<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

                  For the Quarterly Period Ended June 30, 1998

                                       OR

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

Commission File Number   001-11963

                            Dailey International Inc.
            ---------------------------------------------------------
           (See table of additional Registrants on the following page)
                    (Exact Name of Registrant in its Charter)

          Delaware                                            76-0503351
 --------------------------------------                     ------------------
(State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                             Identification No.)

  2507 North Frazier, Conroe, Texas                         77303
  ----------------------------------------                 --------
  (Address of Principal Executive Officers)               (Zip Code)

                                  281/350/3399
               --------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)

                                       N/A
               ---------------------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

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
                                       ---          ---

Number of shares outstanding of issuer's Class A Common Stock as of August 12, 
1998 was 5,575,389. The Company has 5,000,000 shares of Class B Common Stock
Outstanding.


<PAGE>   2

                         TABLE OF ADDITIONAL REGISTRANTS

<TABLE>
<CAPTION>
                                                                                                       
                                                                                       
                                                                                                          ADDRESS, INCLUDING    
                                                                                                        ZIP CODE, AND TELEPHONE 
                                                                PRIMARY STANDARD                        NUMBER, INCLUDING AREA  
                                            STATE OR OTHER         INDUSTRIAL              IRS           CODE, OF REGISTRANT'S 
                                           JURISDICTION OF       CLASSIFICATION        EMPLOYER ID.      PRINCIPAL EXECUTIVE   
                                            INCORPORATION           CODE NO.               NO.                  OFFICES         
                                            -------------           --------           ------------             -------
<S>                                          <C>                      <C>               <C>                       <C>
Dailey Energy Services, Inc...............    Delaware                8999              76-0066576                 *
Dailey International Sales Corporation....    Delaware                8999              74-1869524                 *
Colombia Petroleum Services Corp..........    Delaware                8999              76-0074604                 *
International Petroleum Services, Inc.....    Delaware                8999              76-0084387                 *
Dailey Environmental Remediation
   Technologies, Inc......................    Texas                   8999              76-0276940                 *
Dailey Worldwide Services, Corp...........    Texas                   8999              76-0477660                 *
Air Drilling International, Inc...........    Delaware                1380              84-1305964                 *
Air Drilling Services, Inc................    Wyoming                 1380              83-0181069                 *
</TABLE>                           

-------------
*  2507 North Frazier, Conroe, Texas 77303, telephone (281) 350-3399.

           Dailey International Inc. (the "Company") owns directly or indirectly
all of the outstanding capital stock of each of the additional Registrants
listed above. Each of the additional Registrants is a guarantor of the Company's
obligations under its 9 1/2% Senior Notes Due 2008 (the "Senior Notes"). No
separate financial statements for the additional Registrants has been provided
or incorporated because: (1) the consolidated financial statements of the
Company included in this report include the operations of each of the additional
Registrants and (2) Note 9 to the Company's accompanying unaudited consolidated
financial statements includes unaudited condensed consolidated financial
statements of the Company separating the financial results for the additional
Registrants from the Company and any subsidiaries that are not guarantors of the
Company's obligations under the Senior Notes.


<PAGE>   3


                            DAILEY INTERNATIONAL INC.
                  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998


                                      INDEX

<TABLE>
<CAPTION>
PART I.   FINANCIAL INFORMATION                                                                           PAGE NO.
<S>                                                                                                      <C>
Item 1.   Financial Statements (unaudited)
   Consolidated balance sheets - June 30, 1998 and December 31, 1997                                            1
   Consolidated statements of operations - Three and six months ended June 30, 
   1998 and 1997                                                                                                2
   Consolidated statements of cash flows - Three and six months ended June 30, 1998 and 1997                    3
   Notes to consolidated financial statements - June 30, 1998                                              4 - 15

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
                                                                                                          16 - 21

PART II.   OTHER INFORMATION                                                                                   22

Item 1.    Legal Proceedings
Item 2.    Changes in Securities
Item 3.    Defaults upon Senior Securities
Item 4.    Submission of Matters to a Vote of Security Holders
Item 5.    Other Information
Item 6.    Exhibits and Reports on Form 8-K                                                                    

Signatures                                                                                                     24
</TABLE>



                                        i
<PAGE>   4

                            DAILEY INTERNATIONAL INC.
                           CONSOLIDATED BALANCE SHEETS
                 (In Thousands of Dollars, Except Share Data)


<TABLE>
<CAPTION>
                                                                                June 30,       December 31,
                                                                                  1998             1997
                                                                                ---------        ---------
                                                                               (Unaudited)
<S>                                                                            <C>              <C>
                                   ASSETS
Current assets:
  Cash and cash equivalents............................................         $  88,900        $  59,837
  Accounts receivable, net.............................................            43,094           34,601
  Other current assets.................................................             6,583            2,769
                                                                                ---------        ---------
          Total current assets.........................................           138,577           97,207
Revenue-producing tools and inventory, net ............................           136,011           79,056
Property and equipment, net............................................            12,748            8,181
Accounts receivable from officer.......................................               250              250
Goodwill, net..........................................................            69,523           19,183
Intangibles and other assets...........................................            15,530            5,400
                                                                                ---------        ---------
          Total assets.................................................         $ 372,639        $ 209,277
                                                                                =========        =========

                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued liabilities ............................         $  33,724        $  23,804
  Accounts payable to affiliates.......................................                --              483
  Income taxes payable.................................................             4,676            2,417
  Current portion of long-term debt....................................             1,423              146
                                                                                 --------        ---------
          Total current liabilities....................................            39,823           26,850
Long-term debt.........................................................           275,701          114,229
Deferred income taxes..................................................             6,104            1,238
Other noncurrent liabilities...........................................             3,103            1,559
Commitments and contingencies..........................................                --               --
Stockholders' equity:
  Preferred stock, $0.01 par value: 5,000,000 shares authorized; 
          none issued..................................................                --               --
  Common stock Class A, $0.01 par value: 20,000,000 shares authorized;
          5,703,655 and 4,627,598 issued and 5,575,389 and 4,483,598
          outstanding at June 30, 1998 and December 31, 1997,
          respectively; Class B, $0.01 par value: 10,000,000 shares
          authorized; 5,000,000 shares issued and outstanding
          at June 30, 1998 and December 31, 1997.......................               105               94
  Treasury stock (128,266 shares at June 30, 1998
          and 144,000 shares at December 31, 1997).....................              (948)          (1,047)
  Paid-in capital......................................................            51,189           41,335
  Foreign currency translation-accumulated comprehensive income........              (619)              --
  Retained earnings (deficit)..........................................            (1,819)          25,019
                                                                                ----------       ---------
          Total stockholders' equity...................................            47,908           65,401
                                                                                ---------        ---------
          Total liabilities and stockholders' equity...................         $ 372,639        $ 209,277
                                                                                =========        =========
</TABLE>



                             See accompanying notes.

                                    1
<PAGE>   5


                            DAILEY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           (In Thousands of Dollars, Except Share and Per Share Data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Three Months Ended June 30,      Six Months Ended June 30,   
                                                          ----------------------------    ----------------------------
                                                              1998            1997            1998            1997 
                                                          ------------    ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>             <C>         
Revenues:
  Rental income .......................................   $     17,084    $     13,916    $     32,775    $     25,973
  Sales of products and services ......................         11,401           4,256          23,150           8,376
  Underbalanced drilling services .....................          5,294             724          15,874             724
                                                          ------------    ------------    ------------    ------------
                                                                33,779          18,896          71,799          35,073
Costs and expenses:
  Cost of rentals .....................................         14,271          10,077          26,447          19,336
  Cost of products and services .......................          7,030           2,283          14,189           4,450
  Cost of underbalanced drilling services .............          4,367             460          11,139             460   
  Selling, general and administrative .................          9,689           3,266          17,926           6,141
  Reorganization costs ................................           --             1,797            --             1,797
  Non-cash compensation ...............................            286           2,235             471           3,285
  Research and development ............................            125             165             204             413
                                                          ------------    ------------    ------------    ------------
                                                                35,768          20,283          70,376          35,882
                                                          ------------    ------------    ------------    ------------
Operating income (loss)................................         (1,989)         (1,387)          1,423            (809)
Other (income) expense:
  Interest income .....................................         (1,202)           (178)         (2,164)           (330)
  Interest expense ....................................          6,536             194          11,030             344
  Other, net ..........................................             88             111             213             328
                                                          ------------    ------------    ------------    ------------
Loss before income taxes ..............................         (7,411)         (1,514)         (7,656)         (1,151)
Income tax provision ..................................            298              12           1,758             154
                                                          ------------    ------------    ------------    ------------
Loss before extraordinary item ........................         (7,709)         (1,526)         (9,414)         (1,305)
Extraordinary item ....................................           --              --           (17,579)           --   
                                                          ------------    ------------    ------------    ------------
Net loss ..............................................   $     (7,709)   $     (1,526)   $    (26,993)   $     (1,305)
                                                          ============    ============    ============    ============

Loss per share before extraordinary item:
    Basic .............................................   $       (.77)   $       (.16)   $       (.97)   $       (.14)
                                                          ============    ============    ============    ============
    Diluted ...........................................   $       (.77)   $       (.16)   $       (.97)   $       (.14)
                                                          ============    ============    ============    ============
Loss per share:
    Basic .............................................   $       (.77)   $       (.16)   $      (2.79)   $       (.14)
                                                          ============    ============    ============    ============
    Diluted ...........................................   $       (.77)   $       (.16)   $      (2.79)   $       (.14)
                                                          ============    ============    ============    ============
Weighted average shares outstanding:
    Basic .............................................     10,027,113       9,250,780       9,678,428       9,250,127
                                                          ============    ============    ============    ============
    Diluted ...........................................     10,027,113       9,250,780       9,678,428       9,250,127
                                                          ============    ============    ============    ============
</TABLE>

                             See accompanying notes.


