<PAGE>   1
================================================================================


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q


              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

<TABLE>
<CAPTION>

<S>                                                                                         <C>
For the quarterly period ended June 30, 1998                                                Commission File Number 1-8226
</TABLE>



                                     [LOGO]

                                GREY WOLF, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>

         <S>                                                                 <C>
                          TEXAS                                                    74-2144774
                (State or jurisdiction of                                       (I.R.S. Employer
              incorporation or organization)                                 Identification number)


             10370 RICHMOND AVENUE, SUITE 600
                      HOUSTON, TEXAS                                                  77042
         (Address of principal executive offices)                                  (Zip Code)
</TABLE>

       Registrant's telephone number, including area code: (713) 435-6100


         Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                            Yes   X       No ______


         The number of shares of the Registrant's Common Stock, par value $.10
per share, outstanding at August 12, 1998, was 164,950,591

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                                 Page 1 of 21
<PAGE>   2
                        GREY WOLF, INC. AND SUBSIDIARIES

                               TABLE OF CONTENTS


<TABLE>                           
<CAPTION>
                                                                                             PAGE
                                                                                             ----

<S>     <C>                             <C>                                                  <C>
PART I.  Financial Information
         Item 1.                        Financial Statements
                                        Consolidated Balance Sheets                             3
                                        Consolidated Statements of Operations                   4
                                        Consolidated Statements of Shareholders' Equity         5
                                        Consolidated Statements of Cash Flows                   6
                                        Notes to Consolidated Financial Statements              7
         Item 2.                        Management's Discussion and Analysis of Financial
                                          Condition and Results of Operations                  12

PART II. Other Information
         Item 1.                        Legal Proceedings                                      19
         Item 4.                        Submission of Matters to a Vote of Security Holders    19
         Item 5.                        Other Information                                      19
         Item 6.                        Exhibits and Reports on Form 8-K                       19


         Signatures                                                                            20
</TABLE>





                                     - 2 -
<PAGE>   3
                        GREY WOLF, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                   (Amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                                           June 30,           December 31,
                                                                             1998                 1997    
                                                                        -------------         ------------
                                                                         (Unaudited)
    <S>                                                                 <C>                   <C>
                                  ASSETS
    Current assets:
         Cash and cash equivalents                                      $     46,839          $    53,626
         Restricted cash - insurance deposits                                  1,062                  450
         Accounts receivable, net of allowance of $1,027
           and $1,053,  respectively                                          43,652               56,499
         Inventory and supplies                                                  483                  555
         Assets held for sale                                                      -                   80
         Prepaids and other current assets                                     6,379                6,471
                                                                        ------------          -----------
             Total current assets                                             98,415              117,681
                                                                        ------------          -----------

    Property and equipment:
         Land, buildings and improvements                                      5,428                5,293
         Drilling equipment                                                  555,860              430,524
         Furniture and fixtures                                                1,424                1,573
                                                                        ------------          -----------
                                                                             562,712              437,390
         Less: accumulated depreciation and amortization                     (45,697)             (28,302)
                                                                        ------------          ----------- 
             Net property and equipment                                      517,015              409,088
                                                                        ------------          -----------

    Other noncurrent assets                                                    9,465                6,983
                                                                        ------------          -----------
                                                                        $    624,895          $   533,752
                                                                        ============          ===========

                 LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
         Current maturities of long-term debt                           $      1,223          $     1,148
         Accounts payable - trade                                             19,892               29,434
         Accrued workers' compensation                                         3,525                2,678
         Payroll and related employee costs                                    6,072                8,103
         Accrued interest payable                                              8,764                7,938
         Customer advances                                                        26                  523
         Other accrued liabilities                                             1,875                1,213
                                                                        ------------          -----------
             Total current liabilities                                        41,377               51,037
                                                                        ------------          -----------

    Senior notes                                                             249,225              174,182
    Long-term debt net of current maturities                                   1,757                2,043
    Other long-term liabilities                                                3,863                3,863
    Deferred income taxes                                                     76,875               53,106
    Series A preferred stock - mandatorily redeemable                            305                  305

    Commitments and contingent liabilities (note 6)

    Shareholders' equity:
         Series B preferred stock, $1 par value; 10,000 shares
             authorized; none outstanding                                          -                    -
         Common stock, $.10 par value; 300,000,000 shares
             authorized 164,950,591 and 164,746,291 issued
             and outstanding, respectively                                    16,495               16,474
         Additional paid-in capital                                          270,231              269,733
         Cumulative translation adjustments                                     (454)                (454)
         Accumulated deficit                                                 (34,779)             (36,537)
                                                                        ------------          ----------- 
             Total shareholders' equity                                      251,493              249,216
                                                                        ------------          -----------
                                                                        $    624,895          $   533,752
                                                                        ============          ===========
</TABLE>




          See accompanying notes to consolidated financial statements.
          
                                    - 3 -
<PAGE>   4
                        GREY WOLF, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Amounts in thousands, except per share data)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended             Six Months Ended
                                                            June 30,                      June 30,        
                                                   --------------------------    -------------------------
                                                        1998         1997           1998           1997   
                                                   -------------  -----------    ----------     ----------
<S>                                                <C>            <C>            <C>            <C>
Revenues:
    Contract drilling                              $    65,458    $   40,071     $  139,473     $   76,046

Costs and expenses:
    Drilling operations                                 49,783        33,340        104,660         62,132
    Depreciation and amortization                        9,407         2,973         17,994          5,180
    General and administrative                           2,533         1,715          5,018          3,369
                                                   -----------    ----------     ----------     ----------
         Total costs and expenses                       61,723        38,028        127,672         70,681
                                                   -----------    ----------     ----------     ----------

Operating income                                         3,735         2,043         11,801          5,365

Other income (expense):
    Interest income                                        447            96            784            188
    Gain (loss) on sale of assets                          (36)          324          1,734            354
    Interest expense                                    (5,471)         (863)        (9,545)        (1,535)
    Other, net                                             (26)          134            (93)           338
                                                   -----------    ----------     ----------     ----------
         Other income (expense), net                    (5,086)         (309)        (7,120)          (655)
                                                   -----------    ----------     ----------     ---------- 

