<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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


                                   FORM 10-QSB


                 QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                                       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)

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


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

       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 SEPTEMBER 30, 2001, WAS 4,895,397.

         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 XV
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 should be read in
conjunction with the 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 Operations," which are not historical facts may be
forward-looking statements (See "Forward-Looking Statements" herein at page 8).

         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

         For the nine months ending September 30, 2001, Daugherty Resources
drilled sixteen (16) natural gas wells (4.2 net wells), all of which were
capable of producing natural gas, and completed twenty-two (22) natural gas
wells. By comparison, for the same period of 2000, Daugherty Resources drilled
twenty-three (23) natural gas wells (5.92 net wells). Drilling operations for
the first nine months of 2001 were primarily related to 2000 year-end private
placement drilling programs on Daugherty Resources' farmout acreage acquired
from Equitable Resources Energy Corporation.

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

         On July 19, 2001, Daugherty Petroleum executed a new credit facility
with KeyBank National Association that provides line of credit up to $10,000,000
with immediate access to $2,250,000 and increases based upon periodic reviews of
the financial position of Daugherty Petroleum. The facility is for a term of 36
months with interest at



                                       2
<PAGE>

KeyBank's Base Lending Rate plus 1.25%. The Base Lending Rate is defined as that
interest rate established from time to time as the KeyBank's Base Lending Rate,
whether or not such rate is publicly announced. The credit facility is secured
by a first mortgage on the oil and gas properties owned by Daugherty Petroleum
and a guarantee executed by Daugherty Resources. This line of credit allowed
Daugherty Petroleum in the third quarter of 2001 to payoff its short-term loan
to Compass Bank, and will provide capital for drilling new wells, extending its
gas gathering system, and constructing additional distribution lines for Sentra.

         Daugherty Petroleum continues to review additional opportunities for
acquisitions of oil and gas properties. Previous acquisitions have been
completed using Daugherty Resources stock in part to pay for the acquisitions.
Generally, acquisitions include interests in the wells and the right to operate
the wells. Although Daugherty Petroleum generally participates in less than a
majority interest in the wells drilled by programs or joint ventures that it
sponsors, it always serves as managing general partner of the partnerships or
joint ventures.

         On May 1, 2001 Petroleum began two new drilling programs, one of which
was a 15 well program and the other was a 10 well program. The 15 well program
closed on November 5, 2001 with $3,225,000 in subscriptions for partnership
units. This program allowed Daugherty Petroleum to drill 4 natural gas wells for
the partnerships during the third quarter of 2001, with an additional two wells
having been drilled as of November 14, 2001. (1.5 net wells). Daugherty
Petroleum participated for a 25% interest in the program. Daugherty Petroleum
started sales on another 15 well program on November 14, 2001 and is continuing
sales on its 10 well program. If it is successful in closing these programs,
Daugherty Petroleum expects to drill up to an additional 25 wells through the
first quarter of 2002 (6.25 net wells).

         In addition, Daugherty Petroleum participated in a one-well joint
venture that was drilled in the third quarter of 2001, in which it retained 45%
working interest.

         Daugherty Petroleum has primarily concentrated in drilling wells on
prospects it generates in the Appalachian Basin. Historically, a major portion
of Daugherty Resources' revenues has been from its activities as "turnkey
driller" and operator of drilling programs and joint ventures in the Appalachian
Basin sponsored by Daugherty Petroleum.

         Working capital as of September 30, 2001, was a negative $2,003,257
compared to December 31, 2000, when working capital was negative $3,546,773.

         Currents assets as of September 30, 2001 were $1,103,109 compared to
$813,004 as of December 31, 2000. During the nine-month period ending September
30, 2001, as compared to December 31, 2000, the changes in the composition of
Daugherty Resources' current assets were: cash balances decreased $32,160 from
$426,660 to $394,500; accounts receivable balances increased $10,638 from
$350,704 to $361,343. Other current assets such as prepaids, inventory, and
notes receivable increased $311,626 from $35,640 to $347,266. Overall, current
assets increased by $290,105 to $1,103,109.

         Current liabilities as of September 30, 2001 were $3,106,366 compared
to $4,359,677 as of December 31, 2000. During the nine-month period ending
September 30, 2001, as to compared December 31, 2000, the changes in the
composition of current liabilities were: short-term loans and current portion of
long-term debt decreased $1,015,971 from $1,286,934 to $270,963, customer
drilling deposits decreased $122,417 from $1,431,902 to $1,309,485, accounts
payable and accrued liabilities decreased $114,922 from $1,597,096 to
$1,482,174.

         Management does not believe that its working capital deficit 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 turnkey drilling contracts associated with the various drilling
           programs sponsored by Daugherty Petroleum will result in increased
           drilling revenue and profits.

         - Daugherty Petroleum's participation in its various drilling programs
           that it sponsors will result in significantly higher future volumes
           of natural gas available for sale and will result in increased
           natural gas reserves.



                                       3
<PAGE>

         - The addition of reserves through future drilling and acquisitions is
           expected to enhance the ability of Daugherty Resources to secure
           long-term financing, and increased lines of credit.

