<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


         (Mark One)
           [X]      Quarterly Report Pursuant to Section 13 or 15(d) of the
                    Securities Exchange Act of 1934

                For the Quarterly Period Ended     May 31, 1998
                                               ---------------------

                                       OR

           [ ]    Transition Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934

                For the Transition Period From ____________ to ____________.

                         Commission File Number 0-18656
                                                -------

                             PONDER INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)


                 Delaware                               75-2268672
        (State or other jurisdiction of              (IRS Employer
       Incorporation or organization)              Identification No.)

                         5005 Riverway Drive, Suite 550
                              Houston, Texas 77056
               (Address of principal executive offices, zip code)

                                 (713) 965-0653
              (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes       X         No
      ---------          ---------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

             Class                         Outstanding at June 30, 1998
 ----------------------------              ----------------------------

 Common Stock, $.01 par value                        44,474,630



<PAGE>   2





                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                                      INDEX



<TABLE>
<CAPTION>
                                                                                                                  Page
                                                                                                                  ----
<S>                                                                                                                <C>
PART I              FINANCIAL INFORMATION (Unaudited)

Item 1:             Condensed Consolidated Balance Sheets as of May 31, 1998, and 
                         August 31, 1997                                                                            3

                    Condensed Consolidated Statements of Operations for the Three 
                         Months and Nine Months Ended May 31, 1998 and 1997                                         5

                    Condensed Consolidated Statements of Cash Flows for the Nine 
                         Months Ended May 31, 1998 and 1997                                                         6

                    Notes to Condensed Consolidated Financial Statements                                            8

Item 2:             Management's Discussion and Analysis of Financial Condition and 
                         Results of Operations                                                                     11

PART II             OTHER INFORMATION

Item 1:             Legal Proceedings                                                                              16

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                                                                              17

Item 6:             Exhibits and Reports on Form 8-K                                                               17
</TABLE>




                                      -2-
<PAGE>   3




                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                      CONDENSED CONSOLIDATED BALANCE SHEETS

                    (In Thousands, Except Share Information)



<TABLE>
<CAPTION>
                                                                 May 31,    August 31,
                                         ASSETS                   1998         1997
                                                                --------     --------
                                                               (Unaudited)
<S>                                                             <C>          <C>     
CURRENT ASSETS:
   Cash and cash equivalents                                    $    362     $      4
   Receivables, net                                                5,173        4,134
   Parts and supplies                                              5,319        2,622
   Available for sale securities                                     720          800
   Prepaid expenses and other                                        338           46
                                                                --------     --------

                                  Total current assets            11,912        7,606
                                                                --------     --------

PROPERTY AND EQUIPMENT                                            38,054       31,383
   Less - Accumulated depreciation and amortization              (16,119)     (14,278)
                                                                --------     --------

                                                                  21,935       17,105
                                                                --------     --------

OTHER ASSETS                                                         325          122

DEFERRED ASSETS, net                                                  56          423

GOODWILL, net                                                      1,300        1,361
                                                                --------     --------

                                                                   1,681        1,906
                                                                --------     --------

TOTAL ASSETS                                                    $ 35,528     $ 26,617
                                                                ========     ========
</TABLE>



              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.



                                      -3-
<PAGE>   4






                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                      CONDENSED CONSOLIDATED BALANCE SHEETS

                    (In Thousands, Except Share Information)



<TABLE>
<CAPTION>
                                                                                    May 31,      August 31,
                          LIABILITIES AND STOCKHOLDERS' EQUITY                       1998           1997
                                                                                    --------     --------
                                                                                   (Unaudited)
<S>                                                                                 <C>          <C>     
CURRENT LIABILITIES:
   Current maturities of long-term debt                                             $  3,643     $  1,899
   Accounts and notes payable, trade                                                   4,011        5,562
   Accrued liabilities and other                                                       1,484        2,203
                                                                                    --------     --------

                             Total current liabilities                                 9,138        9,664
                                                                                    --------     --------

LONG-TERM DEBT, less current maturities                                                5,342        7,458
                                                                                    --------     --------

OTHER LONG-TERM LIABILITIES                                                               26          765
                                                                                    --------     --------

DEFERRED TAXES PAYABLE                                                                   893          881
                                                                                    --------     --------

CONVERTIBLE DEBENTURES                                                                  --          6,380
                                                                                    --------     --------
COMMITMENTS AND CONTINGENCIES (Note 3)

STOCKHOLDERS' EQUITY:
   Common stock, $.01 par value, authorized 150,000,000 shares and 50,000,000
     shares, issued and outstanding 44,474,630 shares and 17,571,021 shares at
     May 31, 1998, and August 31, 1997, respectively                                     445          176
   Additional paid-in capital                                                         46,410       25,307
   Cumulative foreign currency translation adjustment                                    114           49
   Accumulated deficit                                                               (26,394)     (23,696)
   Note receivable for common stock                                                      (66)         (66)
   Deferred compensation                                                                --             (1)
   Unrealized loss on available for sale securities                                     (380)        (300)
                                                                                    --------     --------

                             Total stockholders' equity                               20,129        1,469
                                                                                    --------     --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $ 35,528     $ 26,617
                                                                                    ========     ========
</TABLE>



              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.



