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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, 1997

                                       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.)        
                                             
     STILLHOUSE CANYON OFFICE PARK,       
               BLDG. ONE                   
      4807 SPICEWOOD SPRINGS ROAD,
               SUITE 1245
             AUSTIN, TEXAS                            78759
(Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code: (512) 345-5591

     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 
June 1, 1997 was 4,155,097 shares of Class A Common Stock, $.01 par value and 
4,680,196 shares of Class B Common Stock, $.01 par value.

          THIS FORM 10-Q IS SUBJECT TO FORM 12b-25 FILED MAY 16, 1997.  

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<PAGE>

                        MOBLEY ENVIRONMENTAL SERVICES, INC.            
                                    FORM 10-Q
                                      INDEX

Part I - FINANCIAL INFORMATION                                              Page
------------------------------                                              ----

Item 1.   Financial Statements (Unaudited)

     -    Consolidated Balance Sheets - March 31, 1997
                and December 31, 1996                                          3

     -    Consolidated Statements of Operations - Three
               Months Ended March 31, 1997  and 1996                           4

     -    Consolidated Statement of Stockholders' Equity - 
               Three Months Ended March 31, 1997                               5

     -    Consolidated Statements of Cash Flows - Three                        6
               Months Ended March 31, 1997 and 1996

     -    Notes to Consolidated Financial Statements                          7

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

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

Item 1.   Legal Proceedings                                                  15

Item 2.   Changes in Securities                                              16

Item 3.   Defaults Upon Senior Securities                                    16

Item 4.   Submission of Matters to
          a Vote of Security Holders                                         16

Item 5.   Other Information                                                  16

Item 6.   Exhibits and Reports on Form 8-K                                   16

Signatures                                                                   17

                                        2  

<PAGE>

PART I.  FINANCIAL INFORMATION            

ITEM 1.  FINANCIAL STATEMENTS

                       MOBLEY ENVIRONMENTAL SERVICES, INC.

                           Consolidated Balance Sheets
                             (dollars in thousands)
                                   (unaudited)

                                                         March 31,  December 31,
                    Assets                                  1997       1996     
                    ------                               --------- -------------
Current assets:                                         
     Cash and cash equivalents                            $    896     $    385
     Trade receivables                                         241          161
     Prepaid expenses and other current assets                 194          207
     Net assets of discontinued operations--current          8,241        1,144
                                                          --------     --------
          Total current assets                               9,572        1,897
                                                                               
Property, plant and equipment, net                             270          230
Net assets of discontinued operations--non-current              --        9,659
Note receivable                                                500           --
Other assets, net                                              230          197
                                                          --------     --------
                                                          $ 10,572     $ 11,983
                                                          --------     --------
                                                          --------     --------
                    Liabilities and Stockholders' Equity
                    ------------------------------------
Current liabilities:
     Notes payable and current portion of long-term 
          debt                                            $  1,714     $  5,014
     Accounts payable                                          672          633
     Accrued expenses                                        2,772        3,721
                                                          --------     --------
          Total current liabilities                          5,158        9,368
                                                                               
Deferred income taxes                                          148          148
                                                          --------     --------
          Total liabilities                                  5,306        9,516
                                                          --------     --------
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, 4,155,097 
               and 4,085,343 shares issued and outstanding 
               at March 31, 1997 and December 31, 1996, 
               respectively                                     42           42
          Class B; 10,000,000 shares authorized, 4,764,903 
               shares issued and 4,680,196 shares outstanding 
               at March 31, 1997; 4,834,657 shares issued and 
               4,749,950 shares outstanding at December 31, 
               1996                                             48           48 
     Additional paid-in capital                             25,159       25,159 
     Accumulated deficit                                   (19,711)     (22,486)
     Deferred compensation costs under restricted stock                         
          agreements                                          (264)        (288)
     Treasury stock; 84,707 shares of Class B common stock,                     
          at cost                                               (8)          (8)
                                                          --------     --------
          Total stockholders' equity                         5,266        2,467 

     Commitments and contingencies               
                                                          --------     --------
                                                          $ 10,572     $ 11,983
                                                          --------     --------
                                                          --------     --------

See accompanying notes to consolidated financial statements.

                                        3  

<PAGE>

                        MOBLEY ENVIRONMENTAL SERVICES, INC.            

