UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

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

                                    FORM 10-K

[X]  ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934.

                    FOR THE FISCAL YEAR ENDED MARCH 31, 1998
         
                                       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 NO. 0-27732

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

                        DAWSON PRODUCTION SERVICES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                        TEXAS                           74-2231546
          (STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER
           INCORPORATION OR ORGANIZATION)          IDENTIFICATION NO.)

             112 E. PECAN STREET, SUITE 1000
                   SAN ANTONIO, TEXAS                          78205
       (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (210) 476-0420

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                              (TITLE OF EACH CLASS)
                     COMMON STOCK, PAR VALUE $0.01 PER SHARE
                          COMMON STOCK PURCHASE RIGHTS

      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]  OR  NO [ ]

      INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENTS TO
THIS FORM 10-K. [ ]

      THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AT JUNE 17, 1998, BASED ON THE CLOSING PRICE ON THE NASDAQ
NATIONAL MARKET SYSTEM ON SUCH DATE, WAS $124,632,985.

      THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON JUNE
17, 1998, WAS 11,202,965.

      DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE COMPANY'S DEFINITIVE
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OR ABOUT
SEPTEMBER 30, 1998, ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
<PAGE>
                     DOCUMENTS INCORPORATED BY REFERENCE

      THE INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT ON FORM 10-K IS
INCORPORATED BY REFERENCE FROM THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR
THE REGISTRANT'S 1998 ANNUAL MEETING OF SHAREHOLDERS.

ITEM 10     DIRECTORS AND EXECUTIVE             INCORPORATED BY REFERENCE FROM
            OFFICERS OF THE REGISTRANT          "NOMINEES FOR ELECTION OF
                                                DIRECTORS" OF THE COMPANY'S
                                                DEFINITIVE PROXY STATEMENT TO BE
                                                FILED PURSUANT TO REGULATION 14A
                                                OF THE SECURITIES EXCHANGE ACT
                                                OF 1934, AS AMENDED (THE
                                                "EXCHANGE ACT"), FOR THE
                                                COMPANY'S 1998 ANNUAL MEETING OF
                                                SHAREHOLDERS.

ITEM 11     EXECUTIVE COMPENSATION              INCORPORATED BY REFERENCE FROM
                                                "EXECUTIVE COMPENSATION" OF THE
                                                COMPANY'S DEFINITIVE PROXY
                                                STATEMENT TO BE FILED PURSUANT
                                                TO REGULATION 14A OF THE
                                                EXCHANGE ACT FOR THE COMPANY'S
                                                1998 ANNUAL MEETING OF
                                                SHAREHOLDERS.
            
ITEM 12      SECURITY OWNERSHIP OF              INCORPORATED BY REFERENCE FROM
             CERTAIN BENEFICIAL OWNERS          "SECURITY OWNERSHIP OF CERTAIN
             AND MANAGEMENT                     BENEFICIAL OWNERS AND
                                                MANAGEMENT" OF THE COMPANY'S
                                                DEFINITIVE PROXY STATEMENT TO BE
                                                FILED PURSUANT TO REGULATION 14A
                                                OF THE EXCHANGE ACT FOR THE
                                                COMPANY'S 1998 ANNUAL MEETING OF
                                                SHAREHOLDERS.

ITEM 13      CERTAIN RELATIONSHIPS AND          INCORPORATED BY REFERENCE FROM
             RELATED TRANSACTIONS               "CERTAIN RELATIONSHIPS AND
                                                RELATED TRANSACTIONS" OF THE
                                                COMPANY'S DEFINITIVE PROXY
                                                STATEMENT TO BE FILED PURSUANT
                                                TO REGULATION 14A OF THE
                                                EXCHANGE ACT FOR THE COMPANY'S
                                                1998 ANNUAL MEETING OF
                                                SHAREHOLDERS.

                                       i
<PAGE>
                       DAWSON PRODUCTION SERVICES, INC.
                          YEAR ENDED MARCH 31, 1998

                              INDEX TO FORM 10-K

ITEM                                                                        PAGE
 NO.                                                                         NO.

RISK FACTORS..................................................................01
PART I .......................................................................07
      ITEM 1. BUSINESS .......................................................07
      ITEM 2. PROPERTIES .....................................................19
      ITEM 3. LEGAL PROCEEDINGS ..............................................19
      ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............20

PART II.......................................................................21
      ITEM 5. MARKET FOR  REGISTRANT'S  COMMON EQUITY AND RELATED  SHAREHOLDER
              MATTERS.........................................................21
      ITEM 6. SELECTED FINANCIAL DATA ........................................22
      ITEM 7. MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS ............................24
      ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....30
      ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......31
      ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON
              ACCOUNTING AND FINANCIAL DISCLOSURE ............................52

PART III .....................................................................52
      ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............52
      ITEM 11. EXECUTIVE COMPENSATION.........................................52
      ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.52
      ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................53

PART IV.......................................................................53
      ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 
               8-K............................................................53

SIGNATURES....................................................................57

                                       ii
<PAGE>
                                    RISK FACTORS

   THE STATEMENTS INCLUDED IN THIS REPORT REGARDING FUTURE FINANCIAL PERFORMANCE
AND RESULTS AND THE OTHER STATEMENTS THAT ARE NOT HISTORICAL FACTS ARE
FORWARD-LOOKING STATEMENTS. THE WORDS "EXPECT," "PROJECT," "ESTIMATE," "PREDICT"
AND SIMILAR EXPRESSIONS ALSO ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS,
INCLUDING BUT NOT LIMITED TO, INDUSTRY CONDITIONS, PRICES OF CRUDE OIL AND
NATURAL GAS, AND OTHER FACTORS DISCUSSED IN THIS REPORT (INCLUDING THOSE
SPECIFICALLY DISCUSSED BELOW) AND IN THE COMPANY'S OTHER FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL OUTCOMES MAY VARY MATERIALLY FROM THOSE INDICATED.

   CAPITALIZED TERMS USED IN RISK FACTORS ARE DEFINED LATER IN THIS REPORT.

INCURRENCE OF SUBSTANTIAL INDEBTEDNESS

   At March 31, 1998, the Company had approximately $149.0 million in total
indebtedness. The Company historically has operated at substantially lower
levels of debt. The Company's level of indebtedness has several important
effects on its future operations, including, without limitation, (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of interest on its indebtedness, (ii) the Company's leveraged
position substantially increases its vulnerability to adverse changes in general
economic and industry conditions, as well as to competitive pressure, and (iii)
the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate and other purposes may be
limited. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic conditions, industry
cycles and financial, business and other factors affecting the operations of the
Company, many of which are beyond its control. There can be no assurance that
the Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt, it may be required, among other
things, to seek additional financing in the debt or equity markets, to refinance
or restructure all or a portion of its indebtedness, including the Senior Notes,
or to sell selected assets or reduce or delay planned capital expenditures.
There can be no assurance that any such measures would be sufficient to enable
the Company to service its debt or that any such financing, refinancing or sale
of assets would be available on economically favorable terms. See "Business -
Senior Notes; Subsidiary Guarantees."

DEPENDENCE ON VOLATILE OIL AND GAS INDUSTRY; CURRENT INDUSTRY CONDITIONS

   Demand for the Company's services depends substantially upon the level of
activity in the oil and gas industry, which in turn depends in part on oil and
gas prices, expectations about future prices, the cost of exploring for,
producing and delivering oil and gas, the discovery rate of new oil and gas
reserves in land areas, the level of drilling and workover activity, domestic
and international political, military, regulatory and economic conditions and
the ability of the oil and gas companies to raise capital. Prices for oil and
gas historically have been extremely volatile 

                                       1
<PAGE>
and have reacted to changes in the supply and demand for oil and natural gas,
domestic and worldwide economic conditions and political instability in oil
producing countries. Currently, oil prices are down and natural gas prices are
stable, while both oil and gas inventories are on the rise. Additionally, energy
demand from Asian countries is on the decline. Given these fundamental factors,
it is extremely difficult to predict or forecast customer demand for the
Company's services. Prices for oil and natural gas are expected to continue to
be volatile and effect the demand for and pricing of the Company's services.
Continued depressed prices of oil, or material decline in natural gas prices or
activities could materially adversely affect the demand for the Company's
services and the Company's results of operations. Industry conditions will
continue to be influenced by numerous factors over which the Company has no
control. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business - Customers."

   The volatility of the oil and gas industry and the consequent impact thereof
on exploration activity could adversely impact certain of the Company's
customers. The Company, therefore, could be subject to special credit risks as
to certain of its customers. While the Company endeavors not to take unjustified
credit risks, it is necessary from time to time to extend trade credit to
long-term customers and others where some risks of nonpayment or late payment
could exist.

ACQUISITION RISKS

   The Company completed several small acquisitions in the fiscal year 1998. No
assurance can be given that the Company will be successful in managing and
incorporating the businesses and assets acquired into its existing operations or
that such activities will not require a disproportionate amount of management's
attention. The Company's failure to incorporate the acquired businesses and
assets into its existing operations successfully, or the occurrence of
unexpected costs or liabilities in the acquired businesses, could have a
material adverse effect on the Company. See "Business - General; - Business
Strategy."

LIQUIDITY NEEDS; ABILITY TO REPAY NOTES

   The Company may from time to time fund a portion of its working capital needs
and capital expenditure requirements from external financing. In addition, the
Company expects that in order to repay the principal amount of the Senior Notes
at maturity or upon acceleration, or to purchase the Senior Notes upon a Change
of Control, it will likely be required to seek additional financing or engage in
asset sales or similar transactions. There can be no assurance that sufficient
funds for any of the foregoing purposes would be available to the Company at the
time they are required on favorable terms. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Business - Senior Notes; Subsidiary Guarantees."

                                       2
<PAGE>
RISKS RELATING TO INJECTION WELLS

   The Company's injection operations pose certain risks of environmental
liability to the Company. Although the Company monitors the injection process,
any leakage from the subsurface portions of the wells could cause degradation of
fresh groundwater resources, potentially resulting in cancellation of operation
of the well, fines and penalties from governmental agencies, expenditures for
redemption of the affected resource, and liability to third parties for property
damages and personal injuries. In addition, the sale by the Company of residual
crude oil collected as part of the saltwater injection process could impose
liability on the Company in the event the entity to which the oil was
transferred fails to manage the material in accordance with applicable
environmental health and safety laws.

SUBSTANTIAL COMPETITION

   The workover rig and production services industry is highly competitive and
fragmented and includes several large companies and a number of small companies
capable of competing effectively on a local basis. See "Business - Competition."

OPERATING RISKS AND INSURANCE

   The Company's operations are subject to hazards inherent in the oil and gas
industry, such as blowouts, explosions, craterings, fires and oil spills, that
can cause personal injury or loss of life, damage to or destruction of property,
equipment, the environment and marine life and suspension of operations. In
addition, claims for loss of oil and gas production and damage to formations can
occur in the workover business. Litigation arising from a catastrophic
occurrence at a location where the Company's equipment and services are used may
in the future result in the Company being named as a defendant in lawsuits
asserting potentially large claims.

   The Company maintains insurance coverage that it believes to be customary in
the industry against these hazards. However, there can be no assurance that the
Company will be able to maintain adequate insurance in the future at rates it
considers reasonable or that insurance will continue to be available on terms as
favorable as the Company's existing arrangements. The occurrence of a
significant event or adverse claim in excess of the insurance coverage limits
maintained by the Company could have a materially adverse effect on the
Company's financial condition and results of operations. See "Business -
Operating Risks and Insurance."

RISK OF ENVIRONMENTAL COSTS AND LIABILITIES

   The Company's operations are subject to governmental laws and regulations
governing the management and disposal of waste materials or otherwise relating
to the protection of the environment or of public health and safety. Many of the
Company's operations take place in or near ecologically sensitive areas, such as
the Texas Gulf Coast and Louisiana inland waters. Numerous local, state and
federal environmental laws impose liability for causing pollution in inland and
coastal waters. State and federal legislation also provide special protection to
water quality and animal and marine life that could be affected by some of the
Company's activities. 

                                       3
<PAGE>
The Company's operations also take place in states that stringently regulate
environmental matters, such as California. In general, the regulations
applicable to the Company's operations include certain regulations controlling
the discharge of hazardous or toxic materials into the environment, requiring
removal or remediation of pollutants and imposing civil and criminal penalties
for violations. Some of the statutory and regulatory programs that apply to the
Company's operations also authorize private suits, the recovery of nature
resource damages by the government, injunctive relief and cease and desist
orders.

   Some environmental statutes impose strict liability, rendering a person or
entity liable for environmental damage without regard to negligence or fault on
the part of such person or entity. As a result, the Company could be liable,
under certain circumstances, for environmental damage caused by others or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed.

   The clear trend in environmental regulation has been to impose more
restrictions and limitations on activities that may impact the environment,
including the generation and disposal of wastes and the use and handling of
chemical substances. These restrictions and limitations have increased operating
costs for both the Company and its customers. Any regulatory changes that impose
additional environmental regulations or requirements on the Company and its
customers could adversely affect the Company through increased operating costs
and potential decreased demand for the Company's services.

   In this regard, the Resource Conservation and Recovery Act ("RCRA"), the
principal federal statute governing the disposal of solid and hazardous wastes,
includes a statutory exemption that allows oil and gas exploration and
production wastes to be classified as non-hazardous waste. A similar exemption
is contained in many of the state counterparts to RCRA, including the state
statutes in Texas, New Mexico, and Louisiana; however, there is no such
exemption in the California statutes. If oil and gas exploration and production
wastes were required to be managed and disposed of as hazardous waste, either as
a result of changes in RCRA or the imposition of more stringent state
regulations, domestic oil and gas producers, including many of the Company's
customers, could be required to incur substantial obligations with respect to
such waste. Because of the potential impact on the Company's customers, any
regulatory changes that impose additional restrictions or requirements on the
disposal of oil and gas wastes could adversely affect demand for the Company's
services. See "Business Environmental Regulation."

DEPENDENCE ON KEY PERSONNEL

   The Company believes that its success will depend to a significant extent
upon the continued services of certain key individuals, particularly Michael E.
Little, Chairman of the Board, President and Chief Executive Officer, and James
J. Byerlotzer, Vice President of Operations and Chief Operating Officer. The
loss of the services of either of these individuals could have a material
adverse effect on the Company.

                                       4
<PAGE>
DEPENDENCE ON MAJOR CUSTOMERS

   During the fiscal year ended March 31, 1998, the Company derived
approximately 11.2% of its revenues from its largest customer. The loss of this
customer could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Customers."

DIVIDEND POLICY

   The Company has never paid cash dividends on the Common Stock and does not
anticipate that cash dividends will be paid in the foreseeable future. The
Company currently intends to retain any future earnings to finance the expansion
and continuing development of the Company's business. The declaration and
payment in the future of any cash dividends will be at the election of the
Company's Board of Directors and will depend upon the earnings, capital
requirements and financial position of the Company, future loan covenants,
general economic conditions and other pertinent factors. Furthermore, certain
provisions of the Credit Facility and the Indenture will restrict the Company's
ability to pay cash dividends on the Common Stock. See "Management's Discussions
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

SUBSTANTIAL AMOUNT OF SECURITIES SUBJECT TO REGISTRATION RIGHTS

   The Company is a party to a registration rights agreement entered into in
1995 pursuant to which certain shareholders, who at that time beneficially owned
approximately 2.4 million shares of Common Stock, were entitled to registration
of such shares under the Securities Act of 1933. Pursuant to the requirements of
that registration rights agreement, in September 1997, the Company filed a shelf
registration statement on Form S-3 pursuant to which it registered 707,631
shares of Common Stock at a price per share of $18.69. The Company is required
to keep the shelf registration statement effective for a period of 36 months. In
addition, the Company is a party to three additional registration rights
agreements entered into in connection with recent acquisitions that require it
to register an aggregate of approximately 68,067 shares of the Company's issued
and outstanding Common Stock. The Company anticipates filing a registration
statement registering these shares in the immediate future. Sales of substantial
amounts of the Common Stock in the public market pursuant to any such
registration statement or otherwise could adversely affect prevailing market
prices and the ability of the Company to raise equity capital in the future.

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS

        The Company's Articles of Incorporation and Bylaws include certain
provisions that may have the effect of discouraging potential unsolicited offers
or other efforts to obtain control of the Company that are not approved by the
Board. Upon a change of control of the Company, holders of the Senior Notes will
have the right to require the Company to purchase such Senior Notes at a price
equal to 101% of the aggregate principal amount thereof, together with accrued
and unpaid interest to the date of purchase. Such provisions may adversely
affect the market price of the Common Stock and may also deprive the
shareholders of opportunities to sell shares of Common Stock at prices higher
than prevailing market prices. Such provisions include the requirement that all
shareholder action must be taken at a duly called annual or special meeting of
shareholders unless a majority of the entire Board provides its prior approval
for shareholder action to be taken by written consent of shareholders. The Board
has the authority, without further action by the shareholders, to issue up to
560,600 shares of the Company's preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, and to issue over
9,000,000 additional shares of Common Stock. The issuance of the Company's
preferred stock or additional shares of Common Stock could adversely affect the
voting power of the purchasers of Common Stock in the Equity Offering and could
have the effect of delaying, deferring or preventing a change in control of the
Company.