                                      -4-
<PAGE>   5


                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (Unaudited)

                  (In Thousands, Except Per Share Information)


<TABLE>
<CAPTION>
                                                              Three Months                       Nine Months
                                                               Ended May 31                     Ended May 31
                                                      -----------------------------     -----------------------------
                                                          1998             1997             1998              1997
                                                      ------------     ------------     ------------     ------------

<S>                                                   <C>              <C>              <C>              <C>         
TOOL RENTALS                                          $      4,530     $      4,280     $     13,024     $     13,048

SALES OF TOOLS AND PARTS                                     1,042            1,334            2,625            2,955
                                                      ------------     ------------     ------------     ------------

                  Tool rentals and sales                     5,572            5,614           15,649           16,003
                                                      ------------     ------------     ------------     ------------

COST OF TOOL RENTALS                                         2,192            1,610            5,385            5,338

COST OF TOOLS AND PARTS SOLD                                   294              771              986            1,522
                                                      ------------     ------------     ------------     ------------

                  Costs of service and sales                 2,486            2,381            6,371            6,860
                                                      ------------     ------------     ------------     ------------

                  Gross profit                               3,086            3,233            9,278            9,143
                                                      ------------     ------------     ------------     ------------

EXPENSES:
   Operating                                                 3,018            3,382            7,917            8,523
   General and administrative                                1,028            1,149            2,788            3,999
                                                      ------------     ------------     ------------     ------------

                                                             4,046            4,531           10,705           12,522
                                                      ------------     ------------     ------------     ------------

                  Operating income (loss)                     (960)          (1,298)          (1,427)          (3,379)

OTHER INCOME (EXPENSE):
   Interest, net                                              (360)            (707)          (1,273)          (1,626)
   Gain (loss) on disposal of assets                            (5)            (103)             (52)             (55)
   Other                                                        12               (3)              54               15
                                                      ------------     ------------     ------------     ------------

NET INCOME (LOSS)                                     $     (1,313)    $     (2,111)    $     (2,698)    $     (5,045)
                                                      ============     ============     ============     ============

BASIC AND DILUTED LOSS PER SHARE                      $       (.03)    $       (.16)    $       (.08)    $       (.40)
                                                      ============     ============     ============     ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                                        44,406,144       13,427,304       35,242,418       12,674,559
                                                      ============     ============     ============     ============
</TABLE>



              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.



                                      -5-
<PAGE>   6



                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (Unaudited)

                                 (In Thousands)



<TABLE>
<CAPTION>
                                                                                           Nine Months
                                                                                           Ended May 31
                                                                                    -------------------------
                                                                                       1998           1997
                                                                                    ----------     ----------
<S>                                                                                 <C>            <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                         $   (2,698)    $   (5,045)
   Adjustments to reconcile net loss to net cash used in operating activities-
     Depreciation and amortization                                                       1,821          1,247
     Allowance for doubtful accounts                                                      --              195
     (Gain) loss on disposal of assets                                                      52             55
     Deferred compensation expense                                                           1             98
     Noncash interest expense                                                               48            740
     Accrued severance agreement                                                          --              409
     Accrued operating lease expense on closed stores                                     --               84
   Net change in operating assets and liabilities-
     Receivables                                                                           486         (1,527)
     Parts and supplies                                                                   (451)          (523)
     Prepaid expenses and other                                                           (262)           395
     Accounts and notes payable, trade                                                  (1,801)         2,755
     Accrued liabilities and other                                                        (937)          (865)
                                                                                    ----------     ----------

                         Net cash used in operating activities                          (3,741)        (1,982)
                                                                                    ----------     ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                                  (1,638)        (3,848)
   Acquisition of businesses, net of cash acquired                                      (7,567)          --
   Proceeds from asset sales                                                               239            205
   Investment in joint venture                                                            --             (215)
                                                                                    ----------     ----------

                         Net cash used in investing activities                          (8,966)        (3,858)
                                                                                    ----------     ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt                                                (13,987)       (13,446)
   Proceeds from long-term debt borrowings                                              13,552         18,035
   Sale of common stock                                                                 11,000            905
   Proceeds from Senior Convertible Notes                                                2,500           --
                                                                                    ----------     ----------