                                       2
<PAGE>   6

                            DAILEY INTERNATIONAL INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In Thousands of Dollars)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                      Six Months Ended June 30, 
                                                                      -------------------------
                                                                         1998            1997 
                                                                      ---------       ---------
<S>                                                                   <C>             <C>       
OPERATING ACTIVITIES:
Net loss ..........................................................   $ (26,993)      $  (1,305)
Adjustments to reconcile net loss to net
  cash provided by (used in) operating activities:
  Depreciation and amortization ...................................      11,027           3,650
  Deferred income taxes ...........................................        --            (1,278)
  Write-off of unamortized debt issuance costs ....................       4,929            --   
  Provision for doubtful accounts .................................         198             159
  (Gain)loss on sale and disposition of property and equipment ....         (22)            172
  Provision for stock awards ......................................         471           3,285
  Changes in operating assets and liabilities
     (net of the effects of acquisitions):
     Accounts receivable--trade ...................................        (157)            204
     Accounts receivable from/payable to officers and affiliates ..        (488)          5,223
     Other assets and liabilities, net ............................      (6,066)            274
     Accounts payable and accrued liabilities .....................       7,582            (575)
     Income taxes payable .........................................         965           1,185
                                                                      ---------       ---------
Net cash provided by (used in) operating activities ...............      (8,554)         10,994

INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory ................     (33,279)         (9,556)
Inventory transferred to cost of rentals ..........................       4,297           2,988
Revenue-producing tools lost in hole, abandoned, and sold .........       1,158             963
Additions to property and equipment ...............................      (3,512)           (362)
Proceeds from sale of property and equipment ......................          40             517
Acquisitions ......................................................     (77,037)        (48,651)
                                                                      ---------       ---------
Net cash used in investing activities .............................    (108,333)        (54,101)

FINANCING ACTIVITIES:
Net proceeds from the issuance of debt ............................     268,125          39,000
Payments on outstanding debt ......................................    (121,748)           (855)
Purchase of  treasury stock .......................................        --            (1,047)
                                                                      ---------       ---------
Net cash provided by financing activities .........................     146,377          37,098
                                                                      ---------       ---------
Effect of foreign exchange rate changes on cash ...................        (427)           --  
                                                                      ---------       ---------
Increase (decrease) in cash and cash equivalents ..................      29,063          (6,009)
Cash and cash equivalents at beginning of period ..................      59,837          11,557
                                                                      ---------       ---------
Cash and cash equivalents at end of period ........................   $  88,900       $   5,548
                                                                      =========       =========
</TABLE>



                             See accompanying notes.

                                       3
<PAGE>   7

                            DAILEY INTERNATIONAL INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



1.       BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

         The accompanying unaudited consolidated financial statements include
the accounts of Dailey International Inc. and its subsidiaries ("Dailey" or the
"Company") and have been prepared in accordance with United States generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, reference is made to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K filed with the Securities and Exchange Commission on March
31, 1998. Certain reclassifications have been made to the December 31, 1997
financial information to conform to the current period presentation.

         As of January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, Reporting Comprehensive Income (SFAS No.
130). SFAS No. 130 established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this statement
had no impact on the Company's net loss or stockholder's equity. SFAS
No. 130 requires the Company's foreign currency translation adjustments to be
included in comprehensive income. For the three months ended June 30, 1998 and
1997, the total comprehensive loss was $8,081,000 and $1,526,000, respectively.
For the six months ended June 30, 1998 and 1997, the total comprehensive loss
was $27,612,000 and $1,305,000, respectively.

2.       ORGANIZATION

         The accompanying consolidated financial statements reflect the
operations of Dailey International Inc. (formerly Dailey Petroleum Services
Corp.), a Delaware corporation. In October 1997, Dailey Petroleum Services Corp.
changed its name to Dailey International Inc.

         In July 1997, the Company changed its fiscal year end to December 31,
effective December 31, 1997.

         The Company is an integrated supplier of specialty services and a
provider of technologically-advanced downhole tools to the oil and gas industry
on a worldwide basis. Founded in 1945 as a rental tool company, Dailey began
offering directional drilling services in 1984 and currently provides such
services in the Gulf of Mexico, the United States Gulf Coast region, and most
recently, Venezuela, Louisiana and the Austin Chalk formation in Texas. In June
1997, the Company acquired Air Drilling International, Inc. ("ADI" and the "ADI
Acquisition") and, as a result, became a leading provider worldwide of air
drilling services for underbalanced drilling applications. In January 1998, the
Company acquired the operating assets and liabilities of Directional Wireline
Services, Inc. ("DWS"), DAMCO Tong Services, Inc. and DAMCO Services, Inc.
(collectively, "DAMCO", and with DWS, "DWS/DAMCO"), which are headquartered in
Houma, Louisiana. DWS/DAMCO provides specialized drilling, workover, completion
and production services to the Gulf of Mexico and Nigerian markets. In March
1998, the Company acquired Integrated Drilling Systems, Limited ("IDS"), which
is headquartered in Aberdeen, Scotland. IDS manufactures directional drilling
tools. 

3.       ACQUISITIONS

         ADI Acquisition. On June 20, 1997, the Company purchased the stock of
ADI (a provider of air drilling services for underbalanced drilling
applications) for $46.4 million, including the repayment of 




                                       4
<PAGE>   8
approximately $16.8 million of ADI indebtedness, financed with bank debt of
$45.5 million and proceeds from the Company's initial public offering in 1996.
The ADI Acquisition was accounted for under the purchase method of accounting.
As a result, the assets and liabilities of ADI were recorded at their estimated
fair market values as of the date of the ADI Acquisition. The Company recorded
goodwill of approximately $21.1 million relating to the excess of the purchase
price over the fair market value of ADI's assets, which will be amortized over
20 years and result in approximately $1.1 million in amortization expense per
year.

         DWS/DAMCO Acquisition. On January 28, 1998, the Company acquired the
operating assets and liabilities of DWS/DAMCO. The aggregate purchase price for
DWS/DAMCO was $61 million financed with proceeds from a $115 million 9 3/4%
senior notes offering in August 1997 and borrowings under the Company's
revolving credit facility. The acquisition was accounted for under the purchase
method of accounting, accordingly the assets and liabilities of DWS/DAMCO were
recorded at their estimated fair market values as of the date of acquisition.
The Company recorded goodwill of approximately $32.0 million relating to the
excess of the purchase price over the fair market value of the assets, which
will be amortized over 25 years and result in approximately $1.3 million in
amortization expense per year. The purchase price allocation was based on
preliminary estimates and may be revised at a later date.

         IDS Acquisition. The Company acquired the outstanding capital stock of
IDS on March 23, 1998 for approximately $11.9 million in cash and 1,064,600
shares of Class A Common Stock, plus assumption of debt of approximately $6.5
million. The IDS Acquisition was accounted for under the purchase method of
accounting. The assets and liabilities of IDS were recorded at their estimated
fair market values as of the date of acquisition. The Company recorded
approximately $16.6 million in goodwill, representing the excess of the purchase
price over the estimated fair market value of the IDS assets, which will be
amortized over 25 years and result in additional annual amortization expense of
$664,000. In July 1998, the Company paid $6.9 million in additional purchase
consideration and was returned 300,000 shares held in escrow in connection
with the resolution of contingencies identified at the acquisition date.