   In addition, on September 11, 1997, the Company adopted a Shareholder Rights
Plan (the "Rights Plan") that is designed to deter unfair takeover tactics. On
that date, the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of Common Stock to
shareholders of record at the close of business on September 22, 1997. Each
Right entitles the registered holder to purchase from the Company one-tenth of
one share of Common Stock of the Company, at a purchase price of $85 per share
of Common Stock, 

                                       5
<PAGE>
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement between the Company and Harris Trust Company of New York, as
Rights Agent. The Rights have certain anti-takeover effects and will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on a substantial number of Rights being acquired.

                                       6
<PAGE>
                                    PART I

ITEM 1.     BUSINESS

GENERAL

   Dawson Production Services, Inc. (the "Company" or "Dawson") is a leading
provider of a broad range of workover, liquid and production services used in
the production of oil and gas. The Company's services are utilized by major oil
and gas companies as well as independent producers to optimize performance of
oil and gas wells. Dawson is currently the third largest provider of land based
workover rigs in the United States.

   The Company commenced operations in 1951. In 1982, under the direction of the
current president, the Company initiated a strategy to expand and diversify the
Company's workover rig services. At that time, the Company owned four workover
rigs that were operated out of a single yard. In November 1994, the Company
broadened the array of services that it provides by acquiring the liquid
services and production services businesses of Well Solutions, Inc. (the "Well
Solutions Acquisition") and expanded such business in July 1996 with the
acquisition of Taylor Companies, Inc. (the "Taylor Acquisition") and in January
1997 with the acquisition of Mobley Company, Inc. (the "Mobley Acquisition"). In
February 1997, the Company continued the growth by acquiring the stock of Pride
Land Operations L.P. (the "Pride Acquisition"). The Taylor, Mobley and Pride
Acquisitions (the "1997 Acquisitions") established the Company as one of the
largest providers of services in the oil industry. In December 1997, the Company
acquired Bobby's Hot Oil Service, Inc., Tubing Testers Corp. and Alamo Tubing
Testers Corp. (collectively, the "Bobby's Acquisition"), and in January 1998,
the Company acquired PetroStar Corporation of Louisiana (the "PetroStar
Acquisition"). The Bobby's, PetroStar and other small acquisitions during fiscal
year 1998 (the "1998 Acquisitions") continued the Company's growth with the
addition of 26 workover rigs and other equipment. In addition, the Company
expanded its services to include hot oil trucks. The Company believes that it
generally has been successful in acquiring businesses and assets and
subsequently reducing overhead, enhancing internal controls, improving marketing
and related operations through management incentives and improving the
utilization of its assets by redeploying equipment.

   As a result of its acquisitions and certain corporate restructuring, the
Company currently has several direct and indirect subsidiaries through which it
conducts a significant portion of its operations. All of the assets are held in
Dawson Production Partners, L.P., a Delaware limited partnership (the
"Partnership"). All of the general and limited partnership interests in the
Partnership are owned by three wholly owned corporate subsidiaries of Dawson
Production Services; Dawson Production Management, Inc., a Delaware corporation,
owns a 1.4% general partnership interest in the Partnership; Dawson Production
Taylor, Inc., a Delaware corporation, owns a 8.85% limited partnership interest
in the Partnership; and Dawson Production Acquisition Corp., a Delaware
corporation owns the remaining 89.75% limited partnership interest in the
Partnership. Dawson has the following additional wholly-owned subsidiaries:
Dawson Production Services de Mexico, S.A. de C.V., and Ubicadora de Tecnicos
S.A. de C.V., both of which are companies organized under the laws of Mexico.

                                       7
<PAGE>
BUSINESS STRATEGY

   The Company's strategy emphasizes diversification and expansion through
acquisitions and internal growth. In recent years, there has been significant
industry consolidation activity in the Company's principal businesses. The
Company has been an active participant in this industry consolidation and plans
to continue to pursue strategic acquisitions of businesses and assets that
enhance or expand its market presence or complement its existing businesses. The
Company has expanded the range of services offered at its locations and
continues to increase its presence, through redeployment of underutilized
assets, within the geographic regions in which the Company operates. The Company
believes that its ability to offer a wide range of services over a large
operating base will provide it with a competitive advantage by allowing its
customers to consolidate their procurement of workover, liquid and production
services by utilizing fewer vendors. The Company believes that this
consolidation may allow customers to lower their costs by streamlining
production decisions and increasing operational efficiencies. The Company also
believes that its strategy will allow it to take advantage of cross-marketing
opportunities for its services and to appeal to a broader customer base by
enhancing its position as a one-stop source for workover, liquid and production
services.

   The Company believes that the high quality of its equipment, employees and
services combined with its favorable safety record enable it to maintain its
position as a leader in its principal markets. In that regard, the Company has
committed substantial capital to an ongoing workover rig refurbishment program
to maintain the Company's equipment in good working condition. The Company has
invested, and plans to continue to invest, in quality management and safety
programs. The Company believes that many smaller competitors have not undertaken
comparable maintenance or training programs and do not have the financial
resources to enable them to do so. The Company believes that a number of its
customers place significant importance on their contractors' safety records and
quality management systems in their screening and selection processes, and that
such factors will gain further importance in the future.

OVERVIEW OF SERVICES

WORKOVER RIG SERVICES

   The Company provides workover rig services to oil and gas exploration and
production companies through the use of mobile well servicing workover rigs
together with crews of three to four workers. Additional equipment such as
pumps, tanks, blowout preventers and power swivels are provided by the Company
as may be required for a particular job. The Company also provides trucking
services for moving large equipment to and from the job sites of its customers.
The Company charges its customers an hourly rate for its workover rig services,
which varies based on a number of considerations including market conditions in
each region, the type of rig, the amount of ancillary equipment required and the
necessary personnel. The Company gives its yard managers considerable
flexibility to negotiate with customers and, through compensation arrangements,
seeks to provide incentives to its managers to maximize both revenues and

                                       8
<PAGE>
profitability. For the fiscal year ended March 31, 1998, workover rig services
contributed approximately 71% of the Company's revenues.

   The Company operates 517 land workover rigs, two barge-mounted workover rigs
and ancillary equipment from yards in Texas, Louisiana, California and New
Mexico. The Company's land workover rigs are mobile units that generally operate
within a radius of approximately 75 to 100 miles from their respective bases.
Swab rigs are used for swabbing or cleaning wells at depths of up to
approximately 16,000 feet. Pole rigs are used for swabbing and rod and tubing
workovers and repairs on wells at depths of up to approximately 4,000 feet. Rigs
having between 150 and 250 horsepower are used for services on wells to maximum
depths of between 4,000 and 6,000 feet and work primarily on rod and tubing
workovers and repairs. Rigs having between 251 and 350 horsepower are used for
services on wells to maximum depths of between 10,000 and 12,000 feet and also
work primarily on rod and tubing workovers and repairs. Rigs having between 351
and 550 horsepower are used for deeper workovers and more complicated procedures
such as deepening of existing well bores, recompletions and complicated fishing
operations. These rigs operate at maximum depths of between 16,000 and 18,000
feet. Rigs having between 551 and 750 horsepower are used in wells with maximum
depths of approximately 20,000 feet. Rigs having between 751 and 1,000
horsepower are generally used for horizontal drilling or recompletion jobs and
deep workovers at depths of up to approximately 25,000 feet. These rigs are
almost always operated for continuous 24-hour periods as contrasted to the
Company's other rigs that typically operate during daylight hours only.

   The Company operates two barge-mounted workover rigs in the Louisiana inland
waters. These rigs typically are outfitted by moving a land workover rig onto
the barge, with operating crews housed on the barge, and have the capability to
operate for continuous 24-hour periods. In addition to hourly charges for the
workover rigs, when market conditions permit, the Company charges its customers
for auxiliary equipment, travel time, mobilization and other related items.

   Set forth below is certain information pertaining to the Company's land-based
workover rigs.

                                                                   MARCH 31,
                                                              ------------------
 DESCRIPTION                                                   1997        1998
                                                              ------      ------
Swab ...................................................          19          19
Pole ...................................................           1           5
150-250 hp .............................................          71          74
251-350 hp .............................................         285         288
351-550 hp .............................................         108         113
551-750 hp .............................................           7          10
751-1,000 hp ...........................................           5           8
                                                              ------      ------
                                                                 496         517

   Workover  rig  services  are  categorized  by the  type  of job  performed:
completion,  maintenance,  workover,  and plugging and  abandonment  and other
workover.

   COMPLETION SERVICES. Completion services prepare a newly drilled well for
production. The completion process may involve selectively perforating the well
casing to access producing 

                                       9
<PAGE>
zones, stimulating and testing these zones and installing downhole equipment.
The Company provides a workover rig to assist in this completion process. Newly
drilled wells are frequently completed by well servicing rigs to minimize the
use of higher cost drilling rigs. The completion process typically requires a
few days to several weeks, depending on the nature and type of the completion,
and generally requires additional auxiliary equipment.

   The demand for well completion services is directly related to drilling
activity levels, which are sensitive to expectations relating to and changes in
oil and gas prices. During periods of weak drilling demand, drilling contractors
frequently price well completion work competitively compared to a workover rig
so that the drilling rig stays on the job. Thus, excess drilling capacity will
serve to reduce the amount of completion work available to the well servicing
industry.

   MAINTENANCE SERVICES. Maintenance services are required on producing oil and
gas wells to ensure efficient and continuous operation. These services consist
of routine mechanical repairs necessary to maintain production from the well,
such as repairing parted sucker rods or defective downhole pumps in an oil well
or replacing defective tubing in a gas well. The Company provides the workover
rigs, equipment and crews for these maintenance services. Many of these workover
rigs also have pumps and tanks that can be used for circulating fluids into and
out of the well. Maintenance jobs are often performed on a series of wells in
proximity to each other and typically take less than 48 hours per well.

   Maintenance services are generally required throughout the life of a well.
The need for these services does not depend on the level of drilling activity
and is generally independent of short-term fluctuations in oil and gas prices.
Accordingly, maintenance services are generally the most stable type of workover
rig services activity. The general level of maintenance, however, is affected by
changes in the total number of producing oil and gas wells in the Company's
geographic service area.

   WORKOVER SERVICES. In addition to periodic maintenance, producing oil and gas
wells occasionally require major repairs or modifications called "workovers."
Workover services include extensions of existing wells to drain new formations
either through deepening well bores or through drilling of horizontal laterals.
In less extensive workovers, the Company's rigs are used to drill out plugs and
packers in existing well bores to access previously bypassed productive zones.
The Company's workover rigs are also used to convert producing wells to
injection wells during enhanced recovery operations. Workover services also
include major subsurface repairs such as casing repair or replacement, recovery
of tubing and removal of foreign objects in the well bore. These extensive
workover operations are normally performed by a workover rig with additional
specialized auxiliary equipment, which may include rotary drilling equipment,
mud pumps, mud tanks and blowout preventers, depending upon the particular type
of workover operation. Most of the Company's workover rigs are designed and
equipped to perform complex workover operations. A workover may last from a few
days to several weeks.

   The demand for workover services is more sensitive to expectations relating
to and changes in oil and gas prices than the demand for maintenance services,
but not as sensitive as the demand 

                                       10
<PAGE>
for completion services. When oil and gas prices are low, there is little
incentive to perform workovers on wells to increase production and well
operators tend to defer workover services. As oil and gas prices increase, the
level of workover activity tends to increase as operators seek to increase
production by enhancing the efficiency of their wells.

   PLUGGING AND ABANDONMENT SERVICES. Workover rigs are also used in the
plugging and abandonment of oil and gas wells no longer capable of producing in
economic quantities. The demand for well plugging services is not impacted
significantly by levels of demand for oil and gas.

   OTHER WORKOVER SERVICES. Other workover services include the use of hot oil
trucks, hyperclean units, coil tubing units and other non-rig equipment. This
equipment is used for various types of projects including hot oiling flow lines
and casings, heating water for frac jobs and a variety of well cleaning
services.

LIQUID SERVICES

   The Company provides liquid services, which are comprised of vacuum truck
services, frac tank rentals and salt water injection services. The Company uses
its vacuum trucks, frac tanks and salt water injection wells to provide an
integrated mix of liquid services to well site customers. For the fiscal year
ended March 31, 1998, liquid services contributed approximately 21% of the
Company's revenues.

   VACUUM TRUCK SERVICES. The Company owns and operates 192 vacuum trucks. A
vacuum truck is a tractor trailer with a fluid hauling capacity of 130 barrels.
A large vacuum pump mounted on each truck extracts fluids from pits, tanks and
other storage facilities. The vacuum trucks also are used for the following
purposes: to transport water to fill frac tanks on well locations, including
frac tanks provided by the Company and by others; to transport produced salt
water to injection wells, including injection wells owned and operated by the
Company; and to transport brine and other drilling fluids to and from well
locations. In conjunction with the rental of its frac tanks, the Company
generally uses its vacuum trucks to transport water for use in fracturing
operations. Following completion of fracturing operations, the Company's vacuum
trucks are used to transport salt water produced as a result of the fracturing
operations from the well site to injection wells. Vacuum truck services are
generally provided to oilfield operators within a 30-mile radius of the
Company's nearest yard.

   FRAC TANK RENTALS. The Company owns 698 frac tanks located primarily at the
Company's yards in Bryan, Carthage, Giddings and Kilgore, Texas. Each frac tank
can store up to 500 barrels of fluid and is used by oilfield operators to store
various fluids at the well site, including water, drilling mud, acid and brine.
The Company transports frac tanks on its trucks to well locations which are
usually within a 30-mile radius of the Company's nearest yard. Frac tanks are
used during all phases of the life of a producing well. The Company generally
rents frac tanks at daily rates for a minimum of four days. A typical fracturing
operation, absent complications, can be completed within four days using 20 to
100 frac tanks.

                                       11
<PAGE>
   INJECTION WELL SERVICES. The Company owns or leases 22 injection wells that
are authorized to dispose of salt water and incidental non-hazardous oil and gas
wastes, each with an injection capacity of 2,000 to 21,000 barrels per day. The
Company's injection wells are strategically located in close proximity to its
customers' producing wells. These wells are utilized primarily to dispose of
salt water produced from oil and gas wells. Most oil and gas wells ultimately
produce varying amounts of salt water and, particularly in vertically fractured
formations such as those common in the Austin Chalk trend, produce salt water at
increasing rates throughout their productive lives. In addition, these wells are
utilized for the disposal of incidental, non-hazardous oil and gas wastes. In
Texas and Arkansas, oil and gas wastes and salt water produced from oil and gas
wells are required by law to be disposed of in authorized facilities, including
permitted injection wells. Injection wells are licensed by state authorities and
are completed in permeable formations below the fresh water table.

   The Company utilizes its injection wells primarily for the disposal of salt
water and incidental, non-hazardous oil and gas waste transported from the well
site by vacuum trucks owned and operated by the Company. Although the Company is
authorized to inject salt water and non-hazardous oil and gas wastes transported
by other licensed vacuum truck operators, the Company does not currently permit
such uses by third parties. The Company also maintains separators at each of its
injection wells permitting it to salvage residual crude oil, which is later sold
for the account of the Company.

   The Company's injection operations pose certain risks of environmental
liability to the Company. Although the Company monitors the injection process,
any leakage from the subsurface portions of the wells could cause degradation of
fresh groundwater resources, potentially resulting in cancellation of operation
of the well, fines and penalties from governmental agencies, expenditures for
remediation of the affected resource, and liability to third parties for
property damages and personal injuries. In addition, the sale by the Company of
residual crude oil collected as part of the saltwater injection process could
impose liability on the Company in the event the entity to which the oil was
transferred fails to manage the material in accordance with applicable
environmental health and safety laws.

PRODUCTION SERVICES

   The Company provides production services, which are comprised of production
testing services, slickline wireline services, fishing and rental tool services
and pipe testing. For the fiscal year ended March 31, 1998, production services
contributed approximately 8% of the Company's revenues.

   PRODUCTION TESTING SERVICES. The Company owns 21 gas production testing units
that are used to provide services to oil and gas wells located onshore and in
inland waters. The Company performs production testing services for oil and gas
producers primarily along the Texas Gulf Coast.

   The Company's equipment includes several trailer-mounted manifolds,
separators, heater treaters, sand separators, light generators and slickline
wireline units. Manifolds are used to 

                                       12
<PAGE>
reduce the flowing pressure of the well stream to a rate that will easily flow
through the production testing equipment. After the appropriate well stream rate
is achieved, a separator is used to divide the well stream into its respective
components -- oil, gas and water. For gas wells, a heater is used to prevent the
gas from freezing during flowbacks. Slickline wireline equipment generally is
used to lower measurement equipment into a well for several days to retrieve
data to determine the characteristics of the reservoir.

