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 January 31, 1997

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

Commission File Number 001-11963
----------------------------------------------------------

Dailey Petroleum Services Corp.
- --------------------------------------------------------------------------------
(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 77305
- --------------------------------------------------------------------------------
(Address of Principal Executive Officers) (Zip Code)

713/350/3399
- --------------------------------------------------------------------------------
(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 March 1,
1997 was 4,270,000.
2
DAILEY PETROLEUM SERVICES CORP.
FORM 10-Q FOR THE QUARTER ENDED JANUARY 31, 1997

INDEX

PAGE NO.
--------

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Consolidated balance sheets - January 31, 1997 and April 30, 1996 1

Consolidated statements of operations - Three months and nine months ended
January 31, 1997 and 1996 2

Consolidated statements of cash flows - Nine months ended January 31, 1997
and 1996 3

Notes to consolidated financial statements - January 31, 1997 4-6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11

PART II. OTHER INFORMATION 12

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 13

Index to Exhibits 14

3
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

JANUARY 31, APRIL 30,
ASSETS: 1997 1996
----------- --------

Current assets:
Cash and cash equivalents .......................................... $ 15,707 $ 1,967
Accounts receivable, net ........................................... 21,739 16,306
Accounts receivable from affiliates ................................ -- 436
Prepaid expenses ................................................... 356 422
Deferred income taxes .............................................. 1,464 389
Other current assets ............................................... 1,135 153
-------- --------
Total current assets ............................................... 40,401 19,673
Revenue-producing tools and inventory, net .................................. 35,711 29,208
Property and equipment, net ................................................. 5,073 5,121
Property and equipment held for sale, net ................................... 205 205
Deferred income taxes ....................................................... -- 1,384
Accounts receivable from officer ............................................ 250 --
Intangibles and other assets ................................................ 677 287
-------- --------
Total assets ....................................................... $ 82,317 $ 55,878
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities ........................... $ 9,751 $ 6,749
Accounts payable to affiliates ..................................... 340 --
Income taxes payable ............................................... 2,297 1,749
Short-term debt .................................................... -- 1,300
Current portion of long-term debt .................................. 1,711 1,738
Current portion of indebtedness to affiliate ....................... -- 660
-------- --------
Total current liabilities .......................................... 14,099 12,196
Long-term debt .............................................................. 5,583 6,866
Long-term indebtedness to affiliate ......................................... -- 1,100
Other noncurrent liabilities ................................................ 398 75
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; 3,970,000 issued and outstanding at January
31,1997; Class B, $0.01 par value; 10,000,000 shares authorized,
5,000,000 shares issued and out-
standing at January 31, 1997 and April 30, 1996 ................ 90 50
Treasury stock (24,000 shares) ..................................... (234) --
Paid-in capital .................................................... 38,284 4,559
Retained earnings .................................................. 24,097 31,032
-------- --------
Total stockholders' equity ......................................... 62,237 35,641
-------- --------
Total liabilities and stockholders' equity ......................... $ 82,317 $ 55,878
======== ========

See accompanying notes

4
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------

REVENUES:
Rental income ........................... $ 13,116 $ 11,068 $ 38,291 $ 32,280
Sales of products and services .......... 4,367 3,534 13,103 11,901
----------- ----------- ----------- -----------
17,483 14,602 51,394 44,181

COSTS AND EXPENSES:
Cost of rentals ......................... 9,954 8,491 28,838 24,912
Cost of products and services ........... 2,094 1,965 6,893 6,101
Selling, general and administrative...... 4,009 3,160 9,977 8,687
Research and development ................ 266 241 665 559
----------- ----------- ----------- -----------
16,323 13,857 46,373 40,259
----------- ----------- ----------- -----------
Operating income .............................. 1,160 745 5,021 3,922
Other (income) expense:
Interest income ......................... (212) (46) (419) (68)
Interest expense-nonaffiliates .......... 159 194 539 598
Interest expense-affiliate .............. 0 41 172 132
Foreign exchange (gain) loss ............ (20) 111 (103) 221
Other, net .............................. 12 (136) (11) (73)
----------- ----------- ----------- -----------
Income before income taxes .................... 1,221 581 4,843 3,112
Provision for income taxes .................... 436 205 1,778 1,099
----------- ----------- ----------- -----------
Net income .................................... $ 785 $ 376 $ 3,065 $ 2,013
=========== =========== =========== ===========

