Newcastle and West Brom are set to scrap it out for the title, knowing Forest are now fighting for a play-off place.
Davies admitted his worst fears are now being realised after a 2-1 defeat at Barnsley last night put another big dent in his side's automatic promotion hopes.
A goal in each half, the second a penalty, from Barnsley's Malta international striker Daniel Bogdanovic sent Forest spinning to a sixth straight Coca-Cola Championship defeat.
Substitute Dexter Blackstock pulled one back for Forest in the 78th minute, but Barnsley, hell-bent on keeping their own season alive, were in no mood to share the points.
The east Midlanders have now seen an eight-point gap open up between themselves and second-placed West Brom and Davies reiterated his belief that his board of directors missed a trick by failing to sanction team-strengthening in January.
Billy Davies: "When you go 20 games undefeated and you go second in the league and you've got the best momentum and you're playing the best football in the division and you come off with a 3-1 result against West Brom on January 8, then, in my opinion, we needed three players.
"Now that's not an excuse, that's a fact. I said then we needed three players.
"Since then we've lost influential club captain (Paul McKenna) and replacing him is a must.
"Whatever happened in January was entirely up to the owners of the club. All I could do was recommend and advise and unfortunately things never happened.
"But as a manager I will always do the best I can with what I've got and between now and the end of the season I will work as hard as I can to continue to keep this young team and stay bright, happy and bubbly and positive.
"I always feared March, April and May. Having been here before and having the experiences I've had I always knew that when you've got momentum, it's important to add to the squad."