<PAGE>

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                  ---------

                                  FORM 10-Q

            /X/ Quarterly Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934
                 For the quarter period ended March 31, 1998

                                      OR

           / / Transition Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934
         For the transition period from ___________ to ___________

                       Commission File Number 0-19497

                                  ---------

                    MOBLEY ENVIRONMENTAL SERVICES, INC.
            (Exact name of registrant as specified in its charter)

            DELAWARE                                           75-2242963
(State or other jurisdiction of                             (I.R.S. Employer
 Incorporation or organization)                            Identification No.)

  c/o 111 CONGRESS AVENUE, SUITE 1400
             AUSTIN, TEXAS                                        78701
(Address of principal executive offices)                        (Zip Code)

         Registrant's telephone number, including area code: None

    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 and (2) has been subject to such filing 
requirements for the past 90 days.  Yes _____  No __X__.

    The number of shares outstanding of the registrant's common stock, as of 
July 31, 1998 was 4,259,650 shares of Class A Common Stock, $.01 par value 
and 4,575,643 shares of Class B Common Stock, $.01 par value.

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<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.
                                    FORM 10-Q
                                      INDEX


<TABLE>
Part I - FINANCIAL INFORMATION                                                Page
------------------------------                                                ----
<S>       <C>                                                                 <C>
Item 1.   Financial Statements (Unaudited)

          - Consolidated Balance Sheets - March 31, 1998
            and December 31, 1997                                                2

          - Consolidated Statements of Operations - Three
            Months Ended March 31, 1998 and 1997                                 3

          - Consolidated Statement of Stockholders' Equity -
            Three Months Ended March 31, 1998                                    4

          - Consolidated Statements of Cash Flows - Three Months
            Ended March 31, 1998 and 1997                                        5

          - Notes to Consolidated Financial Statements                        6-12

Item 2.   Management's Discussion and Analysis of
            Financial Condition and Results of Operations                    13-15

Part II - OTHER INFORMATION 
--------------------------- 

Item 1.   Legal Proceedings                                                     15

Item 2.   Changes in Securities                                                 15

Item 3.   Defaults Upon Senior Securities                                       15

Item 4.   Submission of Matters to a Vote of Security Holders                   15

Item 5.   Other Information                                                     15

Item 6.   Exhibits and Reports on Form 8-K                                      15

Signatures                                                                      16
</TABLE>

<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                           Consolidated Balance Sheets
                             (dollars in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                    March 31,    December 31, 
                                                                      1998           1997     
                                                                   -----------   ------------ 
<S>                                                                <C>           <C>
                        ASSETS
Current assets:
  Cash and cash equivalents                                        $       370           353  
  Receivables                                                              369           373  
  Prepaid expenses and other current assets                                 58            93  
                                                                   -----------    ----------   
          Total current assets                                             797           819  

Property, plant and equipment, net                                         205           211  
Note receivable                                                            500           500  
Investment securities available for sale                                 4,442         4,495  
Other assets, net                                                          192           192  
                                                                   -----------    ----------   
                                                                   $     6,136         6,217  
                                                                   -----------    ----------   
                                                                   -----------    ----------   

          LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable                                                            76           100  
Accrued expenses                                                         1,036         1,041  
                                                                   -----------    ----------   
          Total liabilities                                              1,112         1,141  
                                                                   -----------    ----------   
Stockholders' equity:
  Preferred stock; $.01 par value; 2,000,000 shares authorized;
    none issued                                                             --            --   
  Common stock; $.01 par value:
    Class A; 15,000,000 shares authorized, 4,259,650 and 
      4,155,097 shares issued and outstanding at March 31, 1998
      and December 31, 1997, respectively                                   43            43   
    Class B; 10,000,000 shares authorized, 4,660,350 shares issued
      and 4,575,643 shares outstanding at March 31, 1998 and
      December 31, 1997, respectively                                       47            47   
  Additional paid-in capital                                            25,159        25,159   
  Accumulated deficit                                                  (20,170)      (20,093)  
  Net unrealized gain on available for sale securities                      30            29   
  Deferred compensation costs under restricted stock agreements            (77)         (101)  
  Treasury stock; 84,707 shares of Class B common stock, at cost            (8)           (8)  
                                                                   -----------    ----------   
          Total stockholders' equity                                     5,024         5,076

  Commitments and contingencies
                                                                   -----------    ----------   
                                                                   $     6,136         6,217   
                                                                   -----------    ----------   
                                                                   -----------    ----------   
</TABLE>


See accompanying notes to consolidated financial statements.