Earnings per share ............................ $ 0.08 $ 0.40
=========== ===========

Pro forma earnings per share .................. $ 0.06 $ 0.30
=========== ===========

Weighted average shares outstanding ........... 9,400,276 7,709,735
=========== ===========

Pro forma weighted average shares
outstanding ................................ 6,610,000 6,610,000
=========== ===========

See accompanying notes

5
DAILEY PETROLEUM SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

NINE MONTHS ENDED JANUARY 31,
-----------------------------
1997 1996
------- -------

OPERATING ACTIVITIES:
Net income ..................................................... $ 3,065 $ 2,013
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................. 4,786 4,271
Deferred income taxes ..................................... 550 (78)
Provision for doubtful accounts receivable ................ 235 181
Gain on sale and disposition of property and equipment .... (11) (5)
Provision for stock awards ................................ 894 --
Changes in operating assets and liabilities:
Accounts receivable - trade ............................... (5,668) (3,728)
Accounts receivable from/payable to officers and affiliates 526 (378)
Prepaid expenses and other ................................ (1,189) (188)
Accounts payable and accrued liabilities .................. 3,002 2,132
Income taxes payable ...................................... 548 566
-------- --------
Net cash provided by operating activities ...................... 6,738 4,786

INVESTING ACTIVITIES:
Additions to revenue-producing tools and inventory ............. (16,580) (7,896)
Inventory transferred to cost of rentals ....................... 4,448 3,677
Revenue-producing tools lost in hole, abandoned, and sold ...... 1,534 1,793
Additions to property and equipment ............................ (702) (738)
Proceeds from sale of property and equipment ................... 90 521
-------- --------
Net cash used in investing activities .......................... (11,210) (2,643)

FINANCING ACTIVITIES:
Proceeds from the issuance of debt ............................. 400 --
Payments on outstanding debt ................................... (4,770) (1,363)
Payment of promissory note ..................................... (5,000) --
Purchase of treasury stock ..................................... (234) --
Net proceeds from sale of common stock ......................... 27,816 --
-------- --------
Net cash provided by (used in) financing activities ............ 18,212 (1,363)
-------- --------

Increase in cash and cash equivalents .......................... 13,740 780
Cash and cash equivalents at beginning of period ............... 1,967 1,796
-------- --------
Cash and cash equivalents at end of period ..................... $ 15,707 $ 2,576
======== ========

See accompanying notes

6
DAILEY PETROLEUM SERVICES CORP.
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 Petroleum Services Corp. and its subsidiaries and
predecessors ("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 nine month periods ended January 31, 1997 are not necessarily
indicative of the results that may be expected for the year ended April 30,
1997. For further information, reference is made to the consolidated financial
statements and footnotes thereto included in Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on June 7, 1996, as amended and supplemented, and included in the
Company's final prospectus dated August 14, 1996.

2. ORGANIZATION AND PUBLIC OFFERING

The accompanying financial statements reflect the operations of Dailey
Petroleum Services Corp., a Delaware corporation, which was merged with Dailey
Corporation (which changed its name to Dailey Petroleum Services Corp.) in June
1996. New Dailey Petroleum Services Corp. and its predecessor, Dailey Petroleum
Services Corp., are hereinafter referred to as the "Company" or "Dailey".

