3DX TECHNOLOGIES INC, 10-K/A, 1997-04-30

3DX TECHNOLOGIES INC
10-K/A, 1997-04-30
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(AMENDMENT NO. 1)

For Annual and Transition Reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

COMMISSION FILE NO. 0-21841

3DX TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

DELAWARE 76-0386601
(State of Incorporation) (IRS Employer Identification Number)

12012 WICKCHESTER, SUITE 250, HOUSTON, TEXAS 77079
(Address of principal executive office) ( Zip Code)

Registrant's telephone number, including area code: (281) 579-3398

Securities registered pursuant to Section 12(b) of the Exchange Act:
(None)

Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
(TITLE OF CLASS)

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 by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the common stock held by non-affiliates of the
registrant (treating all executive officers and directors of the registrant and
their respective affiliates, for this purpose, as if they may be affiliates of
the registrant) was approximately $36,000,000 on April 29, 1997 based upon the
closing sale price of the Common Stock on such date of $8 3/4 per share on the
NASDAQ National Market as reported by The Wall Street Journal.

As of April 29, 1997, the registrant had 7,216,177 shares of common stock
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None
<PAGE>

PART III

The information required by Part III (Items 10, 11, 12 and 13) of the
undersigned Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Annual Report"), filed pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), was to
be incorporated by reference to the definitive Proxy Statement for the 1997
Annual Meeting of Stockholders of the Company, which Proxy Statement was to be
filed pursuant to Regulation 14A under the Exchange Act within 120 days
following the end of the Company's fiscal year as permitted under General
Instruction G of Form 10-K ("Instruction G"). However, the definitive Proxy
Statement will not have been filed within such period. Accordingly, pursuant to
Instruction G, the Company hereby amends Items 10, 11, 12 and 13 of the Annual
Report as follows:

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

Listed below are the directors of the Company, their ages, a brief description
of their business backgrounds and the year that they first became a director of
the Company.

NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- - ---- --- -------------------- --------------
<S> <C> <C> <C>
Jon W. Bayless (1)......... 57 Chairman of the Board of the 1993
Company and general partner
of Sevin Rosen Funds

C. Eugene Ennis............ 53 President and Chief Executive 1992
Officer of the Company

Robert H. Chaney (1)....... 37 Chairman and Chief Executive 1993
Officer of R. Chaney & Co.,
Inc.

Charles E. Edwards (2)..... 71 Petroleum technology 1995
consultant and geophysicist

Douglas C. Williamson (2).. 46 Managing Director, (Dallas) 1995
Venture Capital Group,
NationsBanc Capital
Corporation
</TABLE>
- - -----------

(1) Member of the Company's Compensation Committee.

(2) Member of the Company's Audit Committee.

Jon W. Bayless. Mr. Bayless has been Chairman of the Board of the Company
since October 1996 and a Director since November 1993. Since 1983, Mr. Bayless
has been a general partner of Sevin Rosen Funds, a venture capital investment
firm. Mr. Bayless is also the controlling stockholder and sole director of Jon
W. Bayless, Inc., the general partner of Atlantic Partners L.P., which is the
general partner of Citi Growth Fund L.P., a venture capital investment firm, and
serves as a director of a number of privately held companies. Mr. Bayless
currently serves as Chairman of the Board of Directors of Ciena Corporation. Mr.
Bayless is also Chairman of the Board of Directors of Shared Resource Exchange,
Inc. Shared Resource Exchange, Inc. filed for reorganization under Chapter 11 of
the Federal Bankruptcy Code in August 1996. A plan of reorganization under
Chapter 11 has been approved.

C. Eugene Ennis. Mr. Ennis, who co-founded the Company with Peter M. Duncan
and Douglas C. Nester, has served as the Company's President and Chief Executive
Officer and as a Director since the Company's inception in December 1992. From
September 1984 to December 1992, Mr. Ennis was President and Chief Executive
Officer of Landmark Graphics, a provider of interdisciplinary interpretation
tools for the petroleum industry. Mr. Ennis holds a Bachelor of Science in
electrical engineering from the University of Houston and began his career in
1969 as a design engineer in the Geophysical Products Division of Texas
Instruments where he was employed until 1984.

Robert H. Chaney. Mr. Chaney has served as a Director of the Company since
November 1993. Mr. Chaney is Chairman and Chief Executive Officer of R. Chaney &
Co., Inc., an investment firm specializing in equity investments in emerging
energy technology companies. Mr. Chaney was a co-founder of Paramount Petroleum
Company, an independent oil and gas company, and served as its President and
Chief Executive Officer from 1986 to July 1993. Mr. Chaney also currently serves
as a director of North American Technologies Corp.

Charles E. Edwards. Mr. Edwards has served as a Director of the Company
since August 1995. Since August 1985 to present, Mr. Edwards has acted as a
consultant in petroleum technologies. Prior to August 1985, Mr. Edwards was
employed by Chevron Corp. for a period in excess of 37 years and most recently
served as Chief Geophysicist with
<PAGE>

responsibility for global exploration activities. Mr. Edwards has also served as
a director for Digicon Inc. and Landmark Graphics.

Douglas C. Williamson. Mr. Williamson has served as a Director to the
Company since July 1995. Mr. Williamson is a Managing Director in the Venture
Capital Group in the Dallas, Texas office of NationsBanc Capital Corporation.

EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

The following table provides information regarding the executive officers
and/or significant employees of the Company. The officers of the Company serve
at the discretion of the Board of Directors of the Company.

NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
C. Eugene Ennis........ 53 President, Chief Executive Officer and Director
Peter M. Duncan........ 44 Vice President of Technology; Treasurer
Douglas C. Nester...... 39 Vice President of Exploration; Secretary
Joseph Schuchardt III.. 45 Vice President of Business Development
Robert J. Bacon, Jr.... 42 Vice President of Joint Ventures
Randall D. Keys........ 37 Vice President of Finance
Herbert R. Rohloff..... 40 Senior Reservoir Engineer
Douglas W. Beckman..... 40 Project Leader
Gene Colgan............ 36 Project Leader
Eric B. Gardner........ 33 Project Leader
Jeffrey K. Owens....... 37 Project Leader
</TABLE>

- - -----------

Peter M. Duncan. Dr. Duncan, a co-founder of the Company, has served as
the Company's Vice President of Technology and Treasurer since the Company's
inception. Prior to joining the Company, Dr. Duncan was employed by Landmark
Concurrent Solutions Inc., an affiliate of Landmark Graphics, that merged with
ExploiTech, as Vice President from July 1991 until December 1992. Dr. Duncan was
a founder in 1987 of ExploiTech, a company specializing in integrated multi-
disciplinary reservoir description studies for exploration and exploitation that
merged with Landmark Graphics in 1989. From 1986 to 1987, Dr. Duncan served as
Vice President of Marine Operations and Chief Geophysicist of North America for
Digicon Inc., a major geophysical contractor. From 1984 to 1986, Dr. Duncan was
employed as Chief Geophysicist of Pulsonic Geophysical of Calgary Inc., a former
subsidiary of Digicon Inc. From 1978 to 1984, Dr. Duncan held various positions
with Shell Canada Resources Inc. ("Shell"), including Party Chief for Shell's
offshore seismic programs. Dr. Duncan holds a Ph.D in geophysics from the
University of Toronto.

Douglas C. Nester. Mr. Nester, a co-founder of the Company, has served as
the Company's Vice President of Exploration and Secretary since the Company's
inception. Prior to joining the Company, Mr. Nester was employed by Landmark
Concurrent Solutions Inc., an affiliate of Landmark Graphics that merged with
ExploiTech, as Director of Technology from June 1988 to December 1992. From 1981
to 1988, Mr. Nester was employed in various geophysical positions by Pennzoil
Corp., and held the position of Geophysical Specialist at the time of his
departure. Mr. Nester began his career as an engineering geologist for Bechtel
Corporation. Mr. Nester holds a Bachelor of Science in Geology from Indiana
University of Pennsylvania and a Masters in Business Administration in Finance
from the University of St. Thomas.
<PAGE>

Joseph Schuchardt III. Mr. Schuchardt has served as the Company's Vice
President of Business Development since November 1993. Prior to his employment
with the Company, Mr. Schuchardt served as Vice President of Land for Great
Western Resources Inc. from April 1992 to November 1993. Mr. Schuchardt also
served as Vice President of Land for Paramount Petroleum Company from 1991 to
1992. Mr. Schuchardt was employed as Land Manager of Horizon Exploration Company
from 1980 to 1991 and has held positions with Texas Oil & Gas Corporation,
Coastal States Oil and Gas Corporation and Texaco Inc. Mr. Schuchardt holds a
B.B.A. in Management from the University of Texas.

Robert J. Bacon, Jr. Mr. Bacon has been Vice President of Joint Ventures
since September 1995. Prior to joining the Company, Mr. Bacon was Manager of
Business Development for Scientific Software-Intercomp, Inc., a software
company, from May 1994 to June 1995 and served as Vice President of Sales and
Marketing for JetFax Inc, a manufacturer of facsimile machines and facsimile
peripherals, from September 1990 to May 1994. From 1988 to 1990, Mr. Bacon was
employed by ExploiTech as the Director of Marketing for consulting services.
From 1985 to 1987, Mr. Bacon held positions in key account management at
Landmark Graphics. Mr. Bacon is a founder and currently serves on the Board of
Directors of Innovative Transducers Inc., a privately held designer and
manufacturer of solid towed hydrophonic arrays for the military and geophysical
marine markets. Mr. Bacon holds a Bachelor of Science in Advertising from the
University of Texas.

Randall D. Keys. Mr. Keys has served as the Company's Vice President of
Finance and Chief Financial Officer since April 1, 1997. Prior to joining the
Company, Mr. Keys was Treasurer for Norcen Explorer, Inc. in Houston, Texas from
February 1994 to February 1997. Norcen Explorer, Inc. is the U.S. subsidiary of
Norcen Energy Resources Limited, an international exploration and production
company located in Calgary, Alberta. From November 1987 through January 1994,
Mr. Keys served in various financial management roles with Santa Fe Energy
Resources, Inc. and one of its predecessor companies, Adobe Resources
Corporation. Mr. Keys is a Certified Public Accountant and graduated with a
B.B.A. in Accounting from the University of Texas. He began his career with the
public accounting firm of KPMG Peat Marwick LLP.

Herbert R. Rohloff. Mr. Rohloff has served as a Senior Reservoir Engineer
since joining the Company in January 1995. He is a registered professional
engineer in the State of Texas. Prior to joining the Company, Mr. Rohloff was
employed by Amoco Production Company from 1979 to 1993 in various engineering,
economic and supervisory positions beginning in 1979 and served most recently as
Project Manager-Production New Ventures. Mr. Rohloff holds a Bachelor of Science
in Chemical Engineering from Texas A&M University.