                         Net cash provided by financing activities                      13,065          5,494
                                                                                    ----------     ----------

CASH AND CASH EQUIVALENTS:
   Increase (decrease)                                                                     358           (346)
   Beginning of period                                                                       4            398
                                                                                    ----------     ----------

   End of period                                                                    $      362     $       52
                                                                                    ==========     ==========
</TABLE>





                                      -6-
<PAGE>   7
<TABLE>
<CAPTION>
                                                                                      Nine Months
                                                                                      Ended May 31
                                                                               --------------------------
                                                                                  1998           1997
                                                                               -----------    -----------
<S>                                                                            <C>            <C>        
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the period for-
     Interest                                                                  $     1,139    $       881
                                                                               ===========    ===========

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
     Common stock issued in connection with debenture conversions              $     6,713    $     1,236
                                                                               ===========    ===========

     Common stock issued in connection with conversion of Senior Notes         $     2,298    $      --
                                                                               ===========    ===========

     Common stock contributed to 401(k) plan                                   $       214    $      --
                                                                               ===========    ===========

     Assets acquired in connection with acquisitions                           $     2,470    $       845
                                                                               ===========    ===========

     Liabilities assumed in connection with acquisitions                       $     1,470    $       845
                                                                               ===========    ===========

     Common stock issued in connection with acquisitions                       $     1,000    $      --
                                                                               ===========    ===========

     Asset contributed in connection with joint venture                        $      --      $       195
                                                                               ===========    ===========

     Capital lease obligation incurred                                         $      --      $       136
                                                                               ===========    ===========
</TABLE>



              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.



                                      -7-
<PAGE>   8


                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

                    (In Thousands, Except Share Information)



1.   BASIS OF PRESENTATION:

The condensed consolidated financial statements included herein have been
prepared by Ponder Industries, Inc., and subsidiaries (collectively referred to
as the Company), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. However, all adjustments have been made to
the accompanying financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the periods covered. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented herein not misleading. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K.

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 replaces the presentation of Primary Earnings Per Share
(EPS) with Basic EPS and requires dual presentation of Basic and Diluted EPS on
the face of the consolidated statements of operations. Basic EPS excludes
dilution and is computed by dividing income (loss) available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. SFAS No. 128 is effective for financial
statements issued after December 15, 1997, and, accordingly, the accompanying
financial statements reflect the adoption of SFAS No. 128. As the Company had a
net loss for the three months and nine months ended May 31, 1998 and 1997,
Diluted EPS equals Basic EPS as potentially dilutive common stock equivalents
are antidilutive in loss periods. Prior period EPS data has been restated as
required by SFAS No. 128.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Certain reclassifications have been made to prior period balances to conform
with current period presentation.

2. LONG-TERM DEBT:

See Note 4 for a description of Senior Convertible Notes placed in October 1997.




                                      -8-
<PAGE>   9


                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At August 31, 1997, the Company had borrowed approximately $7,300 under a
$10,000 financing agreement with KBK Financial, Inc. (KBK). In January 1998, the
Company voluntarily repaid approximately $1.5 million of the borrowings under
this financing agreement with a portion of the proceeds from the $11,000 equity
placement described in Note 4. The financing agreement requires compliance with
various financial covenants. As a result of continued losses, the Company was
not in compliance with certain covenants at August 31, 1997. In January 1998,
the Company and KBK amended certain of the covenants governing the financing
agreement which has allowed the Company to classify a substantial portion of the
indebtedness due this financial institution as long-term at August 31, 1997. The
amended covenants provide that the Company must maintain a debt service coverage
ratio, as defined and amended, of not less than 1.0 to 1.0 as of the fiscal
quarter ended February 28, 1998, and 1.25 to 1.0 as of the end of each fiscal
quarter thereafter. The debt service coverage ratio requirement for the quarter
ended November 30, 1997, was waived. The Company must also maintain a tangible
net worth, as defined and amended, of not less than $8,500 as of the fiscal
quarter ended November 30, 1997, and $18,000 as of the end of each fiscal
quarter thereafter. For the fiscal quarters ended February 28, 1998, and May 31,
1998, the Company did not achieve the required minimum debt service coverage
ratio. The Company has received a waiver of the debt service coverage ratio
requirements for the quarters ended February 28, 1998, and May 31, 1998.
Management believes that the Company will be able to maintain compliance with
the amended covenants. However, if the Company is unable to comply with such
requirements in the future, the Company could be found to be in technical
default under the financing arrangement. If the Company is found to be in
default and is unable to obtain further waivers or amendments, the lender would
have the right to demand immediate repayment of the entire amount outstanding.
There are no assurances that the Company will be able to maintain compliance
with the amended covenants or would be able to obtain further modifications or
waivers to the covenants governing the financing agreement. See Note 6 for a
discussion of amendments made to the Company's term note payable to KBK
subsequent to May 31, 1998.