Prior to June 1996, Dailey was a wholly-owned subsidiary of Lawrence
Industries, Inc. ("Lawrence"). In June 1996, in preparation for the initial
public offering of Class A Common Stock of Dailey, Lawrence reorganized its
ownership of the Company into a holding company structure through a forward
triangular merger of Dailey Petroleum Services Corp., into a newly-formed,
wholly-owned indirect subsidiary of Lawrence, Dailey Corporation (the
"Reorganization"). Following the Reorganization, Dailey Corporation changed its
name to Dailey Petroleum Services Corp. The effect of the forward triangular
merger has been reflected retroactively in the accompanying financial
statements. On August 14, 1996, the Company commenced its initial public
offering of 3,910,000 shares of Class A Common Stock (the "Offering").

In connection with the Offering, the Company issued 3,910,000 shares
of Class A Common Stock. Net proceeds to the Company from the sale of the stock
were $27.8 million. The Company also used $5.0 million of the proceeds from the
Offering to repay the outstanding balance of a $10.0 million promissory note,
which was incurred in connection with a dividend declared on June 27, 1996 (the
"Dividend"). Prior to commencement of the Offering, the Company's sole
stockholder contributed to the capital of the Company the remaining $5.0
million of the outstanding principal

of such note. The promissory note accrued interest at the prime rate. The
statements of operations for the 1996 fiscal period include pro forma per share
data which gives effect to the number of shares from which proceeds would have
been used to pay the Dividend (an additional 1,250,000 shares assuming a per
share offering price of $8.00, thus earnings per share for the periods ending
January 31, 1996 are based on 6,610,000 shares of all Common Stock
outstanding). Historical earnings per share excluding the pro forma effect of
the dividend was $0.07 per share and $0.38 per share for the three and nine
month periods ending January 31, 1996 respectively.

3. REVENUE-PRODUCING TOOLS AND INVENTORY

JANUARY 31, APRIL 30,
1997 1996
----------- -----------
(IN THOUSANDS)

Revenue-producing tools ................................... $ 54,967 $ 48,024
Accumulated depreciation .................................. (31,671) (29,740)
----------- -----------
23,296 18,284

Inventory:
Components, subassemblies and expendable parts ... 9,687 9,096
Rental tools and expendable parts
under production................................ 1,511 1,058
Raw materials .................................... 1,217 770
----------- -----------
12,415 10,924
----------- -----------
Revenue-Producing Tools and Inventory ... $ 35,711 $ 29,208
=========== ===========

4. STOCK OPTIONS AND AWARDS

Prior to the Offering, the Company established its 1996 Key Employee
Stock Plan (the "1996 Plan") and its 1996 Non-Employee Director Stock Option
Plan (the "1996 Director Plan"). Pursuant to the 1996 Plan, the Board of
Directors of the Company are authorized to grant options or restricted stock
for Class A Common Stock to management personnel for up to 900,000 shares of
the Company's Class A Common Stock.

The Board granted options totaling 378,327 shares contemporaneously
with the Offering to various executive officers which were exercisable at the
initial public offering price, of which 159,591 vested immediately and 218,736
vest over three years. On October 2, 1996, the Company granted options, which
vest over three years, totaling 15,001 shares to an executive officer of the
Company exercisable at $9.00 per share. On December 5, 1996 and January 13,
1997, the Company granted options totaling 32,500 and 12,500 shares,
respectively, to various employees. These options, which vested immediately,
are exercisable at $10.75 and $9.75 per share, respectively. On December 17,
1996, upon the resignation of an executive officer, 19,199 shares were returned
to the 1996 Plan . On January 13, 1997, the Board approved the immediate
vesting of the remaining outstanding options.

Immediately following the Offering, restricted stock awards totaling
360,000 shares were

granted to key officers. On October 2, 1996, a restricted stock award of 45,000
shares was granted to an executive officer. The awards vest over three years
and do not require any payment by the executive officers. In January 1997, the
Board approved the accelerated vesting of 60,000 shares of the restricted stock
awards.

The 1996 Director Plan has 100,000 shares authorized for the granting
of options to outside directors, of which 20,000 shares are issued and
outstanding at an exercise price of $8.875.