         The new $10,000,000 credit facility executed with KeyBank National
Association on July 19, 2001, allowed Daugherty Petroleum to convert its
short-term debt at Compass Bank that was secured by its oil and gas assets to
long-term debt and increase its line of credit, reduce working capital deficit,
insure financial liquidity, and enhance the balance sheet.

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

         - INCREASING PARTNERSHIP AND JOINT VENTURE DRILLING. Increased public
           awareness of natural gas shortages and the resulting higher prices
           during the winter of 2000 - 2001 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.

         - ACQUISITION OF REVENUE PRODUCING PROPERTIES. Daugherty Resources
           continues to review existing oil and gas properties for acquisitions
           in its areas of interest. In addition to reviewing new properties,
           Daugherty Petroleum intends to conclude the Ken-Tex acquisition in
           2001.

         - GOLD AND SILVER PROPERTIES. 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 the SRK report and the Balfour
           appraisal 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 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.

         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 acquire additional capital on
attractive terms is also substantially dependent upon oil and gas prices. Prices
for oil and 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.

         Daugherty Resources believes there are several factors that will
increase revenues in the year 2001. Daugherty Resources will receive additional
revenues from the oil and gas well properties it acquired and drilled during
2000 and the first and third quarters of 2001. The expansion of its natural gas
gathering system completed in 2000 and 2001, and the additional expansion
planned in 2001 should increase Daugherty Petroleum's ability to transport
natural gas.


RESULTS OF OPERATIONS

         For the three-month period ending September 30, 2001, Daugherty
Resources' gross revenue increased $127,643 to $1,649,360 from $1,521,717 for
the same period in 2000. For the nine-month period ending September 30, 2001,
Daugherty Resources' gross revenues increased $45,552 to $5,504,524 from
$5,458,972 for the same period in 2000. Daugherty Resources experienced net
income (loss) from continuous operations of $(131,379) for the quarter ending
September 20, 2001 and $53,258 for the nine-month period ending September 30,
2001 compared to net income (loss) of $(392,730) and $135,761 for the same
periods in 2000.



                                       4
<PAGE>

         Daugherty Resources' gross revenues for the nine-month period ending
September 30, 2001 were derived from drilling contract revenues of $4,160,096
(75.58%) natural gas and oil operations and production revenues of $1,249,398
(22.70%), and natural gas distribution of $95,080 (1.73%).

         The increase in gross revenues of $127,643 for the three months ending
September 30, 2001, was primarily attributable to an increase in oil and gas
production revenues. Revenues from oil and gas production activities increased
by $700,778 to $1,249,398 for the nine-month period ending September 30, 2001
from $548,620 for the same period in 2000. The increase in revenues from oil and
gas production activities was primarily attributable to increased oil and gas
production and higher oil and gas prices.

         During the nine-month period ended September 30, 2001, total direct
expenses decreased by $431,923 to $2,920,697 compared to $3,352,620 for the same
period in 2000. The decrease in direct costs, that includes drilling and related
costs for natural gas wells, is attributable to the fact that in the first three
quarters of 2001 Daugherty Petroleum drilled 16 wells compared to 23 wells
during in the same periods of 2000.

         Sentra Corporation, Daugherty Resources' natural gas utility
subsidiary, had sales for the three and nine-months ended September 30, 2001 of
$23,242 and $95,030 compared with sales of $2,726 and $39,035 for the three and
nine months ended September 30, 2000. As of September 30, 2001, Sentra has 141
customers, 37 of which are 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.

         On March 8, 2001, Sentra entered into a six-month agreement with Clay
Gas Utility District of Celina, Tennessee to manage its business, which
currently consists of 143 customers, including 30 industrial, commercial and
agri-business connections. Sentra also reads Clay Gas' meters, issue its bills
and collects its receivables. On June 5, 2001, this contract was extended
through July 31, 2002.

         On February 1, 2001, Daugherty Petroleum entered into agreements with
Sentra and Clay Gas Utility District to supply natural gas to the two companies
natural gas utilities operations through July 31, 2001. On June 5, 2001, these
agreements were extended through July 31, 2002. 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.

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

        None.

ITEM 2. CHANGES IN SECURITIES.

        None.

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

        None.



                                       5
<PAGE>

ITEM 5. OTHER INFORMATION.

        (a) Recent Sales of Unregistered Securities

            On July 31, 2001, Grammer Industries, Inc. an Indiana Corporation
            executed a Subscription Agreement for the purchase of 62,500 shares
            of restricted common stock in total consideration of $125,000.

            On July 13, 2001, Daugherty Petroleum purchased from Sentra Utility
            Development Group, L.P. all rights title and interest in and to
            certain oil and gas reserves and rights to prepaid drilling funds.
            In consideration of the assets purchased the Company issued to the
            sellers 227,051 shares of non-cumulative convertible preferred stock
            and 37,816 units of acquisition Warrants ranging from $1.75 to $4.50
            per share expiring July 14, 2006.


