<PAGE>

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

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

                                    FORM 10-Q


[X]    Quarterly Report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934.


       For the quarterly period ended March 31, 2003

                                       or


[ ]    Transition Report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934.

       For the transition period from                   to
                                      -----------------    -----------------

                          Commission File Number 1-8226


                             (GREY WOLF, INC. LOGO)

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

                  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)

       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
                              ---          ---

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).


                          Yes  X        No
                              ---          ---

         The number of shares of the Registrant's Common Stock, par value $.10
per share, outstanding at April 28, 2003, was 181,213,531.

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


                                      -1-
<PAGE>


                        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
                               and Comprehensive Income                                                     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                                         13
              Item 3.      Quantitative and Qualitative Disclosure about Market Risk                       22
              Item 4.      Controls and Procedures                                                         22

PART II.      Other Information

              Item 1.      Legal Proceedings                                                               22
              Item 2       Changes in Securities and Use of Proceeds                                       22
              Item 3.      Defaults Upon Senior Securities                                                 22
              Item 4.      Submission of Matters to a Vote of Security Holders                             22
              Item 5.      Other Information                                                               23
              Item 6.      Exhibits and Reports on Form 8-K                                                24
              Signatures                                                                                   25
              Certifications                                                                               26
</Table>


                                      -2-
<PAGE>


                        GREY WOLF, INC. AND SUBSIDIARIES

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

<Table>
<Caption>
                                                                       March 31,        December 31,
                                                                          2003              2002
                                                                       ----------       ------------
                                                                       (Unaudited)
<S>                                                                    <C>              <C>
                              ASSETS

Current assets:
     Cash and cash equivalents                                         $  103,434       $    113,899
     Restricted cash - insurance deposits                                     795                784
     Accounts receivable, net of allowance of $2,500                       47,465             47,034
     Prepaids and other current assets                                      3,018              3,447
                                                                       ----------       ------------
         Total current assets                                             154,712            165,164
                                                                       ----------       ------------

Property and equipment:
     Land, buildings and improvements                                       5,424              5,424
     Drilling equipment                                                   707,277            704,734
     Furniture and fixtures                                                 3,221              3,185
                                                                       ----------       ------------
         Total property and equipment                                     715,922            713,343
     Less:  accumulated depreciation                                     (304,711)          (292,552)
                                                                       ----------       ------------
         Net property and equipment                                       411,211            420,791

Other noncurrent assets                                                     4,397              4,668
                                                                       ----------       ------------
                                                                       $  570,320       $    590,623
                                                                       ==========       ============

         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:

     Accounts payable-trade                                            $   20,474       $     19,460
     Accrued workers' compensation                                          4,141              4,947
     Payroll and related employee costs                                     6,766              6,685
     Accrued interest payable                                               5,684             11,160
     Other accrued liabilities                                              6,356              8,559
                                                                       ----------       ------------
         Total current liabilities                                         43,421             50,811
                                                                       ----------       ------------

Senior notes                                                              249,634            249,613
Other long-term liabilities                                                 5,799              4,789
Deferred income taxes                                                      55,468             60,152

Commitments and contingent liabilities                                         --                 --

Shareholders' equity:
     Series B Junior Participating Preferred stock, $1 par value;
        250,000 shares authorized; none outstanding                            --                 --
     Common stock, $.10 par value; 300,000,000 shares
        authorized; 181,194,811 and 181,037,811 issued
        and outstanding, respectively                                      18,120             18,104
     Additional paid-in capital                                           330,057            329,712
     Accumulated deficit                                                 (132,179)          (122,558)
                                                                       ----------       ------------
         Total shareholders' equity                                       215,998            225,258
                                                                       ----------       ------------
                                                                       $  570,320       $    590,623
                                                                       ==========       ============
</Table>


           See accompanying notes to consolidated financial statements


                                      -3-
<PAGE>


                        GREY WOLF, INC. AND SUBSIDIARIES

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



<Table>
<Caption>
                                                     Three Months Ended
                                                          March 31,
                                                 ---------------------------
                                                    2003             2002
                                                 ----------       ----------
<S>                                              <C>              <C>
Revenues:
     Contract drilling                           $   62,387       $   64,912

Costs and expenses:
     Drilling operations                             55,285           47,648
     Depreciation                                    12,291           11,353
     General and administrative                       3,246            3,256
                                                 ----------       ----------
         Total costs and expenses                    70,822           62,257
                                                 ----------       ----------

Operating income (loss)                              (8,435)           2,655

Other income (expense):
     Interest income                                    289              441
     Gain on sale of assets                              21               59
     Interest expense                                (6,037)          (5,965)
     Other, net                                          14               54
                                                 ----------       ----------
         Other income (expense), net                 (5,713)          (5,411)
                                                 ----------       ----------

Loss before income taxes                            (14,148)          (2,756)

Income tax expense (benefit):
     Current                                             --           (1,871)
     Deferred                                        (4,527)           1,292
                                                 ----------       ----------
         Total income tax benefit                    (4,527)            (579)
                                                 ----------       ----------

Net loss                                         $   (9,621)      $   (2,177)
                                                 ==========       ==========

Basic and diluted net loss per common share      $    (0.05)      $    (0.01)
                                                 ==========       ==========

Basic and diluted weighted average
     common shares outstanding                      181,104          180,760
                                                 ==========       ==========
</Table>




           See accompanying notes to consolidated financial statements


                                      -4-
<PAGE>


                        GREY WOLF, INC. AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                             (Amounts in thousands)




<Table>
<Caption>
                                                     Common
                                                     Stock         Additional
                                     Common         $.10 Par        Paid-in
                                     Shares           Value         Capital         Deficit           Total
                                   ----------      ----------      ----------      ----------       ----------
<S>                                <C>             <C>             <C>             <C>              <C>
Balance, December 31, 2001            180,726      $   18,073      $  328,306      $ (101,082)      $  245,297

    Exercise of stock options             312              31             655              --              686

    Tax benefit of stock
         option exercises                  --              --             209              --              209

    Non-cash compensation
         expense                           --              --             542              --              542

    Comprehensive net loss                 --              --              --         (21,476)         (21,476)
                                   ----------      ----------      ----------      ----------       ----------

Balance, December 31, 2002            181,038      $   18,104      $  329,712      $ (122,558)      $  225,258

    Exercise of stock options             157              16             188              --              204

    Tax benefit of stock
         option exercises                  --              --             157              --              157

    Comprehensive net loss                 --              --              --          (9,621)          (9,621)
                                   ----------      ----------      ----------      ----------       ----------

Balance, March 31, 2003
    (Unaudited)                       181,195      $   18,120      $  330,057      $ (132,179)      $  215,998
                                   ==========      ==========      ==========      ==========       ==========
</Table>


          See accompanying notes to consolidated financial statements.


