<PAGE>

===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                  -------------

                                   FORM 10-QSB

       [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

                                       OR

       [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM _________ TO ___________


                         COMMISSION FILE NUMBER: 0-12185

                                  -------------

                            DAUGHERTY RESOURCES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                         <C>
          PROVINCE OF BRITISH COLUMBIA                          NOT APPLICABLE
 (State or other jurisdiction of incorporation                 (I.R.S. EMPLOYER
                or organization)                             IDENTIFICATION NO.)

        120 PROSPEROUS PLACE, SUITE 201
              LEXINGTON, KENTUCKY                                 40509-1844
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (859) 263-3948

                                  -------------

        Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___.

        The number of shares outstanding of each of the Registrant's classes of
Common Stock, as of May 9, 2003, was 6,345,772.

        Transitional Small Business Disclosure Format (check one): Yes ___ No
_X_.

================================================================================

<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

        The information required by this Item 1 appears on pages I through XIX
of this Report, and is incorporated herein by reference.

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

        The following is a discussion of Daugherty Resources' financial
condition and results of operations. This discussion analysis by management
focuses on those factors that had a material effect on the financial condition
and results of operations of the registrant during the periods presented. It
should be read in conjunction with the accompanying Financial Statements of
Daugherty Resources described in Item 1 of this report. Reliance upon such
information involves risks and uncertainties, including those created by general
market conditions, competition and the possibility that events may occur which
could limit the ability of Daugherty Resources to maintain or improve its
operating results or execute its primary growth strategy. Although management
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate, and there can be no
assurances that the forward-looking statements included herein will prove to be
accurate. The inclusion of such information should not be regarded as a
representation by management or any other person that the objectives and plans
of Daugherty Resources will be achieved. Moreover, such forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements that speak only
as of the date hereof. Statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of General Operations," which are
not historical facts may be forward-looking statements (See "Forward-Looking
Statements" herein at page 9).

        Daugherty Resources, Inc. ("Daugherty Resources"), formerly Alaska
Apollo Resources Inc., is a diversified natural resources company with assets in
oil and gas, and gold and silver prospects. Originally formed in 1979 to develop
gold properties, Daugherty Resources, in the fourth quarter of 1993, acquired
its wholly-owned subsidiary, Daugherty Petroleum, Inc. ("Daugherty Petroleum").
The purchase of Daugherty Petroleum has given Daugherty Resources a diversified
revenue and asset base that is primarily located in Appalachia.

        Since acquiring Daugherty Petroleum, Inc., Daugherty Resources has
increased its reserves through the acquisition of oil and gas properties in the
Appalachian and Illinois Basins, and the drilling of wells in the Appalachian
Basin through joint venture and turnkey drilling programs, where Daugherty
Petroleum, Inc. is the primary decision maker. The Company continues to
aggressively seek acquisitions and drilling programs.

LIQUIDITY

        Daugherty Resources funds its operations through a combination of cash
flow from operations, capital raised through Daugherty Petroleum drilling
partnerships, bank loans, private placement of notes and the sale of stock.
Operational cash flow is generated by sales of natural gas and oil from
interests Daugherty Petroleum owns in wells, well operations of partnership
wells, well drilling and completions for partnerships sponsored by Daugherty
Petroleum, and gas distributed by Sentra Corporation, a wholly-owned subsidiary
of Daugherty Petroleum.

        During the first quarter of 2003, Daugherty Resources raised $1,065,500
from two (2) private placement debt offerings. A 10% convertible unsecured
offering maturing May 1, 2007, which closed in January and had raised $420,000
through December 31, 2002, raised an additional $600,500 during the period.
Proceeds of $465,000 from a private placement of 4% convertible unsecured notes
due November 1, 2007 were also received during the three-month period ending
March 31, 2003.

        In order to provide more liquidity and working capital, Daugherty
Resources, through its wholly-owned subsidiary, has continued to seek oil and
gas acquisitions and drill wells in its area of interest. During 2002 and the


                                       2
<PAGE>

first quarter of 2003, management continued to invest in areas that are crucial
to developing an infrastructure suitable for the future growth of the Company,
positioning the Company to take advantage of growth by acquisition and drilling.
Historically, acquisitions have been completed using Daugherty Resources' stock,
in whole or part, to pay for the acquisitions. Generally, acquisitions include
interests in wells and the right to operate the wells.

        Daugherty Petroleum has primarily concentrated in drilling wells on
prospects it generates in the Appalachian Basin. Historically, a major portion
of Daugherty Resources' revenue has been from Daugherty Petroleum's activities
as "turnkey driller" and operator of drilling programs and joint ventures in the
Appalachian Basin. Daugherty Resources generally participates in less than a
majority interest in those wells drilled by programs or joint ventures sponsored
by Daugherty Petroleum.

        For the three-month period ending March 31, 2003, Daugherty Resources
drilled twenty-nine (29) natural gas wells (7.3747 net wells), all of which were
capable of producing natural gas. By comparison, for the same period of 2002,
Daugherty Resources drilled seventeen (17) natural gas wells (4.9874 net wells).
Drilling operations for the first three months of 2003 were related to two (2)
year-end 2002 drilling programs that raised $8.775 million, and resulted in
drilling of 39 program wells. Ten (10) of the natural gas wells were drilled in
the third and fourth quarters of 2002. Daugherty Petroleum participated for a
25.43% interest in the partnership drilling.

        During the first quarter of 2003, Daugherty Petroleum began a 15 well
private placement partnership drilling program and will participate for a 25.75%
interest in up to 15 natural gas wells. In addition, Daugherty Petroleum entered
into a joint venture drilling program whereby Daugherty Petroleum will receive a
25% interest in up to 15 natural gas wells. As of May 9, 2003, drilling
operations have begun on two (2) of the program wells. Additionally, Daugherty
Petroleum anticipates sponsoring a year-end drilling program totaling at least
30 wells. Discussion with potential joint venture partners, and formation of
additional year-end programs, could result in additional wells being drilled.

        Daugherty Resources' working capital balance is not a good indicator of
liquidity because it fluctuates as a result of the timing and the amount of
drilling the Company is able to finance. Working capital as of March 31, 2003
was $400,787. This compares to a negative $1,513,571 as of December 31, 2002 and
a negative $1,253,976 as of March 31, 2002. Historically, oil and gas activities
have been funded from cash flow, bank borrowing, equity capital and the sale of
well interests in joint venture partnerships.

        At March 31, 2003, as compared to December 31, 2002, current assets
decreased by $2,648,702 to $5,235,465, primarily due to a $2,415,882 decrease in
cash and cash equivalents. This substantial decrease resulted from first quarter
drilling activities relating to the Company's two (2) year-end drilling programs
that closed on December 31, 2002. The programs funded drilling operations for 39
natural gas wells, 29 of which were drilled, and therefore financed, in the
first quarter of 2003. Additionally, accounts receivable balances decreased
$18,948 to $309,087, prepaid expenses and other current assets decreased
$237,126 from $460,663 to $223,537 and the current portion of related party
loans increased $23,254 to $87,416.

        At March 31, 2003, as compared to December 31, 2002, current liabilities
decreased by $4,563,060, from $9,397,738 to $4,834,678. This substantial
decrease was primarily driven by the $5,905,000 decrease in customers' drilling
deposits that resulted from the December 31, 2002 closing of Daugherty
Petroleum's year-end drilling programs and the related drilling during the first
quarter of 2003. Partially offsetting the decrease in customers' drilling
deposits were increases in accounts payable and accrued liabilities of $173,371
and $1,190,019, respectively, due to increased drilling operations and costs
relating to the completion of wells drilled during the three-month period ending
March 31, 2003. Additionally, the current portion of long-term debt decreased to
$170,891 based on scheduled maturities of existing debt instruments.

        Management does not believe that its working capital position will have
a material or substantial negative impact on Daugherty Resources' financial
position, results of operations or liquidity in future periods due to the
following:

    -   The drilling activity in 2002 and first quarter 2003 will result in
        substantially more oil and gas production to our Company. In the last
        quarter 2002 and the first quarter of 2003, Daugherty Petroleum drilled
        a total of



                                       3
<PAGE>

        37 successful wells. Furthermore, throughout the third and fourth
        quarters of 2002 and into 2003, gas prices have rebounded to reflect
        market demand and these increased prices will positively affect oil and
        gas revenue for the foreseeable future based on future price indicators.