         The pro forma unaudited results of operations for the six months ended
June 30, 1998 and 1997, assuming consummation of the purchase of ADI and
DWS/DAMCO as of January 1, 1997, utilizing a portion of the proceeds from the
issuance of the $275 million Senior Notes, are as follows:

<TABLE>
<CAPTION>
                                                                 Six Months Ended June 30,
                                                                 -------------------------
                                                                    1998          1997
                                                                 ----------    ----------
                                                                      (In Thousands, 
                                                                  Except Per Share Data)

<S>                                                            <C>           <C>       
    Revenues ...............................................   $   72,881    $   66,545
    Net loss before extraordinary item .....................       (8,296)       (3,051)
    Net loss ...............................................      (25,875)       (3,051)
    Net loss before extraordinary item per common share:
           Basic ...........................................        (0.86)        (0.33)
           Diluted .........................................        (0.86)        (0.33)
    Net loss per common share:
           Basic ...........................................        (2.67)        (0.33)
           Diluted .........................................        (2.67)        (0.33)
</TABLE>

         The pro forma information for the six months ended June 30, 1998 and
1997, includes adjustments for additional depreciation and amortization expense
associated with the purchase price allocation using the respective lives for
goodwill and an average life of seven years for fixed assets, increased interest
expense for the additional borrowings as if they were incurred at the beginning
of the period and related adjustments for income taxes. The pro forma
information is not necessarily indicative of the results of operations had the
acquisitions been effected on the assumed date or the results of operations for
any future period. The IDS Acquisition was a not significant acquisition and has
not been included in the pro forma unaudited results above.



                                       5
<PAGE>   9

4.       REVENUE-PRODUCING TOOLS AND INVENTORY

<TABLE>
<CAPTION>
                                                              June 30,     December 31,
                                                                1998           1997
                                                              --------     ------------
                                                                    (In Thousands)
<S>                                                          <C>            <C>

Revenue-producing tools .................................... $ 148,000      $  95,266
Accumulated depreciation ...................................   (45,380)       (37,284)
                                                             ---------      ---------
                                                               102,620         57,982
Inventory:
      Components, subassemblies and expendable parts .......    25,957         17,748
      Rental tools and expendable parts under production....     5,685          2,100
      Raw materials ........................................     1,749          1,226
                                                             ---------      ---------
                                                                33,391         21,074
                                                             ---------      ---------
               Revenue-Producing Tools and Inventory ......  $ 136,011      $  79,056
                                                             =========      =========
</TABLE>

5.       STOCK OPTIONS AND AWARDS

         During the six months ended June 30, 1998, the Company issued 117,500
options at a weighted average fair value and price of $8.92 in connection with
existing stock option plans. The options granted have a vesting period
between one and three years from the date of grant.

         During the six months ended June 30, 1998, the Company also granted
6,000 shares of restricted common stock at a fair value of $8.50 which vest over
a four year period.

6.       BORROWING ARRANGEMENTS AND EXTRAORDINARY ITEM

         Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                      June 30,         December 31,
                                                        1998               1997
                                                     ----------        ------------
                                                          (In Thousands)
<S>                                                  <C>              <C>
9 1/2% Senior Notes...........................        $ 275,000         $      --
9 3/4% Senior Notes...........................               --           114,223
Note payable to a bank........................            2,041                --
Other notes payable...........................               83               152
                                                      ---------         ---------
                                                        277,124           114,375
Less current portion of long-term debt........            1,423               146
                                                      ---------         ---------
               Total long-term debt...........        $ 275,701         $ 114,229
                                                      =========         =========
</TABLE>



                                       6
<PAGE>   10


         On February 13, 1998, the Company issued $275 million of 9 1/2% Senior
Notes due 2008 (the "Senior Notes"). Of the $268.1 million net proceeds to the
Company, approximately $127.7 million were utilized to repurchase at a premium
of 111% of their principal amount all of the outstanding principal amount of the
Company's 9 3/4% Senior Notes (the "Old Notes") and approximately $7.5 million
were utilized to repay outstanding debt under the Company's revolving credit
facility. As a result of the repurchase of the Old Notes, the Company recorded
an extraordinary loss of approximately $17.6 million, or $1.89 per diluted
share, with no related income tax benefit, representing the excess of the
purchase price for the Old Notes over their carrying value on the date of
repurchase. The Senior Notes are unsecured senior obligations of the Company.
The Senior Notes are redeemable at the option of the Company on or after
February 15, 2003 at stipulated redemption prices.

7.       INCOME TAXES

         Income tax expense exceeded the amount that would have resulted from
applying the U.S. federal statutory tax rate due to foreign income taxes and
withholding taxes with no offsetting benefit from U.S. net operating losses, net
of valuation allowances.

8.      SUBSEQUENT EVENTS

        In August 1998, the Company acquired substantially all of the assets of
the directional drilling business of Transocean Petroleum Technology Limited
("Transocean") located in Aberdeen, Scotland for $10 million in cash. The
Company assumes Transocean's ongoing directional contracts and operations in the
North Sea and Europe.

        As discussed in Note 3, in July 1998, the Company paid an additional
purchase consideration in connection with the resolution of certain
contingencies involving the IDS acquisition.

        Effective July 14, 1998, the shareholders of Dailey's Class B Common
Stock reorganized their ownership of the Class B Common Stock through a
reorganization whereby the shareholders contributed all of the stock in a
company controlled by the shareholders (which company's assets consisted of
5,000,000 shares of Class B Common Stock of Dailey) to Dailey in exchange for
5,000,000 new shares of Dailey's Class B Common Stock. As a result of these
transactions, Dailey acquired the net operating loss carryforward of the
company, for which an offsetting allowance will be provided. These transactions
had no effect on Dailey's financial position or results of operation.

                                       7
<PAGE>   11
9.       CONSOLIDATING FINANCIAL STATEMENTS

         The $275 million 9 1/2% Senior Notes due 2008 issued on February 13,
1998 are unconditionally guaranteed on a joint and several basis by certain
subsidiaries of the Company. Accordingly, the following condensed consolidating
balance sheets as of June 30, 1998 and December 31, 1997 and the related
condensed consolidating statements of operations for the three and six months
ended June 30, 1998 and 1997 and condensed consolidating statements of cash flow
for the six months ended June 30, 1998 and 1997 have been provided. The
condensed consolidating financial statements herein are followed by notes which
are an integral part of these statements.


                            DAILEY INTERNATIONAL INC.
                      CONDENSED CONSOLIDATING BALANCE SHEET
                                  JUNE 30, 1998
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                  Non-
                    ASSETS                            Parent     Guarantors    Guarantors   Eliminations  Consolidated
                                                     ---------   ----------    ----------   ------------  ------------
<S>                                                  <C>          <C>           <C>          <C>           <C>      
Current assets:
      Cash and cash equivalents ..................   $  86,495    $     159     $   2,246    $    --       $  88,900
      Accounts receivable, net ...................      26,465        6,737         9,892         --          43,094
      Accounts receivable from affiliates ........      32,406       (7,181)      (25,219)        --               6
      Other current assets .......................       3,635        1,419         1,523         --           6,577
                                                     ---------    ---------     ---------    ---------     ---------
            Total current assets .................     149,001        1,134       (11,558)         --        138,577
      Revenue producing tools and inventory, net .      73,805       36,662        25,544         --         136,011
      Property and equipment, net ................       7,972        2,018         2,758         --          12,748
     Investments in subsidiaries .................      72,463           35           (35)     (72,463)         --   
     Accounts receivable from officer ............         250         --            --           --             250
     Goodwill, net ...............................      32,870       20,059        16,594         --          69,523
     Intangibles and other assets ................      10,182           26         5,322         --          15,530
                                                     ---------    ---------     ---------    ---------     ---------
            Total assets .........................   $ 346,543    $  59,934     $  38,625    $ (72,463)    $ 372,639
                                                     =========    =========     =========    =========     =========

  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable and accrued liabilities ...   $  22,543    $   3,773     $   7,408    $    --       $  33,724
      Income taxes payable .......................       1,803          490         2,383         --           4,676
      Current portion of long-term debt ..........          48            2         1,373         --           1,423
                                                     ---------    ---------     ---------    ---------     ---------
             Total current liabilities ...........      24,394        4,265        11,164         --          39,823
Long-term debt ...................................     275,165           37           499         --         275,701
Deferred income taxes ............................      (2,172)       3,811         4,465         --           6,104
Other noncurrent liabilities .....................         629          202         2,272         --           3,103
Stockholders' equity:
      Common stock ...............................         105            8         1,723       (1,731)          105
      Treasury stock .............................        (948)        --            --           --            (948)
      Paid in capital ............................      51,189       23,786        23,549      (47,335)       51,189
      Foreign currency translation-accumulated
           comprehensive income ..................        --           --            (619)        --            (619)
      Retained earnings (deficit) ................      (1,819)      27,825        (4,428)     (23,397)       (1,819)
                                                     ---------    ---------     ---------    ---------     ---------
      Total stockholders' equity .................      48,527       51,619        20,225      (72,463)       47,908
                                                     ---------    ---------     ---------    ---------     ---------
           Total liabilities and 
             stockholders' equity.................   $ 346,543    $  59,934     $  38,625    $ (72,463)    $ 372,639
                                                     =========    =========     =========    =========     =========
</TABLE>


                            See accompanying notes.