                                      -5-
<PAGE>


                         GREY WOLF INC, AND SUBSIDIARIES

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



<Table>
<Caption>
                                                                   Three Months Ended
                                                                        March 31,
                                                              ---------------------------
                                                                 2003             2002
                                                              ----------       ----------
<S>                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

     Net loss                                                 $   (9,621)      $   (2,177)
     Adjustments to reconcile net loss to net cash
        cash provided by (used in) operating activities:
         Depreciation                                             12,291           11,353
         Deferred income taxes                                    (4,684)           1,250
         Gain on sale of assets                                      (21)             (59)
         Foreign exchange gain                                       (14)             (54)
         Provision for doubtful accounts                              --              400
         Non-cash compensation expense                                --              515
         Accretion of debt discount                                   21               21
     Tax benefit of stock option exercises                           157               42
     Net effect of changes in assets and liabilities
        related to operating accounts                             (6,108)          (5,636)
                                                              ----------       ----------
         Cash provided by (used in) operating activities          (7,979)           5,655
                                                              ----------       ----------

CASH FLOWS FROM INVESTING ACTIVITIES:

     Property and equipment additions                             (2,804)          (3,350)
     Proceeds from sale of property and equipment                    114               60
                                                              ----------       ----------
         Cash used in investing activities                        (2,690)          (3,290)
                                                              ----------       ----------

CASH FLOWS FROM FINANCING ACTIVITIES:

     Repayment of long-term debt                                      --             (161)
     Proceeds from exercise of stock options                         204              345
                                                              ----------       ----------
         Cash provided by financing activities                       204              184
                                                              ----------       ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             (10,465)           2,549
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                   113,899          100,667
                                                              ----------       ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                      $  103,434       $  103,216
                                                              ==========       ==========

SUPPLEMENTAL CASH FLOW DISCLOSURE:

CASH PAID FOR INTEREST                                        $   11,221       $   11,203
                                                              ==========       ==========
CASH PAID FOR TAXES                                           $       26       $       45
                                                              ==========       ==========
</Table>



           See accompanying notes to consolidated financial statements


                                      -6-
<PAGE>


                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(1)      GENERAL

         Grey Wolf, Inc. (the "Company" or "Grey Wolf") is a Texas corporation
formed in 1980. Grey Wolf is a holding company with no independent assets or
operations, but through its subsidiaries is engaged in the business of providing
onshore contract drilling services to the oil and gas industry.

         The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") 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 March 31, 2003 and the results of
operations and cash flows for the periods indicated. All significant
intercompany transactions have been eliminated. The results of operations for
the three months ended March 31, 2003 and 2002 are not necessarily indicative of
the results for any other period or for the year as a whole. Additionally,
pursuant to the rules and regulations of the Securities and Exchange Commission,
certain information and footnote disclosures normally included in annual
financial statements in accordance with U.S. GAAP have been omitted. Therefore,
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,
2002.

(2)      SIGNIFICANT ACCOUNTING POLICIES

Earnings Per Share

         Basic earnings per share ("EPS") 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. The
following is a reconciliation of basic and diluted weighted average common
shares outstanding:

<Table>
<Caption>
                                                          Three Months Ended
                                                               March 31,
                                                      --------------------------
                                                        2003              2002
                                                      ---------        ---------
                                                            (In thousands)
                                                              (Unaudited)
<S>                                                   <C>              <C>
         Weighted average common shares
            outstanding - basic                         181,104          180,760

         Effect of dilutive securities:
            Options - Treasury Stock Method                  --               --
                                                      ---------        ---------

         Weighted average common shares
            outstanding - diluted                       181,104          180,760
                                                      =========        =========
</Table>

         The Company incurred a net loss for the three month periods ended March
31, 2003 and 2002 and has, therefore, excluded options to purchase 10.7 million
shares and 9.0 million shares, respectively from the computation of diluted
earnings per share as the effect would be anti-dilutive.


                                      -7-
<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Stock-Based Compensation

         The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its stock option plans, which are more fully described in Note 7.
Accordingly, no compensation expense has been recognized for stock option grants
as all options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. Had compensation expense for the
stock option grants been determined on the fair value at the grant dates
consistent with the method of Statement of Financial Accounting Standards Board
(SFAS) No. 123, "Accounting for Stock-Based Compensation", the Company's net
loss and loss per share would have been adjusted to the pro forma amounts
indicated below (amounts in thousands, except per share amounts):


<Table>
<Caption>
                                                              Three Months Ended
                                                                   March 31,
                                                          ---------------------------
                                                             2003             2002
                                                          ----------       ----------
                                                                   (Unaudited)
<S>                                                       <C>              <C>
Net loss, as reported                                     $   (9,621)      $   (2,177)
Add: Stock-based employee
    compensation expense included
    in reported net income, net of
    related tax effects                                           --              407
Deduct: Total stock-based employee
    compensation expense determined
    under fair value based method for
    all awards, net of related tax effects                    (2,296)          (1,805)
                                                          ----------       ----------
Pro forma net loss                                        $  (11,917)      $   (3,575)
                                                          ==========       ==========

Loss per share - basic and diluted
    As reported                                           $     (.05)      $     (.01)
    Pro forma                                             $     (.07)      $     (.02)
</Table>


         For purposes of determining compensation expense using the provisions
of SFAS No. 123, the fair value of option grants was determined using the
Black-Scholes option-valuation model. The weighted average fair value per share
of stock options granted was $2.36 in 2003 and $1.78 in 2002. The key input
variables used in valuing the options granted in 2003 and 2002 were: risk-free
interest rate based on five-year Treasury strips of 2.89% in 2003 and 2.62% in
2002; dividend yield of zero in each year; stock price volatility of 71% in 2003
and 75% in 2002, and expected option lives of five years for each year
presented.

Recent Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, "Accounting for Asset Retirement Obligations," which addressed
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This statement applies to all entities that have legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development or normal use of the asset. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. The Company adopted
SFAS No.


                                      -8-
<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


143 on January 1, 2003. The adoption of SFAS No. 143 did not have a significant
impact on the Company's financial condition or results of operations for the
three months ended March 31, 2003.

         In April, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment to FASB Statement No. 13, and Technical
Corrections". Under the provisions of this statement, gains and losses from
extinguishment of debt generally will no longer be classified as extraordinary
items. In addition, this statement eliminates an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also makes various technical
corrections, clarifies meanings, or describes their applicability under changed
conditions. The Company adopted SFAS No. 145 on January 1, 2003. The adoption of
SFAS No. 145 did not have a material effect on the Company's financial position
or results of operations for the three months ended March 31, 2003.

         In July 2002, the FASB issued SFAS No. 146, "Accounting for Cost
Associated with Exit or Disposal Activities". SFAS No. 146 is effective for exit
or disposal activities that are initiated after December 31, 2002. The Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The adoption of SFAS No. 146 did not have a
material effect on the Company's financial position or results of operations for
the three months ended March 31, 2003.

Reclassification

         In accordance with Emerging Issues Task Force Issue No. 01-14 "Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred," the Company has revised the presentation of reimbursements received
for certain expenses in the periods presented. These reimbursements are now
included in contract drilling revenues on the income statement versus previously
being recorded net of the incurred expenses in drilling operations expenses.
This reclassification had no effect on net income or cash flows. In addition,
certain balance sheet amounts in 2002 have been reclassified to conform to the
presentation in 2003.

