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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                  -------------

                                   FORM 10-QSB


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

                                       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 JUNE 30, 2002, WAS 5,350,670.

      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
XVIII 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 six months ending June 30, 2002, Daugherty Resources drilled
seventeen (17) natural gas wells (4.5625 net wells), all of which were capable
of producing natural gas. By comparison, for the same period of 2001, Daugherty
Resources drilled eleven (11) natural gas wells (2.8175 net wells). Drilling
operations for the first six months of 2002 were primarily related to three
year-end private placement drilling programs on Daugherty Resources' farm out
acreage acquired from Equitable Resources Energy Corporation and two joint
venture drilling partnerships.

         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, well drilling and completions for partnerships sponsored by Daugherty
Petroleum, and gas distributed by Sentra Corporation, a wholly owned subsidiary
of Daugherty Petroleum.

         Daugherty Resources continues to review additional opportunities for
acquisitions of oil and gas properties. Previous acquisitions have been
completed using Daugherty Resources stock, in whole or part, to pay for the
acquisitions. Generally, acquisitions include interests in the wells and the
right to operate the wells. Daugherty


                                       2
<PAGE>


Resources generally participates in less than a majority interest in those wells
drilled by programs or joint ventures sponsored by Daugherty Petroleum.

         Daugherty Resources 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.

         During the fourth quarter of 2001 Daugherty Petroleum finalized three
(3) private placement drilling programs and two (2) joint venture partnerships
totaling $5.8 million that allowed Daugherty Petroleum to drill a total
twenty-three (23) natural gas wells during the last quarter of 2001 and the
first quarter of 2002 with seventeen (17) wells being drilled in the first
quarter of 2002. Daugherty Petroleum participated for a 26% interest in the
partnership drilling programs and a 50% interest in a one (1) well joint venture
partnership and a 20% interest in another one (1) well joint venture
partnership.

During the second quarter of 2002 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 August 15, 2002, drilling operations have
begun on two of the program wells. In addition, Daugherty Petroleum began a 15
well private placement partnership drilling program during the second quarter of
2002 and will participate for a 25.75% interest in up to 15 natural gas wells.
Therefore, Daugherty Resources anticipates that it will drill 30 additional
wells during the last two quarters of 2002 and first quarter of 2003 and retain
interests ranging from 25% to 33% of each well it drills. This estimate is based
upon the two current private placement drilling programs covering the drilling
and completion of up to 30 wells. Discussion with potential joint venture
partners, and additional year-end programs, could result in additional wells
being drilled.

          Working capital as of June 30, 2002 was a negative $1,596,549 compared
to December 31, 2001, when working capital was negative $2,003,165.

         Current assets as of June 30, 2002 were $801,437 compared to $2,900,470
as of December 31, 2001. During the six-month period ending June 30, 2002, as
compared to December 31 2001, the changes in the composition of Daugherty
Resources' current assets were: cash balances decreased $2,079,238 from
$2,244,420 to $165,182; accounts receivable balances decreased $84,071 from
$423,359 to $339,208. Other current assets such as pre-paids, and notes
receivable increased $64,276 from $232,691 to $296,967. Overall, current assets
decreased by $2,099,033 to $801,437 from $2,900,470.

         Current liabilities as of June 30, 2002 were $2,397,986 compared to
$4,903,635 as of December 31, 2001. During the six- month period ending June 30,
2002, as compared to December 31, 2001, the changes in the composition of
current liabilities were: short-term loans and current portion of long-term debt
decreased $5,380 from $374,467 to $379,527, customer drilling deposits decreased
$2,703,000 from $2,854,700 to $151,700, accounts payable and accrued liabilities
increased $202,731 from $1,669,088 to $1,871,819. Overall, current liabilities
decreased by $2,505,649.

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

         -      The drilling activity conducted during 2001 and the first
                quarters of 2002 will result in substantially more oil and gas
                production to our Company. In the last quarter 2001 and the
                first quarter 2002 Daugherty Petroleum drilled a total of
                twenty-three (23) successful wells. At the end of the year 2001,
                gas prices had decreased, however, as of June 30, 2002, prices
                have rebounded to reflect higher market demand and these
                increased prices will positively affect oil and gas revenue. If
                the maximum subscriptions are received and accepted for the two
                current drilling programs Daugherty will receive contract
                drilling revenue from an additional 30 wells and will receive a
                minimum 25% interest in each well drilled.



                                       3
<PAGE>

         -      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. For 2001, Daugherty Petroleum sponsored a total of three
drilling programs and two joint ventures that raised a total of $5.8 million
that allowed Daugherty Petroleum to drill a total of thirty-five (35) wells by
March 31, 2002. Daugherty Petroleum 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 production revenue from
its ownership in each well, together with revenue associated with the
transmission and compression of the natural gas. The compression for
approximately 2.7% of the natural gas operated by Daugherty Petroleum is
provided 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 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.