                                       8
<PAGE>   12

                            DAILEY INTERNATIONAL INC.
                      CONDENSED CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 1997
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                  Non-                                     
                     ASSETS                           Parent      Guarantors    Guarantors   Eliminations   Consolidated 
                                                     ---------    ----------    ----------   ------------   ------------
<S>                                                    <C>         <C>           <C>          <C>            <C>   
Current assets:                                                                                                                
      Cash and cash equivalents ..................   $  56,672    $     860      $   2,305    $    --        $  59,837
      Accounts receivable, net ...................      18,220        6,580          9,801         --           34,601
      Other current assets .......................       1,318          601            850         --            2,769
                                                     ---------    ---------      ---------    ---------      ---------
            Total current assets .................      76,210        8,041         12,956         --           97,207
     Revenue producing tools and inventory, net ..      37,598       31,102         10,356         --           79,056
     Property and equipment, net .................       5,880        1,786            515         --            8,181
     Investments in subsidiaries .................      52,399         --             --        (52,399)          --   
     Accounts receivable from officer ............         250         --             --           --              250
     Goodwill, net ...............................         803       18,157            223         --           19,183
     Intangibles and other assets ................       5,095          146            159         --            5,400
                                                     ---------    ---------      ---------    ---------      ---------
            Total assets .........................   $ 178,235    $  59,232      $  24,209    $ (52,399)     $ 209,277
                                                     =========    =========      =========    =========      =========

 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Accounts payable and accrued liabilities ...   $  16,270    $   4,726      $   2,808    $    --        $  23,804
      Accounts payable to affiliates .............     (16,846)         835         16,494         --              483
      Income taxes payable .......................       1,269          214            934         --            2,417
      Current portion of long-term debt ..........          47            2             97         --              146
                                                     ---------    ---------      ---------    ---------      ---------
             Total current liabilities ...........         740        5,777         20,333         --           26,850
Long-term debt ...................................     114,143           40             46         --          114,229
Deferred income taxes ............................      (2,172)       1,595          1,815         --            1,238
Other noncurrent liabilities .....................         123          296          1,140         --            1,559
Stockholders' equity:
      Common stock ...............................          94            8              5          (13)            94
      Treasury stock .............................      (1,047)        --             --           --           (1,047)
      Paid in capital ............................      41,335       23,786          3,895      (27,681)        41,335
      Retained earnings (deficit).................      25,019       27,730         (3,025)     (24,705)        25,019
                                                     ---------    ---------      ---------    ---------      ---------
      Total stockholders' equity .................      65,401       51,524            875      (52,399)        65,401
                                                     ---------    ---------      ---------    ---------      ---------
            Total liabilities and stockholders'
               equity ............................   $ 178,235    $  59,232      $  24,209    $ (52,399)     $ 209,277
                                                     =========    =========      =========    =========      =========
</TABLE>



                             See accompanying notes.

                                       9
<PAGE>   13
                            DAILEY INTERNATIONAL INC.
                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 1998
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                               Non-
                                                      Parent    Guarantors  Guarantors   Eliminations  Consolidated
                                                     --------   ----------  ----------   ------------  ------------
<S>                                                  <C>         <C>         <C>           <C>          <C>     
 Revenues:
      Rental income ..............................   $ 12,960    $  1,653    $  2,471      $   --       $ 17,084
      Sales of products and services .............      9,979           3       1,419          --         11,401
      Underbalanced drilling services ............       --         3,600       1,694          --          5,294
                                                     --------    --------    --------      --------     --------
                                                       22,939       5,256       5,584          --         33,779

Cost and expenses:
      Cost of rentals ............................     10,350       1,631       2,326           (36)      14,271
      Cost of products and services ..............      5,785           1       1,244          --          7,030
      Cost of underbalanced drilling services ....       --         2,394       1,973          --          4,367
      Selling, general and administrative ........      5,761       1,779       2,271          (122)       9,689
      Non-cash compensation ......................        286        --          --            --            286
      Research and development ...................         58        --            67          --            125
                                                     --------    --------    --------      --------     --------
                                                       22,240       5,805       7,881          (158)      35,768
                                                     --------    --------    --------      --------     --------
Operating income (loss)...........................        699        (549)     (2,297)          158       (1,989)
Other (income) expense:
      Interest income ............................     (1,173)         (5)        (24)         --         (1,202)
      Interest expense - nonaffiliates ...........      6,374          20         142          --          6,536
      Equity in subsidiaries, net of taxes .......      2,911        --          --          (2,911)        --   
      Other, net .................................        (29)       (116)         75           158           88
                                                     --------    --------    --------      --------     --------
Loss before taxes ................................     (7,384)       (448)     (2,490)        2,911       (7,411)
Income tax provision (benefit) ...................        325         235        (262)         --            298
                                                     --------    --------    --------      --------     --------
Net loss .................................. ......   $ (7,709)   $   (683)   $ (2,228)     $  2,911     $ (7,709)
                                                     ========    ========    ========      ========     ========
</TABLE>



                             See accompanying notes.

                                       10
<PAGE>   14

                            DAILEY INTERNATIONAL INC.
                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 1997
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                          Non-
                                                 Parent    Guarantors  Guarantors   Eliminations  Consolidated
                                                --------   ----------  ----------   ------------  ------------
<S>                                             <C>         <C>         <C>           <C>          <C>     
Revenues:
      Rental income .........................   $ 10,474    $  1,595    $  1,847      $   --       $ 13,916
      Sales of products and services ........      3,462         310         484          --          4,256
      Underbalanced drilling services .......        --           36         688          --            724
                                                --------    --------    --------      --------     --------
                                                  13,936       1,941       3,019          --         18,896

Cost and expenses:
      Cost of rentals .......................      7,280       1,283       1,919          (405)      10,077
      Cost of products and services .........      2,046          45         192          --          2,283
      Cost of underbalanced drilling
       services .............................        --           23         437          --            460   
      Selling, general and administrative ...      2,522         458         434          (148)       3,266
      Reorganization cost ...................      1,797        --          --            --          1,797
      Non-cash compensation .................      2,235        --          --            --          2,235
      Research and development ..............        165        --          --            --            165
                                                --------    --------    --------      --------     --------
                                                  16,045       1,809       2,982          (553)      20,283
                                                --------    --------    --------      --------     --------
Operating income (loss)......................     (2,109)        132          37           553       (1,387)
Other (income) expense:
      Interest income .......................       (175)         (3)       --            --           (178)
      Interest expense ......................        192           2        --            --            194
      Equity in subsidiaries, net of tax ....       (304)       --          --             304         --
      Other, net ............................       (168)       (268)         (6)          553          111
                                                --------    --------    --------      --------     --------
Income (loss) before taxes ..................     (1,654)        401          43          (304)      (1,514)
Income tax provision (benefit) ..............       (128)         25         115          --             12
                                                --------    --------    --------      --------     --------
Net income (loss) ...........................   $ (1,526)   $    376    $    (72)     $   (304)    $ (1,526)
                                                ========    ========    ========      ========     ========
</TABLE>


                             See accompanying notes.


                                       11
<PAGE>   15


                            DAILEY INTERNATIONAL INC.
                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                               Non-                                     
                                                      Parent    Guarantors  Guarantors   Eliminations   Consolidated 
                                                     --------   ----------  ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>           <C>           <C>     
 Revenues:
      Rental income ..............................   $ 25,722    $  3,356    $  3,697      $   --        $ 32,775
      Sales of products and services .............     18,407         528       4,215          --          23,150
      Underbalanced drilling services ............       --         7,338       8,536          --          15,874
                                                     --------    --------    --------      --------      --------
                                                       44,129      11,222      16,448          --          71,799

Cost and expenses:
      Cost of rentals ............................     19,918       3,189       3,434           (94)       26,447
      Cost of products and services ..............     11,221          58       2,910          --          14,189
      Cost of underbalanced drilling services ....       --         4,320       6,819          --          11,139
      Selling, general and administrative ........     10,882       3,494       3,761          (211)       17,926
      Non-cash compensation ......................        471        --          --            --             471
      Research and development ...................        137        --            67          --             204
                                                     --------    --------    --------      --------      --------
                                                       42,629      11,061      16,991          (305)       70,376
                                                     --------    --------    --------      --------      --------
Operating income (loss)...........................      1,500         161        (543)          305         1,423
Other (income) expense:
      Interest income ............................     (2,143)          5         (26)         --          (2,164)
      Interest expense ...........................     10,821          39         170          --          11,030
      Equity in subsidiaries, net of taxes .......      1,631        --          --          (1,631)         --   
      Other, net .................................        (17)       (245)        170           305           213
                                                     --------    --------    --------      --------      --------
Income (loss) before taxes .......................     (8,792)        362        (857)        1,631        (7,656)
Income tax provision .............................        623         304         831          --           1,758
                                                     --------    --------    --------      --------      --------
Net income (loss) before extraordinary item ......     (9,415)         58      (1,688)        1,631        (9,414)
Extraordinary item ...............................    (17,579)       --          --            --         (17,579)
                                                     --------    --------    --------      --------      --------
Net income (loss) ................................   $(26,994)   $     58    $ (1,688)     $  1,631      $(26,993)
                                                     ========    ========    ========      ========      ========
</TABLE>



                            See accompanying notes.