                                       2

<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                      Consolidated Statements of Operations
                (dollars in thousands, except per share amounts)
                                   (unaudited)


<TABLE>
<CAPTION>
                                               Three Months Ended March 31,
                                               ---------------------------- 
                                                    1998          1997      
                                                    ----          ----      
<S>                                              <C>           <C>
Revenues                                         $       --            --   
Cost of revenues                                         --            --   
                                                 ----------    ----------  
  Gross profit                                           --            --   
General and administrative expenses                     159           158   
                                                 ----------    ----------  
  Operating loss                                       (159)         (158)  
Interest income                                          77            --   
Other income (expense)                                    5           (10)  
                                                 ----------    ----------  
  Loss from continuing operations before
    income taxes                                        (77)         (168)  
Income taxes                                             --            --   
                                                 ----------    ----------  
  Loss from continuing operations                       (77)         (168)  
                                                 ----------    ----------  
Discontinued operations:
  Gain on sale of oilfield services segment              --         2,802   

  Net income from operations of waste
    management services segment                          --           141   
                                                 ----------    ----------  
          Income from discontinued operations            --         2,943   
                                                 ----------    ----------  
          Net income (loss)                      $      (77)        2,775   
                                                 ----------    ----------  
                                                 ----------    ----------  
Net income (loss) per share:
  Basic - continuing operations                       (0.01)        (0.02)  
  Basic - discontinued operations                        --          0.33   
                                                 ----------    ----------  
                                                 $    (0.01)         0.31   
                                                 ----------    ----------  
                                                 ----------    ----------  
Asuming dilution - continuing operations              (0.01)        (0.02)  
Assuming dilution - discontinued operations              --          0.30   
                                                 ----------    ----------  
                                                 $    (0.01)         0.28   
                                                 ----------    ----------  
                                                 ----------    ----------  
Weighted average number of
  common shares outstanding                       8,835,293     8,835,293   
                                                 ----------    ----------  
                                                 ----------    ----------  
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3

<PAGE>
                                       
                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                 Consolidated Statement of Stockholders' Equity
                        Three Months Ended March 31, 1998
                             (dollars in thousands)
                                   (unaudited)

<TABLE>
<S>                                                                       <C>
Preferred Stock - none issued                                             $      --
                                                                          ---------

Class A Common Stock:
    Balance at December 31, 1997 and March 31, 1998                              43
                                                                          ---------

Class B Common Stock:
    Balance at December 31, 1997 and March 31, 1998                              47
                                                                          ---------

Additional Paid-In Capital:
    Balance at December 31, 1997 and March 31, 1998                          25,159
                                                                          ---------

Accumulated Deficit:
    Balance at December 31, 1997                                            (20,093)
    Net loss                                                                    (77)
                                                                          ---------
                  Balance at March 31, 1998                                 (20,170)
                                                                          ---------

Unrealized Gain on Investment Securities:
    Balance at December 31, 1997                                                 29
    Unrealized gain                                                               1
                                                                          ---------
                  Balance at March 31, 1998                                      30
                                                                          ---------

Deferred Compensation Costs Under Restricted Stock Agreements:
    Balance at December 31, 1997                                               (101)
    Amortization of unearned compensation                                        24
                                                                          ---------
                  Balance at March 31, 1998                                     (77)
                                                                          ---------

Treasury Stock:
    Balance at December 31, 1997 and March 31, 1998                              (8)
                                                                          ---------

                  Total stockholders' equity at March 31, 1998            $   5,024
                                                                          ---------
                                                                          ---------
</TABLE>
                                       
          See accompanying notes to consolidated financial statements

                                       4
<PAGE>
                                       
                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                      Consolidated Statements of Cash Flows
                             (dollars in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended March 31,
                                                                      ----------------------------
                                                                         1998               1997
                                                                      ---------          ---------
<S>                                                                   <C>                <C>
Cash flows from operating activities:
    Net income (loss)                                                   $ (77)             2,775
      Adjustments to reconcile net income (loss) to net
        cash used by operating activities:
      Gain on sale of oilfield services segment                            --             (2,802)
      Depreciation and amortization                                         6                453
      Deferred compensation costs under restricted
        stock agreements                                                   24                 24
      Changes in certain operating assets and liabilities:
        Receivables                                                         4               (466)
        Prepaid expenses and other current assets                          35                222
        Accounts payable                                                  (24)              (368)
        Accrued expenses                                                   (7)              (605)
                                                                        -----             ------
                  Net cash used by operating activities,
                    including discontinued operations                     (39)              (767)
                                                                        -----             ------