   The Company uses its production testing units to perform deliverability tests
required upon the initial completion of a well and periodically during the
productive life of a gas well to determine the maximum production allowable
under certain rules of the Texas Railroad Commission, the state oil and gas
regulatory agency. In addition, these units are used to clean and test
stimulated wells and to measure the pressure, volume and quality of gas and
liquids produced by the well. These units also are used to determine the most
efficient production flow rate, to run pressure build-up tests that measure the
rate of increase of shut-in gas pressure to determine reservoir characteristics
and to determine whether a producing formation has been damaged.

   SLICKLINE WIRELINE SERVICES. The Company owns seven slickline wireline units.
The mechanical downhole wireline or "slickline" services are used to simplify
completion operations and in connection with regular maintenance on producing
wells. In some cases, slickline wireline services may be used instead of
workover rigs to provide workover services. By using slickline wireline
services, workover services can be performed under 15,000 psi of pressure
without shutting-in the well. The Company also provides slickline wireline
consulting services where unusual conditions exist.

   FISHING AND RENTAL TOOLS. The Company provides a complete line of cased hole
fishing and rental tools to oilfield operators and well service companies from
two yards in the Texas Panhandle. The Company's rental tool inventory includes
both air compressor equipment, which is used in drilling and workover
activities, and fishing tools, which are used to mill or retrieve loose or
broken equipment or other material in the well bore or to free stuck pipe and
other tools, such as slips, elevators and casing cutters. The Company rents the
equipment to its customers at daily rates and, in the case of air compressors
and fishing tools, generally conducts or supervises the operations.

   PIPE TESTING. The Company operates 18 pipe testing units along the Texas Gulf
Coast and Panhandle. The Company's testing equipment is used during completion
and recompletion operations for leak detection in the internal pipe systems of
oil and gas wells.

COMPETITION

   The workover rig and production services industry is highly competitive and
fragmented and includes several large companies and a number of small companies
capable of competing effectively on a local basis. As a result of the Pride
Acquisition, the Company is the third largest provider of workover rigs in the
United States behind Key Energy Group, Inc. ("Key") and Pool Energy Services Co.
("Pool"). Pool and Key are the largest companies that currently compete

                                       13
<PAGE>
with the Company in providing workover rig and liquid services in the domestic
well servicing markets. Pool and Key operate in multiple geographic regions and
have more domestic workover rigs than the Company. In addition to these large
companies, the Company has numerous regional competitors for each of the
services it provides. The Company believes that it is competitive in terms of
pricing, performance, equipment, safety, availability of equipment to meet
customer needs and availability of experienced, skilled personnel in those areas
in which it operates.

   Excess capacity in the well servicing industry has resulted in severe price
competition throughout much of the past decade. In the well servicing market, an
important competitive factor in establishing and maintaining long-term customer
relationships is having an experienced and skilled work force. In recent years,
many of the Company's larger customers have placed an emphasis not only on
pricing, but also on safety records and quality management systems of
contractors. The Company believes that such factors will gain further importance
in the future. The Company has directed substantial resources toward employee
safety and quality management training programs as well as its employee review
process. While the Company's efforts in these areas are not unique, many
competitors, particularly small contractors, have not undertaken similar
training programs for their employees. The Company expects competition and
pricing pressures to continue in the foreseeable future.

CUSTOMERS

   The Company has approximately 2,200 active customers. The Company's largest
customer, Union Pacific Resources Company ("UPRC"), accounted for approximately
11.2% of the Company's revenues for the fiscal year ended March 31, 1998. The
Company is required to maintain established levels of insurance and to indemnify
UPRC against all losses arising in whole or in part from the Company's
negligence, whether or not UPRC and its agents were contributorily negligent.
While the Company believes that its relationship with UPRC is good, the loss of
UPRC, or a significant reduction in business done with the Company by UPRC, if
not offset by sales to new or existing customers, could have a material adverse
effect on the Company's business, results of operations and prospects. No other
customer accounted for more than 10% of the Company's revenues during the fiscal
year ended March 31, 1998.

EMPLOYEES

   As of May 5, 1998, the Company employed approximately 3,074 people, of whom
approximately 2,554 were employed on an hourly basis. The Company's future
success will depend partially on its ability to attract, retain and motivate
qualified personnel. The Company is not a party to any collective bargaining
agreements and has not experienced any strikes or work stoppages. The Company
considers its relations with employees to be generally satisfactory.

OPERATING RISKS AND INSURANCE

   The Company's operations are subject to hazards inherent in the oil and gas
industry, such as blowouts, explosions, craterings, fires and oil spills, that
can cause personal injury or loss of life, 

                                       14
<PAGE>
damage to or destruction of property, equipment, the environment and marine
life, and suspension of operations. In addition, claims for loss of oil and gas
production and damage to formations can occur in the workover business. If a
serious accident was to occur at a location where the Company's equipment and
services are used, it could result in the Company being named as a defendant in
lawsuits asserting potentially large claims.

   Because the Company's vacuum truck and frac tank rentals involve the
transportation of heavy equipment and materials, the Company may experience
traffic accidents which may result in spills, property damage and personal
injury. Despite the Company's efforts to maintain high safety standards, the
Company from time to time has suffered losses in the past and anticipates that
it could experience further losses in the future. Moreover, the frequency and
severity of such incidents affect the Company's operating costs and
insurability, and its relationship with customers, employees and regulators. Any
significant increase in the frequency or severity of such incidents, or the
general level of compensation awards with respect thereto, could adversely
affect the cost of, or ability of the Company to obtain, workers' compensation
and other forms of insurance, and could have other material adverse effects on
the Company's financial condition and results of operations.

   As a protection against operating hazards, the Company maintains broad
insurance coverage, including physical damage, employer's liability,
comprehensive commercial general liability and workers' compensation insurance.
The Company believes that it is adequately insured for public liability and
property damage to others with respect to its operations, and that its insurance
coverage is comparable to that which is customary in the industry against such
hazards. However, such insurance may not be sufficient to protect the Company
against liability for all consequences of well disasters, extensive fire damage,
damage to personal property, injuries to or deaths of persons or damage to the
environment. In addition, certain insurance policies exclude coverage for
damages resulting from environmental contamination. The Company also carries
insurance to cover physical damage to or loss of certain of its workover rigs.
No assurance can be given that the Company will be able to maintain the type and
amount of coverage that it considers adequate at rates that it considers
reasonable or that insurance will continue to be available on terms as favorable
as the Company's existing arrangements.

   In addition to insurance, the Company conducts training programs designed to
promote the safe operation of all equipment and to minimize accidents occurring
on job sites. The Company gives its managers and other employees incentives,
through compensation arrangements, to take all reasonable steps possible to
promote safety. The Company monitors safety closely and has carefully designed
safety programs to reduce costs associated with accidents. However, there can be
no assurance that the Company's insurance or safety programs will be adequate to
protect against liability for accidents occurring on the job site or affecting
the Company's equipment.

ENVIRONMENTAL REGULATION

   Many of the Company's operations take place in or near ecologically sensitive
areas, such as the Texas Gulf Coast and the Louisiana inland waters, as well as
in states that stringently regulate environmental matters, such as California.
In addition, the Company's operations

                                       15
<PAGE>
routinely involve the handling of significant amounts of waste materials, some
of which are classified as hazardous substances. The Company's operations and
facilities are thus subject to numerous local, state and federal environmental
and public health and safety laws, rules and regulations, including laws
concerning the containment and disposal of hazardous materials, oilfield waste
and other waste materials, the use of underground storage tanks and the use of
underground injection wells. The regulations applicable to the Company's
operations include certain regulations controlling the discharge of hazardous or
toxic materials into the environment, requiring removal or remediation of
pollutants, requiring permits or licenses issued by regulatory agencies and
imposing civil and criminal penalties for violations. Some of the statutory and
regulatory programs that apply to the Company's operations also authorize
private suits, the recovery of natural resource damages by the government,
injunctive relief and cease and desist orders. Moreover, environmental laws
typically expose the Company to "strict liability" rendering a person or entity
liable for environmental damage without regard to negligence or fault on the
part of such person or entity. As a result, the Company could be liable for
cleanup costs, even if the situation resulted from previous acts by the Company
that were lawful at the time or from the improper conduct of, or conditions
caused by, previous property owners, lessees or other persons not associated
with the Company. Environmental laws have become more stringent in recent years
and are expected to become even more so in the future.

   Cleanup costs associated with environmental claims or capital expenditures or
increased operating costs associated with changes in environmental laws and
regulations could be substantial and could have a material adverse effect on the
Company's financial condition and results of operations. However, the cost of
environmental compliance has not had any material adverse effect on the
Company's operations, financial condition or competitive position in the past,
and management is not currently aware of any situation or condition that it
believes is likely to have any such material adverse effect or require any
material capital expenditure in the foreseeable future. In addition to
management personnel who are responsible for monitoring environmental compliance
and arranging for remedial actions as required, the Company also employs from
time to time outside experts to advise and assist the Company's environmental
compliance efforts.

   In addition to having a direct effect on the Company, local, state and
federal environmental regulations also may negatively impact oil and gas
exploration and production companies which in turn could have a material adverse
effect on the Company. To the extent laws are enacted or other governmental
action is taken that prohibits or restricts drilling or imposes environmental
protection requirements that result in increased costs to the oil and gas
industry in general and the drilling industry in particular, the financial
condition and results of operations of the Company could be adversely affected.

   In this regard, RCRA, the principal federal statute governing the disposal of
solid and hazardous wastes, includes a statutory exemption that allows oil and
gas exploration and production wastes to be classified as nonhazardous waste. A
similar exemption is contained in many of the state counterparts to RCRA,
including the state statutes in Texas, New Mexico and Louisiana; however, there
is no such exemption in the California statutes. If oil and gas exploration and
production wastes were required to be managed and disposed of as hazardous
waste, either as a result of changes in RCRA or the imposition of more stringent
state regulations, the Company could be required to make significant
unanticipated capital and operating expenditures or to cease or curtail certain
operations. Further, if such wastes were required to be managed and disposed of
as hazardous 

                                       16
<PAGE>
waste, domestic oil and gas producers, including many of the Company's
customers, could be required to incur substantial obligations with respect to
such waste. Because of the potential impact on the Company's customers, any
regulatory changes that impose additional restrictions or requirements on the
disposal of oil and gas wastes could adversely affect demand for the Company's
services.

SENIOR NOTES; SUBSIDIARY GUARANTEES

   Terms used in this subheading as defined terms have the same meanings as set
forth in the Indenture between the Company and its Subsidiary Guarantors, dated
as of February 20, 1997, with U.S. Trust Company of Texas, N.A. as trustee,
relating to the Company's 9 3/8% Senior Notes due 2007. Each of the Company's
Significant Subsidiaries on the Issue Date, including those acquired in the
Pride Acquisition, and each other Restricted Subsidiary that provides a
guarantee under the Credit Facility (defined in the Indenture to include the
Working Line which is in effect, and the Acquisition Line, which is not) became
a Subsidiary Guarantor under the Indenture. Each Subsidiary Guarantor has
unconditionally guaranteed on a senior basis, jointly and severally, the full
and prompt performance of the Company's obligations under the Indenture and the
Notes, including the payment of principal and interest on the Notes. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee is
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to its contribution
obligations under the Indenture, result in the obligations of such Subsidiary
Guarantor under the Subsidiary Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. The terms of the
Subsidiary Guarantees provide that, for purposes of such limitations and the
applicable fraudulent conveyance laws, any indebtedness of a Subsidiary
Guarantor incurred from time to time pursuant to the Credit Facility and secured
by a perfected Lien on the assets of such Subsidiary Guarantor (assuming, for
purposes of such determination, that the incurrence of any such indebtedness and
the granting of any such security interest did not violate any such fraudulent
conveyance laws) shall be deemed, to the extent of the value of the assets
subject to such Lien, to have been incurred prior to the incurrence by such
Subsidiary Guarantor of liability under its Subsidiary Guarantee.

   The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another Person (other than the Company or another Subsidiary Guarantor),
whether or not affiliated with such Subsidiary Guarantor, unless (i) subject to
the provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) shall
execute a Subsidiary Guarantee and deliver an opinion of counsel in accordance
with the terms of the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Subsidiary
Guarantor, or any Person formed by or 

                                       17
<PAGE>
surviving any such consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction), equal to or greater than
the Consolidated Net Worth of such Subsidiary Guarantor immediately preceding
the transaction; (iv) the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the Indenture; and (v) such
transaction does not violate certain other covenants described in the Indenture.

   The Indenture provides that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all or substantially all of the property or assets of any
Subsidiary Guarantor to a third party or an Unrestricted Subsidiary, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor, in either case, in a transaction or
manner that does not violate any of the covenants in the Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary Guarantor) or the Person acquiring the property
(in the event of a sale or other disposition of all or substantially all of the
properties or assets of such Subsidiary Guarantor) will be released from and
relieved of any obligations under its Subsidiary Guarantee, PROVIDED that any
Net Proceeds of such sale or other disposition are applied in accordance with
certain covenants set forth in the Indenture, and PROVIDED, FURTHER, HOWEVER,
that any such termination shall occur only to the extent that all obligations of
such Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests that secure, any other
Indebtedness of the Company or its Restricted Subsidiaries shall also terminate
upon such release, sale or disposition.

   The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the Issue Date, (a) transfer or cause to be
transferred, any assets, businesses, divisions, real property or equipment
having an aggregate fair market or book value in excess of $1.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or (b) make any
Investment having an aggregate fair market or book value in excess of $1.0
million in any Restricted Subsidiary that is not a Subsidiary Guarantor or (ii)
if, after the Issue Date, any Restricted Subsidiary that is not a Subsidiary
Guarantor shall own any assets or properties having an aggregate fair market or
book value in excess of $1.0 million, then the Company shall cause such
Restricted Subsidiary to execute a Subsidiary Guarantee and deliver an opinion
of counsel, in accordance with the terms of the Indenture. In addition, the
Company shall not permit any of its Restricted Subsidiaries, other than a
Subsidiary Guarantor, directly or indirectly, to (i) incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness of the Company or
(ii) pledge any intercompany notes representing obligations of any of its
Restricted Subsidiaries to secure the payment of any Indebtedness of the
Company, in each case, unless the Company shall cause such Restricted Subsidiary
to execute a Subsidiary Guarantee and deliver an opinion of counsel in advance
in accordance with the terms of the Indenture.

   The Notes are effectively subordinated in right of payment to all existing
and future senior Indebtedness of the Company, which includes any draws made
under the Credit Facility. As of March 31, 1998, the Company's Credit Facility
consisted of a $50.0 million working capital line 

                                       18
<PAGE>
of credit which, if borrowed, would be included as senior Indebtedness. The
Indenture also permits the Company to have an acquisition line of credit of up
to $10.0 million. See "Management's Discussion and Analysis - Liquidity and
Capital Resources." Thus, the Notes and the Subsidiary Guarantees are
effectively subordinated to claims of the lenders under the Credit Facility to
the extent of such pledged collateral. At March 31, 1998, the Notes and the
Subsidiary Guarantees were not subordinated to any secured Indebtedness
(excluding letters of credit) of the Company or the Subsidiary Guarantors.

   During fiscal 1998, the Company completed a reorganization of its corporate
structure whereby all operating assets were transferred into the Company's
subsidiaries. As of March 31, 1998, the parent Company is principally a holding
company for its investments in subsidiaries and has no independent operations.
All of the significant direct and indirect subsidiaries of the Company are
jointly and individually liable for the indebtedness of the parent; therefore,
separate financial statements of the guarantor subsidiaries have been omitted.

ITEM 2.     PROPERTIES

PROPERTIES

   The Company's physical property consists primarily of well servicing rigs and
ancillary equipment, including 517 land workover rigs and two barge-mounted
workover rigs located in yards in Texas, Louisiana, California and New Mexico.
The Company also owns and operates production service equipment, including 192
vacuum trucks, 698 frac tanks, 21 gas production testing units, seven slickline
wireline units, 18 pipe testing units and related equipment. In addition, the
Company operates 1,238 vehicles, 1,062 of which it owns and 176 of which it
leases.

   The principal office of the Company is located in approximately 16,400 square
feet of leased office space in San Antonio, Texas. The Company now operates 37
yards, 24 of which it owns and 13 of which it leases. Of the Company's 37 yards,
30 yards are located in Texas, 2 yards are located in Louisiana, 2 yards are
located in New Mexico, and 3 yards are located in California. The Company also
operates 21 injection wells in Texas and 1 in Arkansas, 6 of which it owns and
16 of which it leases. The Company believes that its leased and owned
properties, none of which individually is material to the Company, are adequate
for its current needs.