    -   Procurement of additional reserves by drilling and acquisitions is
        expected to enhance the ability of Daugherty Resources to secure long
        term financing, increased lines of credit, and equity participation with
        industry partners.

        The production, revenue, profitability and future rate of growth of
Daugherty Resources are substantially dependent upon the prevailing prices of,
and demand for natural gas and oil. The ability of Daugherty Resources to
maintain or increase its borrowing capacity and to obtain additional capital on
attractive terms is also substantially dependent upon oil and gas prices. Prices
for oil and natural gas are subject to wide fluctuation in response to
relatively minor changes in supply of, and demand for, gas, market uncertainty
and a variety of other factors that are beyond the control of Daugherty
Resources.

        A significant amount of revenue is received from related party
transactions whereby Daugherty Petroleum sponsors and conducts development
drilling programs for its own account and for others. Generally, most of the
revenue from contract drilling activity is received from drilling partnerships
formed and managed by Daugherty Petroleum as managing general partner.
Typically, the investor partners own a 75% interest in the partnerships and
Daugherty Petroleum retains a 25% interest for its equity contribution to each
drilling program, increasing to 40% upon return of partners' investment. For
2002, Daugherty Petroleum participated in two (2) drilling programs that raised
a total of $8.775 million that allowed Daugherty Petroleum to drill a total of
39 wells by March 31, 2003. Based on the success of the year-end drilling
programs, Daugherty Petroleum plans to drill 60 wells during 2003. The Company
is currently sponsoring a 15 well drilling program and participating for a 25%
interest in another joint venture 15 well drilling program. Additionally,
Daugherty Petroleum anticipates sponsoring a year-end program totaling at least
30 wells. The Company may also enter into joint venture arrangements with
industry partners or a small group of investor partners and retain up to a 50%
working interest in any wells drilled. As a result, Daugherty Petroleum is
subject to substantial cash commitments at the closing of the partnership or
joint ventures.

        Upon the closing of a drilling partnership or joint venture each program
will execute a Turnkey Drilling Contract and Operating Agreement with Daugherty
Petroleum to drill and operate the partnership wells at costs and fees
comparable to those of other independent oil and gas companies drilling and
operating similar wells in the same geographical area. Most of the drilling and
development funds are received by Daugherty Petroleum under the Turnkey Drilling
Contract upon partnership funding but because the wells produce for a number of
years Daugherty Petroleum will continue in a fiduciary relationship as the
managing or co-managing general partner and as operator of the wells.

        In addition, Daugherty Petroleum also receives revenues from production
revenue from its equity position in each well together with revenue associated
with the gathering and compression of the natural gas. A portion the natural gas
production is handled by Knox Compression, a limited liability company owned by
the management of Daugherty Petroleum.

        Although Daugherty Petroleum believes that all transactions involving or
related to the drilling partnerships, including the costs, expenses and fees
charged by Daugherty Petroleum, are comparable with the transactions of
companies similarly situated and represent the conditions of competitive free
market dealings, the transactions involve related parties and cannot be presumed
to be carried out on an arm's length basis.

        To a large extent, the level of the drilling and development activity of
Daugherty Petroleum is dependent upon the amount of subscriptions in its
drilling partnerships and the level of participation with other joint venture
partners. Daugherty Petroleum benefits through such arrangements by its receipt
of revenue from the contract drilling activities and through its share in the
revenues produced by the developed properties. No assurance can be given that
Daugherty Resources will continue to have access to funds generated through
these financing vehicles.


                                       4
<PAGE>

        Daugherty Resources believes its cash flow resulting in operating
revenues will contribute significantly to its short-term financial commitments
and operating costs, and has continued to refine its long-term strategy in 2003
to meet the financial obligations of Daugherty Resources. This strategy
includes:

    -   INCREASING PARTNERSHIP AND JOINT VENTURE DRILLING. Steadily rising
        natural gas prices, together with the public awareness of possible
        natural gas shortages, has sparked an increased interest in partnership
        drilling. Daugherty Petroleum plans to increase its sponsorship of
        drilling programs to increase drilling revenue, cash flow from sale of
        production and increase its natural gas and oil reserves. A decrease in
        the price of natural gas and/or a surplus of natural gas could result in
        a decrease in the interest and investment in drilling programs sponsored
        by Daugherty Petroleum with a resulting decrease in contract drilling
        revenue and cash flow from the sale of production. However, Daugherty
        Resources believes that investments in drilling programs are, in part,
        influenced by favorable tax treatment under the federal income tax laws
        and will continue to be a source of funds to Daugherty Resources.

    -   ACQUISITION OF REVENUE PRODUCING PROPERTIES. Daugherty Resources
        continues to review existing oil and gas properties for acquisition in
        its areas of interest.

    -   GOLD AND SILVER PROPERTIES. Since Daugherty Resources does not have
        current plans to develop the properties itself, it is the objective of
        Daugherty Resources to realize the value of its gold and silver
        properties by 1) obtaining a joint venture partner to provide funds for
        additional exploration on its prospects or 2) divesting of its gold and
        silver properties. Subsequent to obtaining reports from two independent
        consultants management prepared and distributed summary material to
        various individuals and firms associated with the gold and silver mining
        sector with the intent of soliciting an interest in acquiring part or
        all of the property or providing capital as a joint venture partner.
        Daugherty Resources has had several discussions with the principals of
        those responding to the summary material and Daugherty Resources
        continues to solicit interest from those in the gold and silver
        industry.

RESULTS OF OPERATIONS

        For the three-month period ending March 31, 2003, Daugherty Resources'
gross revenues increased $4,826,926 to $8,830,854, from $4,003,928 for the same
period in 2002. During the first quarter of 2003, Daugherty Resources' gross
revenues were derived from contract drilling revenues of $8,033,000 (91%), oil
and gas production revenues of $529,004 (6%), and gas transmission and
compression revenues of $268,850 (3%). The 121% increase in total gross revenues
contributed to Daugherty Resources' net income of $2,082,812 for the quarter
ended March 31, 2003, compared to net income of $963,192 for the three-month
period ended March 31, 2002.

        The increase in gross revenues of $4,826,926 was primarily attributable
to an increase in contract drilling, resulting from interest of investors and
joint venture partners in drilling programs sponsored by Daugherty Petroleum.
The increased interest was due to a variety of factors including, but not
limited to, higher energy prices, underperformance of other investment vehicles
in the United States and abroad, significant tax benefits currently available to
investors, and public awareness of natural gas drilling programs and possible
natural gas shortages. The capital raised by the year-end programs reflected a
60% increase in participation compared to the Company's 2001 drilling programs.
During the three-month period ended March 31, 2003, the Company drilled 29
natural gas wells (7.3747 net wells), in conjunction with the Company's two (2)
year-end drilling programs that closed on December 31, 2002, all of which were
capable of producing natural gas. By comparison, during the first quarter of
2002, Daugherty Resources drilled 17 successful natural gas wells (4.9874 net
wells). The 29 wells drilled during the three months ended March 31, 2003
exceeded the total number of wells drilled by the Company during all of 2002,
when 27 wells were drilled.

        In addition to an increase in contract drilling revenues, revenues from
oil and gas production increased $293,453, to $529,004 for the three months
ended March 31, 2003. This increase was due to greater production from wells put
on line subsequent to March 31, 2002, as well as significantly higher natural
gas prices compared to the first quarter of 2002.


                                       5
<PAGE>

        During the three-month period ending March 31, 2003, total direct
expenses increased by $1,616,212 to $3,819,368, compared to $2,203,156 for the
same period in 2002. The overall increase in direct costs was primarily due to
contract drilling expenses, which increased $1,618,531, or 91%, during the three
months ended March 31, 2003, the result of Daugherty Resources drilling
activities during the period. However, in proportion to contract drilling
revenues, direct expenses from drilling operations were contained, mainly due to
economies of scale, control of field overhead expenses, and the drilling of
several wells at more shallow depths than in 2002, thus decreasing variable
drilling costs paid to independent drilling companies and lowering well
completion expenditures. Oil and gas production expenses increased $121,867 from
$194,147 for the quarter ending March 31, 2002 compared to $316,014 for the
quarter ending March 31, 2003. Offsetting this increase was a decrease of
$124,186 in gas transmission and compression expenses, to $108,189 for the
three-month period ending March 31, 2003.

