the benefit of the Company and the shareholders at a wage
                  scale substantially below market. The following summary sets
                  out the activity in Common Stock purchase options:

                  In January 1995, the Company granted fully vested Common Stock
                  purchase options expiring on January 6, 2000 for 85,000 common
                  shares at $2.50 per share. On the same date, the Common Stock
                  purchase options previously outstanding, which expired on
                  September 5, 1995 for 35,670 common shares at $3.20 per share,
                  were gifted back to the Company and canceled.

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

                                      -16-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

                  The Common Stock purchase options were issued for past
                  services at an exercise price of $2.50 per share when the
                  underlying stock was at $2.245 per share. Had compensation
                  cost been determined based on the fair value of the Common
                  Stock purchase options using the provisions of SFAS 123, the
                  Company's net loss and loss per share in 1995 would have
                  increased by $161,500 and $0.10, respectively.

                  For the pro forma calculation, the fair value of each option
                  on the date of grant was estimated using the Black-Scholes
                  option pricing model and the following assumptions for awards
                  in 1995: zero dividend yield expected volatility of 119.64%,
                  risk -free interest rate of 7.84%, and expected life of 5
                  years. Using these assumptions, the grant-date fair value per
                  share of the options granted in 1995 was $1.80.

         b.       Common Stock Warrants

                  Common Stock warrants outstanding at December 31, 2001,
consist of the following:
<TABLE>
<CAPTION>

   ----------------------------------------------------------------------------------------------------------------------------
               Issuance                             Expiration Date                         Amount             Price Per Share
   ----------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                               <C>                     <C>
   8% Debenture Holders and                          June 8, 2002                           65,500                  $10.81
    Placement Agents (1.)                          August 1, 2002 to                                              $0.55 to
    Financing Sources (2.)                         November 20, 2005                       288,138                   $2.50
   ----------------------------------------------------------------------------------------------------------------------------
   Terra Silex Warrant                             December 31, 2006                       250,000                   $1.25
   ----------------------------------------------------------------------------------------------------------------------------
   SCOA Warrants                                   November 15, 2006                     2,240,000                $2.00 to
                                                                                                                     $3.00
   ----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                           (1.)     Common Stock Warrants Attached to Debenture

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

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

                                    On September 11, 1996, a total of 12,211
                                    warrants expiring on September 11, 2001 were
                                    granted to the agents. The warrants may be
                                    exercised at any time before the expiration
                                    date by either of the two methods as
                                    follows: (1) each warrant may be exercised
                                    for one common share with an exercise price
                                    of $10.73, or (2) all or a portion of the
                                    warrants may be exercised on a cashless
                                    basis where a reduced number of shares of
                                    Common Stock will be issued based upon the
                                    difference between the average closing price
                                    of the Company's Common Stock for the five
                                    business days immediately preceding the date
                                    of exercise and the exercise price, divided
                                    by the average closing market price, times
                                    the number of warrants being exercised.



                                      -17-
<PAGE>
DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

                           (2.)     Common Stock Warrants Attached to Notes

                                    On July 21, 1998, a total of 218,183
                                    warrants expiring on November 20, 2005 were
                                    granted to four persons who loaned the
                                    Company a total of $145,000 in July 1998.
                                    (See Note 7b). The warrants may be exercised
                                    at any time before the expiration date at an
                                    exercise price of $0.55.

          c.      Net Income Per Share. Net income per share was calculated on
                  the basis of the weighted average number of shares outstanding
                  which amounted to 16,337,614 for the period ended December 31,
                  2001 (2000 - 3,102,574). For the periods ending December 31,
                  2001 and 2000, the exercise of the options and warrants
                  outstanding as at year end did not have a dilutive effect on
                  the net income per share.

         d.       Payment of Accrued Dividends.

                  $417,360 of accrued dividends attributable to the 8%
                  Cumulative Convertible Preferred Stock issued in the
                  acquisition of CAMI ("CAMI Preferred") was paid in 332,467
                  shares of Common Stock upon conversion of 1,198,800 shares of
                  the CAMI Preferred Stock to Common Stock commencing October,
                  2001 through December 31, 2001. See also Note 16, regarding
                  payment of $90,000 in accrued dividends on the Series A
                  Preferred Stock held by the Kanes in December 2001.