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

        (a) List of Documents Filed with this Report.
            -----------------------------------------
                                                                            PAGE
                                                                            ----
        (1) Financial Statements, Daugherty Resources, Inc.
              and subsidiary companies
            Cover Page
            Table of Contents
            Condensed Consolidated Balance Sheet - September 30, 2001...... I-II
            Condensed Consolidated Statement of Operations
              and Deficit - September 30, 2001 ..............................III
            Condensed Consolidated Statement of Cash Flows -
              September 30, 2001 .............................................IV
            Notes to Condensed Consolidated Financial Statements ..........V-XII


         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.


        EXHIBIT
        NUMBER      DESCRIPTION OF EXHIBIT
        -------     ----------------------

         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.




                                       6
<PAGE>

         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 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



                                       7
<PAGE>

                    Daugherty Petroleum, Inc., which was effective June 30,
                    1999, and closed December 1, 1999, filed as Exhibit 10.1 to
                    Form 8-K by the Company for reporting an event on December
                    9, 1999 (File No. 0-12185).

         11         Computation of Per Share Earnings.

         24         Powers of Attorney.

         (b)*       Reports on Form 8-K. None

         (c)        Financial Statement Schedules.

                    No schedules are required, as all information required has
                    been presented in the unaudited financial statements.


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.



                                       8
<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


Dated: November 14, 2001


         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.




        SIGNATURE                        TITLE                       DATE
        ---------                        -----                       ----

/S/ William S. Daugherty    Chairman of the Board, President,
------------------------    Director of the Registrant         November 14, 2001
William S. Daugherty

/S/ James K. Klyman*        Director of the Registrant         November 14, 2001
---------------------
James K. Klyman

/S/ Charles L. Cotterell*   Director of the Registrant         November 14, 2001
-------------------------
Charles L. Cotterell





*By /S/ William S. Daugherty
    ------------------------
    William S. Daugherty
    Attorney-in-Fact



                                       9
<PAGE>
                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


<PAGE>


                            DAUGHERTY RESOURCES INC.



                               SEPTEMBER 30, 2001



                                    CONTENTS


                                                                    PAGE


REVIEW ENGAGEMENT REPORT                                              I


CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      Balance Sheet                                                  II

      Statement of Operations and Deficit                           III

      Statement of Cash Flows                                        IV

      Notes to Financial Statements                               VI-XV


<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 September 30, 2001 and the condensed consolidated statements of
operations and deficit and cash flows for the nine months ended September 30,
2001 and for the three months ended September 30, 2001. 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, 2000 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 28, 2001, 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, 2000, 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
November 12, 2001

<PAGE>


                                                                         PAGE II

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

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

                               SEPTEMBER 30, 2001

                                     ASSETS

<TABLE>
<CAPTION>

                                                               SEPTEMBER 30      DECEMBER 31
                                                                   2001              2000
                                                               ------------      -----------
                                                               (Unaudited)
<S>                                                            <C>               <C>
CURRENT
    Cash and cash equivalents                                  $   394,500      $    426,660
    Accounts receivable                                            361,343           350,704
    Prepaid expense and other asset                                347,266             4,407
    Loans to related parties                                            --            31,233
                                                               -----------      ------------
                                                                 1,103,109           813,004

BONDS AND DEPOSITS                                                 150,254            41,000

MINING PROPERTY AND RELATED EXPENDITURES                         4,450,000         4,450,000

OIL AND GAS PROPERTIES (Note 2)                                  9,573,848         9,086,131

CAPITAL (Note 3)                                                   457,746           279,984

LOANS TO RELATED PARTIES (Note 4)                                  599,905           356,813

DEFERRED FINANCING COSTS                                            77,946            98,586

GOODWILL, net of accumulated amortization of $1,431,649
  (2000 - $1,297,432)                                              357,916           492,133
                                                               -----------      ------------


                                                               $16,770,724      $ 15,617,651
                                                               ===========      ============
</TABLE>


See accompanying notes to consolidated financial statements.


APPROVED ON BEHALF OF THE BOARD:

/s/ William S. Daugherty                        /s/ Charles L. Cotterell
---------------------------------               -------------------------------
           Director                                          Director


<PAGE>


                                                                        PAGE III


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

                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  (U.S. FUNDS)

                               SEPTEMBER 30, 2001


                                   LIABILITIES


<TABLE>
<CAPTION>

                                                                                    SEPTEMBER 30   DECEMBER 31
                                                                                        2001           2000
                                                                                   -------------   -------------
                                                                                    (Unaudited)
<S>                                                                                <C>             <C>
CURRENT
  Bank loans (Note 5)                                                              $    155,357    $  1,131,798
  Accounts payable                                                                      667,630         661,748
  Accrued liabilities                                                                   814,544         918,813
  Income taxes payable                                                                       --          16,535
  Customers' drilling deposits                                                        1,309,485       1,431,902
  Long-term debt (Note 6)                                                               115,605         155,136
  Loan payable (Note 7)                                                                  43,745          43,745
                                                                                   ------------    ------------
                                                                                      3,106,366       4,359,677

LONG-TERM DEBT (Note 6)                                                               3,270,278       1,759,022
                                                                                   ------------    ------------
                                                                                      6,376,644       6,118,699
                                                                                   ------------    ------------