5. BORROWING ARRANGEMENTS

Long-term debt consisted of the following:

JANUARY 31, APRIL 30,
1997 1996
---------- --------
(IN THOUSANDS)

Note payable to a bank .............................. $ 7,194 $ 8,444
Note payable to affiliates .......................... -- 1,760
Other notes payable ................................. 100 160
------- -------
7,294 10,364
Less current portion of long-term debt .............. 1,711 2,398
------- -------
Total long-term debt ....................... $ 5,583 $ 7,966
======= =======

Proceeds from the Offering were used to repay debt during the second
quarter of fiscal 1997.

6. INCOME TAXES

Certain balance sheet reclassifications have been made which reflect a
change in management's estimate that the utilization of the net operating loss
carryforward will be accelerated. The amount of the reclassification from
long-term to current is approximately $736,000.

DAILEY PETROLEUM SERVICES CORP.
MANAGEMENT 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 plans, anticipated results from current and future operations,
earnings, margins, acquisitions, market trends in the oilfield services
industry, including demand for the Company's directional 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 Management'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. 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 have a direct bearing on the Company's results
of operations and the oilfield service industry in which it operates are
changes in the price of oil and natural gas; the impact of competitive products
and pricing; product demand and acceptance risks, including product
obsolescence risks, the presence of competitors with greater financial
resources; operating risks inherent in the oilfield service industry, including
risks of environmental liability; reliance on independent international agents
for the distribution of certain of its downhole tools; 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; world-wide political stability and economic growth
and other risks associated with international operations, including foreign
exchange risk, the Company's successful execution of internal operating plans
as well as regulatory uncertainties and legal proceedings.

Overview

The Company provides directional drilling services and designs,
manufactures and rents technologically-advanced downhole tools for oil and gas
drilling and workover applications. 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

7
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most recently, Venezuela and the Austin Chalk formation in Texas and Louisiana.
The Company operates in one business segment.

Demand for the Company's directional drilling services and downhole
tools depends primarily upon the level of exploration and production activity
in the oil and gas industry, which in turn depends in part on oil and gas
prices, expectations about future prices, the cost of exploration 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.

During the past five years, the Company has experienced significant
growth in revenues relating to its directional drilling services. The Company
believes this growth is consistent with trends in the oil and gas industry
toward use of technologically-advanced directional drilling services in order
to develop reservoirs that otherwise would have been marginal or uneconomical
using conventional drilling methods. The Company also believes that rentals of
its downhole tools have benefited from industry trends toward the use of
directional drilling techniques, in part because a growing percentage of the
Company's downhole tools are rented in connection with its drilling services.
Utilizing proceeds from the Offering, the Company invested $8.4 million in
downhole tools during the two most recent quarters ended January 31, 1997,
which the Company believes contributed to the increase in revenues during the
quarter and are expected to positively impact revenues during the remainder of
the year.

Quarter Ended January 31, 1997 Compared to the Quarter Ended January 31, 1996

Rental Income. Rental income for the quarter ended January 31, 1997
was $13.1 million, an increase of 19% from $11.1 million for the same quarter
last year. This was due to an increase in demand for directional and
horizontal drilling services and related products in the United States Gulf
Coast region and the Gulf of Mexico which resulted in a $ 1.1 million increase
in rentals. In addition, revenue from the rental of drilling jars and related
products increased $930,000 primarily in the United States as the result of
increased drilling activity.

Sales of Products and Services. Sales of products and services for
the quarter ended January 31, 1997 were $4.4 million, an increase of 24% from
$3.5 million for the same quarter last year. This increase was primarily the
result of an increase in tools lost-in-hole of $400,000 and an increase in
license fees related to a proprietary directional drilling method of $300,000.

Cost of Rentals. Cost of rentals for the quarter ended January 31,
1997 was $10.0 million, an increase of 17% from $8.5 million for the same
quarter last year. This increase was due primarily to the variable costs
associated with an increase in rental activity, including tool repair costs and
third party tool charges. As a percentage of rental income, cost of rentals
decreased from 77% in the third quarter of fiscal 1996 to 76% in the third
quarter of fiscal 1997 as the result of the fixed nature of the Company's cost
base.