(3)      ACCOUNTING FOR INCOME TAXES

         The Company records deferred taxes utilizing an asset and liability
approach. This method gives consideration to the future tax consequences
associated with differences between the financial accounting and tax basis of
assets and liabilities. 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. The Company and its domestic subsidiaries file a consolidated
federal income tax return.

(4)      LONG-TERM DEBT

         The Company has $250.0 million in principal amount of senior notes
("Notes") outstanding at March 31, 2003. The Notes, issued in June 1997 and May
1998, bear interest at 8 7/8% per annum and mature July 1, 2007. The Notes are
general unsecured senior obligations of the Company and are fully and
unconditionally guaranteed, on a joint and several basis, by all domestic
wholly-owned subsidiaries of the Company. Non-guarantor subsidiaries are
immaterial. All fees and expenses incurred at the time of issuance are being
amortized and discounts are being accreted over the life of the Notes.


                                      -9-
<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


         The Company has the option to redeem the Notes in whole or in part
during the twelve month periods 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. Upon a change of control as defined in the
indentures, each holder of the Notes will have the right to require the Company
to repurchase all or any part of such holder's Notes at a purchase price equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase. We may also, from time to time, seek to retire
the Notes through redemption, open market purchases and privately negotiated
transactions. Any difference between the redemption price and the face value of
the notes will be recorded as interest expense. In addition, a prorata share of
unamortized deferred financing costs and original issue discount will be
recorded as a gain or loss in the period the notes are redeemed or repurchased.

         The Company has a $75.0 million credit facility with the CIT
Group/Business Credit, Inc. (the "CIT Facility") which expires during January
2006. The CIT Facility provides the Company with the ability to borrow up to the
lesser of $75.0 million or 50% of the orderly liquidation value (as defined in
the agreement) of certain drilling rig equipment located in the 48 contiguous
states of the United States of America. The CIT Facility is a revolving facility
with automatic renewals after expiration unless terminated by the lender on any
subsequent anniversary date and then only upon 60 days prior notice. Periodic
interest payments are due at a floating rate based upon the Company's debt
service coverage ratio within a range of either LIBOR plus 1.75% to 3.50% or
prime plus 0.25% to 1.50%. The CIT Facility provides up to $20.0 million
available for letters of credit. The Company is required to pay a commitment fee
of 0.375% per annum on the unused portion of the CIT Facility and letters of
credit accrue a fee of 1.25% per annum.

         The CIT Facility contains certain affirmative and negative covenants
and the Company is in compliance with these covenants. Substantially all of the
Company's assets, including its drilling equipment, are pledged as collateral
under the CIT Facility which is also secured by the Company's guarantees and
certain of the Company's wholly-owned subsidiaries guarantees. The Company,
however, retains the option, subject to a minimum appraisal value, under the CIT
Facility to extract $75.0 million of the equipment out of the collateral pool in
connection with the sale or exchange of such collateral or relocation of
equipment outside the contiguous 48 states of the United States of America.

         The Company currently has no outstanding balance under the CIT Facility
and had $10.9 million of undrawn letters of credit at March 31, 2003. These
standby letters of credit are for the benefit of various insurance companies as
collateral for premiums and retained losses which may become payable under the
terms of the underlying insurance contracts. Outstanding letters of credit
reduce the amount available for borrowing under the CIT facility.

         The Company had non-cash activities for the three months ended March
31, 2002 related to vehicle additions under capital leases. The non-cash amount
excluded from cash used in investing activities and cash provided by financing
activities was $89,000 for the three months ended March 31, 2002.


                                      -10-
<PAGE>


                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(5)      SEGMENT INFORMATION

         The Company manages its business as one reportable segment. Although
the Company provides contract drilling services in several markets domestically,
these operations have been aggregated into one reportable segment based on the
similarity of economic characteristics among all markets, including the nature
of the services provided and the type of customers of such services.

(6)      CONTINGENCIES

         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.

(7)      STOCK OPTION PLANS AND SEVERANCE

         The Company's 1982 Stock Option and Long-term Incentive Plan for Key
Employees (the "1982 Plan") was canceled in March 1999; however, prior to that
date, there were 2,500,000 shares of the Company's common stock reserved for
issuance upon the exercise of options. The Company's 1996 Employee Stock Option
Plan (the "1996 Plan") reserves 17,000,000 shares of the Company's common stock
for issuance upon the exercise of options. At March 31, 2003, options under the
1996 Plan to purchase 6,149,265 shares of common stock were available for grant
until July 29, 2006. The exercise price of stock options under the 1982 Plan and
the 1996 Plan approximates the fair market value of the stock at the time the
option is granted. The Company has outstanding options to purchase 2,025,500
shares under stock option agreements between the Company and its chief executive
officer and directors. These stock option agreements are outside of any of the
Company's employee stock option plans. A portion of the outstanding options
became exercisable upon issuance and the remaining become exercisable in varying
increments over three to five-year periods. The options expire on the tenth
anniversary of the date of grant.

         Stock option activity for all stock options issued as of March 31, 2003
and 2002 was as follows (number of shares in thousands):

<Table>
<Caption>
                                                    2003                           2002
                                          ------------------------       ------------------------
                                                          Weighted                       Weighted
                                                           Average                        Average
                                            No. of        Exercise        No. of         Exercise
                                            Shares         Prices         Shares           Price
                                          ---------       --------       ---------      ---------
<S>                                       <C>             <C>            <C>            <C>
       Outstanding - beginning of
         the year                             8,721       $   2.85           7,512      $    2.85
         Granted                              2,141           3.91           2,227           2.85
         Exercised                             (157)          1.30            (131)          2.64
         Cancelled                               --             --            (590)          3.14
                                          ---------       --------       ---------      ---------
       Outstanding - end of period           10,705       $   3.09           9,018      $    2.84
                                          =========       ========       =========      =========
</Table>

         The Company had stock options exercisable at March 31, 2003 of 5.5
million with a range of exercise prices from $.69 to $6.37.


                                      -11-
<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


         The following table summarizes information about stock options
outstanding at March 31, 2003:

<Table>
<Caption>
                                                                     Weighted
                                                                      Average        Weighted
                                                                     Remaining        Average
                                                      Number        Contractual      Exercise
              Range of Exercise Prices             Outstanding         Life(1)          Price
              ------------------------             -----------      -----------      --------
<S>                                                <C>              <C>              <C>
              $.69 to $1.63                              2,757          4.54         $   1.27
              $1.75 to $4.38                             6,918          8.14         $   3.35
              $4.44 to $6.37                             1,030          7.83         $   6.15
                                                   -----------      -----------      --------
                                                        10,705          7.18         $   3.09
                                                   ===========      ===========      ========
</Table>

----------
(1)  Represents weighted average remaining contractual life in years.