Income (loss) before income taxes                       (1,351)        1,734          4,681          4,710

Income taxes                                                 -           694          2,923          1,356
                                                   -----------    ----------     ----------     ----------

Net income (loss)                                       (1,351)        1,040          1,758          3,354

Series A preferred stock redemption premium                  -          (218)             -           (240)
                                                   -----------    ----------     ----------     ---------- 

Net income (loss) applicable to common stock       $    (1,351)   $      822     $    1,758     $    3,114
                                                   ===========    ==========     ==========     ==========

Basic net income (loss) per common share           $      (.01)   $      .01     $      .01     $      .02
                                                   ===========    ==========     ==========     ==========

Basic weighted average shares outstanding              164,934       138,152        164,848        135,756
                                                   ===========    ==========     ==========     ==========

Diluted net income (loss) per common share         $      (.01)   $      .01     $      .01     $      .02
                                                   ===========    ==========     ==========     ==========

Diluted weighted average shares outstanding            167,998       141,036        168,095        139,084
                                                   ===========    ==========     ==========     ==========
</TABLE>





          See accompanying notes to consolidated financial statements.

                                     - 4 -
<PAGE>   5
                        GREY WOLF, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (Amounts in thousands)





<TABLE>
<CAPTION>
                                                   Common
                                                   Stock         Additional                         Cumulative
                                    Common        $.10 par        Paid-in                           Translation
                                    Shares         Value          Capital           Deficit         Adjustments        Total   
                                  ----------     ----------     ------------      -----------     --------------     ---------
<S>                              <C>            <C>            <C>               <C>             <C>                <C>
Balance, December 31, 1996           125,043     $   12,504     $     99,301      $   (46,755)    $         (404)    $  64,646

 Issuance of shares in
    Flournoy acquisition              12,426          1,243           29,823                -                  -        31,066

 Exercise of stock options                72              7               52                -                  -            59

 Redemption of Series A
    preferred stock                        -              -             (240)               -                  -          (240)

 Issuance of shares in
    Grey Wolf merger                  14,000          1,400           46,200                -                  -        47,600

 Net income                                -              -                -            3,354                  -         3,354
                                  ----------     ----------     ------------     ------------     --------------     ---------

Balance, June 30, 1997
 (unaudited)                         151,541     $   15,154     $    175,136     $    (43,401)    $         (404)    $ 146,485
                                  ==========     ==========     ============     ============     ==============     =========



Balance, December 31, 1997           164,746     $  16,474      $    269,733     $    (36,537)    $         (454)    $ 249,216

 Exercise of stock options               205            21               498                -                  -           519

 Net income                                -             -                 -            1,758                  -         1,758
                                  ----------     ---------      ------------     ------------     --------------     ---------

Balance, June 30, 1998
 (unaudited)                         164,951     $  16,495      $    270,231     $    (34,779)    $         (454)    $ 251,493
                                  ==========     =========      ============     ============     ==============     =========
</TABLE>





          See accompanying notes to consolidated financial statements.

                                     - 5 -
<PAGE>   6
                        GREY WOLF, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                               Six Months Ended
                                                                                   June 30,           
                                                                        ------------------------------
                                                                            1998               1997   
                                                                        -----------        -----------
<S>                                                                     <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                            $     1,758        $     3,354
  Adjustments to reconcile net income to
     net cash provided by (used in) operating activities:
     Depreciation and amortization                                           17,994              5,180
     Deferred income taxes                                                    2,908                951
     Gain on sale of assets                                                  (1,734)              (354)
     Exchange loss                                                               97                  -
     Provision for doubtful accounts                                            700               (200)
  Net effect of changes in assets and liabilities
     related to operating accounts                                            2,775             (9,804)
                                                                        -----------        ----------- 
     Cash provided by (used in) operating activities                         24,498               (873)
                                                                        -----------        ----------- 

CASH FLOWS FROM INVESTING ACTIVITIES:
  Property and equipment additions                                         (105,950)          (100,656)
  Proceeds from sale of property and equipment                                2,623              2,010
                                                                        -----------        -----------
     Cash used in investing activities                                     (103,327)           (98,646)
                                                                        -----------        ----------- 

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from Senior notes                                                 75,000            174,139
  Proceeds from long-term debt                                               30,524             27,921
  Repayments of long-term debt                                              (30,692)           (48,761)
  Senior notes financing costs                                               (3,309)            (5,008)
  Proceeds from exercise of stock options                                       519                 59
  Redemption of Series A Preferred Stock                                          -               (699)
                                                                        -----------        ----------- 
     Cash provided by financing activities                                   72,042            147,651
                                                                        -----------        -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         (6,787)            48,132
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                               53,626              6,162
                                                                        -----------        -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                $    46,839        $    54,294
                                                                        ===========        ===========

SUPPLEMENTAL CASH FLOW DISCLOSURE

CASH PAID FOR INTEREST:                                                 $     8,869        $     1,431
                                                                        ===========        ===========
CASH PAID FOR TAXES:                                                    $         -        $       459
                                                                        ===========        ===========

NON CASH TRANSACTIONS:
  Issuance of common stock in Flournoy transaction
     Change in property and equipment additions                                            $    40,503
     Change in issuance of common stock                                                         31,066
     Change in deferred tax liability                                                            9,437

  Issuance of common stock for Grey Wolf acquisition
     Change in property and equipment additions                                                 85,842
     Change in issuance of common stock                                                         47,600
     Change in deferred tax liability                                                           34,720
     Change in other assets                                                                        167
     Change in long-term debt                                                                    1,043
     Change in other long-term liabilities                                                         359
     Change in assets and liabilities related to operating accounts                              2,287

  Murco Acquisition
     Change in property and equipment additions                         $    20,861
     Change in deferred tax liability                                        20,861
</TABLE>





          See accompanying notes to consolidated financial statements.