        The Company's selling, general and administrative expenses increased to
$2,692,215 for the three-month period ending March 31, 2003, as compared to
$639,661 a year ago. This substantial increase was mainly due to enhanced
selling and promotional charges relating to the Company's two (2) year-end 2002
drilling programs. As 29 of the 39 programs wells were drilled during the
three-month period ending March 31, 2003, a proportionate share of selling costs
were expensed during the period to match the related revenue. Additionally,
general and administrative expenses increased due to expanding operations,
including increased salary and other employee related expenses.

        Depreciation, depletion and amortization increased $39,700 during the
three-month period ending March 31, 2003, to $179,080, the result of additions
to oil and gas properties and general property and equipment. A larger level of
long-term debt increased interest expense $9,927 from $72,526 for the quarter
ending March 31, 2002, compared to $82,453 for the quarter ended March 31, 2003.
Interest income during the period increased $14,841 to $28,828, while other net
expenses totaled $3,754 during the first quarter of 2003.

        Sentra Corporation, Daugherty Resources' natural gas utility subsidiary,
had revenue for the three months ended March 31, 2003 of $115,752, compared with
$65,289 for the three months ended March 31, 2002. As of March 31, 2003, Sentra
had 188 customers, 64 of which were commercial and agri-business accounts.
Sentra expects high demand for natural gas service because of the ease of usage,
economy and reliability of natural gas. Further, demand is expected to increase
because of continued growth and acceptance of natural gas by the chicken
industry that is a major segment the economy in Sentra's service areas.

        Sentra has continued its agreement with Clay Gas Utility District of
Celina, Tennessee to manage its business, which currently consists of 162
customers, including 29 industrial, commercial and agri-business connections.
Sentra also reads Clay Gas' meters, issue its bills and collects its
receivables. Daugherty purchases the natural gas it sells to the utilities from
a gas marketing company that delivers the gas to the utilities sales meter on
the Texas Eastern Transmission line in Monroe County, Kentucky. The two
contracts are scheduled to expire July 31, 2003.

        Daugherty Resources believes there are several factors that will
increase revenues in the year 2003, including increased oil and gas production
from its interests in the wells drilled in 2002 and the first quarter of 2003,
continued strong prices of natural gas, and the resulting expansion of its gas
gathering system to allow more gas production to be transported to market. In
addition, natural gas prices should create more interest in Daugherty Resources
drilling programs, which would increase turnkey drilling revenues.




                                       6
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

        None.

ITEM 5. OTHER INFORMATION.

        Not Applicable.

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

        (a)    List of Documents Filed with this Report.

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                                                                                             PAGE
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<S>            <C>                                                                          <C>
        (1)    Condensed Consolidated Balance Sheet as of March 31, 2003                    II-III

               Condensed Consolidated Statement of Operations and Deficit for the
                  three months ended March 31, 2003                                           IV

               Condensed Consolidated Statement of Cash Flows for the three months
                  ended March 31, 2003                                                       V-VI

               Notes to Condensed Consolidated Financial Statements                         VII-XIX
</TABLE>

        All schedules have been omitted since the information required to be
submitted has been included in the financial statements or notes or has been
omitted as not applicable or not required.

        (2)    Exhibits--

               The exhibits indicated by an asterisk (*) are incorporated by
reference.

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER   DESCRIPTION OF EXHIBIT
        ------   ----------------------
<S>              <C>
         3(a)*   Memorandum and Articles for Catalina Energy & Resources Ltd., a British Columbia
                 corporation, dated January 31, 1979, filed as an exhibit to Form 10 Registration Statement
                 filed May 25, 1984. File No. 0-12185.

         3(b)*   Certificate for Catalina Energy & Resources Ltd., a British Columbia corporation, dated
                 November 27, 1981, changing the name of Catalina Energy & Resources Ltd. to Alaska Apollo
                 Gold Mines Ltd., and further changing the authorized capital of the Company from 5,000,000
                 shares of common stock, without par value per share, to 20,000,000 shares of common stock,
                 without par value per share, filed as an exhibit to Form 10 Registration Statement filed
                 May 25, 1984. File No. 0-12185.

         3(c)*   Certificate of Change of Name for Alaska Apollo Gold Mines Ltd., a British Columbia
                 corporation, dated October 14, 1992, changing the name of Alaska Apollo Gold Mines Ltd. to
                 Alaska Apollo Resources Inc., and further changing the authorized capital of the Company
                 from 20,000,000 shares of common stock, without par value per share, to 6,000,000 shares
                 of common stock, without par value per share.

         3(d)*   Altered Memorandum of Alaska Apollo Resources Inc., a British Columbia corporation, dated
                 September 9, 1994, changing the authorized capital of the Company from 6,000,000 shares of
</TABLE>


                                       7
<PAGE>

<TABLE>
<S>              <C>
                 common stock, without par value per share, to 20,000,000 shares of common stock, without
                 par value per share.

         3(e)*   Certificate of Change of Name for Alaska Apollo Resources Inc., a British Columbia
                 corporation, dated June 24, 1998, changing the name of Alaska Apollo Resources Inc. to
                 Daugherty Resources, Inc. and further changing the authorized capital of the Registrant
                 from 20,000,000 shares of common stock, without par value per share, to 50,000,000 shares
                 of common stock, without par value, and authorizing the creation of 6,000,000 shares of
                 preferred stock, without par value per share. (File No.0-12185).

         3(f)*   Altered Memorandum of Daugherty Resources, Inc., a British Columbia corporation, dated
                 June 24, 1998, changing the authorized common stock of the Registrant from 50,000,000
                 shares of common stock, without par value per share, to 10,000,000 shares of common stock,
                 without par value. (File No.0-12185).

         3(g)*   Altered Memorandum of Daugherty Resources, Inc., a British Columbia corporation, dated
                 June 25, 1998, changing the authorized preferred stock of the Registrant from 6,000,000
                 shares of preferred stock, without par value per share, to 1,200,000 shares of preferred
                 stock, without par value.  Filed as an exhibit to Form 8-K, by the Company for reporting
                 an event on June 29, 1998. (File No.0-12185).

        3 (h)*   Special Resolution of Daugherty Resources, Inc., a British Columbia corporation, dated
                 June 30, 1999, changing the authorized capital of the Registration from 10,000,000 shares
                 of common stock, without par value per share, to 100,000,000 shares of common stock,
                 without par value per share, and from 1,200,000 shares of preferred stock, without par
                 value per share, to 5,000,000 shares of preferred stock, without par value per share.
                 Altered Memorandum of Daugherty Resources, Inc., dated June 30, 1999, changing the
                 authorized capital of the Company to 105,000,000 shares divided into 5,000,000 shares of
                 preferred stock, without par value and 100,000,000 common shares without par value.
                 Special Resolution of Daugherty Resources, Inc., a British Columbia corporation, dated
                 June 30, 1999, altering Article 23.1(b) of the Company Articles by substituting a new
                 Article 23.1(b) that sets forth the conditions and terms upon which the preferred shares
                 can be converted to common stock.  Filed as an exhibit to Form 8-K, for the Company for
                 reporting an event on October 25, 1999. (File No.0-12185).

          4*     See Exhibit No. 3(a), (b). (c), (d), (e), (f), (g) and (h).

        10(a)*   Alaska Apollo Resources Inc. 1997 Stock Option Plan, filed as Exhibit 10(a) to Form 10-K
                 for the Company for the fiscal year ended December 31, 1996. (File No. 0-12185).

        10(b)*   Incentive Stock Option Agreement by and between Alaska Apollo Resources Inc. and William
                 S. Daugherty dated March 7, 1997, filed as Exhibit 10(b) to Form 10-K for the Company for
                 the fiscal year ended December 31, 1996. (File No. 0-12185).