                                       12
<PAGE>   16


                            DAILEY INTERNATIONAL INC.
                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1997
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                              Non-
                                                      Parent    Guarantors  Guarantors   Eliminations   Consolidated
                                                     --------   ----------  ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>           <C>           <C>     
Revenues:
      Rental income ..............................   $ 19,210    $  3,144    $  3,619      $   --        $ 25,973
      Sales of products and services .............      6,606         923         847          --           8,376
      Underbalanced drilling services ............        --           36         688          --             724
                                                     --------    --------    --------      --------      --------
                                                       25,816       4,103       5,154          --          35,073

Cost and expenses:
      Cost of rentals ............................     13,589       2,878       4,487        (1,618)       19,336
      Cost of products and services ..............      4,171          85         194          --           4,450
      Cost of underbalanced drilling services ....        --           23         437          --             460
      Selling, general and administrative ........      4,998         631         660          (148)        6,141
      Reorganization costs .......................      1,797        --          --            --           1,797
      Non-cash compensation ......................      3,285        --          --            --           3,285
      Research and development ...................        413        --          --            --             413
                                                     --------    --------    --------      --------      --------
                                                       28,253       3,617       5,778        (1,766)       35,882
                                                     --------    --------    --------      --------      --------
Operating income (loss)...........................     (2,437)        486        (624)        1,766          (809)
Other (income) expense:
      Interest income ............................       (320)        (10)       --            --            (330)
      Interest expense ...........................        340           4        --            --             344
      Equity in subsidiaries, net of taxes .......       (331)       --          --             331          --
      Other, net .................................       (667)       (526)       (245)        1,766           328
                                                     --------    --------    --------      --------      --------
Income (loss) before taxes .......................     (1,459)      1,018        (379)         (331)       (1,151)
Income tax provision (benefit) ...................       (154)         86         222          --             154
                                                     --------    --------    --------      --------      --------
Net income (loss) ................................   $ (1,305)   $    932    $   (601)     $   (331)     $ (1,305)
                                                     ========    ========    ========      ========      ========
</TABLE>

                             See accompanying notes.



                                       13
<PAGE>   17

                            DAILEY INTERNATIONAL INC.
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1998
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                     Non-                                      
                                                           Parent      Guarantors  Guarantors  Eliminations  Consolidated 
                                                          --------     ----------  ----------  ------------  ------------
<S>                                                       <C>          <C>          <C>          <C>           <C>       
OPERATING ACTIVITIES:
Net income (loss) .....................................   $ (26,993)   $      58    $  (1,689)   $   1,631     $ (26,993)
Adjustments to reconcile net income (loss)
      to net cash provided by (used in) 
        operating activities:
      Equity in earnings of subsidiaries ..............       1,631         --           --         (1,631)         --   
      Depreciation and amortization ...................       5,333        4,060        1,634         --          11,027
      Deferred income taxes ...........................        (124)         123            1         --            --   
      Write-off unamortized debt issuance costs .......       4,929         --           --           --           4,929
      Provision for doubtful accounts .................         166           17           15         --             198
      Provision for stock awards ......................         471         --           --           --             471
      (Gain) loss on sale and disposition of
           property and equipment .....................         (25)        --              3         --             (22)
      Changes in operating assets and liabilities
           (net of the effects of acquisitions):
           Accounts receivable - trade ................        (944)      (1,408)       2,193         --            (157)
           Accounts receivable from/payable to
                officer and affiliates ................      (9,758)       7,069        2,201         --            (488)
           Prepaid expenses and other .................      (4,519)      (1,466)         (81)        --          (6,066)
           Accounts payable and accrued liabilities ...       5,287         (447)       2,742         --           7,582
           Income taxes payable .......................         508          177          280         --             965
                                                          ---------    ---------    ---------    ---------     ---------
Net cash provided by (used in) operating activities ...     (24,036)       8,183        7,299         --          (8,554)

INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory ....     (23,756)      (4,621)      (4,902)        --         (33,279)
Inventory transferred to cost of rentals ..............       2,866        1,014          417         --           4,297
Revenue-producing tools lost in hole, abandoned,
      and sold ........................................       2,670       (1,377)        (135)        --           1,158
Additions to property and equipment ...................      (1,705)        (293)      (1,514)        --          (3,512)
Proceeds from sale of property and equipment ..........          40         --           --           --              40
Acquisitions ..........................................     (73,518)      (3,519)        --           --         (77,037)
                                                          ---------    ---------    ---------    ---------     ---------
Net cash used in investing activities .................     (93,403)      (8,796)      (6,134)        --        (108,333)

FINANCING ACTIVITIES:
Proceeds from the issuance of Senior Notes ............     268,125         --           --           --         268,125
Payments on outstanding debt ..........................    (120,864)         (87)        (797)        --        (121,748)
                                                          ---------    ---------    ---------    ---------     ---------
Net cash provided by (used in) financing activities ...     147,261          (87)        (797)        --         146,377
                                                          ---------    ---------    ---------    ---------     ---------
Effect of foreign exchange rate changes on cash .......        --           --           (427)        --            (427)
                                                          ---------    ---------    ---------    ---------     ---------
Increase (decrease) in cash and cash equivalents ......      29,822         (700)         (59)        --          29,063
Cash and cash equivalents at beginning of period ......      56,673          859        2,305         --          59,837
                                                          ---------    ---------    ---------    ---------     ---------
Cash and cash equivalents at end of period ............   $  86,495    $     159    $   2,246    $    --       $  88,900
                                                          =========    =========    =========    =========     =========
</TABLE>


                             See accompanying notes.


                                       14
<PAGE>   18

                            DAILEY INTERNATIONAL INC.
                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 1997
                                 (In Thousands)

<TABLE>
<CAPTION>

                                                                                       Non-
                                                            Parent     Guarantors    Guarantors  Eliminations  Consolidated
                                                            ------     ----------    ----------  ------------  ------------
<S>                                                        <C>          <C>          <C>          <C>           <C>      
OPERATING ACTIVITIES:

Net income (loss) .....................................    $ (1,305)    $  1,183     $   (852)    $   (331)     $ (1,305)
Adjustments to reconcile net income (loss)
      to net cash provided by (used in) 
        operating activities:
      Equity in earnings of subsidiaries ..............        (331)        --           --            331          --
      Depreciation and amortization ...................       2,793          793           64         --           3,650
      Deferred income taxes ...........................      (1,278)        --           --           --          (1,278)
      Provision for doubtful accounts .................         121           16           22         --             159
      Provision for stock awards ......................       3,285         --           --           --           3,285
      Loss on sale and disposition of
           property and equipment .....................         172         --           --           --             172
      Changes in operating assets and liabilities
           (net of the effects of acquisitions):
           Accounts receivable - trade ................          31         (174)         347         --             204
           Accounts receivable from/payable to
                officers and affiliates ...............       7,189       (1,612)        (354)        --           5,223
           Prepaid expenses and other .................        (162)         385           51         --             274
           Accounts payable and accrued liabilities ...        (492)        (273)         190         --            (575)
           Income taxes payable .......................         905           44          236         --           1,185
                                                           --------     --------     --------     --------      --------
Net cash provided by (used in) operating activities ...      10,928          362         (296)        --          10,994

INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory ....      (7,567)      (1,093)        (896)        --          (9,556)
Inventory transferred to cost of rentals ..............       1,681          727          580         --           2,988
Revenue-producing tools lost in hole, abandoned,
      and sold ........................................       1,241         (278)        --           --             963
Additions to property and equipment ...................        (299)         (45)         (18)        --            (362)
Proceeds from sale of property and equipment ..........         567            6          (56)        --             517
Acquisitions ..........................................     (48,651)        --           --           --         (48,651)
                                                           --------     --------     --------     --------      --------
Net cash used in investing activities .................     (53,028)        (683)        (390)        --         (54,101)

FINANCING ACTIVITIES:
Net proceeds from the issuance of  debt ...............      39,000         --           --           --          39,000
Payments on outstanding debt ..........................        (855)        --           --           --            (855)
Purchase of treasury stock ............................      (1,047)        --           --           --          (1,047)
                                                           --------     --------     --------     --------      --------
Net cash provided by financing activities .............      37,098         --           --           --          37,098
                                                           --------     --------     --------     --------      --------
Decrease in cash and cash equivalents .................      (5,002)        (321)        (686)        --          (6,009)
Cash and cash equivalents at beginning of period ......      10,814          553          190         --          11,557
                                                           --------     --------     --------     --------      --------
Cash and cash equivalents at end of period ............    $  5,812     $    232     $   (496)    $   --        $  5,548
                                                           ========     ========     ========     ========      ========

</TABLE>



                             See accompanying notes.