         On November 13, 2001, the Company amended all outstanding stock option
agreements issued under the 1996 Employee Stock Option Plan and certain stock
option agreements issued to executive officers and directors. Based upon the
occurrence of certain events ("triggering events"), the amendments provide for
accelerated vesting of options and extension of the period in which a current
employee option holder has to exercise his options. The provisions of the
amendments provide for accelerated vesting of options after termination of
employment of a current option holder within one year of a change of control of
the Company (as defined in the amendments). Triggering events that cause an
extension of the exercise period, but not longer than the remaining original
exercise period, include termination of employment as a result of any reason not
defined as termination for cause, voluntary resignation, or retirement in the
amendments.

         In accordance with APB No. 25, the amendments to the stock option
agreements create a new measurement date of November 13, 2001. APB No. 25
requires the Company to determine the intrinsic value of the options at the
measurement date and recognize non-cash compensation expense upon the occurrence
of a triggering event. The amount of compensation expense that would be
recognized upon the occurrence of a triggering event is the difference between
the fair market value of the Company's stock on the measurement date and the
original exercise price of the options.

         During the three months ended March 31, 2002, a triggering event
occurred when an officer's employment terminated. As a result, the Company
recognized approximately $515,000 of non-cash compensation expense along with
approximately $330,000 of severance cost. These amounts have been included in
general and administrative expenses on the consolidated statement of operations.

(8)      CONCENTRATIONS

         Substantially all of the Company's contract drilling activities are
conducted with independent and major oil and gas companies in the United States.
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.

         For the three months ended March 31, 2002, the Company had one customer
which represented approximately 11% of total revenue. There were no customers
with revenue greater than 10% for the quarter ended March 31, 2003.


                                      -12-
<PAGE>


                         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. included
elsewhere herein and with our audited consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2002.

GENERAL

         We are a leading provider of contract land drilling services in the
United States with a fleet of 115 rigs, of which 72 rigs are currently marketed.
Our customers include independent producers and major oil and gas companies. We
conduct all of our operations through our subsidiaries in the Ark-La-Tex, Gulf
Coast, Mississippi/Alabama, South Texas, West Texas and Rocky Mountain regions.

         We make available free of charge through our website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
all amendments to those reports as soon as reasonably practicable after such
material is electronically filed with the Securities and Exchange Commission.
Information on our website is not a part of this report. Our website address is
www.gwdrilling.com.

Rig Activity

         Beginning in the second quarter of 2002 and continuing through the end
of January 2003, the land rig count was relatively stable and our rig count
averaged between 50 and 59 rigs working each week. Since the end of January, we
have seen an increase in demand for drilling rigs and our rig count increased
approximately 9% in the first quarter of 2003 as compared to that of the fourth
quarter of last year.

         The table below shows the average number of our rigs working in our
operating markets during the periods indicated:

<Table>
<Caption>
                    2001                                             2002                                2003
-------------------------------------------         ---------------------------------------         -------------
                                       Full                                            Full                Q-2 to
   Q-1       Q-2      Q-3      Q-4     Year         Q-1      Q-2      Q-3      Q-4     Year         Q-1     Date
   ---       ---      ---      ---     ----         ---      ---      ---      ---     ----         ---    ------
<S>          <C>      <C>      <C>     <C>          <C>      <C>      <C>      <C>      <C>         <C>    <C>
   88        92       91       68       85          56       54       55       54       55          59        61
</Table>

Drilling Contract Bid Rates

         The high level of rig utilization experienced during 2001, brought with
it very favorable dayrates. Dayrates are generally driven by utilization and,
with the decline in the number of rigs running, beginning in late 2001, we also
experienced a drop in dayrates. From the high leading edge bid rates of $13,500
to $17,000 per rig day in April 2001, our daywork bid rates declined to a range
of between $7,000 and $8,500 per rig day during the fourth quarter of 2002.
Those rates continued into the first quarter of 2003. However, with the recent
increase in rig utilization, we have also seen an increase in leading edge bid
rates. Our current leading edge bid rates have increased approximately 11% to
between $7,750 and $9,500 per rig day. All leading edge bid rates exclude fuel
and top drives.

         We currently own 14 top drives for which our current bid rates are
approximately $1,750 per day. Bid rates for our top drives are in addition to
the above stated bid rates for our rigs. We will take delivery of an additional
top drive in the second quarter of 2003 which will increase our number of top
drives to 15.


                                      -13-
<PAGE>


Term Contracts

         Whenever market conditions allow, we strive to utilize term contracts
to provide drilling services on a daywork basis. During 2001, we were able to
obtain a number of term contracts that have enabled us to maintain higher
margins than would otherwise have been attainable during the downturn, which
began in the fourth quarter of 2001. We currently have three term contracts
remaining. While we have recently experienced a slight increase in both rig
activity and dayrates, if current market conditions do not continue to improve,
there will be a further decline in our operating margins as the term contracts
for these three rigs end and they begin to be marketed at lower spot market
rates.

         Our term contracts contain termination provisions which require our
customers, upon cancellation of a contract, to pay an amount that approximates
our operating margin for the remaining days of the contract. We have
approximately 175 rig days contracted under term contracts in the second quarter
of 2003, 90 days each in the third quarter and fourth quarter of 2003, and 150
days for all of 2004.

Turnkey and Footage Contract Activity

         Turnkey and footage work continues to be one of the cornerstones of our
business strategy. Our engineering and operating expertise allow us to provide
this service to our customers and has historically provided higher operating
margins than would otherwise have been obtainable under daywork contracts.
During the first quarter of 2003, our turnkey and footage operating margin
(revenues less drilling operations expenses) was $4,071 per rig day compared to
a daywork operating margin of $955 per rig day.

         The operating margins generated on turnkey and footage contracts vary
widely based upon a number of factors, including the location of the contracted
work as well as the depth and level of complexity of the wells drilled. The
demand for drilling services under turnkey and footage contracts has
historically been greater during periods of overall lower demand.

         During the first quarter of 2003, turnkey and footage work represented
38% of our operating margin and 13% of total days worked compared to 8% of our
operating margin and 5% of total days worked in the first quarter of 2002. We
expect to average between six to eight rigs working under turnkey and footage
contracts during the second quarter of 2003; however, there can be no assurance
that we will be able to maintain the current level of activity or operating
margins derived from turnkey and footage contracts.

Critical Accounting Policies

         Our consolidated financial statements and accompanying notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements require
our management to make subjective estimates, judgments and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
However, these estimates, judgments and assumptions concern matters that are
inherently uncertain. Accordingly, actual amounts and results could differ from
these estimates made by management. The accounting policies that we believe are
critical are property and equipment depreciation, impairment of long-lived
assets, revenue recognition, insurance accruals, and income taxes.

         Property and Equipment Depreciation. Property and equipment are stated
at cost with depreciation calculated using the straight-line method over the
estimated useful lives of the assets. We expense our maintenance and repairs
costs as incurred. We estimate the useful lives of our assets are between three
and fifteen years.