                              SHAREHOLDERS' EQUITY

CAPITAL STOCK (Note 8)
  AUTHORIZED
         5,000,000 Preferred shares, non-voting, non-cumulative, convertible
       100,000,000 Common shares

  ISSUED
             -     Preferred shares (2000 - 1,100,672)                                       --         620,844
         4,895,397 Common shares (2000 - 3,442,852)                                  24,056,552      23,113,991
  Capital stock to be issued                                                          1,985,171       1,441,387
            21,000 Common shares held in treasury, at cost                              (23,630)             --
                                                                                   ------------    ------------
                                                                                     26,018,093      25,176,222

DEFICIT                                                                             (15,624,013)    (15,677,270)
                                                                                   ------------    ------------
                                                                                     10,394,080       9,498,952
                                                                                   ------------    ------------

                                                                                   $ 16,770,724    $ 15,617,651
                                                                                   ============    ============
</TABLE>


See accompanying notes to financial statements.


<PAGE>


                                                                         PAGE IV


                            DAUGHERTY RESOURCES INC.

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

<TABLE>
<CAPTION>

                                                     FOR THE THREE MONTH              FOR THE NINE MONTH
                                                  PERIOD ENDED SEPTEMBER 30       PERIOD ENDED SEPTEMBER 30
                                                     2001            2000            2001            2000
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>             <C>             <C>
GROSS REVENUE                                   $  1,649,360    $  1,521,717    $  5,504,524    $  5,458,972

DIRECT EXPENSES                                      892,340         892,786       2,920,697       3,352,620
                                                ------------    ------------    ------------    ------------
GROSS PROFIT                                         757,020         628,931       2,583,827       2,106,352

GENERAL AND ADMINISTRATIVE COSTS                     613,211         829,183       1,723,784       1,370,756
                                                ------------    ------------    ------------    ------------

INCOME (LOSS) BEFORE THE
  UNDERNOTED                                         143,809        (200,252)        860,043         735,596
                                                ------------    ------------    ------------    ------------

  Amortization                                        51,619          44,739         154,857         161,738
  Depletion                                          150,000          80,000         450,000         240,000
  Depreciation 16,999                                 16,999          14,572          50,997          44,116
  Interest expenses - net                             56,570          53,167         150,931         153,981
                                                ------------    ------------    ------------    ------------
                                                     275,188         192,478         806,785         599,835
                                                ------------    ------------    ------------    ------------

NET INCOME (LOSS) FOR THE PERIOD                    (131,379)       (392,730)         53,258         135,761

DEFICIT, beginning of period                     (15,492,633)    (15,197,418)    (15,677,270)    (15,725,909)
                                                ------------    ------------    ------------    ------------

DEFICIT, end of period                          $(15,624,012)   $(15,590,148)   $(15,624,012)   $(15,590,148)
                                                ============    ============    ============    ============


AVERAGE SHARES OUTSTANDING                         4,218,704       3,001,053       3,742,724       2,222,172
                                                ============    ============    ============    ============

EARNINGS PER SHARE
  Basic                                         $      (0.03)   $      (0.13)   $       0.01    $       0.06
                                                ============    ============    ============    ============

  Fully diluted                                 $      (0.03)   $      (0.13)   $       0.01    $       0.02
                                                ============    ============    ============    ============
</TABLE>


See accompanying notes to financial statements.

<PAGE>


                                                                          PAGE V


                            DAUGHERTY RESOURCES INC.

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

<TABLE>
<CAPTION>

                                                     FOR THE THREE MONTH              FOR THE NINE MONTH
                                                  PERIOD ENDED SEPTEMBER 30       PERIOD ENDED SEPTEMBER 30
                                                     2001            2000            2001            2000
                                                ------------    ------------    ------------    ------------
<S>                                              <C>            <C>             <C>              <C>
OPERATING ACTIVITIES
  Net income (loss) for the period               $  (131,379)   $  (392,730)    $    53,258      $   135,761
  Amortization, depletion and depreciation           218,618        139,311         655,854          445,855
  (Increase) decrease in:
    Accounts receivable                              (55,797)           783         (10,639)          28,883
    Prepaid expense and current asset               (281,017)        (1,287)       (342,859)          (5,726)
  Increase (decrease) in:
    Accounts payable                                 (85,263)       195,173           5,882         (145,732)
    Accrued liabilities                             (208,475)         1,508        (104,269)         499,902
  Income taxes payable                                    --             --         (16,535)              --
    Drilling prepayments                             573,500             --        (122,417)      (1,921,373)
                                                 -----------    -----------     -----------      -----------
                                                      30,187        (57,242)        118,275         (962,430)
                                                 -----------    -----------     -----------      -----------

INVESTING ACTIVITIES
  Change in oil and gas properties                  (368,790)      (465,244)       (680,930)      (1,617,353)
  Change in property and equipment                  (133,500)        (9,571)       (216,762)        (187,717)
  Change in bonds and other deposits                (109,254)        12,000        (109,254)          17,842
  Change in loans to related parties                 (28,947)            --        (211,859)              --
                                                 -----------    -----------     -----------      -----------
                                                    (640,491)      (462,815)     (1,218,805)      (1,787,228)
                                                 -----------    -----------     -----------      -----------