                                       15
<PAGE>   19



                           DAILEY INTERNATIONAL INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


         From time to time, the Company may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) and that involve risk and uncertainty. Words such as
"anticipate", "expect", "estimate", "project" and similar expressions are
intended to identify such forward-looking statements. These forward-looking
statements may include, but are not limited to, future capital expenditure and
information systems plans, anticipated results from current and future
operations, earnings, margins, acquisitions, market trends in the oilfield
services industry, including demand for the Company's drilling services and
downhole tools, competition and various business trends. Forward-looking
statements may be made by management orally or in writing including, but not
limited to, the Managements's Discussion and Analysis of Financial Condition
and Results of Operations section and other sections of the Company's filings
with the Securities and Exchange Commission under the Securities Act of 1933
and the Securities Exchange Act of 1934.

         Such forward-looking statements are subject to certain risks,
uncertainties and assumptions, including without limitation those identified
below and in the Company's Transition Report on Form 10-K for the period ended
December 31, 1997. Should one or more of these risks or uncertainties
materialize, or should any of the underlying assumptions prove incorrect, actual
results of current and future operations may vary materially from those
anticipated, estimated or projected. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates.

         Among the factors that may have a direct bearing on the Company's
results of operations and the oilfield services industry in which it operates
are changes in the price of oil and natural gas; the impact of competitive
products and pricing; the presence of competitors with greater financial
resources; product demand and acceptance risks, including product obsolescence
risks with respect to its downhole tools and directional drilling technology;
risks associated with the ADI Acquisition, the DWS/DAMCO Acquisition, the IDS
Acquisition, and the Transocean Acquisition, including failure to successfully
manage the Company's growth and integrate the operations acquired in such
acquisitions; the Company's substantial leverage following its recent offering
of senior notes; typical operating risks inherent in the oilfield services
industry, including risks of environmental liability; delays in receiving raw
materials utilized in the manufacture and assembly of the Company's downhole
tools and other difficulties in the manufacture, assembly or delivery of the
Company's downhole tools including those acquired in the Company's recent
acquisitions; worldwide political stability and economic growth and other risks
associated with international operations, including foreign exchange and other
currency risks; and the Company's successful execution of internal operating
plans, including the ability of the Company to streamline and reorganize
operations in light of current market conditions to bring its cost structure in
line with current industry conditions, as well as regulatory uncertainties and
legal proceedings.

CHANGE IN FISCAL YEAR

         Effective December 31, 1997, the Company changed its fiscal year end to
December 31 from April 30. The Company believes such a change will allow the
Company's stockholders and other investors to more easily compare the Company's
operating results with those of other oil field services companies.

RECENT DEVELOPMENTS

         Industry Conditions. Demand for the Company's products and services
depends to a large extent upon the level of exploration and production activity
in the oil and gas industry and the industry's willingness to spend capital on
drilling operations, which in turn depends in part on oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the discovery rate of new oil and gas reserves, domestic
and international political, military, regulatory and economic conditions and
the ability of oil and gas companies to raise capital. Prices for oil and gas
historically have been extremely volatile and have reacted to changes in the
supply of and demand for oil and natural gas, domestic and worldwide economic
conditions and political instability in oil producing countries.


                                       16
<PAGE>   20
         During 1996 and much of 1997, including the three and six months ended
June 30, 1997, the oil field service industry experienced a general improvement
in product demand and pricing as relatively stable and improved oil and 
natural gas prices combined with a strong world economy to increase exploration
and development activity worldwide. This trend benefited the Company and its
results during the three and six months ended June 30, 1997. Beginning in late
1997, the worldwide price of oil has declined significantly and prices for
natural gas have weakened slightly. These declines have been attributed to,
among other things, an excess supply of oil in the world markets, reduced
domestic demand associated with an unseasonably warm winter and the potential
for lower worldwide demand due to the impact of the economic downturn in
Southeast Asia. As prices for oil continue to decline, the Company and
others in the oil field services industry have begun to experience a softening
in demand for their products and services, in particular products associated
with exploration activity and oil production. During the second quarter of 1998,
such economic and industry conditions put significant downward pressure on the
Company's air drilling operations, in particular in Indonesia, Venezuela, 
Bolivia and Colombia where depressed economic conditions caused demand for the
Company's air drilling services during the second quarter to drop significantly
in such markets, and to a lesser extent, Canada, where demand for the Company's
air drilling services were slow to recover from the seasonal winter slowdown.
Demand for the Company's other products and services, although depressed
compared to levels experienced during 1997, remained steady compared to the
first quarter of 1998, although a continuation of depressed oil and gas prices
could further negatively impact the Company's future revenues from such products
and services if the Company's customers further reduce oil and gas exploration
and workover activities.

         Issuance of Senior Notes. On February 13, 1998, the Company issued $275
million principal amount of its 9 1/2% Senior Notes due 2008 (the "Senior
Notes"). Of the $268.1 million net proceeds to the Company, approximately $127.7
million were utilized to repurchase at a premium of 111% of their principal
amount all of the outstanding principal amount of the Company's 9 3/4% Senior
Notes due 2007 (the "Old Notes") and approximately $7.5 million were utilized to
repay outstanding debt under the Company's credit facility. The remaining net
proceeds were used to fund the acquisitions of IDS and Transocean's directional
drilling business and will be utilized to fund capital expenditures, to fund
future acquisitions and for general and working capital purposes. The Company is
currently investing the net proceeds in temporary short-term investments. The
Senior Notes significantly increased the Company's debt levels and will result
in annualized interest payments of approximately $26.1 million per year. As a
result of the repurchase of the Old Notes, the Company recorded an extraordinary
loss in the first quarter of 1998 of $17.6 million representing the excess of
the purchase price for the Old Notes over their carrying value on the date of
repurchase.

         Transocean Acquisition. In July 1998, the Company acquired (the
"Transocean Acquisition") substantially all of the assets of the directional
drilling business of Transocean Petroleum Technology Limited ("Transocean") for
$10 million in cash, utilizing a portion of the proceeds from the Senior Notes
offering. As a result of the Transocean Acquisition, the Company expanded its
directional drilling services to the North Sea. The Transocean Acquisition will
be accounted for utilizing the purchase method of accounting, and accordingly,
activities from the assets acquired in the Transocean Acquisition will be
included in the Company's results beginning in the third quarter of 1998.

         IDS Acquisition. Utilizing a portion of the proceeds from the issuance
of the Senior Notes, the Company acquired the outstanding capital stock of IDS
in March 1998 for approximately $11.9 million in cash and 1,064,600 shares of
Class A Common Stock, plus assumption or repayment of debt of approximately $6.5
million. As a result of the IDS Acquisition, the Company acquired key
technologies, including a resistivity tool for LWD equipment that is compatible
with Dailey's MWD equipment. The Company believes that the addition of LWD
technology to its MWD equipment will allow the Company to offer more fully
integrated directional drilling services. At present, the Company is in the
process of integrating IDS operations and instituting production of IDS
products, which is not expected to be fully complete for several quarters. As a
result of the IDS Acquisition, which has been accounted for under the purchase
method of accounting, the Company initially recorded approximately $16.6 million
in goodwill, representing the excess of the purchase price over the estimated
fair market value of the IDS assets, which will be amortized over 25 years and
result in additional annual amortization expense of $664,000. Since the goodwill
associated with the IDS Acquisition will not be deductible for tax purposes, the
effective tax rate on Dailey's financial statements will increase as a result of
the acquisition. As discussed in Note 3 to the Company's unaudited consolidated
financial statements, in July 1998, the Company paid an additional purchase
consideration in connection with the resolution of certain contingencies
involving the IDS acquisition.

         DWS/DAMCO Acquisition. The Company's operations and future results will
be significantly impacted by the DWS/DAMCO Acquisition, which was consummated in
January 1998. Dailey acquired the operating assets and liabilities of DWS/DAMCO
for $61 million in cash and financed the acquisition with remaining proceeds
from its offering of the Old Notes in August 1997 and borrowings under its
credit facility. As a result of the DWS/DAMCO Acquisition, the Company became a
leading supplier of electric wireline services and tubular testing and handling
services in the U.S. Gulf of Mexico region and Nigeria. The DWS/DAMCO
Acquisition was accounted for under the purchase method of accounting. As a
result, the assets and liabilities of DWS/DAMCO were recorded at their estimated
fair market values as of the date of the DWS/DAMCO Acquisition. The Company
recorded goodwill of approximately $32.0 million 


                                       17


<PAGE>   21
relating to the excess of the purchase price paid for the assets over their 
fair market value, which will be amortized over 25 years and result in 
approximately $1.3 million in annualized amortization expense.