                                      -14-
<PAGE>


         Impairment of Long-Lived Assets. We assess the impairment of our
long-lived assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Such indicators include changes in our
business plans, a change in the physical condition of a long-lived asset or the
extent or manner in which it is being used, or a severe or sustained downturn in
the oil and gas industry. If a review of our long-lived assets indicates that
the carrying value of certain of these assets is more than the estimated
undiscounted cash flows, a write-down of the assets to their estimated fair
market value must be made. The estimated fair market value is the amount at
which an asset could be bought or sold in a current transaction between willing
parties. Quoted market prices in active markets are the best estimate of fair
market value, however, quoted market prices will generally not be available. As
a result, fair value must be determined based upon other valuation techniques.
This could include appraisals or present value calculations. The calculation of
undiscounted future net cash flows and fair market value is based on estimates
and projections.

         Revenue Recognition. Revenue from daywork and footage drilling
contracts is recognized when earned as services are performed under the
provisions of the contract. Revenue from turnkey drilling contracts is
recognized using the percentage-of-completion method based upon costs incurred
to date and estimated total contract costs. Provision for anticipated losses, if
any, on uncompleted contracts is made at the time our estimated costs exceed the
contract revenue.

         Insurance Accruals. We maintain insurance coverage related to workers'
compensation and general liability claims up to $1.0 million per occurrence with
an aggregate of $2.0 million under general liability. These policies include
deductibles of $250,000 per occurrence. In addition, we are self-insured for our
employee health plan but purchase stop-loss coverage in order to limit our
exposure to a maximum of $175,000 per occurrence under the plan. If losses
should exceed the workers' compensation and general liability policy amounts, we
have excess liability coverage up to a maximum of $75.0 million with deductibles
per occurrence of either $25,000 or $50,000. The provision for losses incurred
within the deductible and stop-loss amounts involves estimates by management
that are based upon our historical claims experience.

         Income Taxes. Our deferred tax assets consist primarily of net
operating loss carryforwards ("NOL's") which expire from 2010 to 2022. Deferred
tax assets must be assessed based upon the likelihood of recoverability from
future taxable income and to the extent that recovery is not likely, a valuation
allowance is established. At March 31, 2003, we did not have a valuation
allowance as we believe that it is more likely than not that we will be able to
generate future taxable income sufficient to recover our deferred tax assets.
Our business, however, is extremely cyclical and is highly sensitive to changes
in oil and natural gas prices and demand for our services and there can be no
assurances that future economic or financial developments will not impact our
ability to recover our deferred tax assets.

         In addition, we have $26.5 million in permanent differences which
relate to differences between the financial accounting and tax basis of acquired
assets. The permanent difference will be reduced as the these assets are
depreciated for financial accounting purposes on a straight-line basis over
their remaining useful lives of approximately 10 years. As the amortization of
these permanent differences is a fixed amount, our book effective tax rate
varies widely based upon the current and projected levels of income or loss.

Financial Outlook and Strategy

         We believe the fundamentals for natural gas remain strong. We are
seeing increased demand for drilling rigs and believe rig counts will continue
to rise given attractive commodity prices and tight natural gas supplies.
Although commodity prices have declined slightly since the end of February 2003,
they continue to be at historically attractive levels. The New York Mercantile
Exchange twelve-month strip for natural gas was $5.31 per mmbtu and the price of
oil was $24.82 per barrel on April 28, 2003. Our customers are benefiting from
these higher oil and natural gas prices, which continues to improve


                                      -15-
<PAGE>


their cash flows. Natural gas storage levels are 57% lower than a year ago and
46% lower than the five-year average. It is anticipated that natural gas
supplies will be replaced through additional drilling.

         We currently have 27 cold-stacked rigs, which can be redeployed, as
demand dictates, for an estimated $1.5 million to $2.0 million in the aggregate.
This would increase our marketed rig count to 99 rigs. In addition, we have 16
inventory rigs that are available for refurbishment and reactivation should the
demand arise. These rigs could be returned to service for an average estimated
cost of approximately $5.0 million per rig.

         Capital expenditures for the first quarter of 2003 were $2.8 million.
Capital expenditures for all of 2003 are projected to be approximately $24.0
million to $26.0 million, subject to the actual level of rig activity. Projected
capital expenditures for 2003 include the purchase of two cranes to assist rig
moves and an additional top drive.

         Based on currently anticipated levels of activity and dayrates, we
expect to generate an operating margin of approximately $7.1 million, or $1,200
per rig day for the second quarter of 2003. Net loss per share for the second
quarter of 2003 is expected to be approximately $0.05 on a diluted basis, based
on a projected annual tax benefit rate between 32% and 35%. We expect
depreciation expense of approximately $12.3 million in the second quarter of
2003. Our expectations for the second quarter of 2003 are based in part on
projected increases in the average number of rigs working and spot market rates
offset by a reduction in the number of days worked under term contracts which
have generated higher margins.

FINANCIAL CONDITION AND LIQUIDITY

         The following table summarizes our financial position as of March 31,
2003 and December 31, 2002.

<Table>
<Caption>
                                                       March 31, 2003                  December 31, 2002
                                                 ------------------------         --------------------------
                                                         (Unaudited)
                                                                     (Dollars in thousands)

                                                    Amount             %             Amount               %
                                                 -------------       ----         -------------         ----
<S>                                              <C>                 <C>          <C>                   <C>
         Working capital                         $     111,291         21         $     114,353           21
         Property and equipment, net                   411,211         78               420,791           78
         Other noncurrent assets                         4,397          1                 4,668            1
                                                 -------------       ----         -------------         ----
                  Total                          $     526,899        100         $     539,812          100
                                                 =============       ====         =============         ====

         Long-term debt                          $     249,634         47         $     249,613           46
         Other long-term liabilities                    61,267         12                64,941           12
Shareholders' equity                                   215,998         41               225,258           42
                                                 -------------       ----         -------------         ----
                  Total                          $     526,899        100         $     539,812          100
                                                 =============       ====         =============         ====
</Table>


         The significant changes in our financial position from December 31,
2002 to March 31, 2003 are the decreases in working capital of $3.1 million, the
decrease in net property and equipment of $9.6 million, the decrease in other
long-term liabilities of $3.7 million, and the decrease in shareholders' equity
of $9.3 million.

         The decrease in working capital is due to a number of factors. Cash and
cash equivalents decreased by $10.5 million and accrued interest payable
decreased by $5.5 million due primarily to an $11.1 million semi-annual interest
payment on our Senior Notes in January 2003. In addition, the other accrued
liabilities balance was lower by $2.2 million due to the reduction of capital
expenditure accruals at March 31, 2003 compared to December 31, 2002. The
decrease in net property and equipment was due to $12.3 million of depreciation
expense partially offset by $2.8 million in capital expenditures. Deferred


                                      -16-
<PAGE>


income taxes, included in other long-term liabilities, decreased due to the
deferred tax benefit resulting from the net loss recorded for the three months
ended March 31, 2003. The decrease in shareholders' equity was due to the net
loss of $9.6 million recorded for the period.