12.      Income Taxes

                  The Company has no current and deferred taxes payable. The
                  Company and its subsidiary have significant tax losses to be
                  applied against future income. The subsidiary Company's tax
                  filings show net operating losses to be applied against future
                  taxable income in the amount of approximately $28 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. In connection with the acquisition of Sustainable and under
         Management Agreement dated April 17, 1995, the Company agreed to engage
         two key officers for a period of seven years ending April 17, 2002. The
         two key officers are entitled to a base salary of $75,000 plus
         additional incentive payments each based upon a percentage of net
         income of Sustainable. At the time of termination for any reason, the
         key officers are entitled to a severance payment equal to the total of
         the annual base salary plus additional annual incentive payments he is
         then receiving multiplied by the remaining years, or portions thereof,
         of the contract period. During fiscal 1997, the Company reached a
         settlement with one of the officers in the total amount of $60,000 to
         be paid at $5,000 per month through February 1998.



                                      -18-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         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 warrants 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.)

14.      Litigation Settlement and Pending Litigation

         a. Southland Drilling Company, a Division of Triad Drilling Company v.
         Westlands Resources Corporation, Daleco Resources Corporation and
         Tri-Coastal Energy, L.P., Cause No. 98-34542, In the 270th Judicial
         District Court of Harris County, Texas. On or about July 21, 1998,
         Southland Drilling Company ("Southland") commenced a lawsuit against
         the Company and its subsidiaries Westlands and Tri-Coastal. The lawsuit
         sought to recover the amount of $260,577.66 allegedly due and owing for
         work performed on the DRC GA #3 Well and the DRC VI #1 Well, Burleson
         County, Texas. The Company settled this matter by the filing of a Joint
         Motion for Entry of Agreed Judgement on December 1, 2000. Under the
         terms of the agreement, the Company is obligated to pay Southland
         $300,000 ("Settlement Amount") and has given a judgment note in that
         amount to Southland. The Company had 90 days from settlement in which
         to pay the note during which period Southland will forbear from taking
         any action. The Company failed to pay the Settlement Amount within the
         allotted 90 day period. As part of the Terra Silex Agreement, Terra
         Silex acquired the Southland Judgment from Southland and filed a
         release and satisfaction of the Southland Judgment.

         b. 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.



                                      -19-
<PAGE>

DALECO RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 2001 AND 2000 - PREPARED BY MANAGEMENT (UNAUDITED)
================================================================================

         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. No further dividend payments are due
         until the end of January 2002.

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

         c. Elizabeth McFadden v. BBC/DRI Blacklick Joint Venture, Belden &
         Blake Corporation and Deven Resources, Inc., Civil Action--Equity, No.
         50640 CD 2001, Court of Common Pleas, Indiana County, Pennsylvania.

         This action was commenced by Plaintiff to prevent Belden & Blake
         Corporation from laying a pipeline and utilization of an easement
         across Plaintiff's property. Plaintiff's action had been dismissed
         once, and Plaintiff had refiled the complaint allegedly addressing new
         issues and adding Deven Resources, Inc. as a new defendant.

         Developing Energy Partners I, L.P. ("DEP"), for which Deven Resources,
         Inc. ("DRI") was the general partner, owned a 40% interest in BBC/DRI
         Blacklick Joint Venture ("Joint Venture"). Belden & Blake Corporation
         ("BBC") owned the remaining 60% of the Joint Venture prior to September
         28, 2001 at which time it acquired the 40% interest held by DEP. The
         pipeline and utilization of the easement by BBC which are the subject
         of this action are attributable to wells drilled on acreage under lease
         to the Joint Venture ("BBC Wells"). DEP went non-consent on the BBC
         Wells. Under the Joint Venture agreement, since DEP went non-consent on
         the BBC Wells, DEP had no responsibility or liability for any costs
         associated with the BBC Wells. Since the pipeline and easement usage
         across the lands of the Plaintiff was exclusively related to the BBC
         Wells, DEP had no liability for the costs associated with this lawsuit.
         The relief sought by the lawsuit is to enjoin BBC from laying its lines
         across the Plaintiff's property and for damages to the surface of
         Plaintiff's property resulting from BBC's actions.

         We believe that neither DEP nor DRI would have any liability arising
out of this cause of action.

15.      Acquisitions

Clean Age Minerals, Incorporated

CAMI, a Nevada corporation, was acquired by the Company through a merger with
the Company's newly formed subsidiary, Strategic Minerals, Inc., a Nevada
corporation, on September 19, 2000 Strategic Minerals, Inc. was the surviving
corporation which subsequently changed its name to Clean Age Minerals,
Incorporated. The Shareholders of CAMI received 2,001,800 shares of Daleco
Resources Corporation Series B, 8% Cumulative Convertible Preferred Stock,
stated value $10.00, par value $.01, in exchange for 20, 018,000 shares of CAMI
Common Stock constituting all of the capital stock of CAMI. CAMI, through its
subsidiaries CAP and Lone Star owns in fee and leasehold interests in
non-metallic minerals in the States of Texas, New Mexico and Utah. The Company
does not presently mine its minerals. Additionally, the Company acquired, as
part of the merger, a patented process utilizing many of the minerals owned or
under lease to the Company, for the cleansing and decontamination of water and
soils. (See, "Management's discussion and Analysis- Business and Properties".)