        10(c)*   Agreement of Purchase and Sale by and between Environmental Energy Partners I, Ltd.,
                 Environmental Energy Partners II, Ltd, Environmental Operating Partners, Ltd.,
                 Environmental Holding, LLC, Environmental Processing Partners, Ltd., Environmental Energy,
                 Inc., and Environmental Operating, Inc., as Sellers and Daugherty Petroleum, Inc., as
                 Buyer, and Daugherty Resources, Inc. as Accommodating Party, dated as of January 26, 1999,
                 filed as an Exhibit to Form 8-K by the Company for reporting an event on May 25, 1999
                 (File No. 0-12185).

        10(d)*   Agreement for the Purchase and Sale by and between H&S Lumber, Inc., Buyer, and Daugherty
                 Petroleum, Inc., Seller, for the sale of Red River Hardwoods, Inc., an 80% subsidiary of
                 Daugherty Petroleum, Inc., which was effective June 30, 1999, and closed December 1, 1999,
</TABLE>


                                       8
<PAGE>

<TABLE>
<S>              <C>
                 filed as Exhibit 10.1 to Form 8-K by the Company for reporting an event on December 9,
                 1999 (File No. 0-12185).

          24     Powers of Attorney.

         99.1    Certification of William S. Daugherty, President and CEO.

         99.2    Certification of Michael P. Windisch, Chief Financial Officer.
</TABLE>

        (b)    Reports on Form 8-K.
                 None


FORWARD-LOOKING STATEMENTS

        This Form 10-QSB contains forward-looking statements within meaning of
section 27A of the Securities Act of 1933 and section 21E of the Securities
Exchange Act of 1934, including statements regarding, among other items, our
growth strategies, anticipated trends in our business and our future results of
operations, market conditions in the oil and gas industry, our ability to make
and integrate acquisitions and the outcome of litigation and the impact of
governmental regulation. These forward-looking statements are based largely on
our expectations and are subject to a number of risks and uncertainties, many of
which are beyond our control. Actual results could differ materially from these
forward-looking statements as a result of, among other things:

        -   A decline in oil and/or gas production or prices.
        -   Incorrect estimates of required capital expenditures.
        -   Increases in the cost of drilling, completion and gas collection or
            other costs of production and operations.
        -   An inability to meet growth projections.
        -   Government regulations.
        -   Other risk factors discussed or not discussed herein.

        In addition, the words "believe", "may", "will", "estimate", "continue",
"anticipate", "intend", "expect" and similar expressions, as they relate to
Daugherty Petroleum and/or Daugherty Resources, our business or our management,
are intended to identify forward-looking statements.

        Daugherty Resources believes that the expectations reflected in the
forward-looking statements and the basis of the assumptions of such
forward-looking statements are reasonable. However, in light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.

        Daugherty Resources claims the protection of the safe harbor for
forward-looking statements combined in the Private Securities Litigation Reform
Act of 1995 for these statements.




                                       9
<PAGE>

                                   SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned hereunto duly authorized.

                                   DAUGHERTY RESOURCES, INC.


                                   By:  /s/ William S. Daugherty
                                        ------------------------
                                        William S. Daugherty, President & CEO


Dated: May 9, 2003

        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
             SIGNATURE                               TITLE                                   DATE
             ---------                               -----                                   ----
<S>                                    <C>                                            <C>
/s/ William S. Daugherty               Chairman of the Board, President,
------------------------                  Director of the Registrant                  May 9, 2003
William S. Daugherty


/s/ Michael P.Windisch                       Chief Financial Offer
----------------------                         of the Registrant                      May 9, 2003
Michael P. Windisch


/s/ James K. Klyman *
---------------------
James K. Klyman                           Director of the Registrant                  May 9, 2003


/s/ Charles L. Cotterell *
--------------------------
Charles L. Cotterell                      Director of the Registrant                  May 9, 2003







*By  /s/ William S. Daugherty
     ------------------------
     William S. Daugherty
     Attorney-in-Fact
</TABLE>








                                       10
<PAGE>

                                 CERTIFICATIONS

I, William S. Daugherty, certify that:

    1.  I have reviewed this quarterly report on Form 10-QSB of Daugherty
        Resources, Inc.;

    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 quarterly 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 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

            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: May 9, 2003



/s/ William S. Daugherty
------------------------
William S. Daugherty
President & CEO



                                       11
<PAGE>

                                 CERTIFICATIONS

I, Michael P. Windisch, certify that:

    1.  I have reviewed this quarterly report on Form 10-QSB of Daugherty
        Resources, Inc.;

    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 quarterly 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 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):

            d.  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

            e.  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: May 9, 2003



/s/ Michael P. Windisch
-----------------------
Michael P. Windisch
Chief Financial Officer



                                       12
<PAGE>







                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003




<PAGE>

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

                                 MARCH 31, 2003

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                         PAGE
<S>                                                                                  <C>
REVIEW ENGAGEMENT REPORT                                                                     I

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet                                                                           II-III

Statement of Operations and Deficit                                                         IV

Statement of Cash Flows                                                                   V-VI

Notes to Financial Statements                                                          VII-XIX
</TABLE>



<PAGE>

                                                                          PAGE I






                            REVIEW ENGAGEMENT REPORT


To the Directors of
DAUGHERTY RESOURCES, INC.

We have reviewed the condensed consolidated balance sheet of DAUGHERTY
RESOURCES, INC. as at March 31, 2003 and the condensed consolidated statements
of operations and deficit, and cash flows for the three months ended March 31,
2003. Our review was made in accordance with Canadian generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.

A review does not constitute an audit and consequently we do not express an
audit opinion on these condensed consolidated financial statements.

Based on our review, nothing has come to our attention that causes us to believe
that these condensed consolidated financial statements are not, in all material
respects, in accordance with Canadian generally accepted accounting principles.

We have previously audited, in accordance with auditing standards generally
accepted in Canada, the balance sheet as at December 31, 2002 and the related
statements of operations and deficit and cash flows for the year then ended (not
presented herein) and, in our report dated March 23, 2003, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet, as of
December 31, 2002, is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.



                KRAFT, BERGER, GRILL, SCHWARTZ, COHEN & MARCH LLP
                              CHARTERED ACCOUNTANTS

Toronto, Ontario
May 6, 2003


<PAGE>

                                                                         PAGE II



                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003


                                     ASSETS

<TABLE>
<CAPTION>
                                                                 MARCH 31, 2003     DECEMBER 31, 2002
                                                                ----------------   -------------------
<S>                                                              <C>                <C>
CURRENT
     Cash and cash equivalents                                   $    4,615,425     $      7,031,307
     Accounts receivable                                                309,087              328,035
     Prepaid expense and other asset                                    223,537              460,663
     Loans to related parties (Note 4)                                   87,416               64,162
                                                                ----------------   -------------------
                                                                      5,235,465            7,884,167

BONDS AND DEPOSITS                                                       41,000               41,000

OIL AND GAS PROPERTIES (Note 2)                                      11,096,483            9,679,549

PROPERTY AND EQUIPMENT (Note 3)                                       1,255,421              918,855

LOANS TO RELATED PARTIES (Note 4)                                       666,539              711,658

INVESTMENT (Note 5)                                                     119,081              119,081

DEFERRED FINANCING COSTS (Note 6)                                        36,666               43,546

GOODWILL (Note 7)                                                       313,177              313,177
                                                                ----------------   -------------------


                                                                 $   18,763,832     $     19,711,033
                                                                ================   ===================
</TABLE>







The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                                                                        PAGE III



                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003


                                   LIABILITIES

<TABLE>
<CAPTION>
                                                             MARCH 31, 2003     DECEMBER 31, 2002
                                                            ----------------   -------------------
<S>                                                          <C>                 <C>
CURRENT
    Bank loans (Note 8)                                      $      134,162      $      134,162
    Accounts payable                                              1,268,312           1,094,941
    Accrued liabilities                                           2,402,113           1,212,094
    Customers' drilling deposits                                    859,200           6,764,200
    Long-term debt (Note 9)                                         170,891             192,341
                                                            ----------------   -------------------
                                                                  4,834,678           9,397,738



LONG-TERM DEBT (Note 9)                                           5,060,801           4,027,198
                                                            ----------------   -------------------
                                                                  9,895,479          13,424,936
                                                            ----------------   -------------------