ITEM 3.     LEGAL PROCEEDINGS

   From time to time, the Company is a party to litigation or other legal
proceedings that the Company considers to be a part of the ordinary course of
its business. The Company currently is not involved in any legal proceedings
that could reasonably be expected to have a material adverse effect on the
Company's financial condition or results of operations. See "Business Operating
Risks and Insurance."

                                       19
<PAGE>
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   No matters were submitted, during the fourth quarter of the Company's fiscal
year ended March 31, 1998, to a vote of its shareholders.

                                       20
<PAGE>
                                   PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
            MATTERS

   The Company's Common Stock commenced trading on the Nasdaq National Market on
March 20, 1996 under the symbol "DPSI." The following table sets forth the high
and low bid information per share of the Common Stock as reported by the Nasdaq
National Market for the periods indicated.

    FISCAL 1997                                                 HIGH       LOW 
                                                              --------  --------
        First Quarter (April 1 - June 30, 1996) ............  $14 1/2   $10 3/4
        Second Quarter (July 1 - September 30, 1996) .......  $14       $ 9 3/4
        Third Quarter (October 1 - December 31, 1996) ......  $16 1/4   $11 1/2
        Fourth Quarter (January 1 - March 31, 1997) ........  $16 1/2   $11 3/16

    FISCAL 1998                                                 HIGH       LOW 
                                                              --------  --------
        First Quarter (April 1 - June 30, 1997) ............  $14 1/2   $ 9 5/8
        Second Quarter (July 1 - September 30, 1997) .......  $24 1/2   $12 7/8
        Third Quarter (October 1 - December 31, 1997) ......  $30 1/4   $14 3/4
        Fourth Quarter (January 1 - March 31, 1998) ........  $18 3/8   $10 1/2

   On March 31, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $12 5/8 per share. At June 17, 1998, the Company
had approximately 1,993 shareholders of record of the Common Stock. The Company
believes that there are in excess of 2,500 beneficial owners of the Common
Stock.

   The Company has never paid cash dividends on the Common Stock and does not
anticipate that cash dividends will be paid in the foreseeable future.
Furthermore, certain provisions of the Credit Facility and the Indenture
restrict the Company's ability to pay cash dividends on the Common Stock.

   The Company currently intends to retain any future earnings to finance the
expansion and continuing development of the Company's business. The declaration
and payment in the future of any cash dividends will be at the election of the
Company's Board of Directors and will depend upon the earnings, capital
requirements and financial position of the Company, future loan covenants,
general economic conditions and other pertinent factors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

   During the period covered by this report, the Company sold the following
unregistered securities. On or about April 1, 1997, the Company granted options
to acquire 30,100 shares of its Common Stock at an exercise price of $12.25 per
share to seven non-employee directors. These options expire on April 1, 2007. On
or about July 30, 1997, the Company granted options

                                       21
<PAGE>
to acquire 86,476 shares of its Common Stock at an exercise price of $17.25 per
share to 11 employees. These options expire on July 30, 2007. All of the above
grants of options were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.

   In addition, the Company issued the following restricted shares of its Common
Stock in connection with the exercise of options. On or about September 23,
1997, the Company issued 660 shares to an employee for $11.375 per share. On or
about December 1, 1997, the Company issued 600 shares to an employee for $11.375
per share. On or about January 16, 1998, the Company issued 600 shares to a
former employee for $11.375 per share. All such issuances were made in
connection with the exercise of employee or director options and were exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.

   Finally, the Company issued the following shares of its restricted stock to
certain third parties as part of the purchase price for the acquisition of all
of the stock or of substantially all of the assets of certain businesses. In
connection with the purchase of all of the issued and outstanding shares of
Alamo Tubing Testers Corp., a Texas corporation, on or about December 23, 1997,
the Company issued an aggregate of 26,733 shares to two individual sellers as
partial consideration valued at $.5 million. In connection with the purchase of
substantially all of the assets of Security Well Service, Inc. and Security Well
Service, a Texas general partnership, on or about January 2, 1998, the Company
issued a aggregate of 21,071 to the general partnership and the corporation in
partial consideration valued at $.4 million. These issuances were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.

                     SELECTED CONSOLIDATED FINANCIAL DATA

ITEM 6.     SELECTED FINANCIAL DATA

   The following table sets forth selected consolidated financial data for the
Company for the periods indicated. The selected consolidated financial data for
all fiscal years presented have been derived from the audited consolidated
financial statements of the Company. The selected financial data should be read
in conjunction with, and is qualified in its entirety by, the consolidated
financial statements of the Company and related notes and other financial
information included elsewhere in this Annual Report on Form 10-K and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

                                       22
<PAGE>
<TABLE>
<CAPTION>
                                               AT OR FOR YEARS ENDED MARCH 31,
                                    ------------------------------------------------------
                                      1994       1995       1996        1997        1998
                                    --------   --------   --------   ---------   ---------
<S>                                 <C>        <C>        <C>        <C>         <C>      
                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 INCOME STATEMENT DATA:

 Revenues ........................  $ 27,942   $ 36,005   $ 52,391   $  92,628   $ 226,162
 Costs and expenses:
      Operating ..................    19,937     24,241     34,745      61,722     157,452
      General and administrative .     3,854      5,574      8,680      13,026      24,086
      Depreciation and
        amortization .............     1,707      2,608      4,396       7,844      20,621
                                    --------   --------   --------   ---------   ---------
 Operating income ................     2,444      3,582      4,570      10,036      24,003
 Interest expense ................       282        789      1,848       2,313      13,693
 Interest income .................       (46)      (131)      (169)       (833)     (1,848)
 Other expense (income), net .....       (15)        90       (128)        136         (18)
 Minority interest in
 consolidated subsidiary .........       902      1,092        937        --          --
                                    --------   --------   --------   ---------   ---------
 Income before income taxes and
    extraordinary item ...........     1,321      1,742      2,082       8,420      12,176
 Provision for income taxes ......       525        681        709       3,343       4,498
                                    --------   --------   --------   ---------   ---------
 Income before extraordinary item        796      1,061      1,373       5,077       7,678
 Extraordinary item (1) ..........       (92)      --         (514)       --          --
                                    --------   --------   --------   ---------   ---------
 Net Income ......................       704      1,061        859       5,077       7,678
 Preferred stock dividends .......       101        101         88        --          --
                                    --------   --------   --------   ---------   ---------
 Net income applicable to Common
 Stock ...........................  $    603   $    960   $    771   $   5,077   $   7,678
                                    ========   ========   ========   =========   =========

 Basic earnings per share ........  $   0.47   $   0.69   $   0.52   $    0.72   $    0.69
 Diluted earnings per share ......  $   0.42   $   0.58   $   0.49   $    0.71   $    0.68
 Average number of shares
 outstanding-
    basic ........................     1,272      1,400      2,472       7,055      11,130
 Average number of shares
 outstanding-
    diluted ......................     1,726      1,936      2,796       7,190      11,367

 BALANCE SHEET DATA
 Cash and cash equivalents .......  $  2,172   $  2,797   $ 13,863   $  42,330   $  24,964
 Net property and equipment ......     8,978     25,321     29,115     145,641     164,846
 Total assets ....................    16,714     40,525     56,368     273,736     290,353
 Long-term debt and other
 obligations, net of current            
 portion .........................     1,623     15,989      3,695     143,306     147,203
 Total shareholders' equity ......     6,720     10,098     45,695     106,219     113,499

 OTHER FINANCIAL DATA:
 Ratio of earnings to fixed
 charges (2) .....................      5.0x       3.1x       2.1x        4.4x        1.8x
 EBITDA (3) ......................  $  4,151   $  6,190   $  8,966   $  17,880   $  44,624
 Ratio of EBITDA to interest
 expense .........................     14.7x       7.9x       4.9x        7.7x        3.3x
</TABLE>
(1)  Includes a $92,000 charge in fiscal 1994 to reflect the cumulative effect
     of change in accounting principle.

(2)  For purposes of computing the ratio of earnings to fixed charges, earnings
     are computed as income before income taxes, extraordinary item and
     cumulative effect of a change in accounting principle, plus fixed charges.
     Fixed charges consist of interest, whether expensed or capitalized,
     amortization of debt issuance costs and an estimated portion of rentals
     representing interest costs.

                                       23
<PAGE>
(3)  EBITDA is defined as earnings before interest expense, taxes, depreciation
     and amortization, minority interest and other (income) expense and is
     presented because it is a widely accepted financial indication of a
     company's ability to incur and service debt. EBITDA should not be
     considered as an alternative to earnings as an indicator of the Company's
     operating performance or to cash flows as a measure of liquidity.

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

   The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward looking statements. In addition, the
Management's Discussion and Analysis should be read in conjunction with, and is
qualified in its entirety by reference to, the financial statements of the
Company and the notes thereto included elsewhere in this Annual Report. This
discussion and analysis of operations compares the three fiscal years ended
March 31, 1996, 1997 and 1998.

GENERAL

   The Company's operations have been significantly impacted by the Pride
Acquisition, and as a result, the Company is the third largest provider of
workover rigs in the United States. The Company seeks to expand its liquid and
production services into land-based well servicing markets through integration
and acquisitions. During the year, the Company has succeeded in this goal
through the 1998 Acquisitions. Additionally, on April 1, 1998, the Company
acquired the assets of Bill's Fluid Service, Inc., for approximately $2.2
million, which expanded liquid services into the panhandle region of Texas. The
Company does not have any other current understanding, arrangement or agreement
to acquire other businesses or assets. There can be no assurance that attractive
acquisitions will be available to the Company at prices it believes to be
reasonable or that any acquisition achieved will ultimately prove to be a
successful undertaking by the Company. Consistent with its strategy, the Company
intends to continue to pursue acquisitions of businesses and assets as
attractive opportunities become available.

   The Company has experienced revenue increases due to acquisitions and
internal growth. The Company derives its revenues from workover rig services,
liquid services and production services. Workover rig services are billed at
hourly rates that are generally determined by the type of equipment required,
market conditions in the region in which the rig operates, the ancillary
equipment provided on the rig and the necessary personnel. The Company charges
its customers for liquid services either on an hourly basis or on a per barrel
basis depending on the services offered, while production services are primarily
billed on an hourly basis. The base rates for the Company's services have
generally been stable over the past three years.

   In February 1997, the Company sold 4,722,259 shares of its Common Stock at
$12.50 per share in a public offering which yielded net proceeds of
approximately $55.3 million. Concurrent with the stock offering, the Company
sold $140 million of senior unsecured notes at par value. The senior unsecured
notes carry a coupon rate of interest of 9 3/8%, the proceeds of which netted

                                       24
<PAGE>
the Company approximately $135.3 million. The total proceeds from the stock and
senior unsecured note offerings (the "Offerings") yielded the Company combined
proceeds of approximately $190.6 million of which $135.4 million was used to pay
the consideration attributable to the Pride Acquisition. Approximately $12.3
million was used to repay existing indebtedness and the remainder is being used
for working capital and general corporate purposes.

   The Company's operating costs are comprised primarily of labor and
maintenance costs. Labor costs generally are variable and are incurred only
while a workover rig is operating or liquid services or production services are
being provided; however, the Company employs rig personnel to perform
maintenance and other services who are paid even when rigs are not operating.
The Company's administrative staff at the yard level and in the corporate office
are accounted for as general and administrative expense. Insurance costs
generally are fixed costs and relate to the number of employees, active rigs,
trucks and other equipment in the Company's fleet.

RESULTS OF OPERATIONS

YEAR ENDED MARCH 31, 1998 COMPARED TO THE YEAR ENDED MARCH 31, 1997

   REVENUES. Revenues for the year ended March 31, 1998 were $226.2 million, an
increase of 144% from $92.6 million for the year ended March 31, 1997. The
increase in revenue is primarily attributed to the 1997 and 1998 Acquisitions.

   OPERATING COSTS. Operating costs for the year ended March 31, 1998 were
$157.5 million, an increase of 155% from $61.7 million for the year ended March
31, 1997. This increase was due primarily to the 1997 Acquisitions. Operating
costs as a percentage of revenues increased to 70% for the year ended March 31,
1998 compared to 67% for the prior year. This increase is attributed to the
change in service mix to more workover services from 1997 and 1998. Management 
believes operating costs as a percentage of revenue are likely to remain at
current levels until such time, if at all, as the Company makes additional
changes to its service mix. In the year ended March 31, 1998, the Company
recorded an accrual for a fuel tax refund. This accrual was approximately $.9
million of which approximately $.2 million related to a prior year refund. The
fuel tax accrual is pursuant to a study performed in the liquid service
locations, which has resulted in an increase in the amount of nontaxable use
pertaining to the liquid services.

   GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the year ended March 31, 1998 were $24.1 million, an increase of 85% from $13
million for the year ended March 31, 1997. This increase was due primarily to
the higher general and administrative expenses associated with the 1997
Acquisitions, which significantly increased the Company's fixed cost base. As a
percentage of revenue, general and administrative expenses decreased to 11% for
the year ended March 31, 1998, compared to 14% for the year ended March 31,
1997.

   DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the
year ended March 31, 1998 was $20.6 million, an increase of 163% from $7.8
million for the year ended March 31, 1997. This increase was due to a
substantial increase in the Company's asset base resulting from the 1997
Acquisitions.

                                       25
<PAGE>
   INTEREST EXPENSE. Interest expense for the year ended March 31, 1998 was
$13.7 million compared to $2.3 million for the year ended March 31, 1997. This
increase is substantially due to the $140.0 million senior notes incurred in the
Debt Offering in February 1997.

   NET INCOME. For the year ended March 31, 1998, the Company had a net income
of $7.7 million, a 51% increase in earnings over the $5.1 million for the year
ended March 31, 1997. The increase in earnings is attributed to the 1997 and
1998 Acquisitions.

YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR ENDED MARCH 31, 1996

   REVENUES. Revenues for the year ended March 31, 1997 were $92.6 million, an
increase of 77% from $52.4 million for the year ended March 31, 1996. This
increase in revenues is primarily attributable to the 1997 Acquisitions.

   OPERATING COSTS. Operating costs for the year ended March 31, 1997 were $61.7
million, an increase of 78% from $34.7 million for the year ended March 31,
1996. This increase was due primarily to the 1997 Acquisitions. For the year
ended March 31, 1997, operating costs as a percentage of revenue increased to
67% from 66% for the year ended March 31, 1996.

   GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the year ended March 31, 1997 were $13.0 million, an increase of 49% from $8.7
million for the year ended March 31, 1996. This increase was due primarily to
the higher general and administrative expenses associated with the 1997
Acquisitions, which significantly increased the Company's fixed cost base. As a
percentage of revenues, general and administrative expenses decreased to 14% for
the year ended March 31, 1997, compared to 17% for the prior year.

   DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for the
year ended March 31, 1997 was $7.8 million, an increase of 77% from $4.4 million
for the year ended March 31, 1996. This increase was due to a substantial
increase in the Company's asset base resulting from the 1997 Acquisitions.

   INTEREST EXPENSE. Interest expense for the year ended March 31, 1997 was $2.3
million compared to $1.9 million for the year ended March 31, 1996. The increase
of $.4 million is attributable to two factors. First, interest expense declined
for the first nine months of the year ended March 31, 1997 due to the retirement
of debt from funds generated from the Company's initial public offering
completed in March 1996. Secondly, interest expense in the fourth quarter of
fiscal 1997 increased substantially due to the $140.0 million senior notes
incurred in the Debt Offering in February 1997.

   MINORITY INTEREST.  Minority interest for the year ended March 31, 1997 was
$nil,  compared  to $0.9  million  for the year  ended  March 31,  1996.  This
decrease was a result of the Company's  acquisition  of the Minority  interest
in Dawson Welltech L.C. in November 1995.

                                       26
<PAGE>
   NET INCOME. For the year ended March 31, 1997, the Company had net income of
$5.1 million, a 538% increase in earnings over the $0.8 million for the year
ended March 31, 1996. The increase in earnings is attributed to the 1997
Acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

   The Company had cash and cash equivalents of approximately $25 million at
March 31, 1998 compared to approximately $42.3 million at March 31, 1997.
Working capital was approximately $48.9 million and approximately $56.0 million
at March 31, 1998 and March 31, 1997, respectively. The Company used a net
amount of approximately $35.9 million for investing activities during the fiscal
year ended March 31, 1998, primarily for capital expenditures and acquisitions.
Acquisitions of additional assets and businesses are expected to continue to be
an important part of the Company's strategy. Under certain circumstances, the
Company would need to obtain additional financing to fund such acquisitions. If
the Company is unable to locate suitable acquisitions or to obtain financing on
acceptable terms, the Company's growth may be adversely affected. While the
Company believes it will be able to negotiate favorable acquisitions and
financing, there can not be assurance that this will be the case.