         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 2001
to meet the financial obligations of Daugherty Resources. This strategy
includes:

         -      INCREASING PARTNERSHIP AND JOINT VENTURE DRILLING. Although
                natural gas prices decreased significantly in early 2001, during
                the first six-months of 2002 there has been a continued increase
                in oil and gas prices and this, 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



                                       4
<PAGE>

                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 June 30, 2002, Daugherty Resources'
gross revenues decreased $114,357 to $403,800 from $518,157 for the same period
in 2001. For the six-month period ending June 30, 2002, Daugherty Resources'
gross revenue increased $630,221 to $4,366,325 from $3,736,104 for the same
period in 2001. Daugherty Resources experienced a net loss before taxes of
$378,003 for the three-month period ending June 30, 2002 compared to a net loss
before taxes of $801,279 for the same period in 2001. For the six-month period
ending June 30, 2002, Daugherty Resources experienced net income before taxes of
$585,189 compared to net income before taxes of $184,637 for the same period in
2001.

         Daugherty Resources' gross revenues for the six-month period ending
June 30, 2002 were derived from drilling contract revenues of $3,484,000
(79.79%), natural gas and oil operations and production revenues of $387,062
(8.86%), and natural gas transmission and compression revenues of $495,263
(11.34%).

         The six-month increase in total gross revenues of $630,221 was
primarily attributable to an increase in contract drilling revenue in the first
quarter and an increase in gas transmission and compression revenue during the
first and second quarter of 2002. Revenues from oil and gas production
activities decreased $31,564 to $192,914 for the three-month period ending June
30, 2002 from $224,478 for the same period in 2001. For the six-month period
ending June 30, 2002, gross revenue from oil and gas production decreased
$93,577 to $387,062 from $480,639 for the same period in 2001. The decrease in
revenues from oil and gas production activities was primarily attributable to
lower oil and gas prices in the first quarter of 2002 as compared to the same
period for 2001.

         Net gas and oil production for the second quarter of 2002 was 96,631
Mcfe (Mcf equivalents), compared to 73,481 Mcfe for the second quarter of 2001.
The average price of gas and oil for the second quarter of 2002 was $3.72/Mcf
and $23.48/barrel, respectively, compared to $5.54/Mcf and $26.09/barrel for the
second quarter of 2001.

         During the three-month period ended June 30, 2002, total direct costs
decreased by $245,168 to $265,020 compared to $510,188 in 2001. For the
six-month period ending June 30, 2002, total direct expenses increased $494,455
to $2,522,812 from $2,028,357 for the same period in 2001. Contract drilling
expenses decreased $193,466 from $193,466 for the quarter ending June 30, 2001
compared to $0 for the quarter ending June 30, 2002. Oil and gas production
expenses increased $44,054 from $108,448 for the quarter ending June 30, 2002
compared to $152,502 for the quarter ending June 30, 2002. Gas transmission and
compression costs decreased $95,756 from $208,274 for the quarter ending June
30, 2001, compared to $112,518 for the quarter ended June 30, 2002. The



                                       5
<PAGE>

increase in overall direct costs was primarily due to the drilling and related
costs for seventeen (17) natural gas wells in the first quarter of 2002 compared
to eleven (11) in the same period of 2001.

         For the period ending June 30, 2002, Sentra Corporation, Daugherty
Resources' natural gas utility subsidiary, had sales of $89,506 compared with
sales of $71,888 for the first six months of 2001. In the second quarter of
2002, Sentra installed an additional 1,220 feet of transmission line and 3,375
feet of distribution line for cumulative total of 94,040 feet of transmission
line and 29,639 feet of distribution line being installed by Sentra Corporation
as of June 30, 2002. As of June 30, 2002, Sentra has 162 customers, 50 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 an agreement with Clay Gas Utility
District of Celina, Tennessee to manage its business, which currently consists
of 157 customers, including 28 industrial, commercial and agri-business
connections. Sentra also reads Clay Gas' meters, issue its bills and collects
its receivables. On February 1, 2001, Daugherty Petroleum entered into
agreements with Sentra and Clay Gas Utility District to supply natural gas to
the two utilities. 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 have subsequently been extended and are scheduled to expire July 31,
2003.

         Daugherty Resources believes there are several factors that will
increase revenues in the year 2002, including increased oil and gas production
from its interests in the wells drilled in 2001 and the first quarter of 2002,
and the resulting expansion of its gas gathering system to allow more gas
production to be transported to market. In addition, increased natural gas
prices should create more interest in Daugherty Resources drilling programs,
which would increase turnkey drilling revenues.


                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         None.

ITEM 5.  OTHER INFORMATION.

         Not Applicable.

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

<TABLE>
<S>                                                                                               <C>
         (a)      List of Documents Filed with this Report.
                  -----------------------------------------
                                                                                                   PAGE
                                                                                                   ----
         (1)      Balance Sheet for the Period Ended June 30, 2002                                 II-III
                  Statement of Operations and Deficit for the period ending June 30, 2002          IV
                  Statement of Cash Flows                                                          V
                  Notes to Financial Statements                                                    VI-XVII
</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.