                                      -20-
<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 Company's performance during its first fiscal Quarter
                  ended December 31, 2001, was influenced by a variety of
                  factors which were beyond the control of management, such as
                  the variability of the demand for and the pricing of crude oil
                  and natural gas with the Company's operating areas and the
                  demand and pricing, both domestically or internationally, for
                  the Company's timber and industrial minerals impacted on the
                  Company's results. The prior certification of the Company's
                  timber and Patented Process by independent parties also
                  hindered the Company's ability to enter into immediate
                  contracts for the sale of these products.

                  During the quarter ending December 31, 2001, the Company's
                  sale of securities, and proceeds from the sale of assets
                  provided its main source of revenues.

                  With the cooperation and lead of SCOA, in accordance with the
                  provisions of the Master Distribution and Marketing Agreement,
                  contacts are being negotiated with academic institutions to
                  certify the results of CAMI's Patented Processes and to work
                  with industrial partners to establish test sites at which the
                  efficacy of the Patented Processes can be verified.

                  The Company has also, through its arrangements with SCOA
                  ,entered into discussions with potential users of the
                  Company's timber products for railroad ties and utility poles.
                  During the quarter, the Company focused on the implementation
                  of it's the Master Distribution and Marketing Agreement with
                  SCOA. Key areas were the identification of potential market
                  outlets for the Clean Ages' industrial minerals and
                  environmental technology


                                      -21-
<PAGE>

PART II. OTHER INFORMATION

Item 2.  Sale of Securities.

         Terra Silex Agreement:

         On September 20, 2001, the Company entered into a Stock Purchase
Agreement with Terra Silex Holdings, LLC ("Terra Silex") ("Terra Silex
Agreement") pursuant to which the Company agreed to sell Terra Silex up to
1,800,000 shares of Common Stock at a price of $1.25 per share. At the time of
the Terra Silex Agreement, the market price of the Company's Common Stock was
$1.05.

         The Terra Silex Agreement provides for the purchase of the Common Stock
in three (3) tranches. At closing, Terra Silex acquired 400,00 shares. The
second tranche was to close within sixty (60) days, subject to Terra Silex's
satisfactory completion of its due diligence. The second tranche for 400,000
shares closed on November 20, 2001. The third tranche for 1,000,000 shares was
to have closed sixty (60) days after the second tranche closing, subject to
Terra Silex's continued satisfactory due diligence. Terra Silex requested and
was granted an extension until February 15, 2002 in which to exercise the third
tranche. Terra Silex was also granted a warrant for 500,000 shares. The term of
the warrant for five (5) years at an exercise price of $1.25 and is pro rated in
amount should Terra Silex not fund all three tranches.

         SCOA SPA:

         Effective, November 16, 2001, the Company entered into a Stock Purchase
Agreement with Sumitomo Corporation of America ("SCOA") ("SCOA SPA"). The SCOA
SPA provided for the purchase of 640,000 shares of Company Common Stock at a
price of $1.25 per share. The SCOA SPA also granted SCOA 1,700,000 warrants, at
exercise prices ranging from $2.00 per share for the first 850,000 shares, $2.50
per share for the next 510,000 shares and $3.00 per share for the remaining
340,000 shares.

         The SCOA SPA provides for SCOA to nominate one person to serve as a
director of the Company and also to have an "observer" present at the meetings
of the Board of Directors. At such time as SCOA has acquired at least 1,500,000
shares under the SPA through the exercise of its warrants plus the additional
acquisition (640,000 original purchase shares plus 860,000 warrant shares) the
observer shall be nominated to serve as a director of the Company.

         Also on November 16, 2001, the Company entered into a Master
Distribution and Marketing Agreement ("Marketing Agreement") with SCOA. Under
the Marketing Agreement, SCOA received warrants for 540,000 shares. These
warrants have a five (5) year term and have an exercise price of $2.00 per share
for the first 108,000 shares, $2.50 per share for the next 162,000 shares and
$3.00 per share for the remaining 270,000 shares.


ITEM 6            Exhibits and Reports on Form 8-K

                           None.


                                      -22-
<PAGE>



                                   SIGNATURES

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

                          DALECO RESOURCES CORPORATION



Date:  February 14, 2002                         /s/ Gary J. Novinskie
                                                 -------------------------------
                                                 Gary J. Novinskie
                                                 President


Date: February 14, 2002                          /s/ Dov Amir
                                                 -------------------------------
                                                 Dov Amir
                                                 Chief Executive Officer







                                      -23-