   In February 1997, the Company sold $140.0 million of senior unsecured notes
at par value. The senior unsecured notes carry a coupon rate of interest of 9
3/8%, the proceeds of which netted the Company approximately $135.3 million. The
senior notes will not be redeemable at the Company's option prior to February 1,
2002. Thereafter, the notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the 12-month period beginning on February 1,
of the years indicated below:

    YEAR                                                       PERCENTAGE
    ----                                                       ----------
    2002.....................................................  104.6875%
    2003.....................................................  103.1250%
    2004.....................................................  101.5625%
    2005 and thereafter......................................  100.0000%

   Notwithstanding the foregoing, at any time on or prior to February 1, 2000,
the Company may redeem up to an aggregate of $49.0 million principal amount of
notes (or 35%) at a redemption price of 109.375% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of a Public Equity Offering, PROVIDED that at least $91.0
million in aggregate principal amount of notes remain outstanding immediately
after the occurrence of such redemption; and, PROVIDED FURTHER, that such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.

   The senior notes are unconditionally guaranteed on a senior unsecured basis
by each of the Company's principal operating subsidiaries. The terms of the
indenture related to the notes contain covenants limiting, among other things,
the incurrence of additional indebtedness of the Company; dividend payments on
or issuance and sales of capital stock of restricted subsidiaries; payments with
respect to certain subordinated obligations and the making of certain
investments; 

                                       27
<PAGE>
sales of assets; certain transactions with affiliates; and sale/leaseback
transactions in the event that the Company's "fixed charge coverage ratio" (cash
flow to fixed charges as defined in the indenture) is below 2.25 to 1 for the
year ended March 31, 1998. The Company's actual fixed charge coverage ratio for
the year ended March 31, 1998, was 3.77 to 1.

   The Company has approximately $4.4 million of subordinated debt outstanding
at March 31, 1998. Approximately $1.5 million of the subordinated debt is
represented by a debenture held by Well Solutions, bears interest at 8%, matures
on November 30, 1999, is prepayable without penalty at any time, and may be
converted at any time, at the option of the holder, into 37,634 shares of
Company Common Stock, subject to adjustment to prevent dilution. The remaining
subordinated debt of approximately $2.9 million was incurred in conjunction with
acquisitions, bears interest at a rates between 8.0% and 8.5%, matures between
March 13, 2001 and January 31, 2003 and is prepayable without penalty at any
time.

   The Company used cash for financing activities of approximately $3.2 million
during the year ended March 31, 1998. The principal uses of cash was payment on
long-term debt and the purchase of treasury stock. In 1998, the Company
purchased 100,000 shares of Common Stock for approximately $1.2 million under a
program that authorizes the Company to purchase up to $5.0 million of the
Company's stock.

   The Company generated cash from operating activities of approximately $21.7
million during the year ended March 31, 1998.

   The Company believes internally generated cash flow and availability under
the Credit Facility should provide the Company with sufficient financing to fund
the Company's operations for at least the next 12 months. There can be no
assurance, however, that the Company will not need additional financing or that
such financing will be available on economically acceptable terms.

DESCRIPTION OF CREDIT FACILITY

   On February 20, 1997, the Company put into place a working capital line of
credit (the "Working Line") with a bank. The maximum availability under the
Working Line is the lesser of (i) $50.0 million or (ii) 80% of eligible accounts
receivable that have been outstanding less than 90 days. The Working Line is
secured by a first lien security interest on all the Company's accounts
receivable. Borrowings under the Working Line mature on February 20, 1999 and
bear interest, at a rate the Company may select from time to time, equal to: (i)
the Bank's prime rate of interest or (ii) the applicable margin plus the Wall
Street Journal LIBOR rate of interest; the applicable margin is determined by a
ratio of total funded debt to consolidated EBITDA, but shall never be less than
1.75% nor higher than 2.75%. Under the terms of the agreement relating to the
Working Line, the Company must maintain minimum working capital, tangible net
worth, current ratios and debt to capital ratios. The foregoing description does
not purport to be a complete description of all terms of the Working Line or the
Credit Facility. The Company had not drawn against the Working Line as of March
31, 1998, but has used the line to secure four letters of credit totaling $1.8
million related to its worker's compensation insurance program.

                                       28
<PAGE>
INFLATION AND SEASONALITY

   Inflation has not had a significant impact on the Company's operations to
date and the Company's operating revenues have not historically been subject to
significant seasonal changes.

NEW ACCOUNTING  PRONOUNCEMENTS -- REPORTING  COMPREHENSIVE INCOME;  DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

   In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. The FASB
also issued in June 1997 SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information," which establishes new standards for the way
public companies disclose information about operating segments, products and
services, geographic areas and major customers. SFAS No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997.

YEAR 2000 ISSUE

   The Year 2000 issue is a result of computer programs being written using two
digits rather than four to define the applicable year. The Company has conducted
a preliminary review of its computer systems to identify those that could be
affected by the Year 2000 issue and has developed an informal implementation
plan to resolve the issue. The Company is utilizing both internal and external
resources to correct or reprogram and test the systems for the Year 2000
compliance. It is anticipated that all remediation efforts will be completed by
December 31, 1998, allowing adequate time for testing. The Company is also in
the process of communicating to primary processing vendors and customers
(including customers that utilize Electronic Data Interchange [EDI]) to help the
Company identify and resolve any Year 2000 issues. However, no estimates can be
made as to the potential adverse impact that may result from the failure of the
Company's vendors, customers and others with which it conducts business to
become Year 2000 compliant. The Company does not expect the amounts required to
be expensed for any Year 2000 issues over the next two years to have a material
effect on its financial position of results of operations.

1999 INDUSTRY OUTLOOK

   Demand for the Company's services depends substantially upon the level of
activity in the oil and gas industry, which in turn depends in part on oil and
gas prices, expectations about future prices, the cost of exploring for,
producing and delivering oil and gas, the discovery rate of new oil and gas
reserves in land areas, the level of drilling and workover activity, domestic
and international political, military, regulatory and economic conditions and
the ability of the oil and gas companies to raise capital. Prices for oil and
gas historically have been extremely volatile and have reacted to changes in the
supply and demand for oil and natural gas, domestic and worldwide economic
conditions and political instability in oil producing countries. Currently, oil

                                       29
<PAGE>
prices are down and natural gas prices are stable, while both oil and gas
inventories are on the rise. Additionally, energy demand from Asian countries is
on the decline. For the well servicing industry in particular, excess capacity
throughout all regions has and will for the foreseeable future make competition
a major market force. As conditions weaken for the drilling industry, well
servicing may come under additional competition as drillers compete for
completion work. Given current market conditions, it is extremely difficult to
predict or forecast customer demand for the Company's services. Additionally,
price increases appear unlikely for the foreseeable future. Prices for oil and
natural gas are expected to continue to be volatile and effect the demand for
and pricing of the Company's services. Continued depressed prices of oil, or
material decline in natural gas prices or activities could materially adversely
affect the demand for the Company's services and the Company's results of
operations. Industry conditions will continue to be influenced by numerous
factors over which the Company has no control, such as weather.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

   This Annual Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1993 as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act").
All statements other than statements of historical facts included in this Annual
Report, including without limitation, the statements under "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes to the consolidated financial statements regarding the
Company's financial position and liquidity, acquisitions and its ability to make
debt service payments and other similar matters are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurances that such
expectations will prove to be correct. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed elsewhere in this Report, including the discussions
under the headings noted above. All subsequent written and oral forward-looking
statements attributed to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.

 ITEM 7.A   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Not applicable.

                                       30
<PAGE>
 ITEM 8.    CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE

Independent Auditors' Report..................................................32
Consolidated Financial Statements:
   Consolidated Balance Sheets at March 31, 1997 and 1998.....................33
   Consolidated Statements of Income for the years ended March 31, 1996, 1997
    and 1998..................................................................34
   Consolidated Statements of Shareholders' Equity for the years ended March
    31, 1996, 1997 and 1998...................................................35
   Consolidated Statements of Cash Flows for the years ended March 31, 1996,
    1997 and 1998.............................................................36
   Notes to the Consolidated Financial Statements.............................37

                                       31
<PAGE>
                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Dawson Production Services, Inc.:

   We have audited the accompanying consolidated balance sheets of Dawson
Production Services, Inc. and subsidiaries as of March 31, 1997 and 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

   We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dawson
Production Services, Inc. and subsidiaries as of March 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended March 31, 1998, in conformity with generally
accepted accounting principles.

                                          KPMG Peat Marwick LLP

San Antonio, Texas
June 17, 1998

                                       32
<PAGE>
                       DAWSON PRODUCTION SERVICES, INC.

                         CONSOLIDATED BALANCE SHEETS

                                (IN THOUSANDS)

                                                                MARCH 31,
                                                           1997         1998
                                                         ---------    ---------
ASSETS
Current assets:
  Cash and cash equivalents ..........................   $  42,330    $  24,964
  Trade receivables, substantially all pledged
   (net of allowance for doubtful accounts of
   $561 and $966, respectively) ......................      30,914       39,632
  Other receivables ..................................         674          848
  Income taxes receivable ............................         574        1,624
  Prepaid expenses and other .........................         444          573
                                                         ---------    ---------
    Total current assets .............................      74,936       67,641
Net property and equipment (note 6) ..................     145,641      164,846
Goodwill and other assets ............................      53,159       57,866
                                                         ---------    ---------
    Total assets .....................................   $ 273,736    $ 290,353
                                                         =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable ...................................   $   9,606    $   8,444
  Accrued liabilities ................................       8,622        8,825
  Current portion of long-term debt (note 4) .........         624          353
  Current portion of obligations under capital
   leases (note 6) ...................................          38        1,086
                                                         ---------    ---------
    Total current liabilities ........................      18,890       18,708
                                                         ---------    ---------
Long-term debt, net of current portion (note 4)  .....       3,166        4,058
Obligations under capital leases, net of current
portion (note 6) .....................................         140        3,145
Senior notes (note 5) ................................     140,000      140,000
Deferred income taxes (note 9) .......................       5,321       10,943
Shareholders' equity (notes 7 and 8):
  Preferred stock, no par value 560,600 shares
   authorized, none issued and outstanding ...........        --           --
  Common Stock, $.01 par value, 20,561 shares
   authorized, 11,126 and 11,178 issued and
   11,126 and 11,078 outstanding, respectively .......         111          112
  Paid-in capital ....................................      96,859       97,707
  Retained earnings ..................................       9,391       17,069
  Notes receivable from officers .....................        (142)        (142)
                                                         ---------    ---------
                                                           106,219      114,746

  Less treasury Common Stock, at cost ................        --         (1,247)
                                                         ---------    ---------
    Total shareholders' equity .......................     106,219      113,499
Commitments and contingencies (note 12)
                                                         ---------    ---------
    Total liabilities and shareholders' equity .......   $ 273,736    $ 290,353
                                                         =========    =========

         See accompanying notes to consolidated financial statements.

                                       33
<PAGE>


                       DAWSON PRODUCTION SERVICES, INC.

                      CONSOLIDATED STATEMENTS OF INCOME

                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                  YEARS ENDED MARCH 31,
                                          -------------------------------------
                                            1996          1997           1998
                                          --------      --------      ---------
REVENUES ............................     $ 52,391      $ 92,628      $ 226,162
                                          --------      --------      ---------
COSTS AND EXPENSES:

   Operating ........................       34,745        61,722        157,452
   General and
    administrative ..................        8,680        13,026         24,086
   Depreciation and
    amortization ....................        4,396         7,844         20,621
                                          --------      --------      ---------
     Total costs and
     expenses .......................       47,821        82,592        202,159
                                          --------      --------      ---------
     Operating income ...............        4,570        10,036         24,003
                                          --------      --------      ---------
OTHER INCOME AND EXPENSE:

   Interest expense .................        1,848         2,313         13,693
   Interest income ..................         (169)         (833)        (1,848)
   Other income, net ................         (128)          136            (18)
                                          --------      --------      ---------
    Total other income and
    expense .........................        1,551         1,616         11,827
                                          --------      --------      ---------
    Income before minority
    interest, income taxes
    and extraordinary item ..........        3,019         8,420         12,176
Minority interest in
    consolidated subsidiary .........          937          --             --
                                          --------      --------      ---------
Income before income taxes
    and extraordinary item ..........        2,082         8,420         12,176
Provision for income taxes
    (note 9) ........................          709         3,343          4,498
                                          --------      --------      ---------
Income before extraordinary
    item ............................        1,373         5,077          7,678
Extraordinary item ..................         (514)         --             --
                                          --------      --------      ---------
Net income ..........................          859         5,077          7,678
                                          --------      --------      ---------
Preferred stock dividends ...........           88          --             --
                                          --------      --------      ---------
Net income applicable to
    Common Stock ....................     $    771      $  5,077      $   7,678
                                          ========      ========      =========

EARNINGS PER COMMON SHARE:
   BASIC:

   Income before
    extraordinary item ..............     $   0.52      $   0.72      $    0.69
   Extraordinary item ...............        (0.21)         --             --
                                          --------      --------      ---------
    Net income ......................     $   0.31      $   0.72      $    0.69
                                          ========      ========      =========
   Average number of shares
    outstanding .....................        2,472         7,055         11,130
                                          ========      ========      =========
   DILUTED:

   Income before
    extraordinary item ..............     $   0.49      $   0.71      $    0.68
   Extraordinary item ...............        (0.18)         --             --
                                          --------      --------      ---------
    Net income ......................     $   0.31      $   0.71      $    0.68
                                          ========      ========      =========
   Average number of shares
    outstanding .....................        2,796         7,190         11,367
                                          ========      ========      =========

         See accompanying notes to consolidated financial statements.

                                       34
<PAGE>
                       DAWSON PRODUCTION SERVICES, INC.
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                      COMMON STOCK                                              NOTES        TOTAL
                                                   -----------------             TREASURY STOCK               RECEIVABLE     SHARE-
                                                    ISSUED           PAID-IN    ----------------   RETAINED      FROM       HOLDERS'
                                                    SHARES  AMOUNTS  CAPITAL    SHARES   AMOUNTS   EARNINGS    OFFICERS     EQUITY
                                                   -------  -------  --------   ------   -------   --------   ----------   --------
<S>                                                  <C>    <C>      <C>             <C> <C>       <C>        <C>          <C>     
BALANCES AT MARCH 31, 1995 ......................    1,683  $    17  $  6,611        1   $    (6)  $  3,543   $      (67)  $ 10,098
 Dividends on preferred stock,
  paid in cash ..................................     --       --        --       --        --          (88)        --          (88)
 Common Stock issued:
  Initial public offering .......................    2,616       26    23,496     --        --         --           --       23,522
  Conversion of subordinated
    convertible note ............................      371        4     2,546     --        --         --           --        2,550
  Issuance of Common Stock for
    minority interest ...........................    1,329       13     7,687     --        --         --           --        7,700
  Conversion of preferred
    stock to Common Stock .......................      347        4     1,007     --        --         --           --        1,011
 Exercise of stock options ......................       37     --          76     --        --         --            (75)         1
 Tax benefit realized from
   stock options ................................     --       --          42     --        --         --           --           42
 Retirement of treasury stock ...................       (1)    --          (6)      (1)        6       --           --         --
 Net income .....................................     --       --        --       --        --          859         --          859
                                                   -------  -------  --------   ------   -------   --------   ----------   --------
BALANCES AT MARCH 31, 1996 ......................    6,382       64    41,459     --        --        4,314         (142)    45,695
 Common Stock issued:
  Secondary public offering
     (note 7) ...................................    4,722       47    55,238     --        --         --           --       55,285
 Exercise of stock options ......................       22     --         162     --        --         --           --          162
 Net income .....................................     --       --        --       --        --        5,077         --        5,077
                                                   -------  -------  --------   ------   -------   --------   ----------   --------
BALANCES AT MARCH 31, 1997 ......................   11,126      111    96,859     --        --        9,391         (142)   106,219
 Exercise of stock options ......................        2     --          21     --        --         --           --           21
 Common Stock issued for
    Acquisitions ................................       48        1       827     --        --         --           --          828
 Purchase of treasury stock .....................     --       --        --        100    (1,247)      --           --       (1,247)
Net income ......................................     --       --        --       --        --        7,678         --        7,678
                                                   -------  -------  --------   ------   -------   --------   ----------   --------
BALANCES AT MARCH 31, 1998 ......................   11,176  $   112  $ 97,707      100   $(1,247)  $ 17,069   $     (142)  $113,499
                                                   =======  =======  ========   ======   =======   ========   ==========   ========
</TABLE>
         See accompanying notes to consolidated financial statements.