Douglas W. Beckman. Mr. Beckman has served as a Senior Explorationist and
Project Leader since joining the Company in September 1994. Mr. Beckman has over
15 years of experience in the oil and gas industry. Prior to joining the
Company, Mr. Beckman was employed by Exxon Corp. from May 1982 to August 1994,
and served most recently as a seismic applications specialist. Mr. Beckman holds
a Bachelor of Arts in Geology from Wittenberg University.

R. Gene Colgan. Mr. Colgan joined the Company as a Senior Explorationist
and Project Leader in March 1997. He spent the previous seven years as an
exploration and development geologist with Vastar Resources (formerly Arco Oil
and Gas) working principally in the Gulf of Mexico. He holds a Master of Science
in Geology from Southern Methodist University and a Bachelor of Science in
Geology from Midwestern State

Eric B. Gardner. Mr. Gardner has served as Senior Explorationist and
Project Leader since joining the Company in September 1994. Mr. Gardner has over
12 years of industry experience and has worked in many geoscience areas,
including production, exploration, seismic technology, and research. Mr. Gardner
began his career with Amoco Production Company in 1985 as a technical
geophysicist and served most recently as a staff geophysicist. Mr. Gardner holds
a Bachelor of Science in Engineering Physics from Colorado School of Mines.

Jeffrey K. Owens. Mr. Owens has served as a Senior Explorationist and
Project Leader since joining the Company in August 1994. Prior to joining the
Company, Mr. Owens was employed by Amoco Production Company where he began his
career in 1984 as a production and reservoir engineer and served most recently
as a staff geophysicist. Mr. Owens holds a Bachelor of Science in Petroleum
Engineering from Mississippi State University.
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership to the Securities and Exchange Commission
(the "Commission") and the Nasdaq National Market. Officers, directors and
greater than 10% stockholders are required by Commission regulations to furnish
the Company with copies of all Section 16(a) reports they file. Based solely on
its review of copies of such reports received by it and written representation
from certain reporting persons that no Forms 5 were required for those persons,
the Company believes that, during the period from the effective date of the
Registration Statement relating to the initial public offering of the Company's
Common Stock to December 31, 1996 all filing requirements applicable to its
officers, directors and greater than 10% stockholders were complied with, except
for Nationsbanc Capital Corporation, which was late in filing one report on
Form 4.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers (the "Named Executive Officers") with respect to the last two
fiscal years. The table also identifies the principal capacity in which each of
the Named Executive Officers served the Company at the end of 1996.

ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------- ----------------------------------
RESTRICTED SECURITIES ALL OTHER
STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($) OPTIONS (#) ($)
- - --------------------------- ---- ---------- --------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
C. Eugene Ennis 1996 150,000 - - - -
President and Chief 1995 150,000 - - - -
Executive Officer

Peter M. Duncan 1996 103,920 - - - -
Vice President of 1995 103,920 12,000 - - -
Technology; Treasurer

Douglas C. Nester 1996 95,000 - - - -
Vice President of 1995 95,000 - - - -
Exploration

Joseph Schuchardt III 1996 95,000 11,875 - - -
Vice President of 1995 95,000 - - - -
Business Development

Robert J. Bacon, Jr. 1996 95,000 11,875 - - -
Vice President of 1995 95,000 - - 144,760 -
Joint Ventures

</TABLE>

CASH BONUS PLAN

In 1996 the Company adopted the 1996 Incentive Compensation Plan (the
"Bonus Plan") which provides for the payment of annual cash bonuses, in an
amount up to 40% of the participant's base salary, if certain pre-established
Company-based performance criteria are satisfied. All full-time employees of the
Company are eligible to participate in the Bonus Plan, with the exception of the
Chief Executive Officer. Bonuses are awarded if the Company achieves at
<PAGE>

least 80% of its targeted performance criteria. The bonuses are then prorated
accordingly. The bonus of the Chief Executive Officer is separately determined
at the discretion of the Board of Directors. The 1996 bonuses for Mr. Schuchardt
and Mr. Bacon were paid pursuant to the Bonus Plan upon satisfaction of
performance targets.

STOCK OPTION GRANTS

During the year ended December 31, 1996, no stock options were granted to
the Named Executive Officers.

OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table sets forth information regarding the exercise of stock
options during fiscal 1996 and the number and year-end value of unexercised
options held at December 31, 1996, by each of the Named Executive Officers. No
stock options or stock appreciation rights were exercised by the Named Executive
Officers during fiscal 1996.

AGGREGATE OPTION EXERCISES IN FISCAL 1996
AND FISCAL 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>

NUMBER OF
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED OPTIONS AT "IN-THE-MONEY" OPTIONS AT
EXERCISED (#) REALIZED DECEMBER 31, 1996 DECEMBER 31, 1996
NAME DURING 1996 ON EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- - ---- ------------- --------------- ------------------------------ ------------------------------------

<S> <C> <C> <C> <C> <C> <C>
C. Eugene Ennis............ - - 15,947 4,197 $ 172,335 $ 45,351
Peter M. Duncan............ - - 15,947 4,197 $ 172,335 $ 45,351
Douglas C. Nester.......... - - 15,947 4,197 $ 172,335 $ 45,351
Joseph Schuchardt III...... - - 128,252 38,129 $1,385,965 $ 412,044
Robert J. Bacon, Jr........ - - 36,190 108,570 $ 377,090 $1,131,270

</TABLE>
- - -----------

(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between the options' exercise price and the
December 31, 1996 closing price for the Common Stock, multiplied by the
applicable number of options.