FINANCING ACTIVITIES
  Decrease in bank loans                            (972,165)        (3,994)       (976,441)         (19,843)
  Issuance of common stock                            20,286        751,079         321,717        1,062,466
  Change in long-term liabilities                  1,607,871        (50,049)      1,621,725           32,072
  Change in payable to related party                      --        (49,834)             --         (141,532)
  Capaital stock to be issued                        124,999             --         124,999               --
  Purchase of treasury stock                         (23,630)            --         (23,630)              --
                                                 -----------    -----------     -----------      -----------
                                                     757,361         651,196      1,068,370          953,006
                                                 -----------    -----------     -----------      -----------

CHANGE IN CASH AND CASH
  EQUIVALENTS                                        147,057        127,145         (32,160)      (1,816,495)

CASH AND CASH EQUIVALENTS,
  beginning of period                                247,443        333,467         426,660        2,277,107
                                                 -----------    -----------     -----------      -----------

CASH AND CASH EQUIVALENTS,
  end of period                                  $   394,500    $   460,612     $   394,500      $   460,612
                                                 ===========    ===========     ===========      ===========

SUPPLEMENTAL DISCLOSURE
    Interest paid                                $    66,990    $    64,324     $   183,445      $   196,001
                                                 ===========    ===========     ===========      ===========

    Income taxes paid                            $        --    $        --     $        --      $        --
                                                 ===========    ===========     ===========      ===========
</TABLE>


See accompanying notes to  financial statements.

<PAGE>

                                                                         PAGE VI


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     These condensed consolidated financial statements have been prepared in
     accordance with generally accepted in Canada, which except as described in
     Note 11, conform, in all material respects, with the accounting principles
     generally accepted in the United States.

     (a)  GENERAL

          In the opinion of the company, the accompanying unaudited financial
          statements contain all adjustments (consisting of only normal
          recurring adjustments) which, in the opinion of management, are
          necessary to present fairly the consolidated financial position as at
          September 30, 2001 and consolidated results of operations for the
          three and nine month periods ended September 30, 2001 and 2000 and
          consolidated statements of cash flows for the three and nine months
          ended September 30, 2001 and 2000.

          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 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.


2.   OIL AND GAS PROPERTIES

<TABLE>
<CAPTION>
                                                 September 30,                 Dec. 31,
                                                      2001                       2000
                                    ---------------------------------------   -----------
                                                  ACCUMULATED
                                        COST      AMORTIZATION      NET           NET
                                        ----      ------------      ---           ---
<S>                                 <C>           <C>           <C>           <C>
Proved properties                   $ 7,838,324   $ 1,585,226   $ 6,253,098   $ 6,034,898
Equity in oil and gas partnership     2,724,192            --     2,724,192     2,361,532
Wells and related equipment             733,436       136,878       596,558       689,701
                                    -----------   -----------   -----------   -----------
                                    $11,295,952   $ 1,722,104   $ 9,573,848   $ 9,086,131
                                    ===========   ===========   ===========   ===========
</TABLE>


<PAGE>


                                                                        PAGE VII


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


3.   CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                     September 30,              December 31,
                                                          2001                       2000
                                        ---------------------------------------   -----------
                                                      ACCUMULATED
                                            COST      AMORTIZATION    NET           NET
                                            ----      ------------    ---           ---
<S>                                        <C>          <C>           <C>        <C>
Land                                       $ 12,908     $     --      $ 12,908   $ 12,908
Buildings                                     6,239          936         5,303      5,303
Machinery and equipment                     338,787       42,828       295,959    111,013
Office furniture, fixtures and equipment    101,354       71,854        29,500     18,184
Vehicles                                    251,463      137,387       114,076    132,576
                                           --------     --------      --------   --------
                                           $710,751     $253,005      $457,746   $279,984
                                           ========     ========      ========   ========
</TABLE>

4.   LOANS TO RELATED PARTIES

     The loans to officers of the company are collateralized by the officers'
     ownership interest in drilling partnerships with DPI. These loans bear
     interest at 6% per annum and are payable monthly from production revenues
     for a period of five to ten years with a balloon payment at maturity date.


5.   BANK LOANS

<TABLE>
<CAPTION>

                                                                                                 2001              2000
                                                                                               --------          --------
<S>     <C>                                                                                  <C>                <C>
         REVOLVING LOAN FACILITY that provided a $10 million line of credit,
         payable interest only at prime plus 1.25% per annum, is secured by
         a first mortgage on producing gas interests and is guaranteed by an
         unrelated third party.  The facility will expire on July 30, 2004.                        --           $  972,165

         NOTE PAYABLE bearing interest at 7.50% per annum and is
         collateralized by a certificate of deposit amounting to $135,367                        134,162           134,162

         NOTE PAYABLE bearing interest at prime plus 2% per annum and is
         collateralized by 200,000 shares of stock owned by a director of the
         company                                                                                  21,195            25,471
                                                                                              ----------        ----------

                                                                                              $  155,357        $1,131,798
                                                                                              ==========        ==========
</TABLE>


<PAGE>


                                                                       PAGE VIII


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


6.   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 and has not been
     discounted.