3.   CONTINGENCIES:

In 1996, the Company sued its placement agent and its principal and related
entities (the placement agent) in the Company's 1996 convertible debenture
offering and the debenture holders in the United States District Court for the
Western District of New York. In mid-1997, the Company settled with all of the
debenture holders, and the judge ordered the case against the placement agent
transferred to the United States District Court for the Northern District of
Georgia. In response, in September 1997, a case was filed against the Company in
Georgia State Court, which the Company removed to the United States District
Court for the Northern District of Georgia, Atlanta Division, by the placement
agent alleging that, in connection with such offering, the Company tortiously
interfered with its business relationships, breached a Proprietary Information,
Non-Circumvention and Indemnification Agreement between the Company and the
placement agent, defamed the placement agent and engaged in conduct giving rise
to an indemnification in favor of the placement agent. The federal court
consolidated the two lawsuits, and on May 8, 1998, pursuant to a mutual release
and settlement agreement between the Company and the placement agent, dismissed
with prejudice all of the claims and counterclaims in the two lawsuits. Under
the terms of the settlement agreement, the consideration given by each of the
Company and the placement agent was the release of its claims against the other,
and no cash or other consideration was paid by either party.

The Company is also a party to additional claims and legal proceedings arising
in the ordinary course of business. The Company believes it is unlikely that the
final outcome of any of the claims or proceedings to which the Company is a
party, including those described above, would have a material adverse effect on
the Company's financial statements; however, due to the inherent uncertainty of
litigation, the range of possible loss, if any, cannot be estimated with a
reasonable degree of precision and there can be no assurance that the resolution
of any particular claim or proceeding would not have an adverse effect on the
Company's results of operations for the interim period in which such resolution
occurred.



                                      -9-
<PAGE>   10


                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4.   EQUITY TRANSACTIONS:

In September 1997, the Company reached a settlement with those convertible
debenture holders who had not previously converted their debentures. During the
three months ended November 30, 1997, approximately $7,060 of convertible
debentures, including accrued interest, were converted into 10,633,333 shares of
the Company's common stock. The conversion of the debentures increased the
Company's equity by approximately $6,700. The Company also issued to such
debenture holders five-year warrants to purchase 957,000 shares of the Company's
common stock at $1 per share.

In October 1997, the Company completed a private placement of $2,500 Senior
Convertible Notes (Senior Notes) and warrants to purchase 4 million shares of
the Company's common stock at a purchase price of $.625 per share. The warrants
expire on January 1, 2001. In January 1998, the Senior Notes were converted into
4 million shares of the Company's common stock concurrent with the equity
placement described below.

In January 1998, the Company completed an equity placement with affiliates of
the purchasers of the Senior Notes described above. The equity placement
consisted of the sale of 11 million shares of the Company's common stock at $1
per share.

In May 1998, shareholders of the Company approved amending the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock from 50,000,000 to 150,000,000 and authorized 10,000,000 shares of
preferred stock.

5.   ACQUISITION:

In January 1998, the Company acquired all of the outstanding stock of Fishing
Tools, Inc. (FTI), for $6,500 cash and the issuance of approximately 645,000
shares of the Company's common stock valued at $1,000. The cash consideration
was provided through the equity placement described in Note 4. The results of
operations of FTI have been included in the consolidated statements of
operations since January 12, 1998. The FTI acquisition was recorded using the
purchase method of accounting. The following unaudited pro forma information has
been prepared assuming that the FTI acquisition had taken place on September 1,
1997. The unaudited pro forma information includes adjustments to reflect the
effect on depreciation expense of recording the fair value of property and
equipment acquired in the FTI acquisition for the nine months ended May 31, 1998
(unaudited):

<TABLE>
<S>                                            <C>      
Sales                                          $  17,540

Cost of sales                                      7,990
                                               ---------
Gross profit                                   $   9,550
                                               =========

Net loss                                       $  (2,974)
                                               =========

Net loss per share                             $    (.08)
                                               =========
</TABLE>

The unaudited pro forma information is not necessarily indicative of the results
that would have occurred had the FTI acquisition actually taken place on
September 1, 1997, nor does such information purport to project the results of
operations for any future date or period.

6.   SUBSEQUENT EVENT:

In June 1998, the Company increased from $3,500 to $4,000 its term note payable
to KBK. The amended note payable now requires monthly principal and interest
payments of $98 commencing July 1998 through May 2002 with a final payment of
all principal and interest due in June 2002.



