<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 September 30, 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) 346-5591

   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.

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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 - September 30, 1997
            and December 31, 1996                                          2

          - Consolidated Statements of Operations - Three
            Months and Nine Months ended September 30, 1997 and 1996       3

          - Consolidated Statement of Stockholders' Equity -
            Nine Months Ended September 30, 1997                           4

          - Consolidated Statements of Cash Flows - Nine Months
            Ended September 30, 1997 and 1996                              5

          - Notes to Consolidated Financial Statements                  6-10

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations                11-12

Part II - OTHER INFORMATION

Item 1.   Legal Proceedings                                               13

Item 2.   Changes in Securities                                           13

Item 3.   Defaults Upon Senior Securities                                 13

Item 4.   Submission of Matters to a Vote of Security Holders             13

Item 5.   Other Information                                               13

Item 6.   Exhibits and Reports on Form 8-K                                13

Signatures                                                                14

<PAGE>

Part I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                         MOBLEY ENVIRONMENTAL SERVICES, INC.

                             Consolidated Balance Sheets
                               (dollars in thousands)
                                     (unaudited)

<TABLE>
                                                      September 30,    December 31,
                                                           1997            1996
                                                           ----            ----
                     ASSETS
<S>                                                        <C>              <C>
Current assets:
   Cash and cash equivalents                               $    678            385
   Trade receivables                                            506            161
   Prepaid expenses and other current assets                    153            207
   Net assets of discontinued operations - current               --          1,144
                                                           --------        -------
      Total current assets                                    1,337          1,897

Property, plant and equipment, net                              214            230
Net assets of discontinued operations - non-current              --          9,659
Note receivable                                                 500             --
Investment securities                                         4,586             --
Other assets, net                                               192            197
                                                           --------        -------
                                                           $  6,829         11,983
                                                           --------        -------
                                                           --------        -------
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable and current portion of long-term debt     $     --          5,014
   Accounts payable                                             369            633
   Accrued expenses                                           1,359          3,721
                                                           --------        -------
      Total current liabilities                               1,728          9,368

Deferred income taxes                                            --            148
                                                           --------        -------
         Total liabilities                                    1,728          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 
      September 30, 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 
      September 30, 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                                      (19,947)       (22,486)
   Net unrealized gain on investment securities                  23             --
   Deferred compensation costs under restricted stock 
    agreements                                                 (216)          (288)
   Treasury stock; 84,707 shares of Class B common stock, 
    at cost                                                      (8)            (8)
                                                           --------        -------
      Total stockholders' equity                              5,101          2,467

   Commitments and contingencies
                                                           --------        -------
                                                           $  6,829         11,983
                                                           --------        -------
                                                           --------        -------
</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>
                                             Three Months Ended September 30,  Nine Months Ended September 30,
                                             --------------------------------  -------------------------------
                                                    1997           1996           1997             1996
                                                    ----           ----           ----             ----
<S>                                              <C>             <C>            <C>             <C>
Revenues                                         $       --             --             --              --
Cost of revenues                                         --             --             --              --
                                                 ----------      ---------      ---------       ---------
   Gross profit                                          --             --             --              --

General and administrative expenses                     194             75            516             225
Restructuring charges                                    --            650             --             650
                                                 ----------      ---------      ---------       ---------
   Operating loss                                      (194)          (725)          (516)           (875)
Interest income                                          79             --             69              --
Gain on sale of US Filter stock                          25             --            556              --
Gain on sale of assets                                   37             --             37              --
Other income (expense)                                    7             --             (4)             --
                                                 ----------      ---------      ---------       ---------
   Income (loss) from continuing
    operations before income taxes                      (46)          (725)           142            (875)

Income taxes                                             --             --             --              --
                                                 ----------      ---------      ---------       ---------
   Income (loss) from continuing
    operations                                          (46)          (725)           142            (875)
                                                 ----------      ---------      ---------       ---------
Discontinued operations, net of tax:

   Provision for loss on disposal of
    waste management services segment                    --         (7,621)            --          (7,621)

   Provision for losses during phase-out
    period of waste management services
    segment                                              --           (331)            --            (331)

   Net loss from operations
    of waste management services
    segment                                              --           (450)          (405)         (1,258)

   Net income (loss) from operations of
    oilfield services segment                            --             10             --            (195)

   Gain on sale of oilfield services
    segment                                              --             --          2,802              --
                                                 ----------      ---------      ---------       ---------
   Income (loss) from discontinued
    operations                                           --         (8,392)         2,397          (9,405)
                                                 ----------      ---------      ---------       ---------
   Net income (loss)                             $      (46)        (9,117)         2,539         (10,280)
                                                 ----------      ---------      ---------       ---------
                                                 ----------      ---------      ---------       ---------
Net income (loss) per share:
   Continuing operations                         $    (0.01)         (0.08)          0.02           (0.02)
   Discontinued operations                             0.00          (0.95)          0.27           (1.14)
                                                 ----------      ---------      ---------       ---------
                                                 $    (0.01)         (1.03)          0.29           (1.16)
                                                 ----------      ---------      ---------       ---------
                                                 ----------      ---------      ---------       ---------
Weighted average number of
 common shares outstanding                        8,835,293      8,835,293      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
                        Nine Months Ended September 30, 1997
                  (dollars in thousands, except per share amounts)
                                     (unaudited)
                                          