                                     - 6 -
<PAGE>   7
                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


(1)      GENERAL

         The accompanying unaudited consolidated financial statements have been
prepared by Grey Wolf, Inc. (the "Company" or "Grey Wolf") in accordance with
the rules and regulations of the Securities and Exchange Commission and include
the accounts of the Company and its majority-owned subsidiaries.  In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, which are of a normal recurring nature,
necessary to present fairly the Company's financial position as of June 30,
1998, and the results of its operations and cash flows for the periods
indicated.  All significant intercompany transactions have been eliminated.
The results of operations for the three and six months ended June 30, 1998 and
1997 are not necessarily indicative of the results for any other period or for
the year as a whole.  These consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.

(2)      NET INCOME (LOSS) PER COMMON SHARE

Earnings Per Share

         In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings 
per Share," which specifies new measurement, presentation and disclosure
requirements for earnings per share and is required to be applied retroactively
upon initial adoption.  The Company adopted SFAS No. 128 effective December 31,
1997, and accordingly, has restated herein all previously reported earnings per
share data.  Basic earnings per share is based on weighted average shares
outstanding without any dilutive effects considered.  Diluted earnings per
share reflects dilution from all contingently issuable shares, including
options, warrants and convertible preferred stock.  A reconciliation of the
weighted average common shares outstanding on a basic and diluted basis is as
follows:

<TABLE>
<CAPTION>
                                                         Three Months Ended             Six Months Ended
                                                              June 30,                      June 30,        
                                                     --------------------------    -------------------------
                                                       1998             1997         1998             1997  
                                                     ---------        ---------    --------         --------
         <S>                                           <C>              <C>                          <C>
                                                                          (In thousands)
         Weighted average common
             shares outstanding                        164,934          138,152     164,848          135,756

         Effective of dilutive securities:
             Options - Treasury Stock Method             2,330            2,150       2,513            2,089
             Redeemable preferred stock                    245              245         245              413
             Warrants                                      489              489         489              826
                                                     ---------        ---------    --------         --------
                                                         3,064            2,884       3,247            3,328
                                                     ---------        ---------    --------         --------
         Weighted average common shares
             outstanding - Diluted                     167,998          141,036     168,095          139,084
                                                     =========        =========    ========         ========
</TABLE>





                                     - 7 -
<PAGE>   8
                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)



Property and Equipment

         Property and equipment is stated at cost.  Depreciation is calculated
using the straightline method over the estimated useful lives of the assets.
Effective January 1, 1998, the Company changed the depreciable lives of the
majority of its drilling rigs from 12 to 15 years to better reflect the useful
lives of the Company's refurbished and upgraded rig fleet.  The effect of this
change reduced depreciation expense for the six months ended June 30, 1998, by
approximately $3 million.

Foreign Currency

         Venezuela has a highly inflationary economy as defined by SFAS No. 52,
"Foreign Currency Translation."  As such the Company's functional currency is
the U.S. dollar.  Accordingly, monetary assets and liabilities denominated in
foreign currency are re-measured to U.S. dollars at the rate of exchange in
effect at the end of the period, items of income and expense and other
non-monetary amounts are re-measured at historical rates.  Gains or losses on
foreign currency re-measurement are included in other income (expense), net in
the consolidated statement of operations.  During the three and six month
periods  ended June 30, 1998 the Company recognized foreign exchange losses of
$30,000 and $97,000, respectively.

Comprehensive Income

         In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income ," with an effective date for fiscal years beginning after December 15,
1997.  SFAS No. 130 establishes standards for the reporting of comprehensive
income in a company's financial statements.  Comprehensive income includes all
changes in a company's equity during the period that result from transactions
and other economic events other than transactions with its stockholders.  The
adoption of SFAS No. 130, effective January 1, 1998, did not affect the
financial reporting in the accompanying consolidated financial statements as
the Company had no components of comprehensive income other than net income.

Segment Reporting

         In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" with an effective date for
fiscal years beginning after December 15, 1997.  The statement specifies
revised guidelines for determining an entity's operating and geographic
segments and the type or level of financial information about those segments.
Under the standard, consistent with the geographic segments disclosure in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, the
Company has two segments - domestic and foreign operations.  These two segments
are managed separately as each requires different operating and marketing
strategies.

(3)      ACCOUNTING FOR INCOME TAXES

         The Company and its domestic subsidiaries file a consolidated federal
income tax return.  The Company's foreign subsidiaries file tax returns in the
country where they are domiciled.  The Company records current income taxes
based on its estimated tax liability in the United States and foreign countries





                                     - 8 -
<PAGE>   9
                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


for the period.  During the six months ended June 30, 1998, the Company
recorded a current tax provision of $15,000 and a deferred tax provision of
$2.9 million.

         The Company follows SFAS No. 109, "Accounting for Income Taxes," which
requires the balance sheet approach to income tax accounting, whereby deferred
income taxes are provided at the balance sheet date for (a) differences
existing in the tax basis of assets and liabilities and their financial
statement carrying amounts plus (b) operating loss and tax credit
carryforwards.

(4)      SIGNIFICANT TRANSACTIONS

         On January 30, 1998, the Company acquired all of the outstanding
common stock of Murco Drilling Corporation ("Murco") for $60.4 million in cash.
At closing, Murco had net financial liabilities of approximately $4.5 million.
The Company funded this stock purchase out of working capital and $30 million
of borrowings under its bank credit facility (see note 5).

         On February 26, 1998, the Company signed a definitive agreement to
sell all of the rigs and drilling related equipment of the Company's Eastern
division located in Ohio to Union Drilling, Inc., an affiliate of two of the
Company's directors, for $2.4 million.  The sale closed in steps as each of the
rigs completed its current drilling contract with the last transaction being
completed on March 4, 1998.  The Company recorded a gain of $1.8 million on the
sale.  The Eastern division rig fleet consisted of six 450 horsepower
mechanical rigs.

         The following unaudited pro forma consolidated financial data for the
six months ended June 30, 1998  includes the historical results of the Company
for the six months ended June 30, 1998, and gives effect to the acquisition of
Murco and related borrowings under the bank credit facility, as if they had
occurred on January 1, 1998.  The following unaudited pro forma consolidated
financial data for the six months ended June 30, 1997 includes the historical
results of the Company for the six months ended June 30, 1997, and gives effect
to the acquisition of Murco and related borrowings under the bank credit
facility as well as the previously disclosed merger, acquisitions and sale
transactions which occurred before December 31, 1997, as if they occurred on
January 1, 1997.  Other rig purchases had no historical operations as the rigs
had been stacked and the impact on the unaudited pro forma consolidated
financial data is not material and has not been presented.