                                       35
<PAGE>

                          DAWSON PRODUCTION SERVICES, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                          YEAR ENDED MARCH 31,
                                                     -------------------------------
                                                       1996        1997       1998
                                                     --------   ---------   --------
<S>                                                  <C>        <C>         <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income .....................................  $    859   $   5,077   $  7,678

ADJUSTMENTS TO RECONCILE NET INCOME TO
  NET CASH PROVIDED BY OPERATING
  ACTIVITIES:
   Minority interest in net income of
    subsidiary company ............................       937        --         --
   Depreciation and amortization ..................     4,396       7,844     20,621
   Allowance for doubtful accounts ................       (57)        200        405
   (Gain) loss on sale of assets ..................        96        (124)       (58)
   Increase in deferred income taxes ..............       637       2,573      4,663
   Increase in receivables ........................      (814)    (19,135)   (10,278)
   Decrease (increase) in prepaid expense
    and other .....................................       (71)         36       (107)
   Decrease (increase) in other assets ............       170        (321)      (262)
   Increase(decrease) in accounts payable .........       (20)      5,863     (1,162)
   Increase in accrued expenses ...................       511      11,450        203
                                                     --------   ---------   --------
       Net cash provided  by operating
         activities ...............................     6,644      13,463     21,703
                                                     --------   ---------   --------
CASH FLOWS FROM INVESTING ACTIVITIES:

   Acquisitions ...................................      (125)   (157,541)   (22,067)
   Additions to property and equipment ............    (4,523)     (6,794)   (13,978)
   Proceeds from sales of property ................       282          92        169
                                                     --------   ---------   --------
        Net cash used in investing
          activities ..............................    (4,366)   (164,243)   (35,876)
                                                     --------   ---------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Long-term borrowings ...........................     1,043       9,511       --
   Payments on long-term debt .....................   (14,058)    (11,800)    (1,516)
   Capital lease payments .........................    (1,349)     (4,576)      (451)
   Sale of Common Stock ...........................    23,522      55,285       --
   Purchase of treasury stock .....................      --          --       (1,247)
   Net proceeds from senior notes issuance ........      --       135,332       --
   Deferred debt issuance costs ...................      --        (4,668)      --
   Exercise of Common Stock options and
    warrants ......................................         1         162         21
   Tax benefit realized from stock options ........        42        --         --
   Cash dividends on preferred stock ..............       (88)       --         --
   Subsidiary distributions to minority
    owner .........................................      (324)       --         --
                                                     --------   ---------   --------
         Net cash provided (used) in
           financing activities ...................     8,789     179,246     (3,193)
                                                     --------   ---------   --------
         Net increase (decrease) in cash ..........    11,067      28,466    (17,366)
   Cash and cash equivalents at the
    beginning of the period .......................     2,797      13,864     42,330
                                                     --------   ---------   --------
   Cash and cash equivalents at the end
    of the period .................................  $ 13,864   $  42,330   $ 24,964
                                                     ========   =========   ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION:
  CASH PAID FOR:
       Interest ...................................  $  1,929   $     860   $ 12,945
       Income taxes ...............................       913         817      1,781

  SUPPLEMENTAL DISCLOSURES OF NON-CASH
    TRANSACTIONS:
   Assets acquired under capital lease ............     3,823       1,302      4,502
   Conversion of preferred stock to
    Common Stock ..................................     1,010        --         --
   Conversion of long-term debt to Common
    Stock .........................................     2,550        --         --
   Issuance of Common Stock for
    acquisition of minority interest ..............     7,700        --         --
   Issuance of notes payable for
    acquisitions ..................................      --         2,250      2,138
   Issuance of notes receivable for
    exercise of stock options .....................        75        --         --
   Common Stock issued to seller in
    acquisition ...................................      --          --          828
</TABLE>
       See accompanying notes to consolidated financial statements 

                                       36
<PAGE>
                       DAWSON PRODUCTION SERVICES, INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(1) THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

   Dawson Production Services, Inc. (the "Company" or "Dawson") is a leading
provider of a broad range of workover, liquid and production services used in
the production of oil and gas in the Texas and Louisiana Gulf Coasts, the
Permian Basin areas of West Texas and New Mexico, and California. The Company's
services are utilized by major oil and gas companies as well as independent
producers to optimize performance of oil and gas wells.

   As a result of its acquisitions and certain corporate restructuring, the
Company currently has several direct and indirect subsidiaries through which it
conducts a significant portion of its operations. All of the assets are held in
Dawson Production Partners, L.P., a Delaware limited partnership (the
"Partnership"). All of the general and limited partnership interests in the
Partnership are owned by three wholly owned corporate subsidiaries of Dawson;
Dawson Production Management, Inc., a Delaware corporation, owns a 1.4% general
partnership interest in the Partnership, Dawson Production Taylor, Inc., a
Delaware corporation, owns a 8.85% limited partnership interest in the
Partnership, and Dawson Production Acquisition Corp., a Delaware corporation
owns the remaining 89.75% limited partnership interest in the Partnership.
Dawson has the following additional wholly owned subsidiaries: Dawson Production
Services de Mexico, S.A. de C.V., and Ubicadora de Tecnicos S.A. de C.V., both
of which are companies organized under the laws of Mexico.

PRINCIPLES OF CONSOLIDATION

   The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.

MANAGEMENT ESTIMATES

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

                                       37
<PAGE>
CASH EQUIVALENTS

   For purposes of the statements of cash flows, cash and short-term investments
with an original maturity of three months or less from the date of purchase are
considered to be cash equivalents.

REVENUE RECOGNITION

   The Company generally recognizes revenue when services are rendered.

PROPERTY AND EQUIPMENT

   Property and equipment are stated at cost. Major renewals and improvements
are capitalized and depreciated over the respective asset's useful life.
Expenditures for repairs and maintenance are charged to expense as incurred.
Property and equipment are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amounts of the
property and equipment may not be recoverable.

   Property and equipment are depreciated over their estimated useful lives on
the straight-line method. The Company utilizes a "component parts" approach to
depreciating fixed assets. Estimated useful lives are as follows:

                                                                      ESTIMATED
                                                                         LIFE
                                                                       (YEARS)
                                                                     ----------
   Buildings.........................................................    20
   Well servicing equipment..........................................  3-20
   Vehicles..........................................................   3-5
   Office furniture and other equipment..............................  5-12

INCOME TAXES

   The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

                                       38
<PAGE>
INTANGIBLE AND OTHER ASSETS

   Goodwill represents the excess purchase price over fair value of net assets
acquired and is amortized on a straight-line basis over twenty to twenty-five
year periods from the dates of acquisition. Other assets consist principally of
loan costs and are amortized on a straight-line basis over the terms of the
loans.

   Intangible assets are reviewed for impairment whenever events or
circumstances provide evidence that suggests that the carrying amount of the
intangible asset may not be recoverable.

The Company assesses the recoverability of the intangible asset by determining
whether the carrying amount of the intangible asset can be recovered through
projected undiscounted future cash flows over the remaining amortization period.

FAIR VALUES OF FINANCIAL INSTRUMENTS

   The Company's financial instruments consist primarily of short-term, variable
rate items or recently issued debt instruments for which management believes
fair value approximates carrying value. The carrying value of the $140 million
Senior Notes due February 1, 2007 (see note 5) approximates fair value as of
March 31, 1998.

EARNINGS PER SHARE

   The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." This statement requires the
presentation of basic earnings per share (EPS) and diluted earnings per share
for reporting periods of all public companies ending after December 15, 1997,
instead of the primary and fully diluted EPS previously required. The new
standard requires the restatement of EPS for all periods presented.

   EPS restated as required by SFAS No. 128 is as follows:

                                                   1996        1997        1998
                                                 -------      ------     -------
Income before extraordinary item ...........     $ 1,373      $5,077     $ 7,678
Dividends Declared .........................         (88)       --          --
Extraordinary item .........................        (514)       --          --
                                                 -------      ------     -------
Net income applicable to common stock.......         771       5,077       7,678
Interest on convertible debt................           5        --          --
Dividends declared..........................          88        --          --
                                                 -------      ------     -------
Net income applicable
  to diluted Common Stock...................     $   864      $5,077     $ 7,678
                                                 =======      ======     =======
Basic weighted average shares outstanding...       2,472       7,055      11,130
Dilutive effect of convertible stock .......          14        --          --
Dilutive effect of preferred stock .........         262        --          --
Dilutive effect of options .................          48         134         237
                                                 -------      ------     -------
Diluted weighted average shares
outstanding ................................       2,796       7,190      11,367

Basic earnings Per Share:
Income before extraordinary item ...........     $  0.52      $ 0.72     $  0.69
Extraordinary item .........................       (0.21)       --          --
                                                 -------      ------     -------
Net income .................................     $  0.31      $ 0.72     $  0.69
                                                 =======      ======     =======
Diluted earnings Per Share:
Income before extraordinary item ...........     $  0.49      $ 0.71     $  0.68
Extraordinary item .........................       (0.18)       --          --
                                                 -------      ------     -------
Net income .................................     $  0.31      $ 0.71     $  0.68
                                                 =======      ======     =======

                                       39
<PAGE>
RECLASSIFICATION

   Certain amounts, as previously presented, have been reclassified to conform
with the current year financial statement presentation.

NEW ACCOUNTING  PRONOUNCEMENTS -- REPORTING  COMPREHENSIVE INCOME;  DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

   In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. The FASB
also issued in June 1997 SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information," which establishes new standards for the way
public companies disclose information about operating segments, products and
services, geographic areas and major customers. SFAS No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997.

CONCENTRATION OF CREDIT RISK

   Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company places its temporary cash investments in U.S.
Government securities and in other high quality financial instruments. By policy
the Company limits the amount of credit exposure to any one financial
institution or issuer. The Company's customer base consists primarily of
independent oil and natural gas producers. During the years ended March 31,
1996, 1997 and 1998, the provisions charged to operations to increase the
reserve for doubtful trade accounts receivable were $.02 million, $.3 million
and $.4 million, respectively. During the years ended March 31, 1996, 1997 and
1998, sales to the Company's largest customer accounted for approximately 24%,
20% and 11%, respectively, of total operating revenues.

(2) ACQUISITIONS

PETROSTAR CORPORATION

   On January 8, 1998, the Company acquired the workover services assets of
PetroStar Corporation, a Louisiana based company, for approximately $11.6
million in cash and a $1.2 million in a five-year subordinated note. Goodwill
recognized on this transaction amounted to $2.9 million and is being amortized
over 25 years.

PRIDE

   Effective February 20, 1997, the Company acquired Pride for approximately
$135.4 million in cash and acquisition costs of $1.9 million. The acquisition
has been accounted for as a purchase and, accordingly, the operating results of
Pride have been included in the Company's 

                                       40
<PAGE>
consolidated statements of income since the effective date of acquisition. The
excess of the aggregate purchase price over the fair market value of the net
assets acquired was recognized as goodwill and is being amortized over 25 years.
The fair value of assets acquired, including goodwill of $30.2 million, was
$138.0 million and liabilities assumed totaled $1.8 million. The funds used to
acquire Pride were provided by proceeds of sales of Common Stock and senior
notes through public offerings in February 1997. The final purchase price
allocation may be adjusted based on the resolution of certain issues.

TAYLOR COMPANIES, INC.

   Effective July 29, 1996, the Company acquired all of the issued and
outstanding stock of Taylor Companies, Inc. for an aggregate purchase price of
$12.8 million consisting of $11.0 million in cash and a $1.8 million
subordinated promissory note payable to the selling shareholder. Goodwill
recognized on this transaction amounted to approximately $7.4 million, which is
being amortized over a twenty-year period. The final purchase price allocation
for the Taylor Acquisition has been adjusted based on the resolution of certain
issues.

WELL SOLUTIONS, INC.

   On November 30, 1994, the Company acquired substantially all of the property
and equipment of Well Solutions, Inc. (Well Solutions), a company engaged in
providing oilfield services, for an aggregate purchase price of approximately
$18.1 million, consisting of $15.9 million in cash, a convertible note payable
of $1.5 million and closing costs of approximately $.7 million. The acquisition
has been accounted for as a purchase and, accordingly, the operating results of
Well Solutions have been included in the Company's consolidated statements of
income since the date of acquisition. The excess of the aggregate purchase price
over the fair market value of the net assets acquired was recognized as goodwill
and is being amortized over 20 years. The fair value of assets acquired,
including goodwill of $2.5 million, was $18.5 million and liabilities assumed
totaled $.4 million. The funds used to acquire Well Solutions were provided by
long-term borrowings, proceeds of sales of Common Stock and subordinated debt
and cash from operations.

OTHER ACQUISITIONS

   Effective November 1, 1995, the Company acquired the 39% minority interest in
the Company's subsidiary, Dawson WellTech, L.C., from WellTech, Inc. in exchange
for the issuance to WellTech, Inc. of 1,329,495 shares of Common Stock for a
total purchase price of $7.7 million based on an independent appraisal of the
Common Stock. Goodwill recognized on this transaction amounted to $.4 million
and is being amortized over 20 years.

   Effective March 1, 1996, the Company acquired a portion of the assets of a
small company in Giddings, Texas for an aggregate purchase price of
approximately $1.2 million, consisting of $.1 million in cash and $1.1 million
in capital leases and a note payable. Goodwill recognized on this transaction
amounted to $.1 million and is being amortized over 20 years.

                                       41
<PAGE>
   In April 1996, the Company acquired the assets of two small production
testing companies in Louisiana. The aggregate purchase price was approximately
$.7 million. Goodwill and a non-compete agreement were recognized on these
transactions which amounted to approximately $.1 million. These items are being
amortized over 20 and 5 year periods, respectively.

   In May 1996, the Company acquired the Texas-based well servicing division of
a non-affiliated company. The aggregate purchase price was $.8 million.

   In July 1996, the Company acquired the assets of a trucking company in
Louisiana. The aggregate purchase price was approximately $.4 million. Goodwill
recognized on the transaction amounted to $.05 million, which is being amortized
over a 20 year period.

   Effective December 23, 1997, the Company acquired all of the issued and
outstanding stock of Bobby's Hot Oil Service, Inc., Tubing Testers Corp. and
Alamo Tubing Testers Corp., all commonly-owned companies headquartered in
Perryton, Texas. The aggregate purchase price of approximately $4.9 million
consisted of $3.9 million in cash, $.5 million in two subordinated notes to the
selling shareholders and $.5 million in Common Stock of the Company. Goodwill
recognized on this transaction amounted to $2.7 million, which is being
amortized over a 25 year period.

   On January 20, 1997, the Company acquired the liquid services assets of
Mobley Company, Inc. for approximately $5.0 million in cash and a $.5 million
five-year subordinated note. Goodwill recognized on this transaction amounted to
$1.6 million and is being amortized over 20 years.

   On January 2, 1998, the Company acquired the well servicing assets of a
company for approximately $3.4 million in cash and the issuance to Security Well
Service, Inc. of 21,071 shares of Common Stock for a total purchase price of
$3.8 million. Goodwill recognized on this transaction amounted to $.7 million 
and is being amortized over 25 years.

   On March 13, 1998, the Company acquired the assets of a small South Texas
well servicing company for approximately $2.2 million in cash and a $.3 million
three-year subordinated note. Goodwill recognized on this transaction amounted
to $.7 million and is being amortized over 25 years.

   All of the Company's acquisitions have been accounted for as purchases and,
accordingly, the operating results have been included in the Company's
consolidated statements of income since the dates of acquisition. The effect on
results of operations would not have been material if the 1998 acquisitions had
occurred at the beginning of the year.

(3) MANDATORILY REDEEMABLE PREFERRED STOCK

   In October 1990, the Company issued 80,800 shares of 10% cumulative
convertible preferred stock for a total price of $1.0 million. Each preferred
shareholder was entitled to receive, in preference to common shareholders,
annual dividends in the amount of $1.25 per share, payable 

                                       42
<PAGE>
quarterly. At the discretion of the Company, the dividends could have been
declared in either cash or Common Stock valued at $3.49 a share. Dividends were
cumulative and accrued from the date of the stock issuance. The Company declared
dividends on the preferred stock in the amount of $.1 million in the year ended
March 31, 1996. Holders of the preferred stock elected to convert the shares of
such stock into 347,440 shares of Common Stock in fiscal 1996.