                                       6
<PAGE>


<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
                  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)
</TABLE>

                                       7
<PAGE>

<TABLE>
<S>               <C>
           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, 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.

           (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.
</TABLE>

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.



                                       8
<PAGE>

         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


Dated: August 14, 2002.

         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                      August 14, 2002
William S. Daugherty


/S/ James K. Klyman *                    Director of the Registrant                      August 14, 2002
---------------------
James K. Klyman


/S/ Charles L. Cotterell                 Director of the Registrant                      August 14, 2002
------------------------
Charles L. Cotterell
</TABLE>




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





                                       10
<PAGE>


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

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

                                  JUNE 30, 2002





<PAGE>



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



                                  JUNE 30, 2002


                                    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

Notes to Financial Statements                                     VI-XVII
</TABLE>


<PAGE>

                                                                               I

         [KRAFT, BERGER, GRILL, SCHWARTZ, COHEN & MARCH LLP LETTERHEAD]





                            REVIEW ENGAGEMENT REPORT


To the Directors of
DAUGHERTY RESOURCES INC.

We have reviewed the condensed consolidated balance sheet of DAUGHERTY RESOURCES
INC. as at June 30, 2002 and the condensed consolidated statements of operations
and deficit, and cash flows for the six months ended June 30, 2002 and for the
three months ended June 30, 2002. Our review was made in accordance with
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 generally accepted accounting principles.

We have previously audited, in accordance with auditing standards generally
accepted in Canada, the balance sheet as at December 31, 2001 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, 2002, 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, 2001, is fairly stated in all material respects in relation to the
balance sheet from which it has been derived.


             /s/ KRAFT, BERGER, GRILL, SCHWARTZ, COHEN & MARCH LLP


                KRAFT, BERGER, GRILL, SCHWARTZ, COHEN & MARCH LLP
                              CHARTERED ACCOUNTANTS
Toronto, Ontario
August 2, 2002


<PAGE>
                                                                              II


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

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

                                  JUNE 30, 2002

                                     ASSETS

<TABLE>
<CAPTION>
                                                    June 30,            December 31,
                                                      2002                  2001
                                                  --------------       --------------
                                                   (Unaudited)
<S>                                               <C>                 <C>
CURRENT
     Cash and term deposits                       $       165,182     $     2,244,420
     Accounts receivable                                  339,288             423,359
     Prepaid expenses and other assets                    288,855             202,015
     Loans to related parties (Note 4)                      8,112              30,676
                                                     ------------         ------------
                                                          801,437           2,900,470

BONDS AND DEPOSITS                                         41,000              41,000

OIL AND GAS PROPERTIES (Note 2)                         9,063,725           8,834,087

PROPERTY AND EQUIPMENT (Note 3)                           845,621             820,769

LOANS TO RELATED PARTIES (Note 4)                         755,413             533,051

INVESTMENT                                                 69,347             109,254

DEFERRED FINANCING COSTS                                   57,306              71,066

GOODWILL                                                  313,177             313,177
                                                     ------------        ------------

                                                      $11,947,026        $ 13,622,874
                                                     ============        ============
</TABLE>



See accompanying notes to condensed consolidated financial statements.



<PAGE>
                                                                             III


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

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

                                  JUNE 30, 2002

                                   LIABILITIES


<TABLE>
<CAPTION>
                                                                                      June 30,             December 31,
                                                                                        2002                   2001
                                                                                    --------------        --------------
                                                                                     (Unaudited)
<S>                                                                                 <C>                  <C>
CURRENT
     Bank loans (Note 5)                                                            $       134,162      $       146,067
     Accounts payable                                                                       749,029              875,953
     Accrued liabilities                                                                  1,147,160              793,135
     Customers' drilling deposits                                                           151,700            2,854,700
     Current portion of long-term debt (Note 6)                                             240,305              233,780
                                                                                    ---------------      ---------------
                                                                                          2,422,356            4,903,635

LONG-TERM DEBT (NOTE 6)                                                                   3,411,234            3,455,642
                                                                                    ---------------      ---------------
                                                                                          5,833,590            8,359,277
                                                                                    ---------------      ---------------
                                                         SHAREHOLDERS' EQUITY

CAPITAL STOCK (Note 7)
  AUTHORIZED
      5,000,000          Preferred shares, non-voting, non-cumulative, convertible
    100,000,000          Common shares

     ISSUED
        558,476          Preferred shares (2001 - 563,249)                                1,784,493            1,802,542
      5,350,670          Common shares (2001 - 4,959,112)                                24,466,897           24,184,198
         21,000          Common shares held in treasury, at cost                            (23,630)             (23,630)
     Capital stock to be issued                                                              55,226               55,226
                                                                                    ---------------          -----------
                                                                                         26,282,986           26,018,336

     DEFICIT                                                                            (20,169,550)         (20,754,739)
                                                                                    ----------------     ----------------
                                                                                          6,113,436            5,263,597
                                                                                    ----------------     ----------------
                                                                                    $    11,947,026      $    13,622,874
                                                                                    ===============      ===============
</TABLE>


See accompanying notes to condensed consolidated financial statements.