<TABLE>
<CAPTION>
                                                                 For the Six Months Ended
                                                                         June 30,               
                                                         ---------------------------------------
                                                              1998                     1997     
                                                         -------------             -------------
                                                     (Amounts in thousands, except per share amounts)

                 <S>                                     <C>                        <C>
                 Total revenues                          $   141,546                $   134,870
                 Net income (loss) applicable
                     to common stock                           1,835                       (831)

                 Basic net income (loss) per
                     common share                                .01                       (.01)
                 Diluted net income (loss) per
                     common share                                .01                        .00
</TABLE>





                                     - 9 -
<PAGE>   10
                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


         (5)     LONG-TERM DEBT

         The Company has a $50.0 million amended and restated senior secured
revolving line of credit ("the Facility") with a syndicate of commercial banks.
The Facility bears interest on a sliding variable rate based on certain
financial ratios of either LIBOR plus 1.75% to 2.5% or prime plus .75% to 1.5%
and matures on April 30, 2000.  The Facility is secured by substantially all
the Company's assets and calls for quarterly interest payments on the
outstanding balance.  The Facility contains customary affirmative and negative
covenants which the Company had met at December 31, 1997, and were met or
waived and amended at June 30, 1998.

         On June 27, 1997, the Company issued $175.0 million of senior notes
(the "Notes") receiving gross proceeds of $174.1 million.  The Notes bear
interest at 8 7/8% per annum payable semiannually and mature on July 1, 2007.
The Notes are general unsecured senior obligations of the Company and are
guaranteed by the Company's domestic subsidiaries.  Proceeds from the Notes
were used to fund the cash portion of the GWDC merger (defined herein), to
repay the then outstanding Facility balance of $47.0 million and to fund
certain inventory rig purchases.  In connection with the issuance of the Notes,
during the year ended December 31, 1997, the Company paid approximately $5.1
million in underwriting and financing costs which will be amortized over the
life of the Notes.

         On May 8, 1998 the Company completed an offering of $75 million of
senior notes under Rule 144A due July 1, 2007 ( the "Series B Notes") with
interest at 8 7/8% per annum.  The terms and conditions of the Series B Notes
are substantially consistent with the Notes.  The net proceeds from the
offering were $71.7 million after deducting commissions, fees and expenses
which will be amortized over the life of the Series B Notes.  A portion of the
net proceeds from the offering was used to repay approximately $30.0 million of
indebtedness then outstanding under the Facility.  The remaining proceeds will
be used for general corporate purposes.  The Series B Notes were not registered
under the Securities Act of 1933 and could not be offered or sold in the United
States absent registration or an applicable exemption from registration.  As of
August 5, 1998, all of the outstanding Series B Notes had been exchanged for 8
7/8% Senior Notes due 2007, ("Series C Notes") in a registered exchange offer
under the Securities Act of 1933.  The Series C Notes are obligations of the
Company evidencing the same debt as the Series B Notes and are entitled to the
benefits of the same indenture.

         Except as discussed below, the Notes and Series C Notes are not
redeemable at the option of the Company prior to July 1, 2002.  On or after
such date, the Company shall have the option to redeem the Notes and Series C
Notes in whole or in part during the twelve months beginning July 1, 2002 at
104.4375%, beginning July 1, 2003 at 102.9580%, beginning July 1, 2004 at
101.4792% and beginning July 1, 2005 and thereafter at 100.0000% together with
any interest accrued and unpaid to the redemption date.  However, at any time
during the first 36 months after the issue date, the Company may at its option,
redeem up to a maximum of 30% of the aggregate principal amount with the net
cash proceeds of one or more equity offerings at a redemption price equal to
108.875% of the principal amount thereof, plus accrued and unpaid interest
thereon to the redemption date provided that at least $170.0 million aggregate
principal amount shall remain outstanding immediately after the occurrence of
any such redemption.





                                     - 10 -
<PAGE>   11
                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


(6)      COMMITMENTS AND CONTINGENT LIABILITIES

         The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's consolidated financial condition or
results of operations.

         Substantially all of the Company's contract drilling activities are
conducted with independent and major oil and gas companies in the United States
and Venezuela or with national petroleum companies in Venezuela.  Historically,
the Company has not required collateral or other security to support the
related receivables from such customers.  However, the Company has required
certain customers to deposit funds in escrow prior to the commencement of
drilling.  Actions typically taken by the Company in the event of nonpayment
include filing a lien on the customer's producing property and filing suit
against the customer.

         The June 1997 Grey Wolf Drilling Company ("GWDC") merger is intended
to qualify as a tax free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"),
with respect to common stock received by GWDC shareholders.  A principal
condition for such qualification is that the former shareholders of GWDC will
satisfy the continuity of proprietary interest standard with respect to common
stock received in the GWDC merger.  Thus, under previous Internal Revenue
Service ("IRS") guidelines, dispositions of common stock by GWDC shareholders
during the five years following the GWDC merger could cause the IRS to assert
that the GWDC merger does not qualify as a tax free reorganization.  The
Company has no contractual agreements with GWDC shareholders preventing the
disposition of their shares.  If the GWDC merger fails to qualify as a tax free
reorganization for failure to meet the continuity of interest standard or for
any reason, the receipt of common stock will be taxable to the GWDC
shareholders at the time of the GWDC merger, and GWDC will be deemed to have
sold all of its assets in a taxable exchange triggering a corporate tax
liability to GWDC estimated to be in excess of $30.0 million.  The Company's
wholly-owned subsidiary, Grey Wolf Drilling Company (formerly Drillers, Inc.),
as the surviving corporation of the GWDC merger, would be liable for any such
corporate tax which, if imposed, would have a material adverse effect on the
financial condition of the Company.





                                     - 11 -
<PAGE>   12
                        GREY WOLF, INC. AND SUBSIDIARIES

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

         The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto of Grey Wolf, Inc. ("Grey
Wolf" or the "Company") included elsewhere herein and the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.