STOCK OPTION PLAN

In January 1994, the Company adopted the Stock Option Plan under which
"non-qualified" stock options ("NQSOs") to acquire shares of Common Stock may be
granted to directors of and consultants to the Company and "incentive" stock
options ("ISOs") to acquire shares of Common Stock may be granted to employees
and directors who are also employees of the Company.

The Stock Option Plan provides for the issuance of up to a maximum of
1,504,937 shares of Common Stock and is administered by the Compensation
Committee. Under the Stock Option Plan, the option price of any ISO may not be
less than the fair market value of a share of Common Stock on the date on which
the option is granted. The option price of an NQSO may be less than the fair
market value on the date the NQSO is granted if the Compensation Committee so
determines, but may not in any event be less than 85% of such fair market value.
An ISO may not be granted to a "ten percent stockholder" (as such term is
defined in Section 422A of the Code) unless the exercise price is at least 110%
of the fair market value of the Common Stock at the time of grant and the option
must be exercised within five years. Each option granted pursuant to the Stock
Option Plan will be evidenced by a written agreement executed by the Company and
the grantee, which will contain the terms, provisions and conditions of the
grant. Stock options may not be assigned or transferred during the lifetime of
the holder except as may be required by law or pursuant to a qualified domestic
relations order. The maximum term of each stock option is ten years from the
date of grant.
<PAGE>

In order for the options to qualify as ISOs, the aggregate fair market
value, determined on the date of grant, of the shares with respect to which the
ISOs are exercisable for the first time by the grantee during any calendar year
may not exceed $100,000. Payment by option holders upon exercise of an option
may be made (i) in cash, (ii) by tender to the Company of shares of the
Company's stock owned by the optionee having a fair market value, as determined
by the Compensation Committee (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the exercise price, (iii) by delivery of a promissory note made by the
optionee in a form approved by the Company, (iv) by the assignment of the
proceeds of a sale of some or all of the shares being acquired upon the exercise
of the option, (v) by the withholding of shares being acquired upon exercise of
the option bearing a fair market value, as determined by the Compensation
Committee (but without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company), not less than the exercise price, or (vi) by
any combination thereof. The Compensation Committee may at any time or from
time to time grant options which do not permit all of the foregoing forms of
consideration to be used in payment of the exercise price and/or which otherwise
restrict the use of one or more forms of consideration. In addition, the
Compensation Committee, in its sole discretion, may authorize the surrender by
an optionee of all or part of an unexercised stock option and authorize a
payment in consideration thereof of an amount equal to the difference between
the aggregate fair market value of the Common Stock subject to such stock option
and the aggregate option price of such Common Stock. In the Compensation
Committee's discretion, such payment may be made in cash, shares of Common Stock
with a fair market value on the date of surrender equal to the payment amount or
some combination thereof.

The Stock Option Plan provides that outstanding options vest in their
entirety and become exercisable in the event of certain mergers, consolidations
or sales of all or substantially all of the assets of the Company, unless the
successor corporation assumes such options. As of December 31, 1996, options to
purchase 794,479 shares of Common Stock were outstanding under the Stock Option
Plan at exercise prices ranging from $0.19 to $11.20 per share.

During 1997, the Company expects to file with the Commission a Registration
Statement on Form S-8 covering the shares of Common Stock issued pursuant to the
Stock Option Plan and the shares of Common Stock underlying options granted
under the Stock Option Plan.

COMPENSATION OF DIRECTORS

Subsequent to the Company's initial public offering in December 1996,
independent directors will receive a fee in the amount of $750 for every meeting
of the Board of Directors which such director attends in person or by telephone
and a fee of $500 for each meeting of a committee of the Board of Directors held
separately which such director attends in person or by telephone. No meetings of
the Board of Directors or any committee thereof were held in December 1996
subsequent to the Company's initial public offering. As a result, no fees were
paid in 1996. All directors who are not employees of the Company are reimbursed
for out-of-pocket expenses. Under the Stock Option Plan, the Company may, from
time to time, and in the discretion of the Board of Directors, grant stock
options to directors. In January 1996, the Company granted each of the four
directors who are not employees of the Company - Mr. Bayless, Mr. Chaney, Mr.
Edwards and Mr. Williamson - a stock option grant of 5,170 shares each at an
exercise price of $.58 per share. These shares vest 50% in the first year and
25% in each of the second and third years.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the last fiscal year of the Company, Mr. Bayless and Mr. Chaney
served on the Compensation Committee of the Board of Directors of the Company.
No member of the Compensation Committee has ever served as an officer of the
Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of April 29, 1997, there were 7,216,177 shares of the Company's common
stock, par value $0.01 per share ("Common Stock"), outstanding and entitled to
vote. The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, as of March 31, 1997, by (i)
each person known to the Company to own beneficially 5% or more of the Company's
outstanding shares of Common Stock, (ii) each director of
<PAGE>

the Company, (iii) each of the Named Executive Officers, and (iv) all executive
officers and directors of the Company as a group. All information with respect
to beneficial ownership has been furnished to the Company by the respective
stockholders of the Company.