Cash flows from investing activities:
    Capital expenditures                                                   --                (78)
    Net proceeds from sale of oilfield services segment                    --              4,656
    Net proceeds from sale of investment securities                        56                 --
                                                                        -----             ------
                  Net cash provided by investing activities,
                    including discontinued operations                      56              4,578
                                                                        -----             ------

Cash flows from financing activities, including
    discontinued operations -
      Payments on long-term debt and notes payable                         --             (3,300)
                                                                        -----             ------

Net increase in cash and cash equivalents                                  17                511

Cash and cash equivalents at beginning of period                          353                385
                                                                        -----             ------

Cash and cash equivalents at end of period                              $ 370                896
                                                                        -----             ------
                                                                        -----             ------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
                                       
                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (unaudited)


(1)  BASIS OF PRESENTATION

     The accompanying financial statements present the consolidated accounts 
of Mobley Environmental Services, Inc. (the "Company") and its subsidiaries. 
All significant intercompany accounts and transactions have been eliminated.

     The unaudited consolidated financial statements reflect all adjustments 
which are, in the opinion of management, of a normal and recurring nature and 
necessary for a fair presentation of the consolidated financial position of 
the Company as of March 31, 1998, and the consolidated results of operations 
and cash flows for the periods presented herein. Interim results are not 
necessarily indicative of results for a full year. The unaudited consolidated 
financial statements should be read in conjunction with the consolidated 
financial statements and notes thereto presented in the Company's Annual 
Report on Form 10-K for the year ended December 31, 1997.

     Management of the Company has made a number of estimates and assumptions 
relating to the reporting of assets and liabilities and the disclosure of 
contingent liabilities to prepare these financial statements in accordance 
with generally accepted accounting principles. Actual results could differ 
from those estimates.

(2)  1997 ASSET SALES AND DISCONTINUED OPERATIONS

     During 1997, the Company sold substantially all of its operating assets 
in two separate transactions. The transactions and their impact on the 
Company's consolidated financial statements are described in the following 
paragraphs.

     SALE OF WASTE MANAGEMENT SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS 
SEGMENT. On May 29, 1997, the Company sold substantially all of the assets 
related to its waste management services activities to United States Filter 
Corporation ("USF"). As a result of that transaction, the Company received 
$8,000,000 in shares of USF common stock (registered with the Securities and 
Exchange Commission) in exchange for such assets, and can earn up to an 
additional $4,000,000 in USF common stock based on the performance of the 
business during the two years following its sale. As of May 29, 1998, 
approximately 20% of the earnout was achieved and 28,294 shares of U.S. 
Filter stock was received for the first year of operations subsequent to 
closing the sale. Additionally, USF assumed certain liabilities (accounts 
payable and accrued expenses) as part of the transaction. The net assets 
which were the subject of this transaction have been removed from the 
consolidated balance sheet as of December 31, 1997. Such assets had a net 
book value (net of assumed liabilities) of approximately $14,965,060.

     During the year ended December 31, 1996, the Company recorded a charge 
of $7,621,000 (net of a deferred income tax benefit of $698,000), 
representing the estimated loss on the disposal of the business segment, 
including certain required capital expenditures prior to the sale amounting 
to approximately $900,000. In determining the estimated loss on disposal, 
only the $8,000,000 fixed portion of the sales price was considered (I.E., 
that portion which is contingent on the future performance of the business 
was ignored). Such loss was recognized in the third quarter of 1996, when

                                       6
<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (unaudited)

it was determined that a sale of the assets was necessary given the Company's 
inability to secure acceptable financing and concerns about its liquidity. 
Prior to that time, the evaluation of potential asset impairment had been 
made on a "going concern" basis and cash flow projections for the segment 
supported the carrying values of the related assets. The Company estimated 
that it would incur additional operating losses in this business segment, 
after the allocation of certain overhead and interest costs, amounting to 
approximately $331,000 during the phase-out period from October 1, 1996 to 
May 29, 1997. A provision for such estimated net losses was made during the 
year ended December 31, 1996. The Company's waste management services segment 
reported net income of approximately $141,000 during the three month period 
ended March 31, 1997.

     SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT. 
On January 20, 1997, the Company sold substantially all of the assets related 
to its oilfield services business to Dawson Production Services, Inc. 
("Dawson"). As a result of this transaction, the Company received 
approximately $4,917,000 and a subordinated note in the amount of $500,000, 
due in January 2002, in exchange for such assets. The assets which were the 
subject of the sale had a net book value, based on historical cost adjusted 
for accumulated depreciation and amortization, of approximately $2,354,000. 
The results of operations associated with the discontinued segment through 
the disposal date, after allocation of certain overhead and interest costs, 
did not result in a loss. The Company's oilfield services segment generated 
net income of approximately $120,000 during the period October 1, 1996 to 
January 20, 1997. The Company recognized a gain upon completion of the sale, 
after transaction costs of approximately $261,000, amounting to approximately 
$2,802,000 in January 1997.

     Because of the outstanding contractual indemnification obligations of 
the Company resulting from its business divestitures and in light of pending 
litigation to which the Company is a party, the Company will remain in 
existence and incur certain general and administrative expenses for the 
foreseeable future but will have no operating assets. Therefore, certain 
general and administrative expenses and nonoperating income and expense have 
been accounted for as continuing operations. Future costs incurred in 
connection with these indemnification obligations and litigation 
responsibilities will be reported as part of the discontinued operations in 
which they originated or to which they related. The Company believes it is 
probable that it will continue to incur certain costs associated with these 
legal matters and accordingly established an accrual for estimated 
out-of-pocket expenses related to the ongoing administrative management of 
such matters. However, the Company is currently unable to reasonably estimate 
its potential exposure for defending such matters, any indemnity obligations 
resulting therefrom, and any corresponding insurance reimbursement (note 7).

     The Company's two business segments, waste management services and 
oilfield services, were accounted for as discontinued operations during 1997, 
and accordingly, their operations for the three months ended March 31, 1997 
have been segregated in the accompanying consolidated statements of 
operations. The revenues, operating costs and expenses, and income taxes for 
the period ended March 31, 1997, has been reclassified for amounts associated 
with the discontinued segments. Due to the relative significance of the 
Company's business segments to its operations as a whole, and in light of the 
Company's decision in 1996 to divest itself of all of its operating assets, 
the Company allocated certain general and administrative expenses to the 
business segments for the three months ended

                                       7
<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (unaudited)

March 31, 1997 in the accompanying consolidated segments of operations. 
General and administrative expenses attributable to continuing operations 
were determined based upon an allocation of such costs between the business 
segments and continuing operations. Other income and expense were recorded as 
continuing operations as such amounts are not specifically attributable to 
either of the Company's business segments which were disposed of. Interest 
expense was allocated to the segments based on the outstanding indebtedness 
attributable to each of the business segments.

     Operating results of the Company's waste management services segment for 
the period ended March 31, 1997, were as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                  1997
                                                                                 ------
<S>                                                                              <C>
         Revenues                                                                $5,764
         Cost of revenues                                                         4,542
                                                                                 ------
                Gross profit                                                      1,222

         Selling, general and administrative expenses,
           including allocated amounts                                              964
                                                                                 ------
         Operating income                                                           258
         Interest expense, net                                                     (117)
                                                                                 ------
         Net income from operations of waste
           management services segment                                           $  141
                                                                                 ------
                                                                                 ------
</TABLE>

         Operating results of the Company's oilfield services segment for the 
period ended March 31, 1997, were as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                  1997
                                                                                 ------
<S>                                                                              <C>
         Revenues                                                                $  231
         Cost of revenues                                                           168
                                                                                 ------
                Gross profit                                                         63
         Selling, general and administrative expenses,
           including allocated amounts                                               63
                                                                                 ------
         Net loss from operations of oilfield services segment                   $   --
                                                                                 ------
                                                                                 ------
</TABLE>

     At March 31, 1998, the Company has net operating loss carryforwards 
for federal income tax purposes of approximately $6,000,000. Such amounts 
are available to offset future Federal taxable income, if any, through 
2012 and expire in the following years: 2009 - approximately $1,700,000; 
2010 - approximately $1,200,000; 2011 approximately $2,200,000 and 2012 - 
approximately $900,000.