<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 June 30             Six Months Ended June 30
                                                          2002                2001               2002              2001
                                                          ----                ----               ----              ----
<S>                                                   <C>                <C>                <C>               <C>
REVENUE
  Contract drilling (not less than 95% attributable
      to related party transactions)                  $      -           $     51,747       $  3,484,000      $  2,877,246
 Oil and gas production                                    192,914            224,478            387,062           480,639
 Gas transmission and compression                          210,886            241,932            495,263           378,219
                                                      ------------       ------------       ------------      ------------

                                                           403,800            518,157          4,366,325         3,736,104
                                                      ------------       ------------       ------------      ------------

DIRECT EXPENSES
Contract drilling                                           -                 193,466          1,906,120         1,538,670
Oil and gas production                                     152,502            108,448            280,859           213,478
Gas transmission and compression                           112,518            208,274            335,833           276,209
                                                      ------------       ------------       ------------      ------------
                                                           265,020            510,188          2,522,812         2,028,357
                                                      ------------       ------------       ------------      ------------

GROSS PROFIT                                               138,780              7,969          1,843,513         1,707,747
                                                      ------------       ------------       ------------      ------------

EXPENSES
  Selling, general and administrative                      367,454            608,241            952,479         1,110,573
  Depreciation, depletion and amortization                 139,380            218,618            278,760           437,236
  Interest                                                  38,930             41,919             97,469            94,361
                                                      ------------       ------------       ------------      ------------
                                                           545,764            868,778          1,328,708         1,642,170
                                                      ------------       ------------       ------------      ------------

INCOME (LOSS) BEFORE THE
  FOLLOWING                                               (406,984)          (860,809)           514,805            65,577

   Equity share in earnings from undivided
       interest in oil and gas properties                   28,981             59,530             70,384           119,060
                                                      ------------       ------------       ------------      ------------

NET INCOME (LOSS) FOR THE PERIOD                          (378,003)          (801,279)           585,189           184,637

DEFICIT, BEGINNING OF PERIOD                           (19,791,547)       (19,441,565)       (20,754,739)      (20,427,481)
                                                      ------------       ------------       ------------      ------------

DEFICIT, END OF PERIOD                                $(20,169,550)      $(20,242,844)      $(20,169,550)     $(20,242,844)
                                                      ------------       ------------       ------------      ------------


NET INCOME (LOSS) PER SHARE (NOTE 8)
    BASIC                                             $      (0.07)      $      (0.23)      $       0.11      $       0.05
                                                      ------------       ------------       ------------      ------------
    FULLY DILUTED                                     $      (0.07)      $      (0.23)      $       0.11      $       0.05
                                                      ------------       ------------       ------------      ------------
</TABLE>


SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.



<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 JUNE 30         SIX MONTHS ENDED JUNE 30
                                                              2002             2001             2002             2001
                                                              ----             ----             ----             ----
<S>                                                      <C>              <C>              <C>              <C>
OPERATING ACTIVITIES
  Net income (loss) for the period                       $  (378,003)     $  (801,279)     $   585,189      $   184,637
    Depreciation, depletion, and amortization                139,380          218,618          278,760          437,236
    Equity share in earnings from undivided interest
      in oil and gas properties                              (28,981)         (59,530)         (70,384)        (119,060)
     Incentive bonus paid by common shares                      -             235,500          109,620          235,500
  (Increase) decrease in:
    Accounts receivable                                       14,533            4,270           84,071           45,159
    Prepaid expenses and other assets                        (85,205)         (32,080)         (86,840)         (30,609)
  Increase (decrease) in:
    Accounts payable                                          34,456          (42,275)          28,106          151,244
    Accrued liabilities                                     (206,943)         (10,598)         354,025           87,671
    Drilling prepayments                                       -              489,248       (2,703,000)        (695,917)
                                                         -----------      -----------      -----------      -----------
                                                            (510,763)           1,874         ,420,453)         295,861
                                                         -----------      -----------      -----------      -----------

INVESTING ACTIVITIES
  Change in oil and gas properties                           (41,039)        (112,151)        (379,254)        (193,081)
  Change in property and equipment                           (27,368)         (86,216)         (69,852)         (83,262)
  Change in bonds and other deposits                           -                -               39,907            -
                                                         -----------      -----------      -----------      -----------
                                                             (68,407)        (198,367)        (409,199)        (276,343)
                                                         -----------      -----------      -----------      -----------

FINANCING ACTIVITIES
Issuance of common stock                                       -                4,138                -            5,832
  Decrease in bank loans                                      (7,085)           -              (11,905)          (4,276)
  Change in long-term liabilities                             (4,842)          75,634          (37,883)          13,854
  Change in payable to related party                          (1,501)           8,390         (199,798)        (214,145)
                                                         -----------      -----------      -----------      -----------
                                                             (13,428)          88,162         (249,586)        (198,735)
                                                         -----------      -----------      -----------      -----------