         ADI Acquisition. On June 20, 1997, Dailey acquired ADI for $46.4
million, including the repayment of approximately $16.8 million in debt. As a
result of the ADI Acquisition, Dailey became a leading worldwide provider of air
drilling services for underbalanced drilling applications.

         The ADI Acquisition was accounted for under the purchase method of
accounting. As a result, the operations of ADI following June 20, 1997 are
reflected in Dailey's historical operations and the assets and liabilities of
ADI were recorded at their estimated fair market values as of the date of the
ADI Acquisition. Dailey recorded goodwill of approximately $21.1 million
relating to the excess of the purchase price paid for the assets over their fair
market value, which is being amortized over 20 years and is resulting in
approximately $1.1 million in annualized amortization expense. Since the
goodwill associated with the ADI Acquisition is not amortized for tax purposes,
the effective tax rate shown on Dailey's financial statements has increased
significantly as a result of the ADI Acquisition.

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 
1997

         Rental Income. Rental income for the three months ended June 30, 1998
was $17.1 million, compared to $13.9 million for the same three months last
year. In the current quarter, rental income included $1.1 million from IDS'
which was acquired at the end of the first quarter of 1998. Excluding IDS
revenues, rental revenue increased 15% from the same three months last year.
Expansion of directional drilling operations into the U.S. mid-continent region
during the second and third quarters of 1997 resulted in a $1.7 million increase
in rental income during the second quarter of 1998 compared to the second
quarter of 1997. Internationally, rental income increased $478,000 during the
second quarter of 1998 compared to the second quarter of 1997 as a result of
increased demand for downhole tools primarily in Saudi Arabia and the Far East,
partially offset by decreased downhole and directional rental revenue in
Venezuela due to a decrease in drilling activity in that region during the
second quarter of 1998.

         Sales of Products and Services. Sales of products and services for the
three months ended June 30, 1998 were $11.4 million compared to $4.3 million for
the same three months last year. Excluding revenues associated with ADI and
DWS/DAMCO of $6.7 million, revenues increased 11% due primarily to increased
revenue from domestic directional services of $668,000 during the second
quarter of 1998 compared to the second quarter of 1997.

         Underbalanced Drilling Services Revenue. Underbalanced drilling
services revenue for the three months ended June 30, 1998 was $5.3 million
compared to $724,000 for the three months ended June 30, 1997 resulting from
the acquisition of ADI on June 20, 1997. As discussed above under "Industry
Conditions", economic and industry conditions during the second quarter of 1998
put significant downward pressure on ADI's results of operations. As a result,
underbalanced drilling revenues during the second quarter of 1998 decreased by
$5.3 million compared to the first quarter of 1998. 

         Cost of Rentals. Cost of rentals for the three months ended June 30,
1998 was $14.3 million, compared to $10.1 million for the same three months last
year. In the current quarter, cost of rentals included $1.1 million from IDS.
Excluding IDS, margins decreased from 28% for the three months ended June 30,
1997 to 18% for the three months ended June 30, 1998, primarily due to increased
depreciation expense related to an increase in directional rental products and
to an increase in fixed costs associated with the expansion of directional
drilling operations in the U.S. mid-continent region and in Saudi Arabia during
third quarter of 1997. In addition, margins were unfavorably impacted by the
increased use of third party tools (which typically generate lower margins) as a
result of expansion into new applications for the Company's directional drilling
services, increased commission expense due to an increase in rental revenue in
regions where the Company utilizes third-party agents and increased rate of
consumption of tools, parts and supplies.

         Cost of Products and Services. Cost of products and services for the
three months ended June 30, 1998 was $7.0 million, which represented a $4.7
million increase from the three months ended June 30, 1997. Excluding costs
associated with ADI and DWS/DAMCO of $3.6 million, costs increased $1.2 million.
The margin on sales of products and services for the three months ended June 30,
1998, excluding the impact of ADI and DWS/DAMCO, decreased to 27% from 46% for
the same three months last year primarily due to the hiring of additional
directional drillers and MWD technicians combined with increased salaries and
other costs to retain qualified personnel in those positions. In addition,
margins during the second quarter of 1998 declined 6% compared to margins during
the first quarter of 1998. The Company currently has implemented and is
exploring additional cost saving strategies to adjust the Company's cost
structure to current industry conditions.

         Cost of Underbalanced Drilling Services. Cost of underbalanced drilling
services for the three months ended June 30, 1998 was $4.4 million compared to
$460,000 for the three months ended June 30, 1997 resulting from the acquisition
of ADI on June 20, 1997. Margins on underbalanced drilling revenues during the
second quarter of 1998 were 18%, compared to 36% during the first quarter of
1998. This decrease is primarily a result of decreased underbalanced drilling
revenues during the second quarter of 1998 compared to the first quarter of
1998. In connection with its review of cost saving strategies in connection with
its other operations, the Company is reviewing ways to adjust its cost structure
with respect to underbalanced drilling operations to current industry
conditions.



                                       18
<PAGE>   22
         Selling, General and Administrative. Selling, general and
administrative expenses for the three months ended June 30, 1998 were $9.7
million, compared to $3.3 million for the same three months last year. Excluding
costs associated with ADI, DWS/DAMCO and IDS of $5.3 million, costs increased by
$1.3 million during the second quarter of 1998 compared to the second quarter of
1997 primarily as a result of increased personnel and executive and other
compensation, increased costs related to business expansion and development
activity and increased costs related to an evaluation of an enterprise-wide
computer system. The Company currently is exploring cost saving strategies in
order to reduce the level of overhead to adjust the Company's cost structure to
current industry conditions.

         Non-cash Compensation. Non-cash compensation for the three months ended
June 30, 1998 was $286,000 which was primarily related to restricted stock that
had been granted to certain executive officers of the Company on October 7, 1997
in connection with the 1997 Long-Term Incentive Plan, compared to $2.2 million
for the same period last year related to the vesting of prior grants.

         Interest Income. Interest income for the three months ended June 30,
1998 was $1.2 million compared to $178,000 for the same three months last year.
This increase in interest income was the result of interest earned on temporary,
short term investments utilizing excess funds from the issuance of the $275
million 9 1/2% Senior Notes.

         Interest Expense. Interest expense for the three months ended June 30,
1998 was $6.5 million compared to $194,000 for the same three months last year.
This increase was due to interest on the $275 million 9 1/2% Senior Notes.

         Income Tax Provision. Income tax expense for the three months ended
June 30, 1998 was $298,000, an increase from $12,000 for the same three months
last year. Income tax expense exceeded the amount that would have resulted from
applying the U.S. federal statutory tax rate due to foreign income taxes and
withholding taxes with no offsetting benefit from U.S. net operating losses, net
of valuation allowances.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997

         Rental Income. Rental income for the six months ended June 30, 1998 was
$32.8 million , an increase of 26% from $26.0 million for the same six months
last year. The current period includes revenues of $1.1 million from IDS, which
was acquired at the end of the first quarter 1998. Exclusive of IDS, rental
revenues increased 22% from the same period last year. This increase in revenue
was due to increased utilization of directional rental products, which was
favorably impacted by a 3% increase in the average domestic rig count during the
six months ended June 30, 1998 compared to the six months ended June 30, 1997
and the expansion of directional drilling operations into the U.S.
mid-continent region, resulting in a $4.7 million increase in rental income.
Internationally, rental income increased $1.7 million as a result of increased
demand for downhole tools during the six months ended June 30, 1998 compared to
the six months ended June 30, 1997 primarily in Saudi Arabia and the Far East.
These increases were partially offset by decreased directional revenues in
Venezuela of $648,000 due to decreased drilling activity.

         Sales of Products and Services. Sales of products and services for the
six months ended June 30, 1998 were $23.2 million compared to $8.4 million for
the same six months last year. Excluding revenues associated with ADI and
DWS/DAMCO of $13.0 million, revenues increased 21% due to an increase in 
tools-lost-in-hole revenues of $658,000 and increased revenue from domestic
directional services of $1.2 million.

         Underbalanced Drilling Services. Underbalanced drilling services
revenue for the six months ended June 30, 1998 was $15.9 million compared to
$724,000 for the same six months last year resulting from the acquisition of ADI
on June 20, 1997.