GENERAL

         Grey Wolf is a leading provider of contract land drilling services in
the United States with a domestic fleet of 120 rigs.  In addition to its
domestic operations, the Company operates a fleet of six rigs in Venezuela,
giving the Company a total of 126 rigs, 114 of which are actively marketed.
The Company believes that it has the largest fleet of land drilling rigs in its
Gulf Coast and South Texas markets and the second largest fleet in its
Ark-La-Tex and Mississippi/Alabama markets.  The Company has an inventory of 12
non-marketed rigs that are being held for refurbishment as demand for the
Company's services warrants.

         The Company is a Texas corporation formed in 1980.  Beginning in
mid-1996, the Company implemented a new strategy whereby it elected a
substantially new board of directors, installed new senior management and
completed several acquisitions, mergers and financing transactions that
significantly improved its liquidity, added drilling rigs to its existing
fleet, and substantially increased the number of its personnel.  The combined
effect of the Company's change in operating strategy and larger fleet of
marketable rigs has significantly improved the Company's revenues and operating
income during the three and six months ended June 30, 1998 as compared to the
same periods in the prior year.

         However, for the six months ended June 30, 1998 and for the month of
July 1998, the Company experienced decreases in average rig utilization rates
in its core domestic markets to approximately 75% and 62%, respectively, as
compared to an average rig utilization rate of 96% in its core domestic markets
for the year ended December 31, 1997.  In addition, the bid rate for new
drilling contracts in the Company's core domestic markets for June 1998 were
approximately 20% lower than the highest bid rates achieved during the last
quarter of 1997.  The lower utilization and erosion of dayrates for drilling
rigs is due to reductions in the capital spending programs of the Company's
customers who are facing lower revenues and cash flows due to lower oil prices.
If these trends continue, or worsen, they could have a material adverse effect
on the Company's results of operations.

FINANCIAL CONDITION AND LIQUIDITY

         During the first six months of 1998, the Company funded its activities
through a combination of cash generated from operations, borrowings under the
Company's bank credit facility (the "Facility"), and (i) the remaining proceeds
from the November 1997 issuance of common stock, and (ii) the May 1998 offering
of $75.0 million of senior notes.





                                     - 12 -
<PAGE>   13
         The following table summarizes the Company's financial position at
June 30, 1998 and as of December 31, 1997.

<TABLE>
<CAPTION>
                                                    JUNE 30, 1998                DECEMBER 31, 1997   
                                              -----------------------        ------------------------
                                                     (UNAUDITED)
                                                                  (IN THOUSANDS)
         <S>                                  <C>             <C>              <C>            <C>
                                                 Amount           %              Amount           %  
                                               ----------       ----           ----------       ----
         Working capital                       $   57,038         10           $   66,644         14
                                                                                                    
         Property and equipment, net              517,015         88              409,088         85
                                                                                                    
         Other noncurrent assets                    9,465          2                6,983          1
                                               ----------       ----           ----------       ----
                 Total                         $  583,518        100           $  482,715        100
                                               ==========       ====           ==========       ====


         Long-term debt                       $   250,982         43           $  176,225         36
                                                                                                    
         Other long-term liabilities               81,043         14               57,274         12
                                                                                                    
         Shareholders' equity                     251,493         43              249,216         52
                                              -----------       ----           ----------       ----
                 Total                        $   583,518        100           $  482,715        100
                                              ===========       ====           ==========       ====
</TABLE>

         The significant changes in the Company's financial position from
December 31, 1997 to June 30, 1998 are the decrease in working capital of $9.6
million and the increases in property and equipment, net and long-term debt of
$107.9 million and $74.8 million, respectively.  The change in working capital
is due primarily to an overall decline in the Company's operating activity.
The increases in property and equipment, net and long-term debt are primarily
due to (i) the acquisition of Murco Drilling Corporation ("Murco") and (ii) the
$75.0 million senior note offering discussed below.

         On January 30, 1998, the Company acquired all of the outstanding
common stock of Murco for $60.4 million in cash.  At closing, Murco had net
liabilities of approximately $4.5 million.  The Company funded this stock
purchase out of working capital and $30.0 million of borrowings under the
Facility.  Murco operated ten land drilling rigs in the Ark-La-Tex and
Mississippi/Alabama markets.

         On May 8, 1998 the Company completed an offering of $75.0 million of
senior notes under Rule 144A due July 1, 2007 ( the "Series B Notes") with
interest at 8 7/8% per annum.  The terms and conditions of the Series B Notes
are substantially consistent with the $175 million of senior notes issued in
June, 1997 (the "Series A Notes").  The net proceeds from the offering were
$71.7 million after deducting commissions, fees and expenses which will be
amortized over the life of the Series B Notes.  A portion of the net proceeds
from the offering was used to repay approximately $30.0 million of indebtedness
incurred under the Facility to partially finance the acquisition of Murco.  The
remaining proceeds will be used for general corporate purposes.  The Series B
Notes were not registered under the Securities Act of 1933, as amended,  and
could not be offered or sold in the United States absent registration or an
applicable exemption from registration.  As of August 5, 1998, all of the
outstanding Series B Notes had been exchanged for 8 7/8% Senior Notes due 2007,
("Series C Notes") under a registered exchange offer filed by the Company under
the Securities Act of 1933, as amended,  on July 6, 1998.  The Series C Notes
are obligations of the Company evidencing the same debt as the Series B Notes
and are entitled to the benefits of the same indenture.

Operating Activities

         During the first six months of 1998, the Company generated cash flow
from operations of $24.5 million.  While cash generated from operations
increased to $21.7 million, the Company's working capital requirements
decreased by $2.8 million due to the decrease in the overall level of activity
by the Company, thereby increasing the amount of cash available from operating
activities.





                                     - 13 -
<PAGE>   14
Investing Activities

         During the six months ended June 30, 1998, the Company invested $103.3
million in fixed assets, net of asset sales.  The cash portion of the
acquisition of Murco, including transaction costs, accounted for $64.3 million,
in addition to $21.0 million in non-cash additions to property and equipment
for the Murco rigs.  Capital expenditures for rig refurbishments, drill pipe
and other capital maintenance were $19.0 million, $9.3 million and $13.4
million, respectively.