     Upon completion of the sale of the waste management services segment, 
the $8,000,000 of USF common stock was sold. Proceeds from this sale were 
used to pay off existing long-term debt and current liabilities, and the 
remaining proceeds were used to purchase investment grade fixed term 
securities. These investments are accounted for as investments available for 
sale. As of December 31,

                                       8
<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (unaudited)

1997 and March 31, 1998, approximately $825,000 in investments was held in 
escrow until May 29, 1998 to satisfy any indemnification obligations of the 
Company to U.S. Filter. As of May 29, 1998, approximately $500,000 were 
released from escrow. The remaining funds are being held by the escrow agent 
pending resolution of outstanding claims for which U.S. Filter seeks 
reimbursement from escrow.

(3)  ACCRUED EXPENSES

         At March 31, 1998 accrued expenses were comprised of the following:

<TABLE>
<S>                      <C>
           $  200,000    medical claims
              322,000    automobile, worker's compensation and general liability claims 
              514,000    miscellaneous accruals for legal and divestiture costs
           ----------
           $1,036,000
           ----------
           ----------
</TABLE>

(4)  NOTES PAYABLE

     The Company had a credit agreement (the "Credit Agreement") that 
provided up to $6,500,000 in available credit for the Company. In connection 
with the closing of the sale of the Company's oilfield services segment in 
January 1997, the Company repaid $3,300,000 of outstanding indebtedness under 
the Credit Agreement. In connection with the closing of the sale of the 
Company's waste management services segment in May 1997, the Company repaid 
the remaining balance of $1,714,000 of outstanding indebtedness under the 
Credit Agreement.

(5)  EARNINGS PER SHARE

     In February 1997, the Financial Accounting Standards Board issued SFAS 
128, EARNINGS PER SHARE. SFAS 128 supersedes the earnings per share 
calculation methods of APB 15, effective for annual and interim periods 
ending after December 15, 1997. In accordance with this standard, earnings 
per share ("EPS") amounts presented on the Company's Consolidated Statements 
of Operations have been calculated using the measurement provisions of SFAS 
128. Basic earnings per share is computed based on earnings available to 
common shareholders and the weighted average number of common shares 
outstanding. The earnings per share assuming dilution amounts presented are 
computed based on earnings available to common shareholders and the weighted 
average number of common shares outstanding, including shares assumed to be 
issued under the Company's 1995 Employee Restricted Stock Plan. The 
implementation of SFAS 128 had no significant impact on earnings per share.

                                       9
<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (unaudited)

The following data shows amounts used in computing earnings per share under 
the provisions of SFAS 128: (In thousands, except per share amounts and share 
data).

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                              March 31,
                                                                    -----------------------------
                                                                       1998                1997
                                                                    ----------          ---------
<S>                                                                 <C>                 <C>
              Net income (loss)                                     $      (77)             2,775

              Weighted average number of common shares
                 used in basic EPS                                   8,835,293          8,835,293

              Effect of dilutive securities
                 1995 Employee Restricted Stock Plan                   168,000            340,000

              Weighted average number of common shares
                 and dilutive potential common stock used
                 in EPS assuming dilution                            9,003,293          9,175,293
</TABLE>

(6)  COMPREHENSIVE INCOME

     In June 1997, the Financial Accounting Standards Board issued SFAS 130, 
REPORTING COMPREHENSIVE INCOME. SFAS 130 establishes standards for reporting 
and display of comprehensive income and its components and is effective for 
fiscal years beginning after December 15, 1997. The impact of SFAS 130 on the 
Company was not significant.

(7)  COMMITMENTS AND CONTINGENCIES

     LETTERS OF CREDIT. At March 31, 1998, letters of credit totaling 
approximately $1,012,000 had been provided by the Company to its insurance 
carrier in connection with its workers' compensation, general liability, and 
auto liability insurance policies.

     LITIGATION AND VARIOUS OTHER CLAIMS. The Company continues to defend 
various claims resulting from the operations of its former subsidiary, 
Gibraltar, which was sold effective December 31, 1994. As of August 21, 1998, 
four such lawsuits were pending. During the Company's ownership of Gibraltar, 
Gibraltar engaged in the collection, transportation, analysis, treatment 
management and disposal of various types of hazardous wastes. In the actions 
pending against the Company and/or Gibraltar, the plaintiffs complain of a 
variety of acts by Gibraltar which allegedly occurred in the course of its 
operations, including improper air emissions, nuisance odors, contamination 
of water supplies, and repeated and continuing violations of environmental 
laws. In the various pending actions, plaintiffs assert similar theories as 
the alleged basis for recovery, including negligence, nuisance, trespass, 
fraudulent concealment, assault and battery, and intentional infliction of