<TABLE>
<S>                                                                 <C>
Preferred Stock - none issued                                       $     --
                                                                    --------
Class A Common Stock:
   Balance at December 31, 1996 and September 30, 1997                    42
                                                                    --------
Class B Common Stock:
   Balance at December 31, 1996 and September 30, 1997                    48
                                                                    --------
Additional Paid-In Capital:
   Balance at December 31, 1996 and September 30, 1997                25,159
                                                                    --------
Accumulated Deficit:
   Balance at December 31, 1996                                      (22,486)
   Net income                                                          2,539
                                                                    --------
      Balance at September 30, 1997                                  (19,947)
                                                                    --------
Unrealized Gain on Investment Securities:
   Balance at December 31, 1996                                           --
   Unrealized gain                                                        23
                                                                    --------
      Balance at September 30, 1997                                       23
                                                                    --------
Deferred Compensation Costs Under Restricted Stock Agreements:
   Balance at December 31, 1996                                         (288)
   Amortization of unearned compensation                                  72
                                                                    --------
      Balance at September 30, 1997                                     (216)
                                                                    --------
Treasury Stock:
   Balance at December 31, 1996 and September 30, 1997                    (8)
                                                                    --------
      Total stockholders' equity at September 30, 1997              $  5,101
                                                                    --------
                                                                    --------
</TABLE>
See accompanying notes to consolidated financial statements

                                     4
<PAGE>

                         MOBLEY ENVIRONMENTAL SERVICES, INC.

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

<TABLE>
                                                          Nine Months Ended September 30,
                                                          -------------------------------
                                                               1997            1996
                                                               ----            ----
<S>                                                          <C>               <C>
Cash flows from operating activities:
   Net income (loss)                                         $  2,539        (10,280)
     Adjustments to reconcile net income (loss) to net
      cash used by operating activities:
     Provision for loss on disposal and losses during 
      phase-out period of waste management services segment        --          8,650
     Provision for restructuring charges                           --            650
     Depreciation and amortization                                535          2,016
     Deferred income tax benefit                                 (148)          (698)
     Bad debt expense                                             152             --
     Deferred compensation costs under restricted stock 
      agreements                                                   72             72
     Gain on sale of US Filter stock                             (556)            --
     Gain on sale of oilfield services segment                 (2,802)            --
     Gain on sale of assets                                       (37)            --
     Loss on sale of investment securities                          2             --
     Changes in certain operating assets and liabilities:
       Trade receivables                                         (883)          (400)
       Prepaid expenses and other current assets                  301           (101)
       Other assets                                                --            (30)
       Accounts payable                                          (671)           577
       Accrued expenses and other liabilities                  (1,789)          (736)
                                                             --------        -------
          Net cash used by operating activities, including
           discontinued operations                             (3,285)          (280)

Cash flows from investing activities:
   Net proceeds from sale of oilfield services segment          4,656             --
   Net proceeds from sale of US Filter stock                    8,556             --
   Net proceeds from sale of investment securities                248             --
   Purchase of investment securities                           (4,801)            --
   Capital expenditures                                          (112)        (4,792)
   Proceeds from sale of assets                                    45             --
                                                             --------        -------
          Net cash provided (used) by investing activities,
           including discontinued operations                    8,592         (4,792)

Cash flows from financing activities:
   Net borrowings under revolving lines of credit and 
    short-term notes payable                                       --          2,550
   Proceeds from long-term borrowings                              --          1,940
   Principal payments on long-term debt                        (5,014)          (144)
                                                             --------        -------
          Net cash provided (used) by financing activities,
           including discontinued operations                   (5,014)         4,346
                                                             --------        -------
Net increase (decrease) in cash and cash equivalents              293           (726)

Cash and cash equivalents at beginning of period                  385          1,476
                                                             --------        -------
Cash and cash equivalents at end of period                   $    678            750
                                                             --------        -------
                                                             --------        -------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

(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 September 30, 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

     During 1996, in light of the Company's severely weakened financial 
condition and, in particular, concerns about its liquidity, 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 
recent 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 
interest of the Company and its shareholders. These circumstances required 
the Company to reevaluate 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.

     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 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.    

                                         6
<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 have been removed from the consolidated balance sheet as of 
September 30, 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 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 loss of approximately $405,000 during the period from January 1,
1997 until May 29, 1997, the date of closing on the sale, which was in 
excess of the amounts previously accrued. The majority of this loss was 
created by additional charges related to automobile liability insurance 
claims and medical claims which were not included in the accruals established 
at December 31, 1996.