                              SHAREHOLDERS' EQUITY

CAPITAL STOCK (Note 10)
AUTHORIZED
      5,000,000  Preferred shares, non-cumulative,
                 convertible
    100,000,000  Common shares

ISSUED
        226,354  Preferred shares (2002 - 558,476)                  417,489          1,784,493
      6,345,207  Common shares (2002 - 5,505,670)                26,456,245         24,589,797
         21,100  Common shares held in treasury, at cost            (23,630)           (23,630)

TO BE ISSUED
         24,887  Common shares to be issued                          55,226             55,226
                                                            ----------------   -------------------
                                                                 26,905,330         26,405,886

DEFICIT                                                         (18,036,977)       (20,119,789)
                                                            ----------------   -------------------
                                                                  8,868,353          6,286,097
                                                            ----------------   -------------------

                                                             $   18,763,832     $   19,711,033
                                                            ================   ===================
</TABLE>





The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                                                                         PAGE IV



                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

           CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
                                  (U.S. FUNDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED MARCH 31
                                                                    2003               2002
                                                               ----------------   ---------------
<S>                                                            <C>                <C>
REVENUE
Contract drilling (Not less than 95% attributable to related
     party transactions)                                       $   8,033,000      $   3,484,000
Oil and gas production                                               529,004            235,551
Gas transmission and compression                                     268,850            284,377
                                                               ----------------   ---------------
                                                                   8,830,854          4,003,928
                                                               ----------------   ---------------
DIRECT EXPENSES
Contract drilling                                                  3,395,165          1,776,634
Oil and gas production                                               316,014            194,147
Gas transmission and compression                                     108,189            232,375
                                                               ----------------   ---------------
                                                                   3,819,368          2,203,156
                                                               ----------------   ---------------

GROSS PROFIT                                                       5,011,486          1,800,772
                                                               ----------------   ---------------

OTHER INCOME (EXPENSE)
Selling, general and administrative                               (2,692,215)          (639,661)
Depreciation, depletion and amortization                            (179,080)          (139,380)
Interest expense                                                     (82,453)           (72,526)
Interest income                                                       28,828             13,987
Other, net                                                            (3,754)             -
                                                               ----------------   ---------------
                                                                  (2,928,674)          (837,580)
                                                               ----------------   ---------------

INCOME BEFORE INCOME TAXES                                         2,082,812            963,192
                                                               ----------------   ---------------

INCOME TAX EXPENSE
Current                                                              791,469            366,013
Deferred                                                            (791,469)          (366,013)
                                                               ----------------   ---------------
                                                                       -                  -
                                                               ----------------   ---------------

NET INCOME FOR THE PERIOD                                          2,082,812            963,192

DEFICIT, BEGINNING OF PERIOD                                      (20,119,789)       (20,754,739)
                                                               ----------------   ---------------

DEFICIT, END OF PERIOD                                         $  (18,036,977)    $  (19,791,547)
                                                               ================   ===============

NET INCOME PER SHARE
Basic                                                                $0.36              $0.19
                                                                     =====              =====
Fully diluted                                                        $0.25              $0.16
                                                                     =====              =====
</TABLE>




The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                                                                          PAGE V



                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31
                                                                 2003              2002
                                                            ---------------   ---------------
<S>                                                         <C>               <C>
OPERATING ACTIVITIES
    Net income for the period                               $   2,082,812     $      963,192
    Adjustments to reconcile net income for the period to
        net cash used in operating activities:
      Incentive bonus paid by common shares                       236,130            109,620
      Depreciation, depletion and amortization                    179,080            139,380
      Loss on sale of assets                                        3,795              -
      Changes in assets and liabilities:
        Accounts receivable                                        18,948             69,538
        Prepaid expenses and other assets                         237,126             (1,635)
        Accounts payable                                          287,497             (6,350)
        Accrued liabilities                                     1,190,019            560,968
        Customers' drilling deposits                           (5,905,000)        (2,703,000)
                                                            ---------------   ---------------

           Net cash used in operating activities               (1,669,593)          (868,287)
                                                            ---------------   ---------------

INVESTING ACTIVITIES

    Proceeds from sale of assets                                    3,245              -
    Purchase of property and equipment                           (375,806)           (42,484)
    (Increase) decrease in loans to related parties                21,865           (198,297)
    Purchase of investment                                          -                 (9,827)
    Additions to oil and gas properties, net                   (1,556,934)          (329,884)
                                                            ---------------   ---------------

           Net cash used in investing activities               (1,907,630)          (580,492)
                                                            ---------------   ---------------

FINANCING ACTIVITIES
    Net payments on short-term borrowings                           -                 (4,820)
    Issue of common shares                                        149,188              -
    Proceeds from issuance of long-term debt                    1,065,500              -
    Payments of long-term debt                                    (53,347)           (33,041)
                                                            ---------------   ---------------

           Net cash provided by (used in) financing             1,161,341            (37,861)
           activities
                                                            ---------------   ---------------

CHANGE IN CASH AND CASH EQUIVALENTS                            (2,415,882)        (1,486,640)

CASH AND CASH EQUIVALENTS, beginning of period                  7,031,307          2,244,420
                                                            ---------------   ---------------

CASH AND CASH EQUIVALENTS, end of period                    $   4,615,425     $      757,780
                                                            ===============   ===============
</TABLE>




The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                                                                         PAGE VI



                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (U.S. FUNDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED MARCH 31
                                                              2003               2002
                                                         ----------------   ---------------
<S>                                                      <C>                <C>
SUPPLEMENTAL DISCLOSURE
Interest paid during the period                          $     104,578      $      91,540

Income taxes paid during the period                      $       -          $       -


SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES

Preferred shares issued for acquisition of oil and gas
properties and settlement of debt                        $       -          $     418,785

Common shares issued for the payment of accounts         $     114,126      $     155,031
payable
</TABLE>








The accompanying notes are an integral part of these consolidated financial
statements.


<PAGE>

                                                                       PAGE VIII

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003




1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    These condensed consolidated financial statements have been prepared in
    accordance with generally accepted accounting principles in Canada, which
    except as described in Note 14, conform, in all material respects, with the
    accounting principles generally accepted in the United States of America.

    (a) GENERAL

        In the opinion of the Company, the accompanying unaudited condensed
        consolidated financial statements contain all adjustments (consisting of
        only normal recurring adjustments) which, in the opinion of management,
        are necessary to present fairly the condensed consolidated financial
        position as at March 31, 2003 and condensed consolidated results of
        operations and cash flows for the three month periods ended March 31,
        2003 and 2002.

        While the Company believes that the disclosures presented are adequate
        to make the information not misleading, it is suggested that these
        condensed consolidated financial statements be read in conjunction with
        the consolidated financial statements and the notes included in the
        Company's latest annual report on Form 20-F.

    (b) BASIS OF CONSOLIDATION

        The condensed consolidated financial statements include the accounts of
        the Company and its wholly-owned subsidiary, Daugherty Petroleum, Inc.
        ("DPI") and its 100% owned subsidiary. All material inter-company
        accounts and transactions have been eliminated on consolidation.

    (c) 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 disclosures 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.

        Material estimates are particularly significant as they relate to the
        determination of the reserves of oil and gas properties. In connection
        with the determination of these carrying amounts, management must make
        estimates relating to future production, future product prices and
        operating expenses.

    (d) RECLASSIFICATIONS

        Certain amounts included in the prior period condensed consolidated
        financial statements have been reclassified to conform with current
        period presentation.