<TABLE>
<CAPTION>

                                                                                                 2001              2000
                                                                                                -------          --------
<S>      <C>                                                                                  <C>               <C>
         NOTE PAYABLE as outlined above                                                       $  472,818        $  488,818

         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.  In addition, the put rights are
         exercisable during the 10 day period commencing 14 months after
         August 17, 2000 (closing date) requiring the company to redeem the
         notes 18 months (put date) after the closing date at a price equal
         to 100% of principal amount plus accrued interests and a premium
         equal to 25% of principal, payable in put shares.  After the put
         date, the company may redeem the note in whole or part at 100%
         of principal amount plus accrued interest.                                              850,000           850,000

         REVOLVING LOAN FACILITY that provided a $10 million line of credit,
         payable interest only at prime plus 1.25% per annum, is secured by
         a first mortgage on producing gas interests and is guaranteed by an
         unrelated third party. The principal balance is payable on
         July 30, 2004                                                                         1,656,734                --

         ENVIRONMENTAL ENERGY INC., unsecured and non-interest bearing
         advance for a future project                                                                 --           150,000

         VARIOUS NOTES PAYABLE, bearing interest ranging from 6.9% to 11% per
         annum, payable monthly in varying amounts up to 2005, collateralized
         by the equipment and vehicles acquired                                                  316,902           335,911
                                                                                              ----------        ----------

                                    Carried forward...........                                $3,296,454        $1,824,729
                                                                                              ----------        ----------
</TABLE>

<PAGE>


                                                                         PAGE IX


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


6.   LONG-TERM DEBT (Continued)

<TABLE>
<CAPTION>

                                                                                                2001                2000
                                                                                              --------            --------
<S>     <C>                                                                                <C>                 <C>
                                    Brought forward............                            $ 3,296,454         $ 1,824,729

         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 due currently.                                            64,779              64,779

         UNSECURED LOAN PAYABLE TO TRIO GROWTH, bearing interest at 10%
         per annum, principal and interest due in October 29, 2001                              24,650              24,650
                                                                                           -----------         -----------
                                                                                             1,879,149           1,914,158

           Less:  Current portion                                                              115,605             155,136
                                                                                           -----------         -----------

                                                                                           $ 3,270,278         $ 1,759,022
                                                                                           ===========         ===========
</TABLE>

         Principal repayment for the next five years are as follows:

<TABLE>
<S>                                                                      <C>
         2002                                                            $  115,605
         2003                                                               399,013
         2004                                                             2,129,047
         2005                                                               199,451
         2006                                                               542,767
                                                                         ----------
                                                                         $1,879,149
                                                                         ==========
</TABLE>

7.       LOAN PAYABLE

         This loan payable to a limited liability corporation being controlled
         by a director and two officers of the company bears interest at 9% per
         annum. The principal and the accrued interest are due on July 18, 2001.

<PAGE>


                                                                          PAGE X


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001



8.   CAPITAL STOCK

     (a)  PREFERRED SHARES ISSUED

<TABLE>
<CAPTION>

                                                                                                SHARES           AMOUNT
                                                                                             ------------     ------------
                                                                                                  #                $

<S>                                                                                            <C>                <C>
                  Balance, December 31, 2000                                                   1,100,672          620,844
                  Converted to common shares                                                  (1,100,672)        (620,844)
                                                                                              ----------       ----------

                  Balance, September 30, 2001                                                         --               --
                                                                                              ==========        ==========
</TABLE>

     (b)  COMMON SHARES ISSUED

<TABLE>
<CAPTION>

                                                                                                SHARES           AMOUNT
                                                                                             ------------     ------------
                                                                                                  #                $
<S>                                                                                            <C>                <C>
                  Balance, December 31, 2000                                                   3,442,852        23,113,991
                  Issued for conversion of preferred shares                                    1,229,502           620,844
                  Issued to employees as incentive bonus                                         157,000           235,500
                  Issued for settlement of accounts payable                                       40,066            60,099
                  Issued for exercise of stock option and warrants                                25,977            26,118
                                                                                              ----------        ----------

                  Balance, September 30, 2001                                                  4,895,397        24,056,552
                                                                                              ==========        ==========
</TABLE>

          A.   OPTIONS

<TABLE>
<CAPTION>

                                                             ISSUED         EXERCISABLE          PRICE           EXPIRY
                                                           ----------      -------------       ---------       ----------
                                                                                                   $
<S>                                                         <C>               <C>              <C>                <C>
                  Balance, December 31, 2000                2,587,333         2,471,777        1.00 - 9.50
                                                                              =========
                  Exercised                                   (26,373)                                1.00
                  Expired                                     (54,000)                                5.00
                                                            ---------

                  Balance, September 30, 2001               2,506,960         2,462,515        1.00 - 9.50         (i)
                                                            =========         =========
</TABLE>

                  (i)  These options have expiry dates ranging from 2002 through
                       2005.