Cost of Products and Services. Cost of products and services for the
quarter ended January

8
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31, 1997 was $2.1 million, which was a $129,000 increase from the same quarter
last year. The margin on sales of products and services for the third quarter
of fiscal 1997 was 52% compared to 44% for the same quarter last year. This
increase was due primarily to increased higher margin export sales of
mechanical jars, tools lost-in-hole and license fees which was partially offset
by decreased margins on revenues from directional drilling services.

Selling, General and Administrative. Selling, general and
administrative expenses for the quarter ended January 31, 1997 were $4.0
million, a 27% increase from $3.2 million for the same quarter last year. This
increase was primarily the result of compensation expense of $894,000 related
to non-cash stock awards granted to certain Officers under the 1996 Key
Employee Stock Plan. Through the quarter ending July 31, 1999, non-cash
compensation expense will be approximately $234,000 per quarter. In
addition, costs of $365,000 for settlement of an employment contract were
recognized in the quarter and are payable through fiscal year end 1999.
Exclusive of these two transactions, selling, general and administrative
expenses were $2.8 million, a decrease of 13% from the same period last year.
This was the result of decreased building rent and professional and legal fees.

Interest Income. Interest income for the quarter ended January 31,
1997 was $212,000, a 361% increase from the same quarter last year. This was
the result of interest earned on short term investments utilizing proceeds from
the Offering.

Income Tax Expense. Provision for income taxes for the quarter ended
January 31, 1997 was $436,000, an increase of 113% from $205,000 for the same
quarter last year. This was due to increased income before income taxes of
110% and a change in the effective tax rate from 35% to 36% due to increased
state income taxes.

Nine Months Ended January 31, 1997 Compared to the Nine Months Ended January
31, 1996

Rental Income. Rental income for the nine months ended January 31,
1997 was $38.3 million, an increase of 19% from $32.3 million for the same
period last year. This was due primarily to an increase in demand for the
Company's directional drilling services and related products in the United
States Gulf Coast region, Gulf of Mexico and Venezuela which resulted in
increased revenue of $3.4 million and $1.5 million, respectively. The
increase was also due to an increase in demand for the Company's drilling jars
domestically which resulted in increased revenue of $1.8 million. This was
partially offset by a decrease in demand primarily in Latin America which
resulted in decreased revenue of $600,000.

Sales of Products and Services. Sales of products and services for
the nine months ended January 31, 1997 were $13.1 million, an increase of 10%
from $11.9 million from the same period last year. This increase was due
primarily to increased demand for directional drilling services in the Gulf of
Mexico, the United States Gulf Coast region and Venezuela which resulted in
additional revenue of $1.0 million.

Cost of Rentals. Cost of rentals for the nine months ended January 31,
1997 was $28.8

9
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million, an increase of 16% from $24.9 million from the same period last year.
This increase was due primarily to the variable costs associated with an
increase in rental activity, including tool repair costs and third party tool
charges. As a percentage of rental income, cost of rentals decreased from 77%
for the nine months ended January 31, 1996 to 75% for the nine months ended
January 31, 1997 primarily as the result of the fixed nature of the Company's
cost base.

Cost of Products and Services. Cost of products and services for the
nine months ended January 31, 1997 was $6.9 million, a $792,000 increase from
the same period last year. The margin on sales of products and services for
the first nine months of fiscal 1997 was 47% compared to 49% for the same
period last year. This decrease in margin was due primarily to a decrease in
higher margin export sales of mechanical jars.

Selling, General and Administrative. Selling, general and
administrative expenses for the nine months ended January 31, 1997 was $10.0
million, a 15% increase from $8.7 million for the same period last year. This
increase was primarily the result of $894,000 of compensation expense related
to non-cash stock awards granted to certain Officers in the 1996 Key Employee
Stock Plan. In addition, costs of $621,000 for settlement of employment
contracts and severance costs were recognized, an increase of $573,000 from the
same period last year. Exclusive of these two transactions, selling, general
and administrative expenses were $8.5 million, a slight decrease from the same
period last year.