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

                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                       1997       1996 
                                                      ------     ------

Revenues                                                   --         -- 
Cost of revenues                                           --         -- 
                                                    ---------  ---------

     Gross profit                                          --         -- 
                                                                         
General and administrative expenses                       158        139 
                                                    ---------  ---------
                                                                         
     Operating loss                                      (158)      (139)
                                                                         
Other income (expense)                                    (10)        18 
                                                    ---------  ---------

     Loss from continuing operations before                              
          income taxes                                   (168)      (121)
                                                                         
Income taxes                                               --         -- 
                                                    ---------  ---------

     Loss from continuing operations                     (168)      (121)
                                                    ---------  ---------

Discontinued operations:
     Gain on sale of oilfield services segment          2,802         --  
                                                                          
     Net income (loss) from operations of waste                           
          management services segment                     141       (234) 
                                                                          
     Net loss from operations of oilfield                                 
          services segment                                 --       (317) 
                                                    ---------  ---------

          Income (loss) from discontinued operations    2,943       (551) 
                                                    ---------  ---------
          Net income (loss)                          $  2,775       (672) 
                                                    ---------  ---------
                                                    ---------  ---------
Net income (loss) per share:                                              
     Continuing operations                              (0.02)     (0.02) 
     Discontinued operations                             0.33      (0.06) 
                                                    ---------  ---------
                                                     $   0.31      (0.08) 
                                                    ---------  ---------
                                                    ---------  ---------
Weighted average number of                                                
     common shares outstanding                      8,835,293  8,835,293  
                                                    ---------  ---------
                                                    ---------  ---------

See accompanying notes to consolidated financial statements.

                                        4  

<PAGE>

                        MOBLEY ENVIRONMENTAL SERVICES, INC.            

                 Consolidated Statement of Stockholders' Equity
                        Three Months Ended March 31, 1997
                             (dollars in thousands)
                                   (unaudited)

Preferred Stock - none issued                                      $      --
                                                                   ---------

Class A Common Stock:
     Balance at December 31, 1996 and March 31, 1997                      42
                                                                   ---------

Class B Common Stock:
     Balance at December 31, 1996 and March 31, 1997                      48
                                                                   ---------

Additional Paid-In Capital:
     Balance at December 31, 1996 and March 31, 1997                  25,159
                                                                   ---------

Accumulated Deficit:
     Balance at December 31, 1996                                    (22,486)
     Net income                                                        2,775
                                                                   ---------
          Balance at March 31, 1997                                  (19,711)
                                                                   ---------

Deferred Compensation Costs Under Restricted Stock Agreements:
     Balance at December 31, 1996                                       (288)
     Amortization of unearned compensation                                24
                                                                   ---------
          Balance at March 31, 1997                                     (264)
                                                                   ---------

Treasury Stock:
     Balance at December 31, 1996 and March 31, 1997                      (8)
                                                                   ---------
               Total stockholders' equity at March 31, 1997         $  5,266
                                                                   ---------
                                                                   ---------

See accompanying notes to consolidated financial statements.

                                        5  

<PAGE>

                        MOBLEY ENVIRONMENTAL SERVICES, INC.            

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

                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                         1997        1996
                                                       ---------    --------
Cash flows from operating activities:
Net income (loss)                                      $   2,775    $  (672)
    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                           453        636
     Deferred compensation costs under restricted stock 
          agreements                                          24         24
     Changes in certain operating assets and liabilities:
          Trade receivables                                 (466)      (111)
          Prepaid expenses and other current assets          222       (274)
          Accounts payable                                  (368)       357
          Accrued expenses                                  (605)      (252)
                                                         -------    -------
               Net cash used by operating activities,
                   including discontinued operations        (767)       (70)
                                                         -------    -------
Cash flows from investing activities:
     Capital expenditures                                    (78)    (2,366)
     Net proceeds from sale of oilfield services segment   4,656         --
     Other investing activities, net                          --        (20)
                                                         -------    -------
               Net cash provided by (used in) investing 
                   activities, including discontinued 
                   operations                              4,578     (2,386)
                                                         -------    -------
Cash flows from financing activities:             
     Proceeds from long-term debt borrowings                  --      1,940
     Payments on long-term debt and notes payable         (3,300)        --
                                                         -------    -------
               Net cash provided by (used in) financing 
                   activities, including discontinued 
                   operations                             (3,300)     1,940
                                                         -------    -------
Net increase (decrease) in cash and cash equivalents         511       (516)

Cash and cash equivalents at beginning of period             385      1,476
                                                         -------    -------
Cash and cash equivalents at end of period               $   896    $   960
                                                         -------    -------
                                                         -------    -------

See accompanying notes to consolidated financial statements.