Financing Activities

         During the first six months of 1998, cash provided by financing
activities totaled $72.0 million consisting principally of net proceeds from
the May 1998 $75.0 million Series B Note offering.  The net proceeds of $71.7
million were used to repay approximately $30.0 million of indebtedness incurred
under the Facility to partially finance the Murco acquisition.  The remaining
proceeds will be used for general corporate purposes.  The Company had cash and
cash equivalents at June 30, 1998, of $46.8 million.

Future Activities

         During the six months ended June 30, 1998 the Company completed the
refurbishment of four rigs for deployment in the Company's core domestic
markets.  Funding requirements to refurbish the remaining 12 rigs from
inventory could be substantial based upon 1998 estimates.  The Company
estimates costs for pending and planned refurbishments for these 12 rigs will
total  $ 29.2 million.  These estimates are based on deployment of all rigs
planned for refurbishment to the Company's four core domestic markets at an
estimated average refurbishment cost of $ 2.4 million per rig, including the
cost of a new drill string.  If the Company instead chooses to refurbish rigs
for service in the Venezuelan or other international markets, it is estimated
that the average refurbishment cost of such rigs could be as high as $12.0
million per rig, including the cost of a new drill string, transportation and
importation duties.  Overall estimated capital expenditures for rig
refurbishments would be correspondingly increased by the incremental
refurbishment cost of rigs destined for international markets.  As a result of
the recent decline in demand for land drilling services in the Company's
domestic and international markets, the Company has delayed the refurbishment
of its 12 remaining inventory rigs until such time as management believes that
demand for drilling services in the Company's core domestic markets again
justifies resumption of the Company's refurbishment program.  In the event that
the Company is successful in obtaining long-term drilling contracts in foreign
markets, the Company may refurbish certain of its inventory rigs for service in
those foreign markets.

         The Company believes that the cash flow from operations, current cash
balances, and to the extent required, borrowings under the Facility, will be
sufficient to fund the Company's anticipated capital expenditures for the
remainder of 1998 and 1999.

         The Company continues to actively review possible acquisition
opportunities.  While the Company has no agreements to acquire additional
businesses or equipment, suitable opportunities may arise in the future.  The
timing or success of any acquisition effort and the size of the associated
potential capital commitments cannot be predicted at this time.  The ability of
the Company to consummate any such transaction will be dependent in large part
on its ability to fund such transaction.  There can be no assurance that
adequate funding will be available on terms satisfactory to the Company.

Inflation and Changing Prices

         Contract drilling revenues do not necessarily track the changes in
general inflation as they tend to respond to the level of activity on the part
of the oil and gas industry in combination with the supply of





                                     - 14 -
<PAGE>   15
equipment and the number of competing companies.  Capital and operating costs
are influenced to a larger extent by specific price changes in the oil and gas
industry and to a lesser extent by changes in general inflation.

Foreign Exchange

         Venezuelan operations are often performed by the Company pursuant to
drilling contracts under which payments to the Company are denominated in
United States Dollars but are payable in Venezuelan currency at a floating
exchange rate.  Although the Company's Venezuelan contracts usually allow the
Company to exchange up to 35% of payments made to it in Venezuelan currency for
United States Dollars for a limited period of time following the payment and at
the official Venezuelan exchange rate in effect at the time the payment was
made to the Company (thus offering limited protection against adverse currency
fluctuation), the Company is typically subject to the risk of adverse currency
fluctuations with respect to the balance of such payments.  Additionally, a
significant portion of costs and expenses relating to the Company's
international operations are comprised of goods and services procured in the
respective foreign countries and paid for in the respective countries'
currencies.  Accordingly, management expects that the Company's subsidiaries
operating in Venezuela will be required to maintain significant cash balances
in Venezuelan currency.  The Company has not during the six months ended June
30, 1998, entered into any currency hedges to protect it from foreign currency
losses.  Instead, the Company attempts to manage assets in foreign countries to
minimize its exposure to currency fluctuations.  Despite these efforts,
however, the Company remains subject to the risk of foreign currency losses.
During the three and six months ended June 30, 1998 the Company recognized
foreign exchange losses of $30,000 and $97,000, respectively.  (See Note 2
"Significant Accounting Policies - Foreign Currency" to the Consolidated
Financial Statements).

Other

         The Company has not paid any cash dividends on the Company's common
stock and does not anticipate paying dividends on the common stock at any time
in the foreseeable future.  Furthermore, the Facility prohibits the payment of
dividends without the consent of the participating banks.

         The Company is a holding company.  Substantially all of its operations
are conducted through, and substantially all of its assets consist of equity
interest in, its subsidiaries, including the guarantors of the Company's Series
A and C Notes.  As a holding company, the Company's liquidity is dependent on
the operations of its subsidiaries.  Certain financing arrangements that the
Company and its subsidiaries are party to may restrict the Company's ability
access funds from its subsidiaries.





                                     - 15 -
<PAGE>   16
RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 1998 and 1997

         The following tables highlight rig days worked, revenues and operating
expenses, for the Company's domestic and foreign operations for the three
months ended June 30, 1998 and 1997.

<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED                        THREE MONTHS ENDED
                                          JUNE 30, 1998                              JUNE 30, 1997          
                                ----------------------------------        ----------------------------------
                                DOMESTIC     FOREIGN                       DOMESTIC    FOREIGN
                               OPERATIONS   OPERATIONS     TOTAL          OPERATIONS  OPERATIONS     TOTAL 
                               ----------   ----------   ---------        ----------  ----------    --------
                                         (In thousands, except rig days worked and averages per day)
                                                                                                    
<S>                             <C>          <C>         <C>              <C>          <C>          <C>
Rig days worked                    6,869          221        7,090            4,430          120       4,550
Drilling revenues               $ 63,231     $  2,227    $  65,458        $  38,963    $   1,108    $ 40,071
Operating expenses(1)             47,127        2,656       49,783           31,874        1,466      33,340
                                --------     --------    ---------        ---------    ---------    --------
Gross profit (loss)             $ 16,104     $   (429)   $  15,675        $   7,089    $    (358)   $  6,731
                                ========     ========    =========        =========    =========    ========

Average per rig day worked
   Drilling revenue             $  9,205     $ 10,077    $   9,232        $   8,795    $   9,233    $  8,807
   Operating expenses              6,861       12,018        7,022            7,195       12,217       7,327
                                --------     --------    ---------        ---------    ---------    --------
   Gross profit (loss)          $  2,344     $ (1,941)   $   2,210        $   1,600    $  (2,984)   $  1,480
                                ========     ========    =========        =========    =========    ========
</TABLE>
-----------------------------
(1) Operating expenses exclude depreciation and amortization and general and
    administrative expenses.