Interest Income. Interest income for the nine months ended January
31, 1997 was $419,000, a 516% increase from the same period last year. This
was the result of interest earned on short term investments utilizing proceeds
from the Offering.

Foreign Exchange (Gain) Loss. Foreign exchange gains of $103,000 for
the nine months ended January 31, 1997 compared to losses of $221,000 for the
same period last year were due primarily to favorable fluctuations in the
British pound exchange rate.

Income Tax Expense. Provision for income taxes for the nine months
ended January 31, 1997 was $1.8 million, an increase of 62% from $1.1 million
for the same period last year. This was due to a 56% increase in income before
income taxes and a change in the effective tax rate from 35% to 37% due to an
increase in state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital. Cash provided by operating activities was $6.5
million during the nine months ended January 31, 1997. Other sources of cash
included net proceeds from the Offering of $27.8 million, $1.5 million from
revenue-producing tools lost-in-hole, abandoned and sold and $400,000 from
advances under the revolving line of credit discussed below. Principal uses of
cash for the nine months were to fund $12.8 million for capital expenditures,
$5.0 million for payment of a promissory note to Lawrence, $1.6 million for
payment of a note to affiliate (see Notes to Lawrence below), $1.7 million
repayment on line of credit (see Credit Facilities below) and $1.5 million for
repayment of long-term debt. During the past several years, working capital
requirements

10
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have been funded through cash generated from operations, credit facilities and
asset sales.

Credit Facilities. At January 31, 1997, bank debt of $7.2 million was
outstanding pursuant to an amended and restated credit agreement dated December
13, 1995, as amended on June 5, 1996 (the "Credit Agreement"). The Credit
Agreement provides for a term loan and a revolving credit facility.
Borrowing under the revolving credit facility is limited to the lesser of $3.0
million or a loan formula based upon the level of the Company's eligible
accounts receivable. At January 31, 1997, there were no outstanding advances
made pursuant to the revolving line of credit.

Notes to Lawrence. During the nine months ended January 31, 1997,
outstanding notes to Lawrence of $6.6 million were repaid utilizing a portion
of the net proceeds from the Offering. This repayment included a $5.0 million
payment on a $10.0 million promissory note incurred in connection with the
Dividend. The remainder of the promissory note, $5.0 million, was contributed
back to the capital of the Company by the stockholder prior to the Offering.
At January 31, 1997, there were no outstanding amounts due on these notes.

Capital Expenditures. Capital expenditures of approximately $12.7
million were made in the nine months ended January 31, 1997. Of this amount,
$12.0 million was for downhole tools, primarily MWD and other directional
equipment, hydraulic drilling jars, hydraulic fishing jars and related
inventory. Capital expenditures during the remaining three months of the
fiscal year are expected to be approximately $4.5 million. The Company
believes it has available resources through internally generated cash flow, the
existing Credit Agreement and the remaining net proceeds of the Offering to
fund its operations for at least the next 12 months.

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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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10-1 - $250,000 Promissory Note from James F. Farr dated
January 16, 1997

10-2 - Security Agreement between the Company and James F.
Farr dated January 16, 1997

27 - Financial Data Schedule

(b) Reports on Form 8-K
None

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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 Petroleum Services Corp.
-------------------------------
(Registrant)

Date March 4, 1997
-------------- ---------------------------------
David T. Tighe
Senior Vice President &
Chief Financial Officer
and authorized to sign on
behalf of the Registrant

13
16

INDEX TO EXHIBITS

EXHIBIT DESCRIPTION
- ------- -----------

10-1 $250,000 Promissory Note from James F. Farr dated
January 16, 1997

10-2 Security Agreement between the Company and James F.
Farr dated January 16, 1997

27 Financial Data Schedule