                                      -10-
<PAGE>   11


                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This Quarterly Report on Form 10-Q contains certain "forward-looking" statements
as such term is defined in the Private Securities Litigation Reform Act of 1995
and information relating to Ponder Industries, Inc. (the Company), and its
subsidiaries that are based on the beliefs of the Company's management as well
as assumptions made by and information currently available to the Company's
management. When used in this report, the words "anticipate," "believe,"
"estimate," "expect" and "intend" and words or phrases of similar import, as
they relate to the Company or its subsidiaries or Company management, are
intended to identify forward-looking statements. Such statements reflect the
current risks, uncertainties and assumptions related to certain factors
including, without limitations, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, seasonality, distribution
networks, product introductions and acceptance, technological change, changes in
industry practices, one-time events and other factors described herein and in
the Company's other filings with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.

The following discussion is included to describe the Company's financial
position and results of operations for the three-month and nine-month periods
ended May 31, 1998 and 1997. The condensed consolidated financial statements and
notes thereto contain detailed information that should be referred to in
conjunction with this discussion.

BUSINESS REVIEW

Ponder is an international oil field service and rental tool company that
specializes in the use of fishing tools for the recovery of unwanted
obstructions in oil and gas wells. The Company also rents specialized oil field
equipment such as pressure control equipment, tools, pipe, tubing and whipstocks
used in the drilling, completion and workover of wells. Ponder currently has 20
locations domestically and 2 international locations serving the North Sea area.

Demand for the Company's services and rentals depends primarily on the number of
oil and gas wells being drilled, the depth and drilling conditions of such wells
and the level of workover activity. Drilling and workover activity is largely
dependent on the prices for oil and natural gas. Worldwide demand for oil and
natural gas allowed for higher prices in 1997 and 1996 than the average prices
for the past several years. During 1997 and 1996, world oil prices ranged in the
mid to near $20s per barrel while natural gas ranged from approximately $2.00 to
as high as $3.50 per thousand cubic feet. During early 1998, oil prices began to
decline significantly; dropping from near $20 to below $10 per barrel for
certain posted prices. Natural gas prices have maintained an acceptable price
level to support industry activity. The Company is unable to predict the
duration of such price declines or the impact that such declines may have on the
Company's future results of operations.




                                      -11-
<PAGE>   12



                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


LIQUIDITY AND CAPITAL RESOURCES

In April 1996, the Company raised approximately $10 million, net of fees, by
issuing 8 percent convertible debentures. In August 1996, a case was filed in
U.S. District Court alleging that the Company breached an obligation to convert
certain of the debentures. In September 1997, the Company reached a settlement
whereby those convertible debenture holders who had not previously converted
their debentures with the Company agreed to convert the then outstanding
debenture debt of approximately $7,060,000, including accrued interest, into
10,633,333 shares of the Company's common stock. The conversion of the
debentures increased the Company's equity by approximately $6.7 million.

In November 1996, the Company completed a $10 million financing agreement with
KBK Financial, Inc. (KBK). The agreement includes a $4 million Revolving
Receivable Facility, a $2.5 million Revolving Credit Note and a $3.5 million
Term Note (the Notes). The Receivable Facility is a two-year facility that is
based on accounts receivable and will be utilized for short-term liquidity
needs. The $2.5 million Revolving Credit Note is a five-year facility, based on
inventory and equipment, and these funds were used to acquire capital assets to
expand the Company's business. The $3.5 million Term Note is a five and one-half
year note with payments of interest only through May 1997 and amortizes over the
remaining five years, collateralized by equipment. In June 1998, the Company
increased from $3.5 million to $4.0 million the Term Note payable to KBK. The
Term Note, as amended, requires monthly principal and interest payments of
$98,000 commencing July 1998 with a final payment of all principal and interest
due in June 2002. The proceeds from the note were used to pay off existing bank
debt of approximately $3 million with the balance being used to fund operations
and acquire capital equipment. At May 31, 1998, and August 31, 1997, the Company
had borrowed approximately $7.3 million and $7.3 million, respectively, under
the Notes. The Notes require compliance with various covenants, including the
maintenance of a defined debt service coverage ratio and a defined tangible net
worth. As a result of continued losses primarily related to the Company's
expansion program, the Company was in technical default of the Notes at August
31, 1997. In January 1998, the Company and KBK amended certain of the covenants
governing the Notes which allowed the Company to classify a substantial portion
of the indebtedness due KBK as long term at August 31, 1997. The amendments were
based on the Company's estimates of its level of operations supported by oil
prices in the $18 to $20 per barrel range. Declines in oil prices to the $13 to
$14 per barrel range, inclement weather and a decline in rig activity resulted
in operations below the Company's expectations for the quarters ended February
28, 1998, and May 31, 1998. As a result, the Company did not achieve a required
minimum debt service coverage ratio for the fiscal quarters ended February 28,
1998, and May 31, 1998. The Company has received a waiver of the debt service
coverage ratio requirements for the quarters ended February 28, 1998, and May
31, 1998. Management believes that the Company will be able to maintain
compliance with the amended covenants. However, if the Company is unable to
comply with such requirements in the future, the Company could be found to be in
technical default under the financing arrangement. If the Company is found to be
in default and is unable to obtain further waivers or amendments, the lender
would have the right to demand immediate repayment of the entire amount
outstanding. There are no assurances that the Company will be able to maintain
compliance with the amended covenants or would be able to obtain further
modifications or waivers to the covenants governing the financing agreement. See
Note 2 of notes to condensed consolidated financial statements.