CHANGE IN CASH AND CASH
  EQUIVALENTS                                               (592,598)        (108,331)      (2,079,238)        (179,217)

CASH AND CASH EQUIVALENTS,
  beginning of period                                        757,780          355,774        2,244,420          426,660
                                                         -----------      -----------      -----------      -----------

CASH AND CASH EQUIVALENTS,
  end of period                                          $   165,182      $   247,443      $   165,182      $   247,443
                                                         -----------      -----------      -----------      -----------

SUPPLEMENTAL DISCLOSURE
Interest paid                                            $    25,755      $    41,919      $   117,295      $    94,361
                                                         -----------      -----------      -----------      -----------

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

See accompanying notes to financial statements.


<PAGE>

                                                                              VI


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

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

                                  JUNE 30, 2002

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         These condensed consolidated financial statements have been prepared in
         accordance with generally accepted accountings principles 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
                  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
                  June 30, 2002 and condensed consolidated results of operations
                  and cash flows for the three and six month periods ended June
                  30, 2002 and 2001.

                  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.

         (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.



<PAGE>
                                                                             VII


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

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

                                  JUNE 30, 2002


2.    OIL AND GAS PROPERTIES

<TABLE>
<CAPTION>
                                                                          JUNE 30,                     DECEMBER 31,
                                                                            2002                           2001
                                                          ---------------------------------------------------------
                                                                        ACCUMULATED

                                                           COST         AMORTIZATION          NET              NET
                                                          ---------------------------------------------------------
<S>                                                    <C>            <C>           <C>               <C>
      Proved properties                                $7,585,571     $  1,559,806  $   6,025,765     $   6,146,723
      Wells and related equipment                         740,846          133,755        607,091           563,695
                                                       ----------     ------------   ------------      ------------
                                                       $8,326,417       $1,693,561      6,632,856         6,710,418
                                                       ----------     ------------   ------------      ------------

      Equity in oil and gas partnership
        Equity, beginning of period                                                      2,123,669         1,283,769
        Additional investment                                                              307,200           933,002
        Withdrawals                                                                        (70,384)         (331,221)
        Share in partnership's income                                                       70,384           238,119
                                                                                     -------------     -------------

        Equity, end of period                                                            2,430,869         2,123,669
                                                                                     -------------     -------------

      TOTAL OIL AND GAS PROPERTIES                                                  $    9,063,725    $    8,834,087
                                                                                     -------------     -------------
</TABLE>

3.    PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                          JUNE 30,                      DECEMBER 31,
                                                                            2002                            2001
                                                          ----------------------------------------------------------
                                                                         ACCUMULATED

                                                           COST         AMORTIZATION           NET              NET
                                                          ----------------------------------------------------------
<S>                                                    <C>              <C>              <C>             <C>
      Land                                             $    12,908      $      -         $     12,908    $    12,908
      Buildings                                              6,239             1,560            4,679          4,887
      Machinery and equipment                              665,908           106,742          559,166        550,499
      Office furniture, fixtures and equipment             100,760            82,002           18,758         17,406
      Aircraft                                             125,000             5,730          119,270        122,396
      Vehicles                                             289,833           158,993          130,840        112,673
                                                       -----------     -------------     ------------     ----------
                                                       $ 1,200,648      $    355,027     $    845,621    $   820,769
                                                       -----------     -------------     ------------    -----------
</TABLE>


<PAGE>

                                                                            VIII


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

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

                                  JUNE 30, 2002


4.       LOANS TO RELATED PARTIES

         The loans to related parties represent loans receivable from officers
         of the Company and certain shareholders totalling $352,789 and
         $242,796, respectively, bearing interest at 6% per annum, are 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 totalling $167,940 are
         non-interest bearing and unsecured.


5.       BANK LOANS

<TABLE>
<CAPTION>
                                                                                        JUNE 30        DECEMBER 31
                                                                                           2002            2001
                                                                                      -----------     -------------
<S>                                                                                   <C>             <C>
         NOTE PAYABLE bearing interest at 4.71% per annum, maturing January 15,
         2003, is collateralized by certificate of
         Deposit amounting to $135,367                                                $   134,162     $     134,162

         NOTE PAYABLE bearing interest at prime plus 6% per annum, due on
         September 22, 2002, is collateralized by 200,000 shares of stock
         owned by a director of the company                                                 -                11,905
                                                                                      -----------     -------------
                                                                                      $   134,162     $     146,067
                                                                                      -----------     -------------
</TABLE>


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 of $454,818 and
         has not been discounted.