Senior Notes

         In June 1997 and May 1998, we concluded offerings of $175.0 million and
$75.0 million, respectively, in principal amount of senior notes. The Senior
Notes ("Notes") bear interest at 8 7/8% per annum and mature July 1, 2007. The
Notes are general unsecured senior obligations and are fully and unconditionally
guaranteed, on a joint and several basis, by all of our domestic wholly-owned
subsidiaries. Non-guarantor subsidiaries are immaterial.

         We have the option to redeem the 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. Upon a change of control as defined in the indentures, each
holder of the Notes will have the right to require us to repurchase all or any
part of such holder's Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. We may also, from time-to-time, seek to retire the Notes through
redemptions, open market purchases and privately-negotiated transactions. Any
difference between the redemption price and the face value of the notes will be
recorded as interest expense on early repayment of debt. In addition, a prorata
share of unamortized deferred financing costs and original issue discount will
be recorded as a gain or loss in the period the notes are redeemed or
repurchased.

         The indentures for the Notes permit us and our subsidiaries to incur
additional indebtedness, including senior indebtedness of up to $100.0 million
aggregate principal amount which may be secured by liens on all of our assets
and the assets of our subsidiaries, subject to certain limitations. The
indentures contain other covenants limiting our ability and our subsidiaries'
ability to, among other things, pay dividends or make certain other restricted
payments, make certain investments, incur additional indebtedness, permit liens,
incur dividend and other payment restrictions affecting subsidiaries, enter into
consolidation, merger, conveyance, lease or transfer transactions, make asset
sales, enter into transactions with affiliates or engage in unrelated lines of
business. These covenants are subject to certain exceptions and qualifications.
The indentures consider non-compliance with the limitations events of default.
In addition to non-payment of interest and principal amounts, the indentures
also consider default with respect to other indebtedness in excess of $10.0
million an event of default. In the event of a default, the principal and
interest could be accelerated upon written notice by 25% or more of the holders
of our senior notes. We are in compliance with these covenants.

         We owe a total of $250.0 million in principal amount under the Notes.
While the principal is not due until 2007, semi-annual interest payments of
approximately $11.1 million are due on January 1 and July 1 of each year. For
the three months ended March 31, 2003, our operating activities and investing
activities consumed cash, while our financing activities provided cash. To the
extent we are unable to generate cash flow sufficient to pay debt service and
meet our other cash needs, including capital expenditures, we would be required
to use our cash on hand. At April 28, 2003, our cash balance was $97.7 million.

CIT Facility

         We have a $75.0 million credit facility with the CIT Group/Business
Credit, Inc. (the "CIT Facility") which expires during January 2006. The CIT
Facility provides us with the ability to borrow up to the lesser of $75.0
million or 50% of the orderly liquidation value (as defined in the agreement) of
certain drilling rig equipment located in the 48 contiguous states of the United
States of America. The CIT Facility is a revolving facility with automatic
renewals after expiration unless terminated by the lender on any subsequent
anniversary date and then only upon 60 days prior notice. Periodic interest


                                      -17-
<PAGE>


payments are due at a floating rate based upon our debt service coverage ratio
within a range of either LIBOR plus 1.75% to 3.50% or prime plus 0.25% to 1.50%.
The CIT Facility provides up to $20.0 million available for letters of credit.
We are required to pay a commitment fee of 0.375% per annum on the unused
portion of the CIT Facility and letters of credit accrue a fee of 1.25% per
annum.

         The CIT Facility contains certain affirmative and negative covenants
and we are in compliance with these covenants. Substantially all of our assets,
including our drilling equipment, are pledged as collateral under the CIT
Facility which is also secured by our guarantees and certain of our wholly-owned
subsidiaries' guarantees. However, we retain the option, subject to a minimum
appraisal value, under the CIT Facility to extract $75.0 million of the
equipment out of the collateral pool in connection with the sale or exchange of
such collateral or relocation of equipment outside the contiguous 48 states of
the United States of America. We currently have no outstanding balance under the
CIT Facility and had $10.9 million of undrawn letters of credit at March 31,
2003. These standby letters of credit are for the benefit of various insurance
companies as collateral for premiums and retained losses which may become
payable under the terms of the underlying insurance contracts. Outstanding
letters of credit reduce the amount available for borrowing under the CIT
facility.

         Among the various covenants that we must satisfy under the CIT Facility
are the following two covenants which apply whenever our liquidity, defined as
the sum of cash, cash equivalents and availability under the CIT Facility, falls
below $25.0 million.

         o  1 to 1 EBITDA coverage of debt service, tested monthly on a trailing
            12 month basis; and

         o  minimum tangible net worth (all as defined in the CIT Facility) at
            the end of each quarter will be at least the prior year tangible net
            worth less $30.0 million adjusted for quarterly tests.

         Additionally, if the total amount outstanding under the CIT Facility
(including outstanding letters of credit) exceeds 50% of the orderly liquidation
value of our domestic rigs, we are required to make a prepayment in the amount
of the excess. Also, if the average rig utilization rate falls below 45% for two
consecutive months, the lender will have the option to request one additional
appraisal per year to aid in determining the current orderly liquidation value
of the drilling equipment. Average rig utilization is defined as the total
number of rigs owned which are operating under drilling contracts in the 48
contiguous states of the United States of America divided by the total number of
rigs owned, excluding rigs not capable of working without substantial capital
investment. Events of default under the CIT Facility include, in addition to
non-payment of amounts due, misrepresentations and breach of loan covenants and
certain other events of default:

         o  default with respect to other indebtedness in excess of $350,000;

         o  judgments in excess of $350,000; or

         o  a change in control which means that we cease to own 100% of our two
            principal subsidiaries, some person or group has either acquired
            beneficial ownership of 30% or more of the Company or obtained the
            power to elect a majority of our board of directors, or our board of
            directors ceases to consist of a majority of "continuing directors"
            (all as defined by the CIT Facility).


                                      -18-
<PAGE>


Certain Contractual Commitments

         The following table summarizes certain of our contractual cash
obligations and related payments due by period at March 31, 2003 (unaudited)
(amounts in thousands):

<Table>
<Caption>
                                                             Payments Due by Period (1)
                                      -----------------------------------------------------------------------------
                                                        Less than           1-3           4-5             After 5
Contractual Obligation                   Total            1 year           years         years             years
----------------------                -----------      -----------      -----------   ------------      -----------
<S>                                   <C>              <C>              <C>           <C>               <C>
Senior notes (2)
     Principal                        $   250,000      $        --      $        --   $    250,000      $        --
     Interest                              99,838           22,187           44,372         33,279               --
Operating leases                            1,748            1,159              589             --               --
                                      -----------      -----------      -----------   ------------      -----------
Total contractual

   cash obligations                   $   351,586      $    23,346      $    44,961   $    283,279      $        --
                                      ===========      ===========      ===========   ============      ===========
</Table>

----------
     (1) Assumes no acceleration of maturity dates due to redemption or to
         breach of, or default under, the terms of the applicable contractual
         obligation.

     (2) See "Senior Notes", above, for information relating to certain
         financial ratio covenants and certain other covenants the breach of
         which could cause a default under, and acceleration of the maturity
         date of, the Senior Notes.