<PAGE>

                                                                         PAGE IX

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003


2.  OIL AND GAS PROPERTIES

<TABLE>
<CAPTION>
                                                         MARCH 31, 2003                    DECEMBER 31,
                                                                                               2002
                                            ------------------------------------------    ----------------

                                                           ACCUMULATED
                                               COST        AMORTIZATION       NET               NET
                                            -----------    ------------    -----------    ----------------
                                                $               $              $                 $
<S>                                         <C>              <C>            <C>            <C>
   Proved oil and gas properties            11,998,380       2,019,472      9,978,908           8,576,375
   Unproved oil and gas properties             419,737             -          419,737             419,737
   Wells and related equipment                 823,158         125,320        697,838             683,437
                                            -----------    ------------    -----------    ----------------

   TOTAL OIL AND GAS PROPERTIES             13,241,275       2,144,792     11,096,483           9,679,549
                                            ===========    ============    ===========    ================
</TABLE>

3.  PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                         MARCH 31, 2003                    DECEMBER 31,
                                                                                               2002
                                            ------------------------------------------    ----------------

                                                           ACCUMULATED
                                               COST        AMORTIZATION       NET               NET
                                            -----------    ------------    -----------    ----------------
                                                $               $              $                 $
<S>                                          <C>               <C>          <C>            <C>
   Land                                         12,908            -            12,908              12,908
   Building improvements                        14,083           1,925         12,158               4,471
   Machinery and equipment                     909,596         157,082        752,514             625,086
   Office furniture and fixtures               126,666          87,003         39,663              18,176
   Aircraft                                    275,000          12,009        262,991             116,146
   Vehicles                                    314,127         138,940        175,187             142,068
                                            -----------    ------------    -----------    ----------------

   TOTAL PROPERTY AND EQUIPMENT              1,652,380         396,959      1,255,421             918,855
                                            ===========    ============    ===========    ================
</TABLE>

4.  LOANS TO RELATED PARTIES

    The loans to related parties represent loans receivable from officers of the
    Company and certain shareholders totaling $582,526 and $604,379 at March 31,
    2003 and December 31, 2002, respectively, bearing interest at 6% per annum,
    payable monthly from production revenues for a period of five to ten years
    with a balloon payment at maturity date. The loans are collateralized by the
    related parties ownership interest in drilling partnerships with DPI. The
    loans receivable from the officers of DPI totaling $171,429 and $171,441,
    respectively, are non-bearing and unsecured.

5.  INVESTMENT

    The Company's investment of $119,081 relates to holdings in three series of
    bonds issued by the City of Galax, Virginia Industrial Development
    Authority. The bonds bear interest at rates ranging from 7% to 8.25% per
    annum with maturity dates of July 1, 2004 and July 1, 2010. Through its
    wholly-owned subsidiary Daugherty Petroleum, the Company has paid $119,081
    for bonds with a face value of $154,040. As of March 31, 2003 and December
    31, 2002, the estimated market value of DPI's interest in all Galax bonds
    was $36,970.

<PAGE>

                                                                          PAGE X

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003


    In accordance with accounting principles generally accepted in Canada, the
    investments are carried at cost in the Company's financial statements. For
    United States purposes, the investments are reported at fair value, with
    unrealized gains and losses excluded from earnings and reported as a
    separate component of shareholders' equity.

6.  DEFERRED FINANCING COSTS

    Financing costs totaling $137,607 incurred in 1999 in connection with the
    issuance of 10% convertible secured notes payable have been capitalized and
    amortized over the life of the indebtedness. Accumulated amortization
    amounted to $100,941 and $94,061 at March 31, 2003 and December 31, 2002,
    respectively.

7.  GOODWILL

    In conjunction with Daugherty Resources' 1993 acquisition of its
    wholly-owned subsidiary, Daugherty Petroleum, the Company recorded goodwill
    of $1,789,564, which was recorded at cost and amortized over 10 years on a
    straight-line basis. Unamortized goodwill as of December 31, 2001 was
    $313,177.

    On January 1, 2002, the Company adopted CICA Handbook Section 3062,
    "Goodwill and Other Intangible Assets", which is the Canadian equivalent of
    Statement of Financial Accounting Standards No. 142 for accounting
    principles generally accepted in the United States of America. Under the new
    standard, goodwill is no longer amortized, but rather tested for impairment
    upon adoption and at least annually thereafter. The annual test may be
    performed anytime during the year, but must be performed at the same time
    each year. The Company's impairment test was completed in October 2002 and
    there was no impairment of goodwill. As such, accumulated amortization
    remained $1,476,387 at December 31, 2002 and March 31, 2003.

8.  BANK LOANS

<TABLE>
<CAPTION>
                                                       MARCH 31, 2003      DECEMBER 31, 2002
                                                      ------------------   ------------------
<S>                                                   <C>                  <C>
        NOTE PAYABLE bearing interest at 4.71% per
        annum, maturing January 15, 2004, and
        collateralized by a certificate of deposit
        amounting to $135,367.                        $         134,162    $         134,162

                                                      ------------------   ------------------
                                                      $         134,162    $         134,162
                                                      ------------------   ------------------
</TABLE>

9.  LONG-TERM DEBT

    On July 8, 1986, the Company purchased the mineral property on Unga Island,
    Alaska, for debt in the amount of $854,818. The debt is non-interest
    bearing, payable at $2,000 per month, until fully paid, and is secured by
    deeds of trust over the Unga Island mineral claims and certain buildings and
    equipment located thereon.

    The purchase agreement also provides for the payment of monthly royalties at
    4% of net smelter returns or net revenue as defined in the agreement. Any
    royalties paid reduce the amount of the purchase price payable above. The
    obligation is stated at its remaining face value of $434,818 at March 31,
    2003 and has not been discounted.

<PAGE>

                                                                         PAGE XI

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003


<TABLE>
<CAPTION>
                                                        MARCH 31, 2003      DECEMBER 31, 2002
                                                      ------------------   -------------------
<S>                                                   <C>                  <C>
NOTE PAYABLE as outlined above.                       $         434,818    $         438,818

10% CONVERTIBLE NOTES mature July 31, 2004,
collateralized by DPI's mining properties.
Interest is payable semi-annually on February 1
and August 1, commencing on February 1, 2000. At
the option of the holder, the note is
convertible on or before July 31, 2004 to shares
of common stock at the rate of 368.8132 shares
per each $1,000 principal amount of the notes.
The Company may redeem, at any time, the notes
in whole or part at 100% of principal amount
plus accrued interest through the date of
redemption.                                                     850,000              850,000

NOTE PAYABLE TO KEYBANK NATIONAL ASSOCIATION
maturing July 31, 2004. Variable interest at the
bank's prime rate plus 1.25%, which may vary
based upon certain conditions in the credit
agreement is payable monthly. The interest rate
at March 31, 2003 was 5.5%. The total available
credit under the terms of the note is
$10,000,000. The maximum amount of funding
available is limited to the Company's borrowing
base, which is redetermined semi-annually. The
borrowing base at March 31, 2003, was
$2,350,000. The note is secured by a general
lien on all corporate assets, a first mortgage
on oil and gas interests and pipelines, and
assignments of major oil and gas and
transportation contracts.                                     2,247,984            2,247,984

10% CONVERTIBLE UNSECURED NOTES maturing May 1,
2007. Interest is payable semi-annually on May 1
and November 1, commencing on November 1, 2002.
At the option of the holder, the notes are
convertible on or before May 1, 2007 to shares
of common stock at the rate of 666.667 shares
per each $1,000 principal amount of notes. The
Company may redeem, at any time, the notes in
whole or in part at 100% of principal amount
plus accrued interest through the date of
redemption.                                                   1,020,500              420,000
</TABLE>

<PAGE>

                                                                        PAGE XII

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003



<TABLE>
<CAPTION>
                                                        MARCH 31, 2003      DECEMBER 31, 2002
                                                      ------------------   -------------------
<S>                                                   <C>                  <C>
4% CONVERTIBLE UNSECURED NOTES maturing November
1, 2007. Interest is payable semi-annually on
May 1 and November 1, commencing on May 1, 2003.
At the option of the holder, the notes are
convertible on or before November 1, 2007 to
shares of common stock at the rate of 1,176.471
shares per each $1,000 of principal amount of
notes. The Company may redeem, at any time, the
notes in whole or part at 100% of principal
amount plus accrued interest through the date of
redemption.                                                     465,000                 -

VARIOUS NOTES PAYABLE, bearing interest ranging
from 6.0% to 9.5% per annum, payable monthly in
varying amounts up to 2005, collateralized by
the equipment and vehicles acquired.                             49,674               61,426

LOAN PAYABLE TO NON-AFFILIATED COMPANY, bearing
interest at 10% per annum, collateralized by the
assets and the corporate guarantee of a
wholly-owned subsidiary, payable in quarterly
payments of interest only. Principal is
currently due.                                                   64,779               64,779