                                        6  

<PAGE>

                        MOBLEY ENVIRONMENTAL SERVICES, INC.            

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                   (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, 1997, 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, 1996.

     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)  RECENT ASSET SALES AND DISCONTINUED OPERATIONS

     In light of the Company's severely weakened financial condition and, in 
particular, concerns about its liquidity, during 1996, the Board of Directors 
reviewed the challenges facing the Company and discussed in general terms the 
alternatives available to address them. Among other things, the Board of 
Directors considered (i) the Company's relatively small size and the 
resultant constraints on its ability to make significant investments in 
additional processing or collection businesses without an infusion of equity 
in an industry characterized by increasing consolidation, intensifying 
competition, and continued growth through acquisition by larger entities with 
greater access to financial resources than has the Company; (ii) the 
Company's inability to obtain bank financing and the unfavorable results of 
efforts to attract equity investors to fund activities contemplated by the 
Company's strategic business plan; (iii) the Company's default under its bank 
credit agreement due to its inability to maintain compliance with certain 
covenants contained in such agreement; and (iv) the Company's severely 
strained liquidity and immediate need for working capital to continue its 
current operations. As part of these deliberations, management and the 
Company's financial advisors reviewed in detail with the Board of Directors 
their efforts with third parties to attract possible investments in, or 
strategic alliances with, the Company. Since such efforts had not yielded 
access to funds on terms acceptable to the Company, the Board of Directors 
determined that the divestiture of its operations was in the best interests 
of the Company and its shareholders. These circumstances required the Company 
to re-evaluate the basis used to assess the carrying values of assets. 
Subsequently, on October 30, 1996, and November 1, 1996, the Company executed 
letters of intent to sell 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.

                                       7

<PAGE>

     SALE OF WASTE MANAGEMENT SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS 
SEGMENT. On October 30, 1996, the Company signed a letter of intent with 
United States Filter Corporation ("USF") to sell substantially all of the 
assets related to its waste management services activities. Such sale was 
completed on May 29, 1997, pursuant to a definitive asset purchase agreement. 
Under the terms of the definitive agreement, 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. Additionally, USF assumed certain 
liabilities (accounts payable and accrued expenses) as part of the 
transaction.

     The net assets which were the subject of the definitive agreement are 
shown in the accompanying March 31, 1997, consolidated balance sheet as "net 
assets of discontinued operations" at their estimated net realizable value, 
less anticipated transaction costs of approximately $450,000. Such assets 
have a net book value at March 31, 1997, (net of assumed liabilities) of 
approximately $14,965,000. 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, when 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 
incurred a net income of approximately $147,000 during the period October 1, 
1996 to March 31, 1997.

     SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT. 
On November 1, 1996, the Company signed a letter of intent with Dawson 
Production Services, Inc. to sell substantially all of the assets related to 
its oilfield services business. Such sale was completed on January 20, 1997, 
pursuant to a definitive asset purchase agreement. Under the terms of the 
definitive agreement, 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.

     In anticipation of the planned divestitures and the significant 
reduction in personnel necessary to support the administration of the 
Company's remaining assets, the Company recorded certain restructuring 
expenses, none of which are expected to benefit its future activities, during 
the 1996 third quarter. Such expenses, totaling $650,000 included employee 
severance obligations of approximately $285,000, costs associated with the 
relocation and recruitment of personnel of approximately $155,000, and other 
related expenses of approximately $210,000. Substantially all of such costs 
were subsequently incurred during the 1996 fourth 

                                       8

<PAGE>

quarter and 1997 first quarter. The twelve employees to be terminated are 
primarily involved in providing certain corporate support functions, 
including accounting, information systems, and environmental, health and 
safety.

     Because of the outstanding contractual indemnification obligations of 
the Company 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 relate. The 
Company believes it is probable that it will continue to incur certain costs 
associated with these legal matters and accordingly in connection with the 
divestiture of the Company's former subsidiary, Gibraltar Chemical Resources, 
Inc. 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 (note 4).