<PAGE>


                                                                         PAGE XI



                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


8.   CAPITAL STOCK (Continued)

     B.   WARRANTS

<TABLE>
<CAPTION>

                                                                               ISSUED           PRICE           EXPIRY
                                                                             ----------       ---------       ----------
                                                                                                  $
<S>               <C>                                                         <C>             <C>               <C>
                  Balance, December 31, 2000                                  2,079,770       0.625 - 4.50
                  Issued                                                        692,848        1.75 - 4.50
                  Exercised                                                        (188)              1.75
                  Expired                                                       (23,800)              2.50
                                                                              ---------
                  Balance, September 30, 2001                                 2,748,630       0.625 - 4.50        (i)
                                                                              =========
</TABLE>

                  (i)  These warrants have expiry dates ranging from 2002
                       through 2006.

9.   LOSS PER SHARE

     (a)  BASIC

          The weighted average number of shares outstanding amounted to
          4,218,704 and 3,742,724 for the three and nine months ended September
          30, 2001, respectively, and 3,001,053 and 2,222,172, for the three and
          nine months ended September 30, 2000, respectively.

     (b)  DILUTED EARNINGS PER SHARE

          The Company adopted the recommendations of CICA Handbook Section 3500,
          Earnings per Share (EPS), effective January 1, 2001. The revised
          section requires the presentation of both basic and diluted EPS on the
          face of the income statement regardless of the materiality of the
          difference between them and requires the use of the treasury stock
          method to compute the dilutive effect of options as opposed to the
          former inputted earnings approach.

          The weighted average number of shares for diluted earnings per share
          amounted to 10,481,124 and 9,117,084 for the three months ended
          September 30, 2001 and 2000, respectively and 10,005,144 and 8,338,203
          for the nine months ended September 30, 2001 and 2000, respectively.

10.  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)  Shareholder Information

          During 1993, a shareholder expended, on behalf of the company,
          shareholder information expenses in the amount of $75,000. The company
          has recorded a reserve provision against payment of this amount until
          the company's mining operations commence production.


<PAGE>



                                                                        PAGE XII


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


9.   RELATED PARTY TRANSACTIONS (Continued)

     (b) Lease of Gas Compressors

          A limited company owned by a director and two officers of the company
          leased two natural gas compressors for $10,800 during 2000 to DPI.

10.  SEGMENTED INFORMATION

<TABLE>
<CAPTION>

                                             FOR THE THREE MONTH PERIOD      FOR THE NINE MONTH PERIOD
                                                  ENDED SEPTEMBER 30             ENDED SEPTEMBER 30
                                                2001             2000           2001            2000
                                             ----------        --------      ---------        --------
                                                 $                $              $                $
<S>                                            <C>            <C>            <C>            <C>
REVENUE (NET)
Oil and gas                                    1,649,360      1,521,717      5,505,524      5,458,972
Mining                                                --             --             --             --
Corporate                                             --             --             --             --
                                              ----------     ----------     ----------     ----------
                                               1,649,360      1,521,717      5,505,524      5,458,972
                                              ==========     ==========     ==========     ==========

INTEREST, AMORTIZATION, DEPLETION
  AND DEPRECIATION
Oil and gas                                       52,077        110,840        460,728        389,776
Mining                                                --             --             --             --
Corporate                                         30,377         50,776        175,417        182,539
                                              ----------     ----------     ----------     ----------
                                                  82,454        161,616        636,145        572,315
                                              ==========     ==========     ==========     ==========

INCOME (LOSS) BEFORE INCOME TAXES
Oil and gas                                      205,725         66,050        945,453      1,052,204
Mining                                                --             --             --             --
Corporate                                       (337,104)      (458,780)      (892,195)      (916,443)
                                              ----------     ----------     ----------     ----------
                                                (131,379)      (392,730)        53,258        135,761
                                              ==========     ==========     ==========     ==========

IDENTIFIABLE ASSETS
Oil and gas                                    9,573,848      7,263,178      9,573,848      7,263,178
Mining                                         4,450,000      4,450,000      4,450,000      4,450,000
Corporate                                      2,770,506      1,952,937      2,770,506      1,952,937
                                              ----------     ----------     ----------     ----------
                                              16,794,354     13,666,115     16,794,354     13,666,115
                                              ==========     ==========     ==========     ==========
</TABLE>


<PAGE>


                                                                       PAGE XIII


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


10.  SEGMENTED INFORMATION (Continued)

<TABLE>
<CAPTION>

                                              FOR THE THREE MONTH PERIOD     FOR THE NINE MONTH PERIOD
                                                    ENDED SEPTEMBER 30         ENDED SEPTEMBER 30
                                                2001          2000             2001            2000
                                              -------       --------         --------        --------
                                                 $              $                $               $
<S>                                           <C>            <C>              <C>            <C>
         CAPITAL EXPENDITURES
         Oil and Gas                          368,789        465,244          680,930        1,617,353
         Mining                                    --             --               --               --
         Corporate                            133,500          9,771          216,762          187,917
                                              -------        -------          -------        ---------
                                              502,289        475,015          897,692        1,805,270
                                              =======        =======          =======        =========
</TABLE>

11.  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 are summarized below.