                                       10
<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (unaudited)

emotional distress. Likewise, the various plaintiffs in pending actions seek 
similar types of damages, including loss of property value and compensatory 
and punitive damages for personal injury and property damage for nuisance 
odors, physical discomfort and impairment, interference with use and 
enjoyment of property, medical expenses, mental anguish, and loss of earning 
capacity. An additional claimant seeks permanent closure of the facility and 
civil penalties as the remedy for alleged violations by Gibraltar of 
environmental protection statutes and endangerment to public health and the 
environment. While all of the four actions are technically pending, one case 
was dismissed by the trial judge for plaintiff's failure to file expert 
reports as required by a case management order. This action has been appealed.

     These matters raise difficult and complex factual and legal issues, 
including but not limited to, the nature and amount of the Company's 
liability, if any. Although the Company is a defendant in some litigation, in 
other matters the Company's potential liability arises from material 
contractual indemnifications given by the Company to the purchaser of 
Gibraltar. In particular, in connection with the sale of Gibraltar, the 
Company made extensive representations and warranties regarding Gibraltar. 
The Company is required to indemnify AEC for all losses resulting from 
breaches of representations and warranties and pending or future claims or 
proceedings resulting from circumstances existing prior to closing. The terms 
of the stock purchase agreement between AEC and the Company provided that 
such indemnification obligations would extend through June 30, 1996 (or in 
the case of tax, environmental and ERISA claims, through June 30, 1998). 
However, the Company and AEC have executed a Tolling Agreement dated July 30, 
1997, pursuant to which the statute of limitations period for certain 
potential claims by either party against the other has been tolled from July 
30, 1997 through July 30, 2000. These indemnifications may include the 
potential liability of former customers of Gibraltar, approximately 50 of 
which have also become defendants in litigation involving Gibraltar's 
operations.

     The Company has been notified by its insurance carrier that it disputes 
the Company's interpretation of its pollution liability insurance coverage 
and policy limitations applicable to the foregoing claims. While the Company 
is vigorously pursuing a favorable resolution of this dispute, it is unable 
to determine the likelihood of an unfavorable outcome at this time.

     The Company, based on consultation with its legal counsel, believes that 
it is probable that the Company will continue to incur certain costs 
associated with the foregoing matters and accordingly, in connection with the 
divestiture of Gibraltar in 1994, established an accrual for estimated 
out-of-pocket expenses related to the ongoing administrative management of 
such matters. However, the Company is currently unable to reasonably estimate 
its potential exposure for defending such matters, any indemnity obligations 
resulting therefrom, and any corresponding insurance reimbursement. As noted 
above, the litigation matters to which the Company is a party raise several 
difficult and complex factual and legal issues. More specifically: (i) while 
certain of the plaintiffs exhibit apparent physical injury and a variety of 
health problems, the requisite causal connection to Gibraltar's facilities or 
operations has not been established; (ii) certain of the cases involve 
literally hundreds of plaintiffs whose physical condition and medical history 
have not yet begun to be investigated; (iii) although the Company has 
experienced some degree of success recently in two separate jury trials, 
there is inherent uncertainty

                                       11
<PAGE>

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (unaudited)

associated with jury trials in cases such as these which tend to have a 
strong emotional appeal; (iv) the extent of pollution liability insurance 
coverage available to the Company for potential indemnity exposure and 
defense costs is currently in dispute; (v) the Company's potential liability 
relating to defense cost claims of approximately 50 of Gibraltar's former 
customers who have also been named in the litigation (and who are represented 
by over 20 different law firms) is currently not determinable; and (vi) the 
indemnifications given to AEC in connection with the Gibraltar sale are 
comprehensive and subject to broad interpretation. Accordingly, the Company 
has not made an accrual for losses, if any, which might result from these 
legal matters as such amounts or a range of amounts are not currently 
reasonably estimable. The Company's future financial condition, results of 
operations, and liquidity could be materially adversely affected as the 
nature and scope of the Company's ultimate liability arising from Gibraltar's 
operations and sale become better defined.