     The Company's two business segments, waste management services and 
oilfield services, have been accounted for as discontinued operations, and 
accordingly, their operations have been segregated in the accompanying 
consolidated statements of operations. The revenues, operating costs and 
expenses, interest expense, and income taxes for the periods ended March 31, 
1997 and 1996, have been reclassified for amounts associated with the 
discontinued segments. Due to the relative significance of the Company's 
business segments to its operating assets as a whole, and in light of the 
Company's decision in 1996 to divest itself of all of its operating assets, 
the Company has allocated certain general and administrative expenses to the 
business segments in the accompanying consolidated statements of operations 
and note 2. General and administrative expenses attributable to continuing 
operations have been determined based upon an allocation of such costs 
between the business segments and continuing operations. Other income and 
expense have been recorded as continuing operations as such amounts are not 
specifically attributable to either of the Company's business segments which 
are being disposed of. Interest expense has been 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 periods ended March 31, 1997 and 1996, are as follows (in thousands of 
dollars):

                                                   1997           1996 
                                                  ------         ------
     Revenues                                     $5,764         $3.530
     Cost of revenues                              4,542          2,790
                                                  ------         ------
          Gross profit                             1,222            740

     Selling, general, and administrative expenses,
           including allocated amounts               964            974
                                                  ------         ------
     Operating income (loss)                         258           (234)
     Interest expense, net                          (117)            --
                                                  ------         ------
     Net income (loss) from operations of waste
              management services segment         $  141         $ (234)
                                                  ------         ------
                                                  ------         ------

                                       9

<PAGE>

     Operating results of the Company's oilfield services segment for the 
periods ended March 31, 1997 and 1996, are as follows (in thousands of 
dollars):

                                                   1997           1996 
                                                  ------         ------
     Revenues                                     $  231         $ 977
     Cost of revenues                                168           816
                                                  ------         ------
          Gross profit                                63           161
     Selling, general and administration expenses,
          including allocated amounts                 63           478
                                                  ------         ------
          Net loss from operations of oilfield 
            services segment                     $   --          $(317)
                                                  ------         ------
                                                  ------         ------

     At March 31, 1997, the net assets of the Company's waste management 
services segment are recorded at their estimated net realizable value, and 
are included in the accompanying consolidated balance sheet as "net assets of 
discontinued operations."  Such assets are summarized as follows (in 
thousands of dollars):

     Trade receivables                                        $ 3,259
     Other current assets                                         260
     Property, plant and equipment, net of accumulated
          depreciation of $8,697 and valuation reserve
          of $5,673                                             7,645
     Excess of purchase price over fair value of net assets
          acquired, net of accumulated amortization of $101
          and valuation reserve of $1,051                          --
     Other assets, net                                             78
     Current liabilities                                       (3,001)
                                                              -------
          Net assets of discontinued operations               $ 8,241
                                                              -------
                                                              -------

     Substantially all of the USF common stock received as the time of 
closing was immediately sold. Such proceeds will be used to fund the current 
liabilities retained by the Company, with the remaining surplus cash 
initially deployed in short-term investments. The Company anticipates that 
ongoing general and administrative expenses will be reduced to approximately 
$300,000 annually, 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.

                                       10

<PAGE>

(3)  NOTES PAYABLE

     The Company had a credit agreement (the "Credit Agreement") that 
provided up to $6,500,000 in available credit for the Company. At March 31, 
1997, the Company had outstanding $1,714,000 under the Credit Agreement. 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.

     The Credit Agreement contained restrictive covenants which included the 
maintenance of minimum tangible net worth, as defined, and certain financial 
ratios. The Company had not been in compliance with certain covenant 
requirements since June 30, 1996.

(4)  COMMITMENTS AND CONTINGENCIES

     LETTERS OF CREDIT.  At March 31, 1997, 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.  Additionally, the Company has provided a 
letter of credit to the Texas Natural Resource Conservation Commission 
("TNRCC") in the amount of approximately $167,000 to secure the payment of 
fines assessed Gibraltar Chemical Resources, Inc. ("Gibraltar"), the 
Company's former subsidiary, by the TNRCC in connection with the December 
1994 settlement of certain litigation.