     The Company capitalized the cost of mining properties acquired and other
     related exploration expenditures. For U.S. GAAP purposes, these properties
     are considered exploration stage properties and, therefore, all exploration
     costs are expensed as incurred. The following table shows the deficit and
     total assets that would have been reported had the financial statements
     been prepared in accordance with U.S. GAAP.

<TABLE>
<CAPTION>

                                      FOR THE THREE MONTH PERIOD        FOR THE NINE MONTH PERIOD
                                            ENDED SEPTEMBER 30               ENDED SEPTEMBER 30
                                          2001            2000             2001              2000
                                       ----------      ----------        ---------         ---------
                                            $                $                $                 $
<S>                                       <C>            <C>              <C>            <C>
         Deficit                      (20,074,012)      (20,040,148)     (20,074,012)      (20,040,148)
                                      ===========       ===========      ===========       ===========
         Total assets                  13,344,354         9,216,115       13,344,354         9,216,115
                                      ===========       ===========      ===========       ===========
</TABLE>

        (a) ACCOUNTING FOR STOCK OPTIONS AND PRO-FORMA DISCLOSURES REQUIRED
            UNDER SFAS 123

            Issued by the Financial Accounting Standards Board in October, 1995,
            SFAS 123 established financial accounting and reporting standards
            for stock-based employee compensation plans as well as transactions
            in which an entity issues its equity instruments to acquire goods or
            services from non-employees. 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, (APB25)
            Accounting for Stock Issued to Employees.

<PAGE>


                                                                        PAGE XIV


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001


11.   UNITED STATES ACCOUNTING PRINCIPLES (Continued)

      (a)   ACCOUNTING FOR STOCK OPTIONS AND PRO-FORMA DISCLOSURES REQUIRED
            UNDER SFAS 123 (Continued)

            Entities electing to remain with the accounting in APB 25 must make
            pro forma disclosures of net income and, if presented, earnings per
            share, as if the fair value based methods of accounting defined by
            SFAS 123 had been applied. SFAS 123 is applicable to fiscal years
            beginning after December 15, 1995.

            The company accounts for its stock options under Canadian GAAP,
            which, in the company's circumstances, are not materially different
            from the amounts that would be determined under the provisions of
            APB 25 and related interpretations in accounting for its stock
            option plan. No compensation expense has been charged to the
            consolidated statement of operations for the plan for the three and
            six months ended September 30, 2001 and 2000. 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 consistent with the method under SFAS 123, the
            company's net income (loss) and income (loss) per share would have
            been reported as the pro forma amounts indicated in the table below.
            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.

      (b)   EARNINGS PER SHARE

            Earnings per share calculations under U.S. GAAP reflecting the
            Statement of Financial Accounting Standards No. 128 (SFAS 128), for
            the three and six months ended September 30, 2001 and 2000 would not
            differ materially from the calculations required by the
            pronouncements of CICA handbook section 3500 which was adopted at
            the commencement of fiscal 2001.

      (c)   COMPREHENSIVE INCOME

            Statement of Financial Accounting Standards No. 130 (SFAS 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 and six months ended September
            30, 2001 and 2000, the company's comprehensive income was the same
            as net earnings.

      (d)   STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 133 (SFAS 133)

            The company has reviewed SFAS 133 "Accounting for Derivative
            Instruments and Hedging Activities". The statement establishes
            accounting and reporting standards for derivative instruments
            including certain derivative instruments embedded in other contracts
            and for hedging activities. SFAS 133 becomes effective for all
            fiscal quarters of fiscal years beginning after September 18, 2000.

<PAGE>


                                                                         PAGE XV


                            DAUGHERTY RESOURCES INC.

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

                               SEPTEMBER 30, 2001



11.   UNITED STATES ACCOUNTING PRINCIPLES (Continued)

      (d)   STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 133 (SFAS 133)
            (Continued)

            The company has adopted the provisions of this statement as of
            January 1, 2001. The adoption of SFAS 133 does not have any material
            impact on the company's results of operations, financial position or
            cash flows.

      (e)   STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 141 (SFAS 141) AND
            NO. 142 (SFAS 142)

            On September 29, 2001, the FASB approved its proposed Statements of
            Financial Accounting Standards No. 141 (SFAS 141), Business
            Combinations and SFAS 142, Goodwill and Other Intangible Assets. The
            provisions of SFAS 141 and SFAS 142 are effective for fiscal years
            beginning on or after January 1, 2002 with early adoption permitted
            under certain circumstances. In all cases, the standard must be
            adopted at the beginning of a fiscal year. Retroactive adoption is
            not permitted.

            SFAS 141 requires all business combinations to be accounted for
            under the purchase method and requires the separate recognition of
            intangible assets apart from goodwill if criteria are met. SFAS 142
            prohibits the amortization of goodwill and indefinite life
            intangible assets. Instead, goodwill and intangible assets are to be
            written down whenever carrying value exceeds fair value. Intangible
            assets that do not have an indefinite life must continue to be
            amortized.