NOTE PAYABLE TO A CERTAIN INDIVIDUAL, bearing
interest at 8% per annum, payable in 60
installments of $1,370, including interest,
maturing in February 2005.                                       31,190               35,704

LOANS PAYABLE TO VARIOUS BANKS with interest
rates ranging from 4.25% to 9.75% per annum,
payable monthly in varying amounts up to May 10,
2006, collateralized by receivables and various
vehicles.                                                        67,747               76,178

UNSECURED LOAN PAYABLE TO NON-AFFILIATED
COMPANY, bearing interest at 10% per annum.                        -                  24,650
                                                      ------------------   -------------------

                                                              5,231,692            4,219,539
Less:  Current portion                                          170,891              192,341
                                                      ------------------   -------------------

                                                              5,060,801            4,027,198
                                                      ==================   ===================
</TABLE>

<PAGE>

                                                                       PAGE XIII

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003



10. CAPITAL STOCK


<TABLE>
<CAPTION>
                                                              SHARES         AMOUNT
                                                           -------------   ------------
                                                                 #               $
<S>                                                        <C>             <C>
        (a) PREFERRED SHARES ISSUED

            BALANCE, DECEMBER 31, 2001                        563,249       1,802,541

            Converted to common shares                         (4,773)        (18,048)
                                                           -------------   ------------

            BALANCE, DECEMBER 31, 2002                        558,476       1,784,493

            Converted to common shares                       (332,122)     (1,367,004)
                                                           -------------   ------------

            BALANCE, MARCH 31, 2003                           226,354         417,489
                                                           =============   ============


        (b) COMMON SHARES ISSUED

            BALANCE, DECEMBER 31, 2001                       4,959,112      24,184,198

            Issued for cash                                    125,000         102,500
            Issued to employees as incentive bonus             204,000         130,020
            Issued for conversion of preferred shares            4,773          18,048
            Issued for settlement of accounts payable          212,785         155,031
                                                           ------------    ------------

            BALANCE, DECEMBER 31, 2002                       5,505,670      24,589,797

            Issued for cash                                     50,000          75,000
            Issued to employees as incentive bonus             231,500         236,130
            Issued for conversion of preferred shares          371,983       1,367,004
            Issued for settlement of accounts payable          111,888         114,126
            Issued for exercise of stock options and
               warrants                                         74,166          74,188
                                                           ------------    ------------

            BALANCE, MARCH 31, 2003                          6,345,207      26,456,245
                                                           ============    ============


        (c) SHARES TO BE ISSUED

            Common Shares to be issued in connection
            with the purchase of oil and gas property           24,887          55,226
            in 1999
                                                           ============    ============
</TABLE>

<PAGE>

                                                                        PAGE XIV

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003




        (d) STOCK OPTION PLAN

            The Company maintains two Stock Option Plans for the benefit of
            directors, officers and employees. The 1997 Plan provides that the
            aggregate number of common shares available for issuance is limited
            to 3,000,000 shares, which was reduced to 600,000 shares in
            conjunction with the 1998 one for five consolidation of common
            stock. Options are granted under the Plan at the discretion of the
            committee of two or more directors appointed by the Board of
            Directors (the "Plan Administrator") at an exercise price based on
            the fair market value as determined by the reported closing price on
            the date of grant. In general, options granted under the Plan vest
            over a period of up to five years from grant date and expire by no
            later than the sixth anniversary.

            The Company's 2001 Stock Option Plan was approved by the
            shareholders on June 25, 2001 and provides for the issuance of up to
            3,000,000 shares of common stock to directors, officers, employees,
            consultants and advisors, as determined by the Plan Administrator.
            The exercise price of options under the 2001 Plan is based on the
            fair market value as determined by the reported closing price on the
            grant date, and options are exercisable over a period of up to ten
            years.

            Daugherty Resources follows CICA Handbook Section 3870, "Stock-based
            Compensation and Other Stock-based Payments" and related
            interpretations in accounting for options. This statement defines a
            fair value based method of accounting for employee stock option or
            similar equity instruments, and encourages all entities to adopt
            that method of accounting for all their employee stock compensation
            plans. However, it also allows an entity to continue to measure
            compensation cost of those plans using the intrinsic value based
            method of accounting prescribed by APB Opinion No. 25, "Accounting
            for Stock Issued to Employees". Entities electing to remain with the
            accounting in Opinion 25 must make pro-forma disclosures of net
            income and, if presented, earnings per share, as if the fair value
            methods of accounting had been applied.

            No compensation expense has been charged to the condensed
            consolidated statement of income for periods presented as the option
            exercise prices are equal to the market value of the underlying
            stock on the date of grant. Had compensation expense for the
            company's stock-based compensation plan been determined based on the
            fair value at the grant dates for awards under the Plan, the
            Company's net income would have been $1,929,212 ($0.33 per share)
            for the three-month period ending March 31, 2003. As no options were
            granted during 2002, net income for the three-month period ending
            March 31, 2002 would remain the same. The fair value of each option
            grant was estimated on the date the grants are exercisable using the
            fair value recognition method, with the following assumptions: risk
            free interest rate of 6%, dividend yield of 0%, theoretical
            volatility assumption of .30, with vesting provisions and the
            expected lives of options of five years.

<PAGE>

                                                                         PAGE XV

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003


OPTIONS

            For options outstanding at March 31, 2003, exercise prices range
            from $1.00 to $5.00 and the weighted average remaining contractual
            life is 2.14 years. The following table summarizes the Company's
            activities relating to stock options:

<TABLE>
<CAPTION>
                                                                                        WEIGHTED
                                                                                         AVERAGE
                                                          ISSUED       EXERCISABLE        PRICE      EXPIRY
                                                        -----------    -------------    ----------   --------
                                                            #               #               $
<S>                                                     <C>            <C>              <C>          <C>
                BALANCE, DECEMBER 31, 2001              2,486,960         2,442,515          2.02
                                                                       =============    ==========

                Expired                                  (894,000)                           3.39
                                                        -----------

                BALANCE, DECEMBER 31, 2002              1,592,960         1,592,960          1.30
                                                                       =============    ==========

                Granted for incentive bonuses             400,000                            1.02      (i)

                Expired                                   (15,000)                           5.00
                                                        -----------

                BALANCE, MARCH 31, 2003                 1,977,960         1,977,960          1.25
                                                        ===========    =============    ==========
</TABLE>

                (i)   350,000 of these options were granted to certain
                      employees of the Company and the remainder to
                      non-employee members of the Board of Directors and will
                      expire on January 2, 2008, five years from grant.

WARRANTS

            For warrants outstanding at March 31, 2003, exercise prices range
            from $1.12 to $4.50 and the weighted average remaining contractual
            life is 1.63 years. The following table summarizes the Company's
            activities relating to warrants:

<TABLE>
<CAPTION>
                                                                            WEIGHTED
                                                                             AVERAGE
                                                               ISSUED         PRICE
                                                             ------------   ----------
                                                                  #             $
<S>                                                          <C>            <C>
               BALANCE, DECEMBER 31, 2001                    2,943,721           2.61
                                                                            ==========

               Expired                                        (500,000)          .625
                                                             ------------

               BALANCE, DECEMBER 31, 2002                    2,443,721           2.76
                                                             ------------   ==========

               BALANCE, MARCH 31, 2003                       2,443,721           2.76
                                                             ============   ==========
</TABLE>

<PAGE>

                                                                        PAGE XVI

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003



11. INCOME PER SHARE

    (a) BASIC

        Income per share is calculated using the weighted average number of
        shares outstanding during the period. The weighted average of common
        shares outstanding amounted to 5,862,502 and 5,071,319 for the three
        months ended March 31, 2003 and 2002, respectively.

    (b) FULLY DILUTED INCOME PER SHARE

        Daugherty Resources follows CICA Handbook Section 3500, "Earnings per
        Share", effective January 1, 2001. The revised section requires the
        presentation of both basic and diluted EPS on the face of the statement
        of operations regardless of the materiality of difference between them
        and requires the use of the treasury stock method to compute the
        dilutive effect of options as opposed to the former imputed earnings
        approach.