A $2,500,000 bridge loan (the "Bridge Loan") was obtained in October 1997 from
White Owl Capital Partners (White Owl) and certain others with the intention of
providing additional capital for acquisitions and expansion of the Company's
business.




                                      -12-
<PAGE>   13


                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


The Company, in January 1998, acquired all of the outstanding capital stock of
Fishing Tools, Inc. (FTI), for $6,500,000 cash and the issuance of approximately
645,000 shares of the Company's common stock valued at $1,000,000. The Company
also paid approximately $800,000 of indebtedness of FTI. FTI has historically
been a profitable company with positive cash flow. FTI has significant offshore
operations which are less effected by temporary oil price fluctuations and the
acquisition has had a positive impact on the Company's operations. The cash
consideration for the acquisition was provided through an equity placement with
affiliates of White Owl. The equity placement consisted of the sale of 11
million shares of the Company's common stock at $1 per share. Concurrent with
this equity placement, the Bridge Loan was converted into 4 million shares of
the Company's common stock. These transactions, partially offset by a loss of
approximately $2.7 million for the nine months ended May 31, 1998, have
increased the Company's equity to approximately $20 million and provided
stronger liquidity ratios. See Note 4 of notes to condensed consolidated
financial statements.

At May 31, 1998, and August 31, 1997, the Company had working capital (deficit)
of approximately $2.8 million and $(2.1) million, respectively. The current
ratio was approximately 1.30 to 1.0 at May 31, 1998, compared to .79 to 1.0 at
August 31, 1997. The Company's total debt (assuming conversion of the
convertible debentures at August 31, 1997) as a percent of total capitalization
was 31 percent at May 31, 1998, compared to 53 percent at August 31, 1997.

The Company is currently discussing potential debt refinancings with its present
lender and another potential lender to increase its available facilities and
decrease interest rates. If the Company were to refinance its current Notes with
another lender, it is anticipated that an extraordinary loss of approximately
$240,000 would be recognized associated with a prepayment penalty. While
management believes that it will be able to increase the Company's debt
facilities and reduce its interest rates, there are no assurances that the
Company will be able to refinance its current indebtedness nor that it will be
able to obtain an increase in available facilities or achieve a reduction in
interest rates.

In May 1998, the Company continued its cost reduction plan in its efforts to
position the Company to achieve profitable operations. The Company closed one
operating location and has made selected sales and operating personnel
reductions. The cost reductions will be realized during the fourth quarter of
1998.

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS
ENDED MAY 31, 1998 AND 1997

A net loss of $1,313,000, or $.03 per share, was recorded for the three months
ended May 31, 1998, as compared to a net loss of $2,111,000, or $.16 per share,
for the same period of the prior year.

Revenues were approximately $5.6 million for the three months ended May 31, 1998
and 1997. For the three months ended May 31, 1998, revenues relating to the
Company's acquisition of Fishing Tools, Inc. (FTI), effective January 12, 1998,
were approximately $1.4 million while a reduction in crude oil prices and
decreased drilling and workover activity contributed to a similar decrease from
the Company's existing onshore operations. Cost of service and sales increased
$105,000, or 4 percent, to $2,486,000 for the three months ended May 31, 1998,
as compared to $2,381,000 for the same period of the prior year. The net
increase


                                      -13-
<PAGE>   14


                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


of $105,000 resulted from $577,000 attributable to expenses of FTI operations
partially offset by a decrease of $472,000, or 20 percent, from the Company's
existing onshore operations. Operating expenses decreased $364,000, or 11
percent, to $3,018,000 from $3,382,000 for the same period of the prior year.
The FTI operations resulted in operating expenses of $711,000 for the most
recent quarter while the Company's cost reduction efforts decreased operating
expenses by $1,075,000, or 32 percent, for its existing locations as compared to
the prior year quarter. The Company's gross profit margin was 55 percent for the
three months ended May 31, 1998, as compared to 58 percent for the same period
of the prior year. Operating expenses, as a percentage of sales, were 54 percent
for the three months ended May 31, 1998, as compared to 60 percent for the same
period of the prior year.