         Our CIT Facility provides up to $20.0 million for the issuance of
letters of credit. If letters of credit which we cause to be issued are drawn
upon by the holders of those letters of credit, then we will become obligated to
repay those amounts along with any accrued interest and fees. Letters of credit
issued reduce the amount available for borrowing under the CIT Facility and, as
a result, we had borrowing capacity of $64.1 million at March 31, 2003. The
following table illustrates the undrawn outstanding letters of credit at March
31, 2003 and the potential maturities if drawn upon by the holders (unaudited)
(amounts in thousands):

<Table>
<Caption>
                                                             Payments Due by Period (1)
                                      -----------------------------------------------------------------------------
        Potential                        Total          Less than           1-3            4-5            Over 5
Contractual Obligation                 Committed          1 year           years          years             years
----------------------                -----------      -----------      -----------     ----------      -----------
<S>                                   <C>              <C>              <C>             <C>             <C>
Standby letters of credit             $    10,945      $        --      $    10,945     $       --      $        --
                                      -----------      -----------      -----------     ----------      -----------
Total                                 $    10,945      $        --      $    10,945     $       --      $        --
                                      ===========      ===========      ===========     ==========      ===========
</Table>

----------
     (1) Assumes no acceleration of maturity date due to breach of, or default
         under, the potential contractual obligation.

Cash Flow

         The net cash provided by or used in our operating, investing and
financing activities is summarized below:

<Table>
<Caption>
                                                                           Three Months Ended
                                                                               March 31,
                                                                     ------------------------------
                                                                         2003              2002
                                                                     -------------    -------------
                                                                              (In thousands)
                                                                               (Unaudited)
<S>                                                                  <C>              <C>
         Net cash provided by (used in):
              Operating activities                                   $      (7,979)   $       5,655
              Investing activities                                          (2,690)          (3,290)
              Financing activities                                             204              184
                                                                     -------------    -------------
         Net increase (decrease) in cash                             $     (10,465)   $       2,549
                                                                     =============    =============
</Table>


                                      -19-
<PAGE>


         Our cash flows from operating activities are affected by a number of
factors including the number of rigs under contract, whether the contracts are
daywork, footage, or turnkey, and the rate received for these services. Our cash
flow used in and generated from operating activities during the first three
months of 2003 and 2002 was $8.0 million and $5.7 million, respectively. The
decrease in cash flows from operating activities is principally due to a 61%
decrease in average per rig day operating margins between the two periods.

         Cash flow used in investing activities for the three months ended March
31, 2003 primarily consisted of $2.8 million of capital expenditures for
sustaining our fleet of rigs, rig upgrades and other capital items. Cash flow
used in investing activities for the three month period ended March 31, 2002
primarily consisted of $3.4 million of capital expenditures for sustaining our
fleet of rigs, rig upgrades, drill pipe and collars and other capital items.

         Cash flow provided by financing activities for the three months ended
March 31, 2003 consisted of $204,000 from stock option exercises. Cash flow
provided by financing activities for the three months ended March 31, 2002
consisted of $345,000 from stock option exercises partially offset by $161,000
repayment of capital lease obligations.

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 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.

Other

         We have not paid any cash dividends on our common stock and do not
anticipate paying dividends on the common stock at any time in the foreseeable
future. Furthermore, the CIT Facility prohibits the payment of cash dividends
without the consent of the participating lenders.

RESULTS OF OPERATIONS

         Our drilling contracts generally provide compensation on either a
daywork, turnkey or footage basis. However, successfully completed turnkey and
footage contracts generally result in higher effective revenues per rig day
worked than under daywork contracts. Operating margins per rig day worked on
successful turnkey and footage jobs are also generally greater than under
daywork contracts, although we are typically required to bear additional
operating costs (such as drill bits) that would typically be paid by the
customer under daywork contracts. Contract drilling revenues, drilling operating
expenses and operating margins or losses on turnkey and footage contacts are
affected by a number of variables, which include the depth of the well,
geological complexities and the actual difficulties encountered in drilling the
well.

         In accordance with Emerging Issues Task Force Issue No. 01-14 "Income
Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred," we have revised the presentation of reimbursements received for
certain expenses in the periods presented. These reimbursements are now included
in contract drilling revenues on the consolidated statement of operations versus
previously being recorded net of the incurred expenses in drilling operations
expenses. This reclassification had no effect on net income or cash flows.


                                      -20-
<PAGE>


Comparison of the Three Months Ended March 31, 2003 and 2002

         The following table highlights rig days worked, contract drilling
revenue and drilling operating expenses for our daywork and turnkey operations
for the three months ended March 31, 2003 and 2002.

<Table>
<Caption>
                                                Three Months Ended                              Three Months Ended
                                                 March  31, 2003                                  March 31, 2002
                                  -------------------------------------------      -------------------------------------------
                                    Daywork          Turnkey                        Daywork          Turnkey
                                  Operations      Operations(2)        Total       Operations      Operations(2)       Total
                                  ----------      -------------      --------      ----------      -------------      --------
                                                    (Dollars in thousands, except averages per rig day worked)
                                                                             (Unaudited)
<S>                               <C>             <C>                <C>           <C>             <C>                <C>
Rig days worked                        4,608                664         5,272           4,808                247         5,055

Contract drilling revenue         $   42,647      $      19,740      $ 62,387      $   57,280      $       7,632      $ 64,912
Drilling operating
     expenses (1)                     38,248             17,037        55,285          41,472              6,176        47,648
                                  ----------      -------------      --------      ----------      -------------      --------
Operating margin                  $    4,399      $       2,703      $  7,102      $   15,808      $       1,456      $ 17,264
                                  ==========      =============      ========      ==========      =============      ========

Average per rig day worked
   Contract drilling revenue      $    9,255      $      29,729      $ 11,834      $   11,914      $      30,861      $ 12,841
   Drilling operating
     expenses                          8,300             25,658        10,487           8,626             24,973         9,426
                                  ----------      -------------      --------      ----------      -------------      --------
   Operating margin               $      955      $       4,071      $  1,347      $    3,288      $       5,888      $  3,415
                                  ==========      =============      ========      ==========      =============      ========
</Table>

----------
     (1) Drilling operating expenses exclude depreciation and general and
         administrative expenses.

     (2) Turnkey operations include the results from turnkey and footage
         contracts.

         Total contract drilling revenue decreased approximately $2.5 million,
or 4%, to $62.4 million for the three months ended March 31, 2003, from $64.9
million for the three months ended March 31, 2002. This decrease is primarily
the result of a decrease in the total average revenue per rig day of $1,007 due
to the replacement of expiring higher dayrate term contracts with spot market
contracts at lower rates. Average revenue per rig day from turnkey and footage
operations was also lower by $1,132 due to overall weaker market conditions
which affected turnkey and footage results as well as daywork. We worked 217
more rig days in 2003 compared to 2002 due to the increase in demand for our
rigs and resultant increase in rig count.