         Revenues increased approximately $25.4 million, or 63%, to $65.5
million for the three months ended June 30, 1998, from $40.1 million for the
three months ended June 30, 1997.  The increase is primarily due to an increase
in revenue from domestic operations of $24.3 million due to an increase in rig
days worked of 2,439, and an increase in the average revenue per day of $410.
The increase in operating days is due to the acquisition of 54 operating rigs
during 1997 and January of 1998 partially offset by an overall decrease in
utilization during the second quarter of 1998.  The remaining increase in
revenue is due to a $1.1 million increase in revenue from foreign operations.
This increase is due to an increase in rig days worked of 101 and an increase
in the average revenue per day of $844.

         Drilling operating expenses increased by approximately $16.4 million,
or 49%, to $49.8 million for the three months ended June 30, 1998, as compared
to $33.3 million for the three months ended June 30, 1997.  The increase is
primarily due to a $15.3 million increase in drilling operating expenses from
domestic operations.  The increase in domestic drilling operating expenses is a
direct result of the increase in the number of rigs owned and available for
service and the corresponding 2,439 day increase in the days worked.  The
remaining increase in operating expenses of $1.2 million is due to an increase
in operating expense from the foreign operations resulting from the increased
level of activity.

         Depreciation and amortization expense increased by $6.4 million, or
216%, to $9.4 million for the three months ended June 30, 1998, compared to
$3.0 million for the three months ended June 30, 1997.  The increase is
primarily due to additional depreciation associated with the acquisition of
additional operating rigs noted above and 25 rigs refurbished from inventory
offset to a small extent by the change in the depreciable lives of certain of
the Company's drilling rigs.

         General and administrative expenses increased by $818,000 or 48%, to
$2.5 million for the three months ended June 30, 1998, from $1.7 million for
the same period of 1997 due primarily to the increased size of the Company's
operations.





                                     - 16 -
<PAGE>   17
         Interest expense increased by $4.6 million, or 534%, to $5.5 million
for the three months ended June 30, 1998, compared to $863,000 for the three
months ended June 30, 1997.  The increase is due to an increase in the average
outstanding debt balance of $188.1 million to $230 million for the three months
ended June 30, 1998 from $41.9 million for the three months ended June 30,
1997.  This increase in the outstanding debt balance is primarily due to (i)
the issuance of $175.0 million of Series A Notes during June 1997 to complete
the Grey Wolf Drilling Company merger and continue the refurbishment of the
additional rigs purchased and (ii) the issuance of $75 million of Series B
Notes on May 8, 1998 of which $30 million was used to repay the indebtedness
incurred under the Facility to partially finance the acquisition of Murco.

         Other income, net decreased by $169,000 to $385,000 for the three
months ended June 30, 1998, as compared to $554,000 for the three months ended
June 30, 1997.  The principal reason for the decrease is due to the gain
recognized on various incidental asset sales of the Company during the three
months ended June 30, 1997 with no such gain being recorded during the same
period in 1998.

Comparison of the Six Months Ended June 30, 1998 and 1997

         The following tables highlight rig days worked, revenues and operating
expenses, for the Company's domestic and foreign operations for the six months
ended June 30, 1998 and 1997.

<TABLE>
<CAPTION>
                                         SIX MONTHS ENDED                          SIX MONTHS ENDED
                                          JUNE 30, 1998                              JUNE 30, 1997          
                               -----------------------------------        ----------------------------------
                                DOMESTIC     FOREIGN                       DOMESTIC    FOREIGN
                               OPERATIONS   OPERATIONS     TOTAL          OPERATIONS  OPERATIONS     TOTAL 
                               ----------   ----------   ---------        ----------  ----------    --------
                                         (In thousands, except rig days worked and averages per day)
                                                                                                    
<S>                            <C>           <C>        <C>               <C>          <C>          <C>
Rig days worked                   14,559          399       14,958            8,405          570       8,975
Drilling revenues              $ 135,141     $  4,332   $  139,473        $  71,564    $   4,482    $ 76,046
Operating expenses(1)             99,826        4,834      104,660           57,690        4,442      62,132
                               ---------     --------   ----------        ---------    ---------    --------
Gross profit (loss)            $  35,315     $   (502)  $   34,813        $  13,874    $      40    $ 13,914
                               ---------     --------   ----------        =========    =========    ========

Average per rig day worked
   Drilling revenue            $   9,282     $ 10,857   $    9,324        $   8,514    $   7,863    $  8,473
   Operating expenses              6,857       12,115        6,997            6,864        7,793       6,923
                               ---------     --------   ----------        ---------    ---------    --------
   Gross profit (loss)         $   2,425     $ (1,258)  $    2,327        $   1,650    $      70    $  1,550
                               =========     ========   ==========        =========    =========    ========
</TABLE>
-----------------------------
(1) Operating expenses exclude depreciation and amortization and general and
    administrative expenses.

         Revenues increased approximately $63.4 million, or 83%, to $139.5
million for the six months ended  June 30, 1998, from $76.0 million for the six
months ended June 30, 1997.  The increase is due to an increase in revenue from
domestic operations of $63.6 million partially offset by a decrease in revenue
from foreign operations of $150,000.  Revenues from domestic operations
increased due to an increase in rig days worked of 6,154 and an increase in the
average revenue per day of $768.  The increase in operating days is due to the
acquisition of 54 operating rigs during 1997 and January of 1998.  Revenue from
foreign operations decreased due to a decrease in rig days worked of 171
partially offset by an increase in average revenue per day of $2,994.