General and administrative expenses decreased $121,000, or 11 percent, to
$1,028,000 for the three months ended May 31, 1998, as compared to $1,149,000
for the same period of the prior year. In April 1997, the Company commenced a
major cost reduction program which included a reduction in administrative
personnel and related expenses, the sale of certain nonproductive equipment to
reduce debt, resolving the litigation involving its convertible debenture
holders and substantially reducing other general and administrative expenses.

Interest expense, net, decreased $347,000 to $360,000 for the three months ended
May 31, 1998, as compared to $707,000 for the same period of the prior year. The
decrease is due primarily to a savings of noncash interest and debt issue cost
amortization expense of approximately $264,000 related to the Company's
convertible debentures outstanding during the three months ended May 31, 1997,
which were converted into shares of the Company's common stock in September 1997
as previously discussed.

COMPARISON OF THE NINE MONTHS
ENDED MAY 31, 1998 AND 1997

A net loss of $2,698,000, or $.08 per share, was recorded for the nine months
ended May 31, 1998, as compared to a net loss of $5,045,000, or $.40 per share,
for the same period of the prior year.

Revenues were approximately $15.6 million and $16.0 million for the nine months
ended May 31, 1998 and 1997, respectively. For the most recent nine-month
period, the FTI acquisition, effective January 12, 1998, resulted in revenues of
$1.7 million while the Company's existing onshore operations decreased
approximately $2.0 million as a result of decreased oil prices and a reduction
in drilling and workover activity. Costs of service and sales decreased
$489,000, or 7 percent, to $6,371,000 for the nine months ended May 31, 1998,
from $6,860,000 for the same period of the prior year and operating expenses
decreased $606,000, or 7 percent, to $7,917,000 from $8,523,000. Costs of
service and sales and operating expenses attributable to the FTI acquisition
were $866,000 and $838,000, respectively, for the nine-month period ended May
31, 1998. The Company's cost reduction effort resulted in a cost of service and
sales reduction of approximately $1.4 million, or 20 percent, and a reduction in
operating expenses of approximately $1.4 million, or 17 percent, as compared to
the previous nine-month period. The Company's gross profit margin was 59 percent
for the nine months ended May 31, 1998, as compared to 57 percent for the same
period of the prior year. Operating expenses, as a percentage of sales, were 51
percent for the nine months ended May 31, 1998, as compared to 53 percent for
the same period of the prior year.




                                      -14-
<PAGE>   15




                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                      MANAGEMENT'S DISCUSSION AND ANALYSIS

          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



General and administrative expenses decreased $1,211,000, or 30 percent, to
$2,788,000 for the nine months ended May 31, 1998, as compared to $3,999,000 for
the same period of the prior year. In April 1997, the Company commenced a major
cost reduction program which included a reduction in administrative personnel
and related expenses, the sale of certain nonproductive equipment to reduce
debt, resolving the litigation involving its convertible debenture holders and
substantially reducing other general and administrative expenses.

Interest expense, net, decreased $353,000 to $1,273,000 for the nine months
ended May 31, 1998, as compared to $1,626,000 for the same period of the prior
year. This is due primarily to a savings of noncash interest and debt issue cost
amortization expense of approximately $740,000 related to the Company's
convertible debentures outstanding during the nine months ended May 31, 1997,
which were converted into shares of the Company's common stock in September 1997
as previously discussed, partially offset by an increase in average indebtedness
outstanding during the nine months ended May 31, 1998.

YEAR 2000 COMPLIANCE

The efficient operation of the Company's business is dependent on its computer
software programs and operating systems (collectively, "Programs and Systems").
These Programs and Systems are used in several key areas of the Company's
business, including information management services and financial reporting, as
well as in various administrative functions. The Company has been evaluating its
Programs and Systems to identify potential year 2000 compliance problems, as
well as manual processes, external interfaces with customers and services
supplied by vendors to coordinate year 2000 compliance and conversion. The year
2000 problem refers to the limitations of the programming code in certain
existing software programs to recognize date sensitive information for the year
2000 and beyond. Unless modified prior to the year 2000, such systems may not
properly recognize such information and could generate erroneous data or cause a
system to fail to operate properly.