         Drilling operating expenses increased by approximately $7.7 million, or
16%, to $55.3 million for the three months ended March 31, 2003, as compared to
$47.6 million for the three months ended March 31, 2002. The increase is
primarily a result of the increased level of activity from turnkey and footage
operations. Operating expenses from turnkey and footage operations on a per rig
day basis increased principally due to the overall depth and complexity of
turnkey wells drilled during the first quarter of 2003 when compared to the same
period of 2002.

         Depreciation expense increased by $938,000, or 8%, to $12.3 million for
the three months ended March 31, 2003, compared to $11.4 million for the three
months ended March 31, 2002. During the fourth quarter of 2002, we made the
decision not to return five rigs to service and reclassified the component parts
of these rigs to spare equipment shortening the depreciable lives of this
equipment.

         General and administrative expenses remained relatively unchanged from
the first quarter of 2003 to the same period of 2002. Each period contained
one-time charges that are not of a recurring nature. Items affecting general and
administrative expenses include $350,000 in compensation expense in 2003 related
to the hiring of our Executive Vice President and Chief Operating Officer.
Severance costs of $330,000 and non-cash compensation expense of $515,000
related to stock options were recorded as a result of the termination of
employment of an officer in 2002.


                                      -21-
<PAGE>


         Interest income decreased by $152,000, or 34%, to $289,000 for the
three months ended March 31, 2003 from $441,000 for the same period of 2002 due
primarily to a decrease in interest rates.

         The difference in interest expense for the three month periods ended
March 31, 2003 and 2002 is negligible as the average outstanding debt balance
was virtually the same and the largest component of our debt structure is our
Senior Notes which carry interest at a fixed rate.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Interest Rate Risk. We are subject to market risk exposure related to
changes in interest rates on the CIT Facility. Interest on borrowings under the
CIT Facility accrues at a variable rate, using either the prime rate plus 0.25%
to 1.50% or LIBOR plus 1.75% to 3.50%, depending upon our debt service coverage
ratio for the trailing 12 month period. We currently have no outstanding balance
under the CIT Facility and as such have no exposure under this facility at this
time to a change in interest rates.

ITEM 4.  CONTROLS AND PROCEDURES

         Within 90 days prior to the filing date of this report, we carried out
an evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective. Disclosure controls and
procedures are controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.

         There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date we carried out this evaluation.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         We are involved in litigation incidental to the conduct of our
business, none of which management believes is, individually or in the
aggregate, material to our consolidated financial condition or results of
operations. See Note 6 - Contingencies in Notes to Consolidated Financial
Statements.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

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

         None


                                      -22-
<PAGE>


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 are
forward-looking statements, including statements regarding the following:

         o  business strategy;
         o  demand for our services;
         o  2003 rig activity and financial results;
         o  rigs expected to be engaged in turnkey and footage operations;
         o  reactivation and cost of reactivation of non-marketed rigs;
         o  projected dayrates and operating margins;
         o  projected operating margin per rig day;
         o  projected annual tax benefit rate;
         o  wage rates and retention of employees;
         o  sufficiency of our capital resources and liquidity;
         o  depreciation and capital expenditures in 2003; and
         o  anticipated operating and financial results with respect to our term
            drilling contracts.

Although we believe the expectations and beliefs reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations include:

         o  fluctuations in prices and demand for oil and natural gas;
         o  fluctuations in levels of oil and natural gas exploration and
            development activities;
         o  fluctuations in demand for contract land drilling services;
         o  the existence and competitive responses of our competitors;
         o  attempts by our customers to terminate, renegotiate, or fail to
            honor term drilling contracts.
         o  uninsured or underinsured casualty losses
         o  technological changes and developments in the industry;
         o  the existence of operating risks inherent in the contract land
            drilling industry;
         o  U.S. and global economic conditions;
         o  the availability and terms of insurance coverage;
         o  the ability to attract and retain qualified personnel;
         o  unforeseen operating costs such as cost for environmental
            remediation and turnkey cost overruns; and
         o  weather conditions.

         Our forward-looking statements speak only as of the date specified in
such statements or, if no date is stated, as of the date of this report. Grey
Wolf, Inc. expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained in this
report to reflect any change in our expectations or with regard to any change in
events, conditions or circumstances on which our forward-looking statements are
based. Please refer to our Annual Report on Form 10-K for the year ended
December 31, 2002 for additional information concerning risk factors that could
cause actual results to differ from the forward-looking statements.


                                      -23-
<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  10.1     Employment Agreement effective March 31, 2003 by and
                           between the Company and William E. Chiles.

                  99.1     Certification pursuant to 18 U.S.C. Section 1350 as
                           adopted pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002 of Thomas P. Richards, Chairman,
                           President and Chief Executive Officer.

                  99.2     Certification pursuant to 18 U.S.C. Section 1350 as
                           adopted pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002 of David W. Wehlmann, Executive Vice
                           President and Chief Financial Officer.

         (b)      Reports on Form 8-K

                  We furnished a Report on Form 8-K to the Securities and
                  Exchange Commission on April 21, 2003 with regard to our press
                  release announcing operating results for the quarter ended
                  March 31, 2003.


                                      -24-
<PAGE>


                                   SIGNATURES

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

                                      GREY WOLF, INC.



Date:  April 30, 2003                 By:   /s/ David W. Wehlmann
                                            ------------------------------------
                                            David W. Wehlmann
                                            Executive Vice President and
                                            Chief Financial Officer

Date:  April 30, 2003                 By:   /s/ Merrie S. Costley
                                            ------------------------------------
                                            Merrie S. Costley
                                            Vice President and Controller


                                      -25-
<PAGE>


                                 CERTIFICATIONS

I, Thomas P. Richards, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Grey Wolf, Inc.;

2.       Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)      designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

         (b)      evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

         (c)      presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

 5.      The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         (a)      all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.    The registrant's other certifying officers and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date: April 30, 2003             By:  /s/ Thomas P. Richards
                                      ------------------------------------------
                                      Thomas P. Richards
                                      Chairman, President and Chief Executive
                                        Officer


                                      -26-
<PAGE>


                                 CERTIFICATIONS

I, David W. Wehlmann, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Grey Wolf, Inc.;

2.       Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this quarterly report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)      designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

         (b)      evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

         (c)      presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

 5.      The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

         (a)      all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         (c)      any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

Date: April 30, 2003         By: /s/ David W. Wehlmann
                                 -----------------------------------------------
                                 David W. Wehlmann
                                 Executive Vice President and Chief Financial
                                 Officer


                                      -27-
<PAGE>


                               INDEX TO EXHIBITS


<Table>
<Caption>
        EXHIBIT
        NUMBER    DESCRIPTION
        -------   -----------
<S>               <C>
         10.1     Employment Agreement effective March 31, 2003 by and between
                  the Company and William E. Chiles.

         99.1     Certification pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
                  Thomas P. Richards, Chairman, President and Chief Executive
                  Officer.

         99.2     Certification pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
                  David W. Wehlmann, Executive Vice President and Chief
                  Financial Officer.
</Table>