<PAGE>

                                                                              IX

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

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

                                  JUNE 30, 2002


6.       LONG-TERM DEBT (Continued)

<TABLE>
<CAPTION>
                                                                                               JUNE 30,       DECEMBER 31,
                                                                                                 2002              2001
                                                                                              -----------   ---------------
<S>                                                                                          <C>             <C>
         NOTE PAYABLE as outlined above                                                      $   454,818     $     462,818

         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 interest and a premium equal to 25% of principal, payable in
         put shares. After the put's maturity date, the company may redeem the
         note in whole or in part at 100%
         of principal amount plus accrued interest.                                              850,000           850,000

         NOTE PAYABLE TO KEYBANK NATIONAL ASSOCIATION. 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 June 30, 2002 was 6%. 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
         determined semi-annually. The borrowing base at June 30, 2002 was
         $2,050,000. 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.                                                         2,006,734         2,006,734

         VARIOUS NOTES PAYABLE, bearing interest ranging from 5.0% to 9.5% per
         annum, payable monthly in varying amounts up to 2005, collateralized
         by the equipment and vehicles acquired                                                  105,063           128,107

         NON-INTEREST BEARING NOTE, secured by 25% of production on 15 gas
         wells payable monthly at $2,796, maturing in 2003                                         8,877            23,117
                                                                                             -----------     -------------

                  Carried forward.........                                                   $ 3,425,492     $   3,470,776
                                                                                             -----------     -------------
</TABLE>


<PAGE>
                                                                               X

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

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

                                  JUNE 30, 2002

6.       LONG-TERM DEBT (Continued)

<TABLE>
<S>     <C>                                                                               <C>               <C>
         Brought forward                                                                  $    3,425,492    $    3,470,776

         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

         NOTE PAYABLE TO A CERTAIN INDIVIDUAL, bearing interest at 8% 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.                                      $       42,507    $       47,897

         LOANS PAYABLE TO VARIOUS BANKS with interest rates ranging from 8.45%
         to 11% annum, payable in 60 instalments of $1,370, including
         interest, maturing in February 2005                                                      94,111            81,320

         UNSECURED LOAN PAYABLE TO TRIO GROWTH, bearing interest at 10%
         per annum, principal and interest due currently                                          24,650            24,650
                                                                                             -----------    --------------
                                                                                               3,651,539         3,689,424
           Less:  Current portion                                                                240,305           233,780
                                                                                             -----------    --------------

                                                                                          $    3,411,234    $    3,455,642
                                                                                          --------------    --------------

         Principal repayments for the next five years are as follows:

         2003                                                                                               $      240,305
         2004                                                                                                      115,536
         2005                                                                                                    2,902,165
         2006                                                                                                       33,460
         2007                                                                                                       24,000
         Thereafter                                                                                              3,336,539
                                                                                                            --------------
                                                                                                            $    6,652,005
                                                                                                            --------------
</TABLE>


<PAGE>
                                                                              XI


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

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

                                  JUNE 30, 2002

7.       CAPITAL STOCK

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

                  Balance, December 31, 2000                                                   1,100,672           620,844

                  Converted to common shares                                                  (1,100,672)         (620,844)
                  Issued for acquisition of oil and gas interest                                 563,249         1,802,541
                                                                                             -----------     -------------

                  Balance, December 31, 2001                                                     563,249         1,802,541

                  Converted to common share                                                       (4,773)          (18,048)
                                                                                             ------------    --------------
                  Balance, June 30, 2002                                                         558,476         1,784,493
                                                                                             -----------     -------------

         (b)      COMMON SHARES ISSUED

                  Balance, December 31, 2000                                                   3,442,852        23,113,991
                  Issued for cash                                                                 62,500           125,000
                  Issued to employees as incentive bonus                                         157,000           235,500
                  Issued for exercise of stock option and warrants                                26,109            26,360
                  Issued for conversion of preferred shares                                    1,229,502           620,844
                  Issued for settlement of accounts payable                                       40,066            60,099
                  Issued for acquisition of oil and gas                                            1,083             2,404
                                                                                             -----------     -------------

                  Balance, December 31, 2001                                                   4,959,112        24,184,198

                  Issued to employees as incentive bonus                                         174,000           109,620
                  Issued for payment of accounts payable                                         212,785           155,031
                  Issued for conversion of preferred stock                                         4,773            18,048
                                                                                             -----------     -------------

                  Balance, June 30, 2002                                                       5,350,670        24,466,897
                                                                                             -----------        ----------

         (c)      SHARES TO BE ISSUED

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




<PAGE>

                                                                             XII


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

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

                                  JUNE 30, 2002

7.       CAPITAL STOCK  (Continued)

<TABLE>
<CAPTION>
         (d)      STOCK OPTIONS

                                                                                               WEIGHTED
                                                                                                AVERAGE
                                                             ISSUED         EXERCISABLE          PRICE           EXPIRY
                                                             ------         -----------          -----           ------
                                                                                                   $

<S>                                                         <C>             <C>              <C>                <C>
                  Balance, December 31, 2000                2,521,726       2,406,170              1.98
                                                                                              ----------

                  2001    - issued for consulting services     65,607                                             (i)
                          - Exercised                         (26,373)
                          - Expired                           (74,000)                        0.38-1.25
                                                           -----------                        ----------
                  Balance, December 31, 2001                2,486,960       2,442,515              2.02
                                                                            ---------              ----

                          - expired                          (474,000)                             1.54
                                                            ----------                             ----

                  Balance, June 30, 2002                    2,012,960       2,012,960              2.07
                                                           ----------       ---------              ----
</TABLE>

                  (i)   These options were granted to four individuals for
                        services performed on behalf of the Company. The
                        options, which were paid in addition to cash
                        compensation, were exercisable immediately, expire on
                        October 27, 2003 and have exercise prices ranging from
                        $1.50 to $2.13.