Based on current information, the Company expects to attain year 2000 compliance
and institute appropriate testing of its modifications and replacements in a
timely fashion and in advance of the year 2000 date change. It is anticipated
that modification or replacement of the Company's Programs and Systems will be
performed by Company and contract personnel. The Company believes that, with
modifications to existing software and conversions to new software, the year
2000 problem will not pose a significant operational problem for the Company.
However, because most computer systems are, by their very nature,
interdependent, it is possible that noncompliant third-party computers may not
interface properly with the Company's computer systems. The Company could be
adversely affected by the year 2000 problem if it or unrelated parties fail to
successfully address this issue. Management of the Company currently anticipates
that the expenses and capital expenditures associated with its year 2000
compliance project will not have a material effect on its financial position or
results of operations.




                                      -15-
<PAGE>   16



                    PONDER INDUSTRIES, INC., AND SUBSIDIARIES


                           PART II - OTHER INFORMATION



Item 1.    Legal Proceedings - For a discussion of material developments in 
           material legal proceedings involving the Company, see Note 3 of the
           notes to condensed consolidated financial statements included herein.

Item 2.    Changes in Securities

           (a) Not applicable.

           (b) Not applicable.

           (c) Not applicable.

Item 3.    Defaults Upon Senior Securities

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

           The annual meeting of stockholders of the Company was held on
           Tuesday, May 12, 1998. The proposals and the results are listed
           below:

           Proposal No. 1    To elect eight directors to serve until the
                             next annual meeting and until their respective
                             successors shall be duly elected and qualified;

           Proposal No. 2    Proposal to amend the Certificate of
                             Incorporation of the Company to increase the number
                             of authorized shares of the Company's Common Stock
                             from 50,000,000 shares to 150,000,000 shares;

           Proposal No. 3    Proposal to amend the Certificate of
                             Incorporation of the Company to authorize
                             10,000,000 shares of Preferred Stock;

           Proposal No. 4    Proposal to amend the Certificate of
                             Incorporation of the Company to provide for the
                             limitation of liability of the directors of the
                             Company to the fullest extent permitted by the
                             Delaware General Corporation Law; and

           Proposal No. 5    To ratify the appointment of Arthur Andersen
                             LLP as independent public accountants for the
                             Company for the fiscal year ending August 31, 1998.




                                      -16-
<PAGE>   17


The following persons were nominated for election as directors of the Company
and all nominees were elected. The shares voted for, and those withheld from,
each nominee are set forth below opposite each nominee's name:

<TABLE>
<CAPTION>

               Director Nominees                    Shares Voted For       Shares Withheld
               -----------------                    ----------------       ---------------

<S>                                                    <C>                     <C>    
Eugene L. Butler                                       39,737,457              132,340

Rittie W. Milliman, Sr.                                39,415,209              454,588

Frank J. Wall                                          39,737,457              132,340

John M. LeSeelleur                                     39,737,457              132,340

John Roane                                             39,737,457              132,340

Joe R. Nemec                                           39,734,957              134,840

Steven A. Webster                                      39,737,457              132,340

William R. Ziegler                                     39,731,180              138,617
</TABLE>


<TABLE>
<CAPTION>
   Proposal           For         Against       Abstain       Broker Nonvote      Results
   --------           ---         -------       -------       --------------      -------

    <S>           <C>              <C>           <C>             <C>               <C>
    No. 2         37,756,630       925,427       59,321          1,128,419         Passed
    
    No. 3         22,565,601     1,221,180       76,805         16,006,211         Passed
    
    No. 4         38,764,536       998,351      106,910                 --         Passed
    
    No. 5         39,647,290       160,242       62,265                 --         Passed
</TABLE>



Item 5.    Other Information - None

Item 6.    Exhibits and Reports on Form 8-K

           (a)    Exhibits

                  *11      Computation of Earnings (Loss) Per Share.

                  *27      Financial Data Schedule.

           (b)    Reports on Form 8-K

                  None



---------------
*    Filed herewith




                                      -17-
<PAGE>   18



                                   SIGNATURES



         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                             PONDER INDUSTRIES, INC.




                                             By   /s/ Eugene L. Butler
                                                  ------------------------------
                                                      Eugene L. Butler
                                                      President, Chief Executive
                                                      Officer and Chairman of
                                                      the Board of Directors




                                             By   /s/ Gerald A. Slaughter
                                                  ------------------------------
                                                      Gerald A. Slaughter
                                                      Senior Vice President and
                                                      Chief Financial Officer



Dated:     July 15, 1998





<PAGE>   19

                                 EXHIBIT INDEX


           (a)    Exhibits

                  *11      Computation of Earnings (Loss) Per Share.

                  *27      Financial Data Schedule.

           (b)    Reports on Form 8-K

                  None



---------------
*    Filed herewith