BENEFICIAL OWNERSHIP
-------------------------------

NAME AND ADDRESS (1) NUMBER OF SHARES (2) PERCENT
- - -------------------- ---------------- -------
<S> <C> <C>
C. Eugene Ennis......................... 503,670 7.0%
Peter M. Duncan......................... 373,495 5.2%
Douglas C. Nester....................... 373,495 5.2%
Joseph Schuchardt III................... 172,282 2.3%
Robert J. Bacon, Jr..................... 50,408 *
Jon W. Bayless.......................... 773,158 (3) 10.7%
Robert H. Chaney........................ 386,279 (4) 5.4%
Charles E. Edwards...................... 20,787 (5) *
Douglas C. Williamson................... 724,488 (6) 10.0%

All directors and executive officers as 3,378,062 45.3%
a group (9 persons)..................

Citi Growth Fund L.P.................... 727,477 10.1%
c/o CitiGrowth Funds, Sycamore Partners
989 Lenox Drive
Lawrenceville, New Jersey 08648

NationsBanc Capital Corporation......... 721,903 10.0%
901 Main Street
Dallas, Texas 75202

R. Chaney & Co., Inc.................... 383,694 (4) 5.3%
909 Fannin, Suite 1275
Houston, Texas 77010

Metropolitan Life Insurance Company..... 370,714 (7) 5.1%
c/o State Street Research
One Financial Center
Boston, Massachusetts 02111
</TABLE>
___________

* Represents beneficial ownership of less than 1% of the outstanding shares
of common stock.

(1) Unless otherwise indicated, the address of each stockholder identified in
the table is at the principal executive offices of the Company at 12012
Wickchester, Houston, Texas 77079.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission"). In computing the number
of shares of Common Stock beneficially owned by a person and the percentage
ownership of that person, shares of Common Stock subject to options and
warrants held by that person that are currently exercisable or exercisable
within 60 days of March 31, 1997 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. Shares of Common Stock issuable
upon exercise of stock options granted pursuant to the 1994 Stock Option
Plan, as amended (the "Stock Option Plan"), which are currently exercisable
or exercisable within 60 days of March 31, 1997 include 18,046 shares for
Mr. Ennis, 18,046 shares for Mr. Duncan, 18,046 shares for Mr. Nester,
145,583 shares for Mr. Schuchardt, 36,190 shares for Mr. Bacon, 2,585
shares for Mr. Bayless, 2,585 shares for Mr. Chaney, 2,585 shares for Mr.
Edwards, 2,585 shares for Mr. Williamson, and 246,251 shares for all
directors and executive officers as a group. Except as indicated in the
footnotes to this table, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name.

(3) Includes 727,477 shares beneficially owned by Citi Growth Fund L.P. Mr.
Bayless is the controlling stockholder and sole director of Jon W. Bayless
Inc., the general partner of Atlantic Partners L.P., the general partner of
Citi Growth Fund L.P. beneficially owned by Citi Growth Fund L.P.
<PAGE>

(4) Includes 338,240 shares held by R. Chaney and Partners-1993 L.P. and 45,454
shares held by R. Chaney & Partners II L.P. R. Chaney & Co., Inc., a
corporation of which Mr. Chaney is the Chief Executive Officer and sole
stockholder, is the general partner of R. Chaney & Partners-1993 L.P. and
R. Chaney & Partners II L.P.

(5) Includes 1,200 shares of Common Stock owned by Mr. Edwards' spouse.

(6) Includes 721,903 shares of Common Stock held by NationsBanc Capital
Corporation. Mr. Williamson is a Managing Director in the Venture Capital
Group of NationsBanc Capital Corporation.

(7) State Street Research & Management Company, a wholly-owned subsidiary of
Metropolitan Life Insurance Company, has the power to vote and dispose of
these shares which are held by it on behalf of Metropolitan Life Insurance
Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

AGREEMENTS WITH LANDMARK GRAPHICS

In connection with its initial capitalization, the Company entered into a
Technical Services Agreement with Landmark Graphics Corporation ("Landmark
Graphics") pursuant to which Landmark Graphics agreed to grant to the Company
ongoing licenses to use Landmark Graphics software as it is first made available
to Landmark Graphics customers. Prior to the initial public offering, Landmark
Graphics owned in excess of 5% of the Company's common stock. In addition, the
agreement provides for a strategic alliance between Landmark Graphics and the
Company, which enables the Company to request, and requires Landmark Graphics to
deliver, enhancements and modifications to existing Landmark Graphics software
and, in certain instances, to develop new software for use in the Company's oil
and gas exploration efforts. In exchange for such rights, the Company has agreed
to serve as an alpha test site for software developed by Landmark Graphics.
Neither this agreement nor any of the licenses granted by Landmark Graphics to
the Company contain any provisions with respect to expiration or termination.
In addition, the Company and Landmark Graphics are also parties to an informal
agreement pursuant to which the Company's employees participate in Landmark
Graphics' medical insurance plan, life insurance plans and 401(k) plan.

In connection with the informal agreements pursuant to which the Company
purchases medical and life insurance for its employees and their dependents as a
part of the Landmark Graphics benefit plan and those agreements which enable the
Company's employees to participate in the Landmark Graphics' 401(k) Plan, the
Company reimburses Landmark Graphics for all direct costs associated with such
benefits and programs and pays Landmark Graphics a quarterly administrative and
billing fee in an aggregate amount less than $1,500 annually. The Company
believes these informal arrangements result in an administrative convenience for
the Company, and may allow the Company's employees and their dependents to
obtain better insurance coverage than would be available from other plans that
the Company could obtain independently. Such arrangements do not result in any
material financial benefit to the Company since the Company reimburses Landmark
Graphics for all of costs which Landmark Graphics incurs in connection with such
arrangements.
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The Company hereby amends, to the extent set forth below, the financial
statements included within its Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.