        For the three-month period ended March 31, 2003, the exercise of certain
        outstanding stock options and warrants had a dilutive effect on earnings
        per share as the average market price of the Company's common stock
        during the period exceeded the exercise prices of certain instruments.
        Additionally, the Company's convertible debt instruments outstanding
        during the period had a dilutive effect on earnings per share. For the
        three-month period ended March 31, 2002, the Company's outstanding
        convertible debt instrument had a dilutive effect on the earnings per
        share; however, the exercise of outstanding stock options and warrants
        did not. The conversion of the Company's preferred stock had a dilutive
        effect on earnings per share for both periods presented.

        The following table sets forth the computation of basic and diluted
        earnings per share for the periods presented:

<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED MARCH 31
                                                                       2003             2002
                                                                   -------------    -------------
<S>                                                                <C>              <C>
NUMERATOR:
Net income as reported for basic earnings per share                $  2,082,812     $    963,192
Adjustments to income for dilutive earnings per share                    31,868           13,175
                                                                   -------------    -------------

Net income for diluted earnings per share                          $  2,114,680     $    976,367
                                                                   -------------    -------------

DENOMINATOR:
Weighted average shares for basic earnings per share                  5,862,502        5,071,319

Effect of dilutive securities:
Stock options                                                           602,063            -
Warrants                                                                 37,200            -
Conversion of debt instruments                                        1,540,551          313,491
Conversion of preferred shares                                          253,516          630,052
                                                                   -------------    -------------

Adjusted weighted average shares and assumed
conversions for dilutive earnings per share                           8,295,832        6,014,862
                                                                   -------------    -------------

Basic earnings per share                                                $0.36            $0.19
                                                                        =====            =====
Diluted earnings per share                                              $0.25            $0.16
                                                                        =====            =====
</TABLE>

<PAGE>

                                                                       PAGE XVII

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003



12. RELATED PARTY TRANSACTIONS

    The Company is party to certain agreements and transactions in the normal
    course of business. Significant related party transactions not disclosed
    elsewhere include the following:

    (a) LEASE OF GAS COMPRESSORS

        A limited liability company owned by a director and two officers of the
        Company has historically leased natural gas compressors to Daugherty
        Petroleum. For the three-month periods ended March 31, 2003 and 2002,
        Daugherty Petroleum leased one natural gas compressor for $3,000 and
        $1,800, respectively, from the related party.

    (b) COMPANY SPONSORED PARTNERSHIPS

        Daugherty Petroleum invests in various Company sponsored partnerships
        and joint ventures by making capital contributions in exchange for an
        equity interest typically represented by undivided working interests of
        up to 33% in the partnerships and up to 50% in a joint venture. The
        portion of profit on drilling contracts attributable to the Company's
        ownership interest has been eliminated. During the three-month period
        ending March 31, 2003 and 2002, the Company executed and performed
        turnkey drilling contracts with Company sponsored partnerships totalling
        $8,033,000 and $3,484,000, respectively. Not less than 95% of these
        contracts were attributable to related party transactions.

13. SEGMENTED INFORMATION

    Daugherty Resources has two reportable segments based on its method of
    internal reporting, which generally segregates the reportable segments based
    on management responsibility and key business operations. The tables below
    reflect summarized financial information concerning Daugherty Resources'
    reportable segments. Prior period information has been restated to conform
    to the current presentation.

<TABLE>
<CAPTION>
                                                  OIL AND
                                                    GAS
                                                DEVELOPMENT     CORPORATE         TOTAL
                                               ------------    ------------    ------------
    2003                                             $              $               $
<S>                                            <C>             <C>             <C>
    Revenues                                     8,830,854          -           8,830,854
    Depreciation, depletion & amortization         161,467         17,613         179,080
    Interest charges                                37,858         44,595          82,453
    Net income (loss)                            2,595,392       (512,580)      2,082,812
    Identifiable assets                         16,948,559      1,815,273      18,763,832
    Capital expenditures                         1,699,837        125,267       1,825,104
</TABLE>

<PAGE>

                                                                      PAGE XVIII

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003



<TABLE>
<CAPTION>
                                                 OIL AND
                                                   GAS
                                               DEVELOPMENT     CORPORATE          TOTAL
                                               ------------   -------------    ------------
    2002                                            $              $                $
<S>                                             <C>            <C>             <C>
    Revenues                                     4,003,928         -            4,003,928
    Depreciation, depletion & amortization         125,000        14,380          139,380
    Interest charges                                51,276        21,250           72,526
    Net income (loss)                            1,303,964      (340,772)         963,192
    Identifiable assets                         11,251,686     1,257,757       12,509,443
    Capital expenditures                           316,804        14,161          330,965
</TABLE>


14. UNITED STATES ACCOUNTING PRINCIPLES

    The Company follows accounting principles generally accepted in Canada.
    Differences between generally accepted accounting principles in Canada and
    those applicable in the United States of America are summarized below.

    (a) COMPREHENSIVE INCOME

        Statement of Financial Accounting Standards No. 130, "Reporting
        Comprehensive Income" establishes standards for the reporting and
        display of comprehensive income and its components and requires
        restatement of all previously reported information for comparative
        purposes. For the three-month periods ended March 31, 2003 and 2002, the
        Company's comprehensive income was the same as net income.

    (b) RECENT ACCOUNTING PRONOUNCEMENTS

        (i)   STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 143 (SFAS 143)

              In August 2001, the FASB issued Statement of Financial Accounting
              Standards No. 143, "Accounting for Asset Retirement Obligations,"
              which addresses financial accounting and reporting for obligations
              associated with the retirement of tangible long-lived assets and
              related asset retirement costs. The Company adopted this statement
              on January 1, 2003, and it did not have a material impact on the
              Company's financial statements.

        (ii)  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 144 (SFAS 144)

              In August 2001, the FASB issued SFAS No. 144, "Accounting for the
              Impairment or Disposal of Long-Lived Assets." SFAS No. 144
              addresses financial accounting or reporting for the impairment or
              disposal of long-lived assets and broadens the presentation of
              discontinued operations for long-lived assets. The Company adopted
              this statement on January 1, 2002 and it did not have a material
              impact on the Company's financial statements.

<PAGE>

                                                                        PAGE XIX

                            DAUGHERTY RESOURCES, INC.
            (INCORPORATED UNDER THE COMPANY ACT OF BRITISH COLUMBIA)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (U.S. FUNDS)
                                   (UNAUDITED)

                                 MARCH 31, 2003



        (iii) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 145 (SFAS 145)

              In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
              Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13,
              and Technical Corrections." In addition to amending or rescinding
              existing pronouncements, SFAS No. 145 precludes companies from
              recording gains and losses from the extinguishments of debt as an
              extraordinary item. SFAS No. 145 is effective for financial
              statements issued on or after May 15, 2002. This Statement is not
              expected to have a material impact on the Company's financial
              statements.

        (iv)  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 146 (SFAS 146)

              In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
              Associated with Exit or Disposal Activities." SFAS No. 146
              requires a liability for a cost associated with an exit or
              disposal activity to be recognized and measured initially at its
              fair value in the period in which the liability is incurred. This
              statement is effective for exit or disposal activities that are
              initiated after December 31, 2002 and is not expected to have a
              material impact on the Company's financial statements.

        (v)   STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 148 (SFAS 148)

              In December 2002, the FASB issued SFAS No. 148, "Accounting for
              Stock-Based Compensation - Transition and Disclosure". SFAS No.
              148 amends the transition and disclosure provisions of SFAS No.
              123. This statement is not expected to have a material impact on
              the Company's financial statements.

        (vi)  FINANCIAL ACCOUNTING STANDARDS BOARD INTERPRETATION NO. 45
              (FIN 45)

              In November 2002, the FASB issued FIN 45, which expands previously
              issued accounting guidance and disclosure requirements for certain
              guarantees. FIN 45 requires the Company to recognize an initial
              liability for the fair value of an obligation assumed by issuing a
              guarantee. The provision for initial recognition and measurement
              of the liability will be applied on a prospective basis to
              guarantees issued or modified after December 31, 2002. The
              adoption of FIN 45 is not expected to have a material impact on
              the Company's financial statements.