(4) NOTES PAYABLE AND LONG-TERM DEBT

Long-term debt other than the Senior Notes consists of the following:

                                                                    MARCH 31,
                                                               -----------------
                                                                 (IN THOUSANDS)
                                                               -----------------
                                                                1997       1998
                                                               ------     ------
Convertible debenture bearing interest at 8% 
  Interest is due quarterly; principal is due
  November 30, 1999 ......................................     $1,500     $1,500
Subordinated promissory note payable to a former
  Taylor shareholder bearing interest at 8.0% per
  annum. Interest is due quarterly; principal is
  due in quarterly installments of $83,333 ...............      1,750        416
Subordinated note bearing interest at 8.5% 
  Interest is due quarterly; principal is due
  January 20, 2002 .......................................        500        500
Subordinated notes bearing interest at 8.5% 
  Interest is due annually; principal is due
  December 23, 2002 ......................................       --          500
Subordinated note bearing interest at 8.5% 
  Interest is due quarterly; principal is due in
  four annual installments of $300,000, beginning
  January 31, 2000 .......................................       --        1,200
Subordinated note bearing interest at 8% 
  Interest is due quarterly; principal is due
  March 13, 2001 .........................................       --          275
Other note payable bearing interest at 10% ...............         40         20
                                                               ------     ------
Total long-term debt .....................................      3,790      4,411
Less current portion .....................................        624        353
                                                               ------     ------
Long-term debt, net of current portion ...................     $3,166     $4,058
                                                               ======     ======

   On February 20, 1997, concurrent with the closing of the Senior Note and
Common Stock offerings and the acquisition of Pride, the Company entered into a
working capital line of credit (the "Working Line") with a bank. The maximum
availability under the Working Line would be the lesser of (i) $50 million or
(ii) 80% of eligible accounts receivable that have been outstanding less than 90
days. The Working Line is secured by a first lien security interest on all the
Company's accounts receivable. Borrowings under the Working Line mature two
years from the date of any such borrowings and bear interest at the lesser of
(i) the Bank's prime rate of interest or (ii) a varying percentage rate ranging
from 1.75% to 2.75%, based on the total funded debt to cash flow defined as
EBITDA, over the Company's choice of the 30, 90 or 180-day LIBOR rate of
interest. The Company had not drawn against the line as of March 31, 1998, but
has used the line to secure four letters of credit totaling $1.8 million related
to its worker's compensation insurance program. Under the terms of the loan
agreement, the Company must maintain minimum working capital, tangible net
worth, current ratios and debt to capital ratios. The foregoing description does
not purport to be a complete description of all terms of the Credit Facility.

   The Company has approximately $4.4 million of subordinated debt outstanding
at March 31, 1998. Approximately $1.5 million of the subordinated debt is
represented by a debenture held by 

                                       43
<PAGE>
Well Solutions, bears interest at 8%, matures on November 30, 1999, is
prepayable without penalty at any time, and may be converted at any time, at the
option of the holder, into 37,634 shares of Company Common Stock, subject to
adjustment to prevent dilution. The remaining subordinated debt of approximately
$2.9 million was incurred in conjunction with acquisitions, bears interest at a
rates between 8.0% and 8.5%, matures between March 13, 2001 and January 31, 2003
and is prepayable without penalty at any time.

   All of the subordinated debt of the Company was incurred in conjunction with
certain acquisitions made by the Company and have offset provisions in
conjunction with unforeseen liabilities that might arise from these
acquisitions.

   In March 1996, the Company elected to prepay a $13 million note payable to a
bank. An extraordinary charge of $.51 million (net of income tax benefit of $.26
million) was incurred as a result of the early extinguishment of the note
payable.

   During fiscal 1996, $.15 million in principal amount of subordinated notes
were converted into 27,232 shares of Common Stock.

   Also, pursuant to the Conversion Agreement, $2.4 million of the Company's
subordinated debt converted into Common Stock at the rate of one share of Common
Stock for each $6.98 in principal amount of subordinated debt effective February
19, 1996.

   Scheduled maturities of principal for long-term debt based on balances
outstanding at March 31, 1998 are summarized as follows:

                                                             TOTAL
                                                          ------------
                                                         (IN THOUSANDS)
YEARS ENDING MARCH 31,                                   
  1999.................................................   $      353
  2000.................................................        1,883
  2001.................................................          575
  2002.................................................        1,300
  2003.................................................          300
  Thereafter (*).......................................      140,000
                                                          ----------
                                                          $  144,411
                                                          ==========

  (*) See note 5 for discussion of Senior Notes due 2007.

(5) SENIOR NOTES

                                                     MARCH 31,
                                                  (IN THOUSANDS)
                                           ------------------------------
                                               1997            1998
                                           --------------  --------------
       9 3/8% Senior Notes due 2007        $      140,000  $      140,000
                                           ==============  ==============

   The Senior Notes due February 1, 2007 (Notes) were issued by the Company in
February 1997. The Notes bear interest at 9 3/8%, payable semi-annually on
February 1 and August 1 of each year, commencing August 1, 1997. The proceeds
from the issuance of the Notes were utilized primarily to acquire Pride (see
note 2) and prepay existing debt.

                                       44
<PAGE>
   The senior notes will not be redeemable at the Company's option prior to
February 1, 2002. Thereafter, the notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the 12-month period beginning on
February 1, or the years indicated below:

    YEAR                                                  PERCENTAGE
    ----                                                  ----------
    2002................................................  104.6875%
    2003................................................  103.1250%
    2004................................................  101.5625%
    2005 and thereafter.................................  100.0000%

   Notwithstanding the foregoing, at any time on or prior to February 1, 2000,
the Company may redeem up to an aggregate of $49.0 million principal amount of
notes (or 35%) at a redemption price of 109.375% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of a Public Equity Offering: PROVIDED that at least $91.0
million in aggregate principal amount of notes remain outstanding immediately
after the occurrence of such redemption; and, PROVIDED FURTHER, that such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.

   The senior notes are unconditionally guaranteed on a senior unsecured basis
by each of the Company's principal operating subsidiaries. The terms of the
indenture related to the notes contain covenants limiting, among other things,
the incurrence of additional indebtedness of the Company; dividend payments on
or issuance and sales of capital stock of restricted subsidiaries; payments with
respect to certain subordinated obligations and the making of certain
investments; sales of assets; certain transactions with affiliates; and
sale/leaseback transactions in the event that the Company's "fixed charge
coverage ratio" (cash flow to fixed charges as defined in the indenture) is
below 2.25 to 1 for the year ended March 31, 1998. The Company's actual fixed
charge coverage ratio for the year ended March 31, 1998, was 3.77 to 1.

(6) LEASES AND LEASE COMMITMENTS

   The Company leases vehicles and office equipment under capital leases. Total
assets recorded under capital leases at March 31, 1997 and 1998 are $6.4 million
and $11.2 million, respectively. Amortization expense related to assets held
under capital lease for the years ended March 31, 1996, 1997 and 1998 was $.24
million, $1.0 million and $1.5 million, respectively.

   The Company leases certain of its facilities under operating leases. Lease
terms generally range from one to five years. Rent expense for the years ended
March 31, 1996, 1997 and 1998 was approximately $.25 million, $.37 million and
$.99 million, respectively.

                                       45
<PAGE>
Future minimum lease payments as of March 31, 1998 are as follows:

                                                         CAPITAL     OPERATING
YEAR ENDING MARCH 31,                                    LEASES       LEASES
                                                       -----------  -----------
                                                       (IN THOUSANDS)

1999................................................   $   1,274    $      644
2000................................................       1,274           524
2001................................................       1,270           437
2002................................................         924           334
2003................................................         729           250
Thereafter                                                     -         1,200
                                                       -----------  ----------
Total minimum lease payments........................   $   5,471    $    3,389
                                                                    ===========
Less amounts representing interest..................      (1,240)
                                                       -----------
Present value of minimum lease payments.............   $   4,231
                                                       ===========

(7) SHAREHOLDERS' EQUITY

  (A) EQUITY OFFERINGS

   In March 1996, the Company completed an initial public offering (the "IPO")
of 2,616,202 shares (net of 48 fractional shares paid in cash) of its Common
Stock for the purpose of raising funds to acquire additional businesses and to
retire debt. Net proceeds to the Company from the IPO, after deduction of
associated expenses, were approximately $23.5 million.

   In February 1997, the Company completed a secondary public offering of
4,722,259 shares (including 689,773 shares issued in connection with an
over-allotment option) of its Common Stock for the purpose of raising funds to
acquire Pride and retire debt (see notes 2 and 4). Net proceeds to the Company,
after deduction of associated expenses, were approximately $55.3 million.

  (B) TREASURY STOCK

   In July 1997, the Company's Board of Directors approved a program to
repurchase up to $5 million of its Common Stock. The Company repurchased 100,000
shares during the year ended March 31, 1998, for an approximate value of $1.2
million.

   In addition, on September 11, 1997, the Company adopted a Shareholder Rights
Plan (the "Rights Plan") that is designed to deter unfair takeover tactics. On
that date, the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of Common Stock to
shareholders of record at the close of business on September 22, 1997. Each
Right entitles the registered holder to purchase from the Company one-tenth of
one share of Common Stock of the Company, at a purchase price of $85 per share
of Common Stock, subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement between the Company and Harris Trust Company
of New York, as Rights Agent. The Rights have certain anti-takeover effects and
will cause substantial dilution to a person or group that attempts to acquire
the Company without conditioning the offer on a substantial number of Rights
being acquired.

                                       46
<PAGE>
(8) STOCK OPTIONS

   In fiscal 1995, 118,250 Common Stock options were issued by the Company to
several officers and directors of the Company. The options have an exercise
price of $4.65 per share. During fiscal 1995 and 1996, employees and officers of
the Company exercised their options to purchase 40,618 and 36,546 shares,
respectively, of Common Stock in exchange for notes payable to the Company of
$.1 million and $.1 million. The notes are secured by the shares of Common Stock
issued and the personal guarantees of the officers receiving the stock.

   In October 1995, the Company adopted the 1995 Incentive Plan (the "1995
Plan"). Under the 1995 Plan, incentive options, non-statutory options,
restricted stock awards, and/or stock appreciation rights may be granted to key
employees, non-employee directors and consultants to purchase the Company's
Common Stock at prices not less than the fair market value at the time of grant,
which become exercisable as described in the respective Award Agreement.
Pursuant to the 1995 Plan, as of April 1, 1997 an aggregate of 704,394 shares
of the Company's Common Stock is available for issuance upon the exercise of
such options, awards and rights, which may be granted over a ten-year period.

   The following table summarizes the activity of stock options granted by the 
Company:

                                                                     PRICE
                                                 SHARES            PER SHARE
                                                --------       -----------------
Outstanding, March 31, 1995 ..............       154,796       $    .23 to $4.65
 Granted .................................       133,300       $            7.44
 Exercised ...............................       (36,546)      $    .23 to $2.33
 Canceled ................................       (10,750)      $            4.55
                                                --------                   
Outstanding, March 31, 1996 ..............       240,800       $   4.65 to $7.44
                                                --------    
 Granted .................................       329,350       $ 10.75 to $12.25
 Exercised ...............................       (21,500)      $  4.65 to $10.75
 Canceled ................................        (5,300)      $10.75 to $11.375
                                                --------    
Outstanding, March 31, 1997 ..............       543,350       $ 4.65 to $11.375
                                                --------    
 Granted .................................       116,576       $ 12.25 to $17.25
 Exercised ...............................        (1,860)      $          11.375
 Canceled ................................       (23,000)      $ 7.44 to $11.375
                                                --------    
Outstanding, March 31, 1998 ..............       635,066       $4.65 to $17.25
                                                --------    
Exercisable at end of year ...............       300,780
                                                ========    

   The weighted average fair value of stock options granted during 1996, 1997 
and 1998 was $7.44, $11.32 and $10.29 per share, respectively. The fair value of
each option grant is estimated on the date of

                                       47
<PAGE>
grant using the Black-Scholes options-pricing model. The model assumed expected
volatility of 0%, 47.6% and 65.8%, weighted average risk-free interest rates of
6.66%, 6.75% and 5.61%, for grants in 1997 and 1998, respectively, and an
expected life of four years for 1996 and 1997 and six years in 1998. As the
Company has not declared dividends since it became a public entity, no dividend
yield was used. Actual value realized, if any, is dependent on the future
performance of the Company's Common Stock and overall stock market conditions.
There is no assurance the value realized by an optionee will be at or near the
value estimated by the Black-Scholes model.

   As discussed in note 1, no compensation expense has been recorded in 1995,
1996 or 1997 for the Company's stock options. Had compensation cost for the
Company's stock option plans been determined based on the fair-value at the
grant dates for awards made after March 31, 1995 under that plan, the Company's
net income and earnings per common share would have been reduced to the pro
forma amounts indicated below:

                                                YEARS ENDED MARCH 31,
                                         ----------------------------------
                                       (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                           1996         1997         1998
                                          -------    ---------    ---------
Net income:
  As reported ........................    $   771    $   5,077    $   7,678
  Pro forma ..........................    $   686    $   4,928    $   7,415

Basic earnings per common share:
  As reported ........................    $  0.31    $    0.72    $    0.69
  Pro forma ..........................    $  0.28    $    0.70    $    0.67
                                                     
Diluted earnings per common share:                   
  As reported ........................    $  0.31    $    0.71    $    0.68
  Pro forma ..........................    $  0.28    $    0.69    $    0.65
                                                  
(9) INCOME TAXES

   The components of income tax expense applicable to continuing operations are
as follows:

                                                        YEARS ENDED MARCH 31,
                                                           (IN THOUSANDS)
                                                    ----------------------------
                                                     1996        1997      1998
                                                    ------      ------    ------
Current ......................................      $ --        $  770    $   58
Deferred .....................................         709       2,573     4,440
                                                    ------      ------    ------
                                                    $  709      $3,343     4,498
                                                    ======      ======    ======

   Income taxes for financial reporting purposes differs from the amount
computed by applying the statutory federal income tax rate of 34% in 1996 and
1997 and 35% in 1998 to income before income taxes as follows:

                                       48
<PAGE>
                                                          YEARS ENDED MARCH 31,
                                                             (IN THOUSANDS)
                                                       ------------------------
                                                        1996       1997   1998
                                                       -----     ------  ------
Expected tax expense at U.S. statutory rate .......    $ 708     $2,863  $4,262
Expenses not deductible ...........................       35         70     159
State income taxes, net of federal effect .........      (37)       310     340 
Other .............................................        3        100    (263)
                                                       -----     ------  ------
Provision for income taxes ........................    $ 709     $3,343  $4,498
                                                       =====     ======  ======

   The  extraordinary  loss of $.5  million  in 1996  is net of  deferred  tax
benefits of $.3 million.

   The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:

                                                                  MARCH 31,
                                                               (IN THOUSANDS)
                                                            -------------------
                                                             1997         1998
                                                            ------      -------
Deferred tax assets:
 Allowance for uncollectible accounts receivable .....      $  210      $   356
 Reserve for worker's compensation ...................         621          736
 Accrued bonuses .....................................         249          301
 Net operating loss carryforwards ....................         641        7,973
 Alternative minimum tax credit carryforwards ........         869          720
 Foreign tax credit carryforwards ....................         124          167
 Other ...............................................          39            0
                                                            ------      -------
     Total gross deferred tax assets .................       2,753       10,253
                                                            ------      -------
Deferred tax liabilities:
 Property and equipment ..............................       8,074       20,674
 Accounts Recievable .................................         --           522
                                                            ------      -------
 Total gross deffered tax liability ..................       8,074       21,196
                                                            ------      -------
     Net deferred tax liability ......................      $5,321      $10,943
                                                            ======      =======

   The Company anticipates the reversal of existing taxable temporary
differences will provide sufficient taxable income to realize the benefits of
its deferred tax assets.

   At March 31, 1998, the Company had $.7 million of alternative minimum tax
credit carryforwards available to reduce regular Federal income taxes which have
no expiration date. The Company has Federal and State net operating loss
carryforwards of approximately $21 and $7.3 million, respectively. The Federal
net operating losses expire in the year beginning 2011. The State net operating
losses expire in the years beginning 2002. The Company also has foreign tax
credits of approximately $.2 million for federal income tax purposes which
expire in 2002.

   As a result of certain acquisitions involving capital stock, the Company 
provided for deferred tax liabilities of $2.5 million and $1 million in fiscal
years ended March 31, 1997 and 1998, respectively, due to differences in basis
of assets for financial reporting and income tax purposes.

(10) RELATED PARTY TRANSACTIONS

   The Company previously retained a company owned by a member of the Board of
Directors to provide consulting services. Additionally, the Company retained the
services of a family member of an Officer of the Company and purchased products
from a company owned by a family member of an Officer of the Company. Payments
for these services, expenses and products for the years ended March 31, 1996,
1997 and 1998, were $.05 million, $.02 million and $.14 million, respectively.

                                       49
<PAGE>
(11) EMPLOYEE BENEFIT PLANS

   The Company has a welfare benefit plan (the "Plan") to provide medical
benefits for eligible employees and their dependents. Contributions to the Plan
are made by the Company and covered employees. The Plan may be terminated at the
discretion of the Company. Contributions to the Plan in the amounts of $.7
million, $1.0 million and $3.6 million were made in fiscal 1996, 1997 and 1998,
respectively.

   The Company has a 401(k) savings plan. Eligible employees can make
contributions to the plan. The Company may, at its option, match a portion of
the contributions made by the employees. The Company did not match employee
contributions made in fiscal 1996, 1997 or fiscal 1998.