         Cost of Rentals. Cost of rentals for the six months ended June 30, 1998
was $26.4 million, an increase of 37% from $19.3 million for the same six months
last year. Excluding costs associated with IDS of $1.1 million, costs increased
31%. Margins, exclusive of IDS, decreased from 26% for the six months ended June
30, 1997 to 20% for the six months ended June 30, 1998, primarily due to
increased depreciation expense related to the increase in directional rental
products and an increase in fixed costs associated with the expansion of
directional drilling operations in the U.S. mid-continent region. In 


                                       19
<PAGE>   23
addition, the margins were unfavorably impacted by the increased use of third
party tools which typically generated lower margins as a result of expansion
into new applications for the Company's directional drilling services.

         Cost of Products and Services. Cost of products and services for the
six months ended June 30, 1998 was $14.2 million, which was a $9.7 million
increase from the same six months last year. Excluding costs associated with ADI
and DWS/DAMCO of $7.1 million, costs increased $2.6 million. The margin on sales
of products and services for the six months ended June 30, 1998, excluding the
impact of ADI and DWS/DAMCO, decreased to 30% from 47% for the same six months
last year primarily due to the hiring of additional directional drillers and MWD
technicians combined with increased costs to retain qualified personnel in those
positions.

         Cost of Underbalanced Drilling Services. Cost of underbalanced drilling
services for the six months ended June 30, 1998 was $11.1 million compared to
$460,000 for the same six months last year resulting from the acquisition of ADI
on June 20, 1997.

         Selling, General and Administrative. Selling, general and
administrative expenses for the six months ended June 30, 1998 were $17.9
million, compared to $6.1 million for the same six months last year. Excluding
costs associated with ADI, DWS/DAMCO and IDS of $9.3 million, costs increased by
$2.7 million primarily as a result of increased personnel and executive and
other compensation, increased costs related to business expansion and
development activity and increased costs related to an evaluation of an
enterprise-wide computer system.

         Non-cash Compensation. Non-cash compensation for the six months ended
June 30, 1998 was $471,000 which was primarily related to restricted stock
granted to certain executive officers of the Company on October 7, 1997 in
connection with the 1997 Long-Term Incentive Plan, compared to $3.3 million for
the same period last year related to the vesting of prior grants.

         Interest Income. Interest income for the six months ended June 30, 1998
was $2.2 million compared to $330,000 for the same six months last year. This
increase in interest income was the result of interest earned on temporary,
short term investments utilizing excess funds from the issuance of the $115
million 9 3/4% Senior Notes through mid-February and the 9 1/2% Senior Notes
from that date forward.

         Interest Expense. Interest expense for the six months ended June 30,
1998 was $11.0 million compared to $344,000 for the same six months last year.
This increase was due to the interest on the $115 million 9 3/4% Senior Notes
through mid-February and the $275 million 9 1/2% Senior Notes from that date
forward.

         Income Tax Provision. Income tax expense for the six months ended June
30, 1998 was $1.8 million, an increase from $154,000 for the same six months
last year. Income tax expense exceeded the amount that would have resulted from
applying the U.S. federal statutory tax rate due to foreign income taxes and
withholding taxes with no offsetting benefit from U.S. net operating losses, net
of valuation allowances.

         Extraordinary Item. As a result of the repurchase of the $115 million 9
3/4% Senior Notes, the Company recorded an extraordinary loss in the first
quarter of 1998 of approximately $17.6 million, representing the excess of the
purchase price for the notes over the carrying value on the date of the
repurchase.

LIQUIDITY AND CAPITAL RESOURCES

         Working Capital. Cash used in operating activities was $8.6 million
during the six months ended June 30, 1998. The primary source of cash was the
net proceeds from the issuance of debt of $268.1 million. Principal uses of cash
were to fund acquisitions (net of cash acquired) of $77.0 million, repay
outstanding debt of $121.7 million, and fund capital expenditures of $32.5
million. During the past several years, working capital requirements have been
funded through cash generated from operations, additional borrowings, credit
facilities, asset sales and proceeds from equity and debt offerings.



                                       20
<PAGE>   24
         Senior Notes. The Senior Notes were issued pursuant to an indenture
dated February 13, 1998 (the "Indenture"). The Indenture contains various
covenants customary in such instruments, including covenants that (i) restrict
the Company's ability to incur additional indebtedness; (ii) restrict the
Company's ability to make restricted payments, including dividends; (iii)
restrict the Company's ability to sell assets; (iv) restrict the Company's
ability to grant liens on its assets; (v) limit transactions with affiliates and
(vi) limit the Company's ability to engage in certain extraordinary
transactions, including transactions involving a change in control of the
Company or the sale of substantially all of the Company's assets. The Senior
Notes are guaranteed by all of the Company's domestic subsidiaries, bear
interest at 9 1/2% that is payable semi-annually on February 15 and August 15 of
each year, mature on February 15, 2008 and are redeemable at the option of the
Company for stipulated redemption prices on or after February 15, 2003. The
issuance of the Senior Notes substantially increased the Company's level of
indebtedness over historical levels. The Company's increased level of
indebtedness will have several important affects on the Company's future
operations, including (i) a substantial portion of the Company's cash flows from
operations must be dedicated to the payment of interest and principal on its
indebtedness, (ii) the Company's leveraged position will substantially increase
its vulnerability to adverse changes in general economic and industry
conditions, as well as to competitive pressure, and (iii) the Company's ability
to obtain additional financing for working capital, capital expenditures,
acquisitions and general corporate and other purposes may be limited.

         Revolving Credit Line. The Company currently does not have any
outstanding borrowings under its Revolving Credit Line. The Company and bank
have mutually agreed that there will be no borrowings under the Revolving Credit
Line until the existing loan agreement is amended.

         Capital Expenditures. Capital expenditures of approximately $32.5
million were made during the six months ended June 30, 1998. Of this amount,
$29.0 million was for downhole tools, primarily MWD and other directional
equipment, hydraulic drilling jars, hydraulic fishing jars and related
inventory. The Company currently has budgeted capital expenditures for the
remainder of 1998 of $12.5 million. The level of additional capital expenditures
beyond 1998 will be determined based upon a variety of factors, including the
Company's assessment of future demand for its products and services, the level
of cash flow being generated by the Company's operations and the success of the
Company's plans for streamlining and reorganizing operations to current industry
conditions and the level of funds necessary to service the Company's debt
burden. The Company believes that utilizing a portion of the proceeds from the
Senior Notes and cash flow from operations will be sufficient to fund its
planned capital expenditures for 1998 and its debt service requirements for at
least the next 12 months. In addition, as part of its business strategy, the
Company will continue to analyze potential acquisitions of complementary
businesses and assets in light of current industry conditions. The Company
expects to fund any future acquisitions utilizing a portion of the proceeds from
the Senior Notes.

IMPACT OF YEAR 2000

         Some of the Company's computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. If not corrected, this could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, temporary inability to process transactions, send invoices or
engage in similar normal business activities.

         The Company is currently in the process of converting its information
systems as part of a total business knowledge management process conversion,
which will include all operating systems, for a total estimated cost of
approximately $3.5 million. The system conversion is estimated to be completed
no later than June 30, 1999. The greatest Year 2000 compliance risk is that the
system conversion will be delayed beyond the anticipated completion date, and
the severe shortage of qualified information systems personnel, both internally
and externally, could affect compliance efforts. The Company believes that with
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems.

         The estimated cost and the anticipated date of the system
implementation are based on management's best estimates; however, there can be
no assurance that these estimates will be achieved, and actual results could
differ materially from those anticipated.






                                       21
<PAGE>   25


                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None

ITEM 2.  CHANGES IN SECURITIES

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

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

             At the company's Annual Meeting of Stockholders held on June 2,
         1998, the following matters were voted upon:

<TABLE>
<CAPTION>
                                       Votes "For"      Votes "Against"      Votes "Abstaining"
<S>           <C>                      <C>                   <C>                 <C>
Class II      John W. Sinders          39,132,101            23,946
Directors     Al Kite                  39,132,101            23,946

Ratification of Ernst & Young LLP
as the Company's independent
auditors.                              39,133,251            21,796                1,000
</TABLE>

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits

         27       Financial Data Schedule



                                       22
<PAGE>   26

         (b)  Reports on Form 8-K

                  None






                                       23
<PAGE>   27





                                   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.


                                                  DAILEY INTERNATIONAL INC.
                                                  ------------------------------
                                                         (Registrant)



Date:   August 14, 1998                           */s/David T. Tighe
                                                  ------------------------------
                                                  David T. Tighe
                                                  Senior Vice President &
                                                  Chief Financial Officer
                                                       and authorized to sign on
                                                       behalf of the Registrant


*  Also signing on behalf of the Additional Registrants.



                                       24
<PAGE>   28

                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT NO.       DESCRIPTION
----------        -----------

<S>              <C>
    27            Financial Data Schedule
</TABLE>