     REGULATORY ENFORCEMENT ACTION AND LAWSUIT.  In November 1993, the State 
of Texas filed a lawsuit against Gibraltar stemming from an enforcement 
action by the TNRCC alleging certain regulatory violations.  The lawsuit was 
subsequently amended to include certain notices of violation issued by the 
TNRCC and allegations of noncompliance associated with certain regulatory 
orders.  In July 1994, this litigation was tentatively settled through 
mediation and an Agreed Final Judgment was subsequently entered in December 
1994.  Under the terms of the judgment, Gibraltar was obligated for 
$1,150,000 in assessed fines and attorneys fees.  Of such amount, $450,000 
was paid by AEC and the Company is responsible for payment of the remaining 
$700,000.  As of March 31, 1997, the Company had paid all but $167,000 of 
such amount, which is due in June 1997 and included in "accrued expenses" in 
the March 31, 1997 consolidated balance sheet.

     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 1, 1997, 
six such lawsuits were pending, one of which is asserted as a class action. 
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 emotional distress. 
Likewise, such plaintiffs 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 

                                       11

<PAGE>

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 six actions are technically pending, in one such action, the 
Company has defended the subject claims in a jury trial which resulted in 
inconsequential damages being awarded to the plaintiffs on November 7, 1996. 
However, the verdict is subject to appeal in accordance with the applicable 
rules of civil procedure.

     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 and 
agreed to indemnify the purchaser, AEC, for any breaches of such 
representations and warranties. Additionally, the Company is obligated to 
indemnify AEC for certain claims against Gibraltar arising from circumstances 
existing on or prior to the closing of the sale, including various claims and 
proceedings disclosed to AEC. The Company's indemnification obligations to 
AEC expired June 30, 1996, except in the case of tax, environmental and ERISA 
claims, for which any claims for indemnification must be asserted prior to 
June 30, 1998. 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's 
contractual indemnity obligations to AEC also encompass various pending 
regulatory and permit renewal proceedings. The failure of Gibraltar to 
prevail in these matters could result in significant liabilities to the 
Company.

     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 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 and is itself 
the subject of pending litigation as noted previously; (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 estimatable. The Company's 

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<PAGE>

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, Mobley was notified by the TNRCC that it is 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. The Company has recorded an accrual for 
its estimated exposure in connection with this matter, the amount of which is 
not material to the consolidated financial statements.

     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.

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

GENERAL

     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, 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, 1997, as well as the 
Company's operating results for the three-month period ended March 31, 1997. 
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.

RECENT ASSET SALES, DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES

     Due to the Company's inability to secure, on acceptable terms, the 
capital resources necessary to continue the implementation of its strategic 
plans to expand its hydrocarbon recycling and recovery business, and after 
considering the attendant risks of continuing to pursue such strategy in 
light of its severely strained liquidity, in September 1996, the Company's 
Board of Directors determined that the divestiture of its operations was in 
the best interests of the Company and its shareholders.  Subsequently, on 
October 30, 1996 and November 1, 1996, the Company executed letters of intent 
to sell substantially all of its operating assets in two separate 
transactions (see Note 2 of Notes to Consolidated Financial Statements).  
Because of the recent sales, results of operations of the Company's two 
business segments 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.

                                       13

<PAGE>

     SALE OF WASTE MANAGEMENT SERVICES ASSETS & DISCONTINUANCE OF BUSINESS 
SEGMENT.  On October 30, 1996, the Company signed a letter of intent with 
United States Filter Corporation ("USF") to sell substantially all of the 
assets related to its waste management services activities.  Such sale was 
completed on May 29, 1997, pursuant to a definitive asset purchase agreement. 
Under the terms of the definitive agreement, 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.  Additionally, USF assumed 
certain liabilities (accounts payable and accrued expenses) as part of the 
transaction.  The net assets which were the subject of the definitive 
agreement are shown in the accompanying March 31, 1997, consolidated balance 
sheet as "net assets available for sale" at their estimated net realizable 
value, less anticipated transaction costs of approximately $450,000.  Such 
assets had a net book value at March 31, 1997 (net of assumed liabilities) of 
approximately $14,965,000.  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 29, 1997.  A provision for such estimated net losses 
was made during the year ended December 31, 1996.

     SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT. 
On November 1, 1996, the Company signed a letter of intent with Dawson 
Production Services, Inc. ("Dawson") to sell substantially all of the assets 
related to its oilfield services business.  Such sale was completed on 
January 20, 1997, pursuant to a definitive asset purchase agreement. Under 
the terms of the definitive agreement, the Company received $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 $2,378,000.  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 again upon completion of the sale, after transaction 
costs of approximately $255,000, amounting to approximately $,802,000 in 
January 1997.

     In anticipation of the planned divestitures and the significant 
reduction in personnel necessary to support the administration of the 
Company's remaining assets, the Company recorded certain restructuring 
expenses, none of which are expected to benefit its future activities, during 
the 1996 third quarter. Such expenses, totaling $650,000 included employee 
severance obligations of approximately $285,000, costs associated with the 
relocation and recruitment of personnel of approximately $155,000, and other 
related expenses of approximately $210,000. Substantially all of such costs 
were subsequently incurred during the 1996 fourth quarter and 1997 first 
quarter. The twelve employees to be terminated are primarily involved in 
providing certain corporate support functions, including accounting, 
information systems, and environmental, health and safety.

RESULTS OF OPERATIONS

     Revenues for the three months ended March 31, 1997 amounted to $5,995,000,
compared to $4,507,000 in the comparable period of 1996, an increase of 33%.  On
a segment basis, revenues from waste management services increased 63% during
the 1997 three-month period, primarily the result of the 

                                       14

<PAGE>

continued growth of its used oil and filter recycling business lines, which 
commenced operations during the 1995 third quarter.  Revenues in the oilfield 
services segment of the Company's business declined in the 1997 first quarter 
compared to the same period a year ago, primarily due to sale of such 
segment's assets in January 1997.

     Gross profit for the quarter ended March 31, 1997, amounted to 
$1,285,000 compared to $901,000 in the same 1996 period.  The gross profit 
margin amounted to 20% in 1997 and 1996.

     Comparatively lower selling, general and administrative expenses during 
the 1997 quarter were primarily the result of reduced overhead costs 
associated with the sale of the oilfield services segment and general 
reductions due to the discontinuance of operations.

CAPITAL RESOURCES AND LIQUIDITY

      Substantially all of the $8.0 million in USF common stock received at 
the time of the closing of the sale of its waste management services assets 
was immediately 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 $11.1 million after repayment of the outstanding 
bank indebtedness and transaction expenses.  Such net proceeds will be 
used to fund the current liabilities retained by the Company following 
the sales, with the remaining surplus cash initially deployed in short-term 
investments. The Company anticipates that ongoing general and administrative 
expenses will be reduced to approximately $300,000 annually upon completion 
of the sale, 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 
letters of intent for the proposed asset sales, 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. 
Additionally, the Company received a $500,000 subordinated note receivable 
from Dawson, bearing interest at 8.5%, which matures on January 4, 2002.

     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, 1996), 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. While the Company may investigate new business 
opportunities that arise, the nature and probability of any investments which 
might result from such investigations cannot be determined.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     There have been no material developments in the legal proceedings 
described in the Company's Annual Report on Form 10-K for the year ended 
December 31, 1996.

                                       15

<PAGE>

ITEM 2.  CHANGES IN SECURITIES

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     As discussed in Note 3 of Notes to Consolidated Financial Statements, 
the Company has not been in compliance with certain restrictive covenants 
required under the terms of its bank credit agreement since June 30, 1996, 
placing it in technical default as of March 31, 1997. The Company repaid all 
outstanding balances under its bank credit agreement in connection with the 
closing of its waste management services and oilfield services segments.

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

Exhibit
Number         Description
-------        -----------

27             Financial Data Schedule (submitted only in electronic format)

REPORTS ON FORM 8-K

          A Form 8-K Current Report dated January 28, 1997 was filed by the 
Company to announce the completion of the sale of the Company's oilfield 
services business.

          A Form 8-K Current Report dated May 5, 1997 was filed by the 
Company to announce the signing of a definitive asset purchase agreement for 
the sale of the Company's hydrocarbon recycling and recovery business.

          A Form 8-K Current Report dated June 13, 1997 was filed by the 
Company to announce the completion of the sale of the Company's hydrocarbon 
recycling and recovery business.

                                       16  

<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, President 
                                       and Chief Financial Officer

Date: September 19, 1997



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