     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 5).

     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 September
30, 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 segments of operations.
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

                                     7
<PAGE>

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 nine-month periods ended September 30, 1997 and 1996, are as follows (in 
thousands of dollars):

                                                             1997      1996
                                                             ----      ----
     Revenues                                               $9,489    11,716
     Cost of revenues                                        7,697     9,300
                                                            ------    ------
         Gross profit                                        1,792     2,416

     Selling, general and administrative expenses,
      including allocated amounts                            2,208     3,602
                                                            ------    ------
     Operating loss                                           (416)   (1,186)
     Income tax benefit                                        147        --
     Interest expense, net                                    (136)      (72)
                                                            ------    ------
     Net loss from operations of waste
      management services segment                           $ (405)   (1,258)
                                                            ------    ------
                                                            ------    ------

     Operating results of the Company's oilfield services segment for the
nine-month periods ended September 30, 1997 and 1996, are as follows (in
thousands of dollars):

                                                             1997      1996
                                                             ----      ----
     Revenues                                               $  231     3,212
     Cost of revenues                                          168     2,401
                                                            ------    ------
         Gross profit                                           63       811
     Selling, general and administrative expenses,
      including allocated amounts                               63       987
     Other expenses                                             --        19
                                                            ------    ------
     Net loss from operations of oilfield services segment  $           (195)
                                                            ------    ------
                                                            ------    ------

     At September 30, 1997, 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 resulting in a gain of $556,000 
which is reflected in other income in continuing operations. 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.

(3)  ACCRUED EXPENSES

     At September 30, 1997 accrued expenses were comprised of the following:

        $  200,000    medical claims
           301,000    automobile, worker's compensation and general liability
                      claims
           858,000    miscellaneous accruals for legal and divestiture costs
        ----------
        $1,359,000
        ----------
        ----------

                                       8
<PAGE>

(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) COMMITMENTS AND CONTINGENCIES
                   
     LETTERS OF CREDIT. At September 30, 1997, letters of credit totaling 
approximately $1,000,000 had been provided by the Company to its insurance 
carrier in connection with its workers' compensation, general liability, and 
auto liability insurance policies.

     REGULATORY ENFORCEMENT ACTION AND LAWSUIT. In November l993, 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 the American Ecology Corporation ("AEC") and the Company was 
responsible for payment of the remaining $700,000. The Company paid all 
remaining amounts due during the quarter ended September 30, 1997.

     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 December 19, 
1997, five 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 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 five 
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 and 
agreed  to indemnify the purchaser, AEC, for any breaches  of  such 
representations and warranties. 

                                      9
<PAGE>

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; (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 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.

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<PAGE>

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 September 30, 1997, as well as the 
Company's operating results for the three-month and nine month periods ended 
September 30, 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 which have now been completed (see Note 2 of Notes to 
Consolidated Financial Statements).  Because of the 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.

     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 $2,354,000. 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.

     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 have been removed from the consolidated balance sheet as of June 
30, 1997. Such assets had a net book value (net of assumed liabilities) of 
approximately $14,965,060.

                                      11
<PAGE>

     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 incurred a net loss of approximately $405,000 during the 
period from January 1, 1997 until May 29, 1997, the date of closing on the 
sale, which was in excess of the amounts previously accrued. The majority of 
this loss was created by additional charges related to automobile liability 
insurance claims and medical claims which were not included in the accruals 
established at December 31, 1996. The Company's sale of its hydrocarbon 
recycling and recovery business is further described in the Company's 
Information Statement to its Shareholders dated May 9, 1997.

RESULTS OF OPERATIONS

     Comparisons of the 1996 and 1997 operations are not meaningful due to
the sale of substantially all of the operating assets of the Company during
1997.  Additional losses from discontinued operations occurred in the second
quarter of 1997 due to unexpected automobile liability insurance claims and
medical claims in the amount of $400,000. General and administrative costs
in the amount of $516,000 for the nine months ended September 30, 1997 have
been incurred that were not considered part of the cost of the discontinued
operations. In addition, a gain on the sale of USF shares in the amount of
$556,000 has been recorded through September 30, 1997 as all of the USF stock
has been sold.

CAPITAL RESOURCES AND LIQUIDITY

     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 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 initially deployed in short-term investments. General and
administrative expenses incurred for the nine month period ended September
30, 1997 were $516,000. The Company anticipates that ongoing general and
administrative expenses will be approximately $309,000 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 USF, 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, 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.

     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. The Company has no plans to conduct any kind of
operating business at any time in the future.

                                        12
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     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, 1996 and quarterly reports on form 10Q for the periods ended 
March 31, 1997 and June 30, 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


Exhibit
 Number     Description
 ------     -----------
   27       Financial Data Schedule (submitted only in electronic format)

REPORTS ON FORM 8-K

  None.

                                       13
<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: January 16, 1998
 
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