(A)(1) FINANCIAL STATEMENTS:

INDEX TO FINANCIAL STATEMENTS PAGE
----

Report Of Independent Public Accountants F-1

Balance Sheets as of December 31, 1995 and 1996.............. F-2

Statements of Operations for the three years ended
December 31, 1996........................................... F-3

Statements of Changes in Common Stockholders' Equity (Deficit)
for the three years ended December 31, 1996................. F-4

Statements of Cash Flows for the three years ended
December 31, 1996........................................... F-5

Notes to Financial Statements................................ F-6
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors
of 3DX Technologies Inc.:

We have audited the accompanying balance sheets of 3DX Technologies Inc. (a
Delaware corporation) as of December 31, 1995 and 1996, and the related
statements of operations, changes in common stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 3DX Technologies Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

Houston, Texas
March 14, 1997 ARTHUR ANDERSEN LLP

F-1
<PAGE>

3DX TECHNOLOGIES INC.

BALANCE SHEETS

ASSETS

December 31,
-------------------------
1995 1996
---- ----
Current assets:
Cash and cash equivalents............ $ 5,704,014 $17,521,745
Securities held to maturity.......... 1,595,167 -
Accounts receivable.................. 113,704 554,210
Prepaid expenses..................... 85,786 165,095
----------- -----------
Total current assets............. 7,498,671 18,241,050
----------- -----------
Property and equipment:
Oil and gas properties (full-cost
method-including $1,375,145 and
$4,403,165, respectively, not
subject to depletion, depreciation
and amortization)................... 4,023,869 11,567,562
Technical interpretation equipment... 1,083,925 1,505,534
Office furniture, equipment and
leasehold improvements.............. 170,877 205,531
----------- -----------
5,278,671 13,278,627
Less accumulated depletion,
depreciation and amortization....... (2,343,578) (4,702,296)
----------- -----------
2,935,093 8,576,331
Other assets:
Deposits............................. 12,886 7,886
Organization costs, net of
accumulated amortization............ 3,854 1,922
----------- -----------
$10,450,504 $26,827,189
=========== ===========

LIABILITIES, REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable..................... $ 194,742 $ 1,960,984
Accrued liabilities.................. 39,166 292,581
----------- -----------
Total current liabilities........ 233,908 2,253,565
----------- -----------
Dividends payable on Series C preferred
stock.................................. 275,256 -
----------- -----------
Commitments (Note 10)
Mandatorily redeemable Series B
preferred stock, $.01 par value, $100
per share redemption price, 200,000
shares authorized, 66,871 and 0 shares
issued and outstanding, respectively... 6,277,826 -
----------- -----------
Mandatorily redeemable Series C senior
preferred stock, $.01 par value, $3
per share redemption price, 3,300,000
shares authorized, 2,662,241 and 0
shares issued and outstanding,
respectively........................... 7,903,833 -
----------- -----------

Common stockholders' equity (deficit):
Common stock, $.01 par value,
20,000,000 shares authorized,
2,987,908 and 6,841,177 shares
issued and outstanding, respectively 29,879 68,412
Paid-in capital...................... 1,730,459 34,189,700
Deferred compensation related to
certain stock options............... (837,864) (893,040)
Notes receivable from stock sales.... (47,756) -
Accumulated deficit.................. (5,115,037) (8,791,448)
----------- -----------
Total common stockholders'
equity (deficit)................ (4,240,319) 24,573,624
----------- -----------
$10,450,504 $26,827,189
=========== ===========

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

F-2
<PAGE>

3DX TECHNOLOGIES INC.

STATEMENTS OF OPERATIONS

Years Ended December 31,
----------------------------------------
1994 1995 1996
---- ---- ----
Revenues:
Oil and gas............................ $ 303,836 $ 274,511 $ 851,827
Rental income.......................... 100,962 58,195 229,556
Interest and other..................... 52,817 236,186 247,960
---------- ----------- -----------
Total revenues........................ 457,615 568,892 1,329,343
---------- ----------- -----------

Costs and expenses:
Lease operating........................ 14,225 60,877 49,016
Production and ad valorem taxes........ 19,812 17,656 58,660
Impairment of oil and gas properties... - 1,627,321 1,476,690
Depletion, depreciation, and
amortization.......................... 210,347 446,350 883,962
General and administrative............. 598,244 905,063 1,596,379
---------- ----------- -----------
Total costs and expenses.............. 842,628 3,057,267 4,064,707
---------- ----------- -----------

Net loss................................ (385,013) (2,488,375) (2,735,364)
Dividends on preferred stock............ (421,696) (1,058,956) (520,393)
Redemption premium on Series B
Preferred Stock........................ - - (365,810)
Accretion on preferred stock............ (30,367) (48,408) (54,844)
---------- ----------- -----------
Net loss applicable to common
stockholders........................... $ (837,076) $(3,595,739) $(3,676,411)
========== =========== ===========
Primary and fully diluted net loss per
common share........................... $ (0.33) $ (1.14) $ (1.16)
========== =========== ===========

Weighted average number of common
shares outstanding..................... 2,534,175 3,148,826 3,162,934
========== =========== ===========

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

F-3
<PAGE>

3DX TECHNOLOGIES INC.

STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>

Common Stockholders' Equity (Deficit)
-------------------------------------------------------------------------------------------------------

Common Stock Stock
---------------------- Paid-In Deferred Accumulated Subscriptions
Shares Amount Capital Compensation Deficit Receivable Total
------- ------ -------- ------------ ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 2,232,530 $ 22,325 $ 664,999 $ - $ (682,222) $ (41,527) $ (36,425)

Principal collections...... - - - - - 27,862 27,862
Shares issued in October
1994...................... 755,378 7,554 176,605 - - (12,492) 171,667
Accrual of dividends....... - - - - (421,696) - (421,696)
Accretion on preferred
stock..................... - - - - (30,367) - (30,367)
Net loss................... - - - - (385,013) - (385,013)
--------- --------- ----------- ------------ ----------- ------------ -----------
Balance at December 31,
1994...................... 2,987,908 29,879 841,604 - (1,519,298) (26,157) (673,972)
Principal collections...... - - - - - 36,156 36,156
Shares issued in 1995...... - - - - - (57,755) (57,755)
Accrual of dividends....... - - - - (1,058,956) - (1,058,956)
Accretion on preferred
stock..................... - - - - (48,408) - (48,408)
Deferred compensation
related to certain stock
options................... - - 888,855 (888,855) - - -

Compensation expense
related to certain stock
options................... - - - 50,991 - - 50,991

Net loss................... - - - - (2,488,375) - (2,488,375)
--------- --------- ----------- ------------ ----------- ------------ -----------
Balance at December 31,
1995...................... 2,987,908 29,879 1,730,459 (837,864) (5,115,037) (47,756) (4,240,319)

Principal collections...... - - - - - 47,756 47,756
Shares issued for exercise
of stock options.......... 3,124 31 573 - - - 604

Accrual of dividends....... - - - - (520,393) - (520,393)
Accretion on preferred
stock..................... - - - - (54,844) - (54,844)

Deferred compensation
related to certain stock
options................... - - 922,806 (922,806) - - -

Compensation expense
related to certain stock
options................... - - - 867,630 - - 867,630

Shares issued for Initial
Public Offering (net of
offering costs)........... 2,400,000 24,000 23,539,064 - - - 23,563,064

Conversion of Series C
preferred to common stock. 1,450,145 14,502 7,996,798 - - - 8,011,300

Redemption of Series B
preferred stock........... - - - - (365,810) - (365,810)

Net loss................... - - - - (2,735,364) - (2,735,364)
--------- --------- ----------- ------------ ----------- ------------ -----------
Balance at December 31,
1996...................... 6,841,177 $ 68,412 $34,189,700 $ (893,040) $(8,791,448) $ - $24,573,624
========= ======== =========== ============ =========== ============ ===========
</TABLE>

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

F-4
<PAGE>

3DX TECHNOLOGIES INC.

STATEMENTS OF CASH FLOWS

Years Ended December 31,
------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $ (385,013) $(2,488,375) $(2,735,364)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depletion, depreciation and
amortization....................... 210,347 446,350 883,962
Compensation expense related to
certain stock options.............. - 50,991 867,630
Impairment of oil and gas
properties......................... - 1,627,321 1,476,690
(Increase) decrease in accounts
receivable......................... 147,928 (45,485) (440,506)
(Increase) decrease in prepaid
expenses........................... (8,237) (76,188) (79,309)
Increase (decrease) in accounts
payable............................ 24,441 (3,005) 388,767
Increase (decrease) in accrued
liabilities........................ 26,777 (14,540) 253,415
----------- ----------- -----------
Net cash provided by (used in)
operating activities.................. 16,243 (502,931) 615,285
----------- ----------- -----------
Cash flows from investing activities:
Acquisition, exploration and
development of oil and gas properties. (1,822,174) (2,185,804) (6,166,219)
Sales proceeds-undeveloped oil and gas
interests............................. - 480,931 -
Purchase of technical and office
equipment and leasehold improvements.. (108,817) (395,093) (229,311)
Purchase of technical equipment from
Landmark Graphics..................... (87,373) (405,480) (226,953)
(Purchase of) proceeds from securities
held to maturity...................... - (1,595,167) 1,595,167
Other.................................. 500 (12,886) 5,000
----------- ----------- -----------
Net cash used in investing activities.. (2,017,864) (4,113,499) (5,022,316)
----------- ----------- -----------
Cash flows from financing activities:
Common stock proceeds, net of issuance
costs................................. 162,651 - 23,563,668
Series B preferred stock proceeds, net
of issuance costs..................... 2,352,722 25,297 -
Series C preferred stock proceeds, net
of issuance costs..................... - 7,851,133 143,843
Redemption of Series B preferred stock. - - (6,687,100)
Payment of Series C preferred stock
dividends............................. - - (795,649)
----------- ----------- -----------
Net cash provided by financing
activities............................ 2,515,373 7,876,430 16,224,762
----------- ----------- -----------
Net change in cash and cash equivalents. 513,752 3,260,000 11,817,731
Cash and cash equivalents at beginning
of year................................ 1,930,262 2,444,014 5,704,014
----------- ----------- -----------
Cash and cash equivalents at end of the
year................................... $ 2,444,014 $ 5,704,014 $17,521,745
=========== =========== ===========
</TABLE>

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

F-5
<PAGE>

3DX TECHNOLOGIES INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

3DX Technologies Inc. ("3DX" or the "Company"), began operations in January
1993 to offer its 3-D seismic data and computer-aided exploration capabilities
as a partner to experienced oil and gas operators in 3DX's geographical areas of
interest. By combining the operator's local knowledge and infrastructure with
3DX's imaging capabilities, 3DX believes it is able to evaluate and exploit
drilling opportunities at lower-than-normal cost. The Company primarily invests
in prospects where 3-D seismic evaluation and interpretation is expected to
reduce drilling risk. Working interests in major prospects have ranged from 5%
up to 40% in property investments to date. All of the Company's operations are
currently located in the United States. The Company's future operations are
dependent on a variety of factors, including its successful application of its
technical expertise, profitable exploitation of its oil and gas properties,
successful access to capital sources and variable oil and gas prices and costs,
among others.