         (e)      WARRANTS

<TABLE>
<CAPTION>
                                                                                               WEIGHTED
                                                                                                AVERAGE
                                                                              ISSUED             PRICE           EXPIRY
                                                                              ------             -----           ------
                                                                                                   $
<S>                                                                         <C>              <C>                 <C>
                  Balance, December 31, 2000                                  2,470,091                2.65
                  Issued for acquisition of oil and gas property                302,528         1.75 - 4.50         (i)
                  Issued for consulting services                                195,222         1.22 - 2.20        (ii)
                  Exercised                                                        (320)               1.00
                  Expired                                                       (23,800)               2.50
                                                                           -------------        -----------

                  Balance, December 31, 2001 (carried forward..)              2,943,721                2.61
</TABLE>




<PAGE>

                                                                            XIII


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

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

                                  JUNE 30, 2002


7.       CAPITAL STOCK  (Continued)

         (e)      WARRANTS (Continued)

<TABLE>
<CAPTION>
                                                                                               WEIGHTED
                                                                                                AVERAGE
                                                                              ISSUED             PRICE           EXPIRY
                                                                              ------             -----           ------
                                                                                                   $
<S>                                                                         <C>             <C>                 <C>
                  Balance, December 31, 2001 (Brought forward...)            2,943,721           2.61
                           - expired                                         (500,000)     .65 - 2.50
                                                                             ---------     ----------

                  Balance, June 30, 2002                                     2,443,721           2.76
                                                                             ---------     ----------

                  (i)      These warrants expire July 14, 2006
                  (ii)     These warrants expire December 31, 2004
</TABLE>

8.       INCOME (LOSS) PER SHARE

         (a)      BASIC

                  Income (loss) per share is calculated using the weighted
                  average number of shares outstanding during the period. The
                  weighted average of common shares outstanding amounted to
                  5,346,689 and 5,209,765 for the three and six months ended
                  June 30, 2002, respectively, and 3,559,130 and 3,500,824 for
                  the three and six months ended June 30, 2001, respectively.

         (b)      FULLY DILUTED INCOME PER SHARE

                  Fully diluted income per share is calculated on the same basis
                  with the weighted average number of shares outstanding during
                  the period totalling 5,523,256 for the six months ended June
                  30, 2002. The exercise of options and the convertible notes
                  had no dilutive effects on earning (loss) per share for other
                  periods.


9.       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.



<PAGE>

                                                                             XIV


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

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

                                  JUNE 30, 2002


9.       RELATED PARTY TRANSACTIONS (Continued)

         (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.

         (b)      Lease of Gas Compressors

                  A limited liability company owned by a director and two
                  officers of the company leased two natural gas compressors for
                  $1,800 in 2002 (2001 - $3,850) to DPI.

         (c)      DPI 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 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 months ended June 30, 2002 there
                  were no turnkey drilling contracts with company sponsored
                  partnerships (2001 - $2,877,246) not less than 95% of which is
                  attributable to related party transactions.

10.      SEGMENTED INFORMATION

<TABLE>
<CAPTION>
                                                                  THREE MONTHS                         SIX MONTHS
                                                                  ENDED JUNE 30                       ENDED JUNE 30
                                                              2002             2001              2002             2001
                                                             -------          -------           -------          -------
                                                                $                $                 $                $
<S>                                                       <C>               <C>               <C>              <C>
         REVENUE (NET)
         Oil and gas                                          432,781           577,687        4,436,709         3,855,164
         Corporate                                            -                 -                -                   -
                                                          -----------       -----------       ----------       -----------
                                                              432,781           577,687        4,436,709         3,855,164
                                                          ===========       ===========       ==========       ===========

         INTEREST, DEPLETION AND DEPRECIATION
         Oil and gas                                          163,750           210,187          337,637           408,651
         Corporate                                             14,560            50,350           38,592           122,946
                                                          -----------       -----------       ----------       -----------
                                                              178,310           260,537          376,229           531,597
                                                          ===========       ===========       ==========       ===========

         INCOME (LOSS) BEFORE INCOME TAXES
         Oil and gas                                         (184,271)         (523,452)       1,126,573           739,728
         Corporate                                           (193,732)         (277,827)        (541,384)         (555,091)
                                                          -----------       -----------       ----------       -----------
                                                             (378,003)         (801,279)         585,189           184,637
                                                          ============      ===========       ==========       ===========
</TABLE>