     In January 1996, the Company was notified by the TNRCC that it was a 
potentially responsible party of the alleged release, during the early or 
mid-1980s, of hazardous substances at the McBay Oil and Gas State Superfund 
Site located near Grapeland, Texas. During 1997, the Company entered into a 
contractual remediation plan for this site and paid the contract amount. Such 
plan did not have a material affect on the consolidated financial statements. 
However, completion of the remediation and final resolution of the matter is 
subject to approval of the TNRCC.

     There are various other routine claims and legal actions pending and 
threatened against the Company which are incidental to the Company's business 
and have arisen in the ordinary course of its business related to services, 
contracts, employment, and other matters. Where applicable, the Company has 
recorded accruals for estimated potential damages and expenses associated 
with such matters. While the final outcome of these matters cannot be 
predicted with certainty, management upon consultation with legal counsel, 
and considering the Company's limited continuing activities, believes that 
financial obligations of the Company arising from such claims could have a 
material adverse effect on its consolidated financial condition, results of 
operations, or liquidity.

                                       12
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS 

GENERAL

     Prior to May 29, 1997, the Company's business involved providing diverse 
environmental and field-related services to industrial, governmental, and 
commercial markets, specializing in the collection, transportation, 
treatment, recycling and management of a wide variety of non-hazardous liquid 
hydrocarbons, oil filters, absorbents and related materials. Additionally, 
prior to January 20, 1997, through its oilfield services segment, the Company 
provided services for managing liquids used or produced during the life cycle 
of oil and gas wells.

     The following discussion is designed to assist in the understanding of 
the Company's financial condition as of March 31, 1998, as well as the 
Company's operating results for the three-month period ended March 31, 1998. 
Certain material events affecting the business of the Company are discussed 
in Item 1 of this report. The Notes to Consolidated Financial Statements 
contain additional information that should be read in conjunction with this 
discussion.

1997 ASSET SALES, DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES

     On January 20, 1997 and May 29, 1997, the Company completed transactions 
pursuant to which it sold substantially all of its operating assets in two 
separate transactions (see Note 2 of Notes to Consolidated Financial 
Statements). Because of these sales, results of operations of the Company's 
two business segments for the three months ended March 31, 1997, have been 
accounted for as discontinued operations in the accompanying consolidated 
financial statements. The transactions and their impact on the consolidated 
financial statements are described in the following paragraphs.

     SALE OF WASTE MANAGEMENT SERVICES ASSETS & DISCONTINUANCE OF BUSINESS 
SEGMENT. On May 29, 1997, the Company sold substantially all of the assets 
related to its waste management services activities to United States Filter 
Corporation ("USF"). As a result of that transaction, the Company received 
$8.0 million in shares of USF common stock (registered with the Securities 
and Exchange Commission) in exchange for such assets, and can earn up to an 
additional $4.0 million in USF common stock based on the performance of the 
business during the two years following its sale. As of May 29, 1998, 
approximately 20% of the earnout was achieved and 28,294 shares of U.S. 
Filter stock was received for the first year of operations subsequent to 
closing the sale. Additionally, USF assumed certain liabilities (accounts 
payable and accrued expenses) as part of the transaction. The net assets 
which were the subject of this transaction have been removed from the 
consolidated balance sheet as of December 31, 1997. Such assets had a net 
book value (net of assumed liabilities) of approximately $14,965,060.

     During the year ended December 31, 1996, the Company recorded a charge 
of $7,621,000 (net of a deferred income tax benefit of $698,000), 
representing the estimated loss on the disposal of the business segment 
including certain required capital expenditures prior to the sale. In 
determining the estimated loss on disposal, only the $8.0 million guaranteed 
portion of the sales price was considered (i.e., that portion which is 
contingent on the future performance of the business was ignored). The 
Company estimated that it would incur additional operating losses in this 
business segment after the allocation of certain overhead and interest costs, 
amounting to approximately $331,000 during the phase-out period from October 
1, 1996 to May 1997. A provision for such estimated net losses was made 
during the year ended December 31, 1996. The Company's waste management 
services segment reported net income of approximately $141,000 during the 
three month period ended March 31, 1997.

                                       13
<PAGE>

     SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT. 
On January 20, 1997, the Company sold substantially all of the assets related 
to its oilfield services business to Dawson Production Services, Inc. 
("Dawson"). As a result of that transaction, the Company received 
approximately $4,917,000 and a subordinated note in the amount of $500,000 
due in January 2002 in exchange for such assets. The assets which were the 
subject of the sale had a net book value, based on historical cost adjusted 
for accumulated depreciation and amortization, of approximately $2,354,000. 
The results of operations associated with the discontinued segment through 
the disposal date, after allocation of certain overhead and interest costs, 
did not result in a loss. The Company recognized a gain upon completion of 
the sale, after transaction costs of approximately $261,000, amounting to 
approximately $2,802,000 in January 1997.