(12) COMMITMENTS AND CONTINGENCIES

   Under the Company's worker's compensation insurance program, the Company pays
the first $250,000 of all claims with no aggregate limit in any one year.
Provision for claims under the program has been made in the financial statements
which represent the expected future payments based on the estimated ultimate
costs for incidents incurred through the end of each period. The insurance
carrier required the Company to make a deposit of $.33 million, which has been
included in other assets in the accompanying balance sheet. In addition, the
Company has entered into an agreement with an insurance carrier for the
guarantee of deductible reimbursements. The agreement requires the Company to
establish a letter of credit (note 4) and a surety bond in favor of its
respective insurance carriers. The amount of the surety bond for the year ended
March 31, 1998 was $1.6 million.

   The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.

                                       50
<PAGE>
(13) SUPPLEMENTARY INFORMATION

                                                                  MARCH 31,
                                                          ---------------------
                                                               (IN THOUSANDS)
                                                             1997        1998
                                                          ---------   ---------
Receivables:
 Trade receivables .....................................  $  31,475   $  40,598
 Less allowance for doubtful accounts ..................       (561)       (966)
                                                          ---------   ---------
     Net trade receivables .............................  $  30,914   $  39,632
                                                          =========   =========
Prepaid expenses and other:
 Prepaid expenses ......................................  $      68   $     293
 Other current assets ..................................        376         280
                                                          ---------   ---------
     Total prepaids and other assets ...................  $     444   $     573
                                                          =========   =========
Property and equipment:
 Land ..................................................  $      98   $     143
 Buildings .............................................        754       3,332
 Well servicing equipment ..............................    150,981     167,684
 Automobiles, trucks and other vehicles ................     12,951      28,184
 Office furniture and other equipment ..................        692       1,868
                                                          ---------   ---------
                                                            165,476     201,211
 Less accumulated depreciation and amortization ........    (19,835)    (36,365)
                                                          ---------   ---------
     Net property and equipment ........................  $ 145,641   $ 164,846
                                                          =========   =========
Goodwill and other assets:
 Goodwill (net of accumulated amortization of 
     $680 and $2,473) ..................................  $  40,060   $  41,138
 Other assets (net of accumulated amortization of 
     $448 and $2,125) ..................................     12,748      16,232
 Deposits and notes receivable .........................        351         496
                                                          ---------   ---------
                                                          $  53,159   $  57,866
                                                          =========   =========
Accrued liabilities:
 Accrued payroll .......................................  $   2,196   $   1,951
 Accrued insurance .....................................      1,657       1,952
 Other accrued expenses ................................      4,769       4,922
                                                          ---------   ---------
                                                          $   8,622   $   8,825
                                                          =========   =========

(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Summarized quarterly financial data for 1997 are as follows:

                                         FIRST     SECOND      THIRD     FOURTH
                                        QUARTER    QUARTER    QUARTER    QUARTER
                                        -------    -------    -------    -------
                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
   Revenues ........................    $14,677    $19,134    $22,456    $36,361
   Operating income ................      1,550      2,154      2,769      3,563
   Net income ......................      1,016      1,159      1,550      1,352
   Earnings per share -- basic .....        .16        .18        .24        .14
   Earnings per share -- diluted ...        .15        .18        .24        .14

                                       51
<PAGE>
Summarized quarterly financial data for 1998 are as follows:

                                         FIRST     SECOND      THIRD     FOURTH
                                        QUARTER    QUARTER    QUARTER    QUARTER
                                        -------    -------    -------    -------
                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues ...........................    $54,732    $59,856    $55,410    $56,164
Operating income ...................      5,869      5,856      6,268      6,010
Net income .........................      1,876      2,077      2,143      1,582
Earnings per share -- basic ........        .17        .19        .19        .14
Earnings per share -- diluted ......        .17        .18        .19        .14

                                    PART III

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

   Not applicable.

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   Information concerning Directors and Executive Officers of the Company is
incorporated by reference from the Company's definitive Proxy Statement and
related materials in connection with the annual meeting of shareholders expected
to be held on September 30, 1998. The incorporated portions consist of all of
the disclosures that appear in that Proxy Statement under the headings "Nominees
for Election as Directors" and "Executive Officers."

ITEM 11.    EXECUTIVE COMPENSATION

   Information concerning Executive Compensation is incorporated by reference
from the Company's definitive Proxy Statement and related materials in
connection with the annual meeting of shareholders expected to be held on
September 30, 1998. The incorporated portions consist of all of the disclosures
that appear in that Proxy Statement under the heading "Executive Compensation."

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   Information concerning the Security Ownership of Certain Beneficial Owners
and Management is incorporated by reference from the Company's definitive Proxy
Statement and related materials in connection with the annual meeting of
shareholders expected to be held on September 30, 1998. The incorporated
portions consist of all of the disclosures that appear in that Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management."

                                       52
<PAGE>
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Information concerning Certain Relationships and Related Transactions is
incorporated by reference from the Company's definitive Proxy Statement and
related materials in connection with the annual meeting of shareholders expected
to be held on September 30, 1998. The incorporated portions consist of all of
the disclosures that appear in that Proxy Statement under the heading "Certain
Relationships and Related Transactions."

                                     PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) The following consolidated financial statements of Dawson Production
        Services, Inc. and subsidiaries are included in Item 8:

        Independent Auditors' Report

        Consolidated Balance Sheets as of March 31, 1997 and March 31, 1998

        Consolidated Statements of Income for each of the years in the
        three-year period ended March 31, 1998

        Consolidated Statements of Shareholders' Equity for each of the years in
        the three-year period ended March 31, 1998

        Consolidated Statements of Cash Flows for each of the years in the
        three-year period ended March 31, 1998

        Notes to the Consolidated Financial Statements

    (2) The following Financial Statement Schedules are included herein:

        None.

        All schedules for which provision is made in the applicable accounting
        regulations of the Securities and Exchange Commission are not required
        under the related instructions or are inapplicable, and therefore, have
        been omitted.

   (3) Listing of Exhibits (included herein)

(b)  Reports on Form 8-K. The Company has not filed any reports on Form 8-K for
     the year ended March 31, 1998.

                                       53
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)    Exhibits:

EXHIBIT
NUMBER
-------
3.1   -Amended and Restated Articles of Incorporation of the Company, as
       amended by Articles of Amendment to the Amended and Restated Articles of
       Incorporation (incorporated by reference as Exhibit 3.1 of the
       Registrant's Registration Statement on Form S-1 [No. 333-00452 dated
       March 14, 1996]).

3.2   -Bylaws of the Company, as amended (incorporated by reference as Exhibit
       3.2 of the Registrant's Registration Statement on Form S-1 [No. 333-00452
       dated March 14, 1996]).

4.1   -Specimen stock certificate evidencing the Common Stock (incorporated by
       reference as Exhibit 4.1 of the Registrant's Registration Statement on
       Form S-1 [No. 333-00452 dated March 14, 1996]).

4.2   -See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation
       and Bylaws of the Company defining the rights of the holders of Common
       Stock.

4.3   -Indenture between the Company and U.S. Trust Company of Texas, N.A.
       related to the offering of the 9 3/8% Senior Notes due 2007 (incorporated
       by reference from Exhibit 4.3 of the Company's report on Form 10-K filed
       June 30, 1997 [No. 000-27732]).

4.4   -Rights Agreement, dated as of September 11, 1997, between Dawson
       Production Services, Inc., and Harris Trust Company of New York as Rights
       Agent, which includes as EXHIBIT A thereto the Form of Rights Certificate
       (incorporated by reference as Exhibit 1 of the Company's Registration
       statement on Form 8-A [No. 000-2773 dated Sepptember 18, 1997]).

10.1  -Dawson Production  Services,  Inc. 1995 Incentive Plan (incorporated by
       reference as Exhibit 10.1 of the  Registrant's  Registration  Statement
       on Form S-1 [No. 333-00452 dated March 14, 1996]).

10.2  -Employment Agreement between the Company and Michael E. Little dated as
       of April 1, 1996 (incorporated by reference as Exhibit 10.2 of the
       Registrant's Registration Statement on Form S-1 [No. 333-00452 dated
       March 14, 1996]).

10.3  -Service contract between the Company and Union Pacific Resources Company
       dated December 8, 1992 and Purchase Order dated April 27, 1995
       (incorporated by reference as Exhibit 10.4 of the Registrant's
       Registration Statement on Form S-1 [No. 333-00452 dated March 14, 1996]).

10.4  -Credit Agreement between the Company and The Frost National Bank, dated
       February 20, 1997, relating to a $50.0 million Working Capital Revolving
       Facility (incorporated by reference from Exhibit 10.4 of the Company's
       report on Form 10-K filed June 30, 1997 [No. 000-27732]).

10.5  -Security Agreement between the Company and The Frost National Bank,
       dated as of February 20, 1997 relating to the Working Capital Revolving
       Facility. Pursuant to Item 601, Instructions of Reg. S-K, identical
       copies of the Security Agreement are not included for the following
       debtors or guarantors: Dawson Production Acquisition Corp., Dawson
       Production Management, Inc., Taylor Companies, Inc., Dawson Production
       Partners, L.P., Dawson Production Services de Mexico, S.A. de C.V.

10.6  -Non-Negotiable Convertible Debenture dated December 1, 1994 executed by
       Dawson WellTech, L.C., as maker, and payable to Well Solutions, Inc., and
       Amendment and Modification of Non-Negotiable Convertible Debenture
       (incorporated by reference as Exhibit 10.11 of the Registrant's
       Registration Statement on Form S-1 [No. 333-00452 dated March 14, 1996]).

10.7  -Agreement for the Acquisition of Minority Interest in Dawson WellTech,
       L.C. between the Company and WellTech, Inc. dated as of November 1, 1995
       (incorporated by reference as Exhibit 10.12 of the Registrant's
       Registration Statement on Form S-1 [No. 333-00452 dated March 14, 1996]).

10.8  -Agreement for the Conversion of Securities of Dawson Well Servicing,
       Inc. among the Company, RIMCO Partners, L.P., RIMCO Partners, L.P. II,
       RIMCO Partners, L.P. III, Triad Ventures Limited II and Nueces 

                                       54
<PAGE>
       Ventures, Inc., dated as of November 1, 1995, and Joint Agreement
       executed by NationsBanc Capital Corporation (incorporated by reference as
       Exhibit 10.13 of the Registrant's Registration Statement on Form S-1
       [No. 333-00452 dated March 14, 1996]).

10.9  -Registration Rights Agreement among the Company, WellTech, Inc., RIMCO
       Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P. III, RIMCO
       Partners, L.P. IV, Triad Ventures Limited II, NationsBanc Capital
       Corporation and Nueces Ventures, Inc., dated as of November 1, 1995
       (incorporated by reference as Exhibit 10.14 of the Registrant's
       Registration on Form S-1 [No. 333-00452 dated March 14, 1996]).

10.10 -Omitted. 

10.11 -Form of Indemnification Agreement between the Company and each of its
       directors and executive officers (incorporated by reference as Exhibit
       10.16 of the Registrant's Registration Statement on Form S-1 [No.
       333-00452 dated March 14, 1996]).

10.12 -Employment Agreement between the Company and P. Mark Stark dated as of
       April 1, 1996 (incorporated by reference as Exhibit 10.17 of the
       Registrant's Registration Statement on Form S-1 [No. 333-00452 dated
       March 14, 1996]).

10.13 -Employment Agreement between the Company and Joseph Eustace dated as of
       April 1, 1996 (incorporated by reference as Exhibit 10.18 of the
       Registrant's Registration Statement on Form S-1 [No. 333-00452 dated
       March 14, 1996]).

10.14 -Promissory Notes dated November 1, 1994 and February 1, 1996 payable to
       the Company by Michael E. Little (incorporated by reference as Exhibit
       10.19 of the Registrant's Registration Statement on Form S-1 [No.
       333-00452 dated March 14, 1996]).

10.15 -Voting Agreement among RIMCO Partners, L. P., RIMCO Partners, L. P. II,
       RIMCO Partners, L. P. III, RIMCO Partners, L. P. IV, Triad Ventures
       Limited II, the Company and Michael E. Little dated November 28, 1994,
       and letter dated January 16, 1995 relating thereto (incorporated by
       reference to Exhibit 10.9 to the Registrant's Registration Statement on 
       Form S-1 effective March 20, 1996 [File No. 333-00452]).

10.16 -Purchase Agreement between the Company and Pride Petroleum Services, Inc.
       a Louisiana corporation, (incorporated by reference from Exhibit 10.16 of
       the Company's Registration Statement on Form S-1 [File No. 333-19413
       dated as of December 23, 1996]).

10.17 -First Amendment to Purchase Agreement dated February 20, 1997 between the
       Company and Pride Petroleum Services, Inc. a Louisiana corporation,
       (incorporated by reference from Exhibit 10.24 of the Company's report on
       Form 8-K filed March 7, 1997 [File No. 0-27732]).

10.18 -Stock Purchase Agreement dated July 8, 1996 among Dawson Production
       Services, Inc., a Texas Corporation (the "Buyer"), PSD Investments, Ltd.,
       a Texas limited partnership(the "Seller"), John Randall Taylor, an
       individual residing in Panola County, Texas, in his individual capacity,
       and as general partner and sole managing partner of the Seller and his
       spouse, Kathy Dianne Taylor, who is also an individual residing in Panola
       County, Texas, in her individual capacity and as a general partner of the
       Seller (incorporated by reference as Exhibit 10.23 of the Registrant's
       Current Report on Form 8-K [No. 0-27732 dated July 29, 1996]).

10.19 -First Amendment dated July 29, 1996 to Stock Purchase Agreement dated
       July 8, 1996 by and among Dawson Production Services, Inc., a Texas
       corporation (the "Buyer"), PSD Investments, Ltd., a Texas limited
       partnership (the "Seller"), John Randall Taylor,an individual residing in
       Panola County, Texas, in his individual capacity, and as general partner
       and sole managing partner of the Seller and his spouse, Kathy Dianne
       Taylor, who is also an individual residing in Panola County, Texas, in
       her individual capacity and as a general partner of the Seller
       (incorporated by reference as Exhibit 10.24 of the Registrant's Current
       Report on Form 8-K (No. 0-27732 dated July 29, 1996)).

                                       55
<PAGE>
10.20 -Omitted.

10.21 -Omitted.

10.25 -Dawson Production Services, Inc., Amended and Restated 1995 Incentive
       Plan (Amended as of July 31, 1997) (incorporated by reference from
       Exhibit 10.1(a) of the Company's report on Form 10-Q for the quarterly
       period ended June 30, 1997 [No. 0-27732]).

10.26 -Agreement Regarding Election of Directors dated as of November 21, 1996
       by and between the Company and RIMCO Partners, L.P., RIMCO Partners, L.P.
       II, RIMCO Partners, L.P. III, and RIMCO Partners, L.P. IV.

11.1  -Statement Regarding Computation of Per Share Earnings.

12.1  -Statement of Ratio of Earnings to Fixed Charges for each of the last
       three fiscal years.

21.1  -Subsidiaries of the Registrant.

24.1  -Power of Attorney for Dawson Production  Services,  Inc.  (contained on
       the signature page of this report).

           As permitted by Item 601 (b) (4) (iii) (A) of Regulation S-K, the
       Registrant has not filed with this Registration Statement certain
       instruments defining the rights of holders of long-term debt of the
       Registrant and its subsidiaries because the total amount of securities
       authorized under any such instruments does not exceed 10% of the total
       assets of the Registrant and its subsidiaries on a consolidated basis.
       The Registrant agrees to furnish a copy of any such agreement to the
       Commission upon request.

                                       56
<PAGE>
                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas, on June 19, 1998.

                                  DAWSON PRODUCTION SERVICES, INC.

                                  By: /s/ MICHAEL E. LITTLE
                                          Michael E. Little
                                          Chairman of the Board, President and
                                          Chief Executive Officer

                                POWER OF ATTORNEY

      Each person whose signature appears below hereby constitutes and appoints
Michael E. Little and P. Mark Stark, and each of them, each with full power to
act without the other, his true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any or all amendments to
this Report, and to file the same with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each of said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person hereby ratifying and confirming that each of said attorneys-in-fact
and agents or his substitutes may lawfully do or cause to be done by virtue
hereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated:

SIGNATURE                     CAPACITY                            DATE

/s/MICHAEL E. LITTLE          Chairman of the Board, President,   June 19, 1998
Michael E. Little             Chief Executive Officer and 
                              Director (Principal Executive
                              Officer)

/s/P. MARK STARK              Chief Financial Officer (Principal  June 19, 1998
P. Mark Stark                 Accounting and Financial Officer)

/s/WM. WARD GREENWOOD         Director                            June 19, 1998
Wm. Ward Greenwood

/s/J. MICHAEL BELL            Director                            June 18, 1998
J. Michael Bell

/s/DOUGLAS D. LEWIS           Director                            June 18, 1998
Douglas D. Lewis

                                       57
<PAGE>

/s/LAWRENCE C. PETRUCCI       Director                            June 19, 1998
Lawrence C. Petrucci

                                      58