         Drilling operating expenses increased by approximately $42.5 million,
or 68%, to $104.7 million for the six months ended June 30, 1998, as compared
to $62.1 million for the six months ended June 30, 1997.  The increase is
primarily due to a $42.1 million increase in drilling operating expenses from
domestic operations.  The increase in domestic drilling operating expenses is a
direct result of the increase in the number of rigs owned and available for
service and the corresponding 6,154 day increase in the days worked.





                                     - 17 -
<PAGE>   18
The remaining increase in operating expenses of $400,000 is due to an increase
in operating expense from the foreign operations resulting from increased labor
costs in the Company's Venezuela operations.

         Depreciation and amortization expense increased by $12.8 million, or
247%, to $18 million for the six months ended June 30, 1998, compared to $5.2
million for the six months ended June 30, 1997.  The increase is primarily due
to additional depreciation associated with the acquisition of additional
operating rigs noted above, and 25 rigs refurbished from inventory and offset
to a small extent by the change in depreciable lives of certain of the
Company's drilling rigs.

         General and administrative expense increased by $1.6 million, or 49%,
to $5.0 million for the six months ended June 30, 1998, from $3.4 million for
the same period of 1997 due primarily to the increased size of the Company's
operations.

         Interest expense increased by $8.0 million or 522%, to $9.5 million
for the six months ended June 30, 1998, compared to $1.5 million for the six
months ended June 30, 1997.  The increase is due to an increase in the average
outstanding debt balance of $177.7 million to $214.8 million for the six months
ended June 30, 1998 from $37.1 million for the six months ended June 30, 1997.
This increase in the outstanding debt balance is primarily due to (i) the
issuance of $175.0 million of Senior Notes during June 1997 to complete the
Grey Wolf Drilling Company merger and continue the refurbishment of the
additional rigs purchased and (ii) the issuance of $75 million of Series B
Notes on May 8, 1998 of which $30 million was used to repay the indebtedness
incurred under the Facility to partially finance the acquisition of Murco.

         Other income, net increased by $1.5 million to $2.4 million for the
six months ended June 30, 1998, as compared to $880,000 for the six months
ended June 30, 1997.  The increase is primarily due to the $1.8 million gain
recognized during 1998 on the sale of the rigs and drilling related equipment
of the Company's Eastern division located in Ohio to Union Drilling, Inc., an
affiliate of two of the Company's directors.

YEAR 2000 COMPLIANCE

         The Company expects that the cost of converting its computer systems
to be year 2000 compliant will be between $100,000 and $200,000, which is not
material to its financial condition.  To date the Company has expended
approximately $30,000 on its year 2000 remediation efforts.  The Company
believes that it will be able to achieve year 2000 compliance by the end of
1999, and it does not currently anticipate any disruption in its operations as
a result of any failure by the Company to be in compliance.  The Company does
not currently have any information concerning the year 2000 compliance status
of its customers or vendors.  However, the Company does not believe that the
failure of any customer or vendor to be year 2000 compliant will have a
material adverse effect on the Company or its financial condition.





                                     - 18 -
<PAGE>   19
PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
         The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in aggregate,
material to the Company's consolidated financial condition or results of
operations.  (See note 6 of Notes To Consolidated Financial Statements)

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
         On May 5, 1998, the annual meeting of the holders of Common Stock of
Grey Wolf, Inc. was held.  The only action taken by the shareholders was the
election of the following eight directors to serve until the next annual
meeting or until his successor is elected and qualified.

   William T. Donovan            Thomas P. Richards
   Peter M. Holt                 Ivar Siem 
   James K. Nelson               Steven A. Webster 
   Roy T. Oliver, Jr.            William R. Ziegler

ITEM 5.  OTHER INFORMATION
         This Quarterly Report on Form 10-Q contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical facts included in this
report including, without limitation, statements regarding the Company's
business strategy, plans, objectives, capital expenditures and beliefs of
management for future operations, are forward-looking statements.  Although the
company believes the expectations and beliefs reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct.  Important factors that could cause actual results
to differ materially from the Company's expectations ("Cautionary Statements")
are discussed in Item 1 "Business" and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.

         The Company expects to hold its 1999 Annual Meeting on or about May 4,
1999.  Management will exercise the discretionary authority granted pursuant to
proxies to vote on shareholder proposals submitted from the floor of the
Company's Annual Meeting unless the Company receives written notice of a
shareholder's intent to submit such a proposal on or before March 19, 1999.
The notice submitted by a shareholder should include a statement that the
proponent intends to solicit the necessary percentage of shareholder votes to
carry the proposal supported by evidence that the stated percentage will
actually be solicited.  If the Company receives notice, meeting the foregoing
requirements, of a shareholder's intent to submit such a proposal by March 19,
1999, pursuant to the rules of the Securities and Exchange Commission,
management will not be able to exercise the discretionary authority granted
pursuant to proxies to vote on such proposal.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         A current report on Form 8-K (Item 5) was filed with the Securities
and Exchange Commission on May 5, 1998.  This current report reported the
offering of $75 million of Series B Notes pursuant to Rule 144A under the
Securities Act of 1933, as amended.

         A current report on Form 8-K (Item 5) was filed with the Securities
and Exchange Commission on May 21, 1998.  This current report reported the
closing of $75 million of Series B Notes pursuant to Rule 144A under the
Securities Act of 1933, as amended.

Exhibits:
<TABLE>
<CAPTION>
   Exhibit
    Number                        Description                                    
  ----------                      -----------
      <S>         <C>
      27.0        Financial Data Schedule
</TABLE>





                                     - 19 -
<PAGE>   20
                                   SIGNATURES


         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.


                                                  GREY WOLF, INC.



Date: August 13, 1998                    By:      /s/ David W. Wehlmann
                                                  ---------------------------
                                                  David W. Wehlmann
                                                  Senior Vice President and
                                                  Chief Financial Officer



Date: August 13, 1998                    By:      /s/ Merrie S. Costley
                                                  ---------------------------
                                                  Merrie S. Costley
                                                  Vice President and Controller





                                     - 20 -
<PAGE>   21
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                           DESCRIPTION
 -------        -----------------------------------------------
   <S>          <C>          
   27           Financial Data Schedule

</TABLE>