<PAGE>
                                                                              XV


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

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

                                  JUNE 30, 2002


10.      SEGMENTED INFORMATION (Continued)

<TABLE>
<CAPTION>
         IDENTIFIABLE ASSETS
<S>                              <C>             <C>            <C>            <C>
         Oil and gas               9,063,725      9,090,273      9,063,725      9,090,273
         Corporate                 2,883,301      2,055,923      2,883,301      2,055,923
                                  ----------     ----------     ----------     ----------
                                  11,947,026     11,146,196     11,947,026     11,146,196
                                  ==========     ==========     ==========     ==========

         CAPITAL EXPENDITURES
         Oil and gas                  41,039        171,681        379,254        312,141
         Corporate                    69,852         83,262         69,852         83,262
                                  ----------     ----------     ----------     ----------
                                     110,891        254,943        449,106        395,403
                                  ==========     ==========     ==========     ==========
</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.

         (a)      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 periods ended
                  June 30, 2002 and 2001 the company's comprehensive income was
                  the same as net earnings.

         (b)      RECENT ACCOUNTING PRONOUNCEMENTS

                  (i)      STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 140
                           (SFAS 140)

                           In September 2000, the FASB issued SFAS No. 140,
                           Accounting for Transfers and Servicing of Financial
                           Assets and Extinguishments of Liabilities, a
                           replacement of SFAS No. 125. This statement provides
                           accounting and reporting standards for transfers and
                           servicing of financial assets and extinguishments of
                           liabilities. The statement provides consistent
                           standards for distinguishing transfers of financial
                           assets that are sales from transfers that are secured
                           borrowings

                           The statement is effective for transfers and
                           servicing of financial assets and extinguishments of
                           liabilities occurring after March 31, 2001. The
                           statement is effective for recognition and
                           reclassification of collateral and for disclosures
                           relating to securitization transactions and
                           collateral for fiscal years ended after December 15,
                           2000. The adoption of SFAS No. 140 did not have a
                           material impact on the results of its operations or
                           financial position.

<PAGE>
                                                                             XVI


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

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

                                  JUNE 30, 2002


11.      UNITED STATES ACCOUNTING PRINCIPLES (Continued)


                  (II)     STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 141
                           (SFAS 141)

                           Statement 141 requires that (1) all business
                           combinations be accounted for by a single method -
                           the purchase method, (2) all intangible assets
                           acquired in a business combination are to be
                           recognized as assets apart from goodwill if they meet
                           one of two criteria - the contractual-legal criterion
                           or the separability criterion and (3) in addition to
                           the disclosure requirements in Opinion 16, disclosure
                           of the primary reasons for a business combination and
                           the allocation of the purchase price paid to the
                           assets acquired and liabilities assumed by major
                           balance sheet caption. When the amounts of goodwill
                           and intangible assets acquired are significant in
                           relation to the purchase price paid, disclosure of
                           other information about those assets is required,
                           such as the amount of goodwill by reportable segment
                           and the amount of the purchase price assigned to each
                           major intangible asset class. The provisions of
                           Statement 141 apply to all business combinations
                           initiated after June 30, 2001. The Company adopted
                           the provisions of Statement 141 as of July 30, 2001
                           for all of its future acquisitions.


                  (III)    STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 142
                           (SFAS 142)

                           In July 2001, the FASB issued Statement of Financial
                           Accounting Standards No. 142, "Goodwill and Other
                           Intangibles" ("Statement 142"). Under Statement 142,
                           goodwill and indefinite lived intangible assets are
                           no longer amortized but are reviewed annually (or
                           more frequently if impairment indicators arise) for
                           impairment. Separable intangible assets that are not
                           deemed to have an indefinite life will continue to be
                           amortized over their estimated useful lives. The
                           adoption of this statement as of January 1, 2002 will
                           not have a material impact on the Company's results
                           of operations or financial condition.

                  (IV)     STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 143
                           (SFAS 143)

                           In August 2001, the FASB issued SFAS 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. SFAS No. 143 is effective for
                           financial statements with fiscal years beginning
                           after June 15, 2002. This Statement is not expected
                           to have a material impact on the Company's financial
                           statements.

<PAGE>
                                                                            XVII


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

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

                                  JUNE 30, 2002


11.      UNITED STATES ACCOUNTING PRINCIPLES (Continued)


                  (v)      STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 144
                           (SFAS 144)

                           In October 2001, the Financial Accounting Standards
                           Board issued Statement of Financial Accounting
                           Standards No. 144, "Accounting for the Impairment or
                           Disposal of Long-Lived Assets" ("Statement 144"),
                           which addresses financial accounting and reporting
                           for the impairment or disposal of long-lived assets.
                           Statement 144 is effective for fiscal years beginning
                           after January 1, 2002. The adoption of statement 144
                           did not have any significant impact on the Company's
                           financial position and results of operations.