RESULTS OF OPERATIONS

     General and administrative expenses amounted to $159,000 and $158,000 
for the three months ended March 31, 1998 and 1997, respectively. These costs 
represent the ongoing administrative costs of the Company after disposing all 
of its operating assets. Interest income of $77,000 was earned in the three 
month period ended March 31, 1998 on the investments available for sale and 
note receivable. There was no interest income earned for the three month 
period ended March 31, 1997 because the investment securities were not 
received until May 29, 1997 as a result of the sale of the waste management 
services business segment.

     Income from discontinued operations amounted to $2,943,000 for the three 
month period ended March 31, 1997. There was no income from discontinued 
operations for the 1998 period as all operating assets were disposed of in 
1997.

CAPITAL RESOURCES AND LIQUIDITY

     All of the $8.0 million in U.S. Filter common stock received at the time 
of the closing of the sale of its waste management services assets has been 
sold. Cash from the USF stock sale, along with the proceeds from the sale of 
the oilfield services assets, resulted in net proceeds totaling approximately 
$8.2 million after repayment of the outstanding bank indebtedness and 
transaction expenses. Such net proceeds were used to fund the current 
liabilities retained by the Company following the sales, with the remaining 
surplus cash deployed in investment securities. General and administrative 
expenses incurred for the three month period ended March 31, 1998 were 
$159,000. The Company anticipates that ongoing general and administrative 
expenses will be approximately $540,000 annually, exclusive of any litigation 
costs, and expects earnings from investments to largely offset such costs. 
The amounts described herein are approximate and based on the Company's 
current estimates. Furthermore, there can be no assurance that such amounts 
will actually be realized.

     In addition to the aforementioned proceeds, under the terms of the asset 
purchase agreement with U.S. Filter, the Company may receive up to $4.0 
million in USF common stock during the two-year period following the sale 
based on the performance of the hydrocarbon recycling business. As of May 29, 
1998, approximately 20% of the earnout was achieved and 28,294 shares of U.S. 
Filter stock was received for the first year of operations subsequent to 
closing the sale. Additionally, in connection with the sale of the oilfield 
services business, the Company received a $500,000 subordinated note 
receivable from Dawson, bearing interest at 8.5%, which matures on January 4, 
2002.

                                       14
<PAGE>

     In connection with the sale of assets to U.S. Filter, 10% of the 
proceeds of such transaction (approximately $825,000) were required to be 
maintained in escrow for a period of one year from the closing of the 
transaction to satisfy indemnification obligations of the Company to U.S. 
Filter. On May 29, 1998, approximately $500,000 were released from escrow and 
paid to the Company. The remaining funds are being held by the escrow agent 
pending resolution of outstanding claims for which U.S. Filter seeks 
reimbursement from escrow.

     Because of its indemnification obligations related to the sale of 
Gibraltar, as well as potential indemnity obligations with respect to the 
asset sales to USF and Dawson, and in light of the ongoing litigation 
(described in the Company's Annual Report on Form 10-K for the year ended 
December 31, 1997), the Company, based on consultation with legal counsel, 
does not currently anticipate making a distribution to its stockholders in 
the foreseeable future. As circumstances change or additional information 
with respect to the extent of the Company's potential indemnity obligations 
becomes available, the Board of Directors will continue to evaluate various 
uses of the Company's funds. The Company has no plans to conduct any kind of 
operating business at any time in the future.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The cause of action styled DANIELS V. GIBRALTAR CHEMICAL RESOURCES, INC. 
has been set for trial in November 1998. There have been no other material 
developments in the legal proceedings described in the Company's Annual 
Report on Form 10-K for the year ended December 31, 1997.

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

EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number         Description
-------        -----------
<S>            <C>
27             Financial Data Schedule (submitted only in electronic format)
</TABLE>

REPORTS ON FORM 8-K

      None.

                                       15
<PAGE>

     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.

                              MOBLEY ENVIRONMENTAL SERVICES, INC.
                              (Registrant)

                              /s/ John Mobley
                              -------------------------------------------------
                              John Mobley
                              Chairman of the Board and Chief Financial Officer




Date:  August ___, 1998





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