The Company was initially funded by its three founding stockholders and by
Landmark Graphics Corporation (Landmark), a Houston company which is a leading
supplier of interactive computer-aided exploration systems used by geoscientists
to analyze subsurface data in the process of exploring for and producing
petroleum reserves. The three founding stockholders of 3DX were formerly
employed by Landmark.

The Company completed an Initial Public Offering ("Initial Public Offering"
or the "Offering") in December 1996, with the sale of 2,400,000 shares of common
stock, resulting in proceeds to the Company approximating $23.6 million, net of
issuance costs. (See Note 6).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Oil and Gas Properties

3DX accounts for its oil and gas properties using the full-cost method.
All costs associated with the acquisition, exploration and development of oil
and gas properties (including such costs as leasehold acquisition costs,
geological and geophysical expenditures, dry hole costs and tangible and
intangible development costs) are capitalized as incurred. Included in
capitalized costs for the years ended December 31, 1994, 1995 and 1996 are
general and administrative costs of $375,922, $618,614, and $1,146,722,
respectively. Such capitalized costs include payroll and related costs of the
exploration department personnel which are directly attributable to the
Company's current acquisition, exploration and development activities. Other
costs (primarily including office rent, technical computer maintenance and
support, and communication costs) are also capitalized to the extent they are
attributed to the Company's own oil and gas property acquisition and exploration
activities and would not otherwise be incurred if such activities were not being
undertaken.

Dispositions of proved oil and gas properties are reported as adjustments
to capitalized costs, with gains and losses not recognized unless such
adjustments would significantly alter the relationship between capitalized costs
and estimated proved oil and gas reserves.

The evaluated costs of oil and gas properties plus estimated future
development and dismantlement costs (including plugging, abandonment and site-
restoration costs) are charged to operations as depreciation, depletion, and
amortization using the unit-of-production method based on the ratio of current
production to proved recoverable oil and gas reserves as estimated by the
Company and corroborated by independent petroleum engineering firms. The
Company excludes unevaluated property costs from the depreciation, depletion and
amortization computations until the discovery of proved reserves or a
determination of impairment occurs. Unevaluated properties are evaluated for
impairment on a property-by-property basis annually through 1995 and quarterly
beginning in 1996. When the determination has been made that an unproved
property has either encountered proved reserves or has been impaired, the
related costs are transferred to the evaluated cost pool.
Information regarding the number of, and total investment in, abandoned projects
at the time of abandonment by the Company is set forth below:

F-6
<PAGE>

Number of Investment in
Projects Abandoned
Accounting Period Abandoned Projects
----------------- --------- --------------

Year ended December 31, 1994 0 $ 0
Year ended December 31, 1995 3 1,173,644
Year ended December 31, 1996 2 927,366

Impairment of capitalized costs of oil and gas properties is determined for
each cost center, determined on a country-by-country basis. The Company's only
active cost center since inception has been the United States of America. For
each cost center, to the extent that capitalized costs of oil and gas
properties, net of related accumulated depreciation, depletion and amortization
and related deferred income taxes, exceed the discounted future net revenues of
estimated proved oil and gas reserves, net of income tax effects, plus the lower
of cost or fair value of unevaluated properties, such excess costs are charged
to operations as an impairment of oil and gas properties. No such write-downs
were required during 1994. Write-downs of $1,627,321 and $1,476,690 were
required for the years ended December 31, 1995 and 1996, respectively.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121 ("SFAS No. 121") regarding accounting for
the impairment of long-lived assets. The Company adopted SFAS No. 121 effective
January 1, 1996. However, such adoption did not affect the primary test of asset
recoverability because the Company's oil and gas properties are accounted for
under the full-cost method of accounting as discussed above. The adoption of
SFAS No. 121 had no effect on the Company's results of operations for the year
ended December 31, 1996.

Technical interpretation equipment, including software, and office
furniture and equipment are recorded at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives of the assets. The estimated
useful life of the technical interpretation equipment, including software, is
three years, and for office furniture and equipment, it is five years.
Depletion, depreciation and amortization expense includes depreciation related
to technical interpretation equipment, including software, and office furniture
and equipment of $119,675, $288,014, and $459,189 for the years ended December
31, 1994, 1995 and 1996, respectively.

Securities held to Maturity

Securities held to maturity at December 31, 1995 include various types of
government debt securities which matured on March 31, 1996, and are carried at
amortized cost at December 31, 1995.

Accounting for Income Taxes

The Company provides deferred income taxes at the balance sheet date for
the estimated tax effects of differences in the existing tax bases of assets and
liabilities and their financial statement carrying amounts.

Natural Gas Revenues

Natural gas revenues are recorded using the sales method, whereby the
Company recognizes natural gas revenues based on the amount of gas sold to
product purchasers on its behalf. The Company has no material gas imbalances.

Rental Income

In January 1993, the Company entered into an informal revenue-sharing
arrangement with a seismic processing company whereby the Company would receive
a percentage of the seismic processing company's gross billings in exchange for
providing office space and use of the Company's technical equipment. Revenues
under this ongoing arrangement amounted to $100,962, $58,195 and $229,556 in
1994, 1995 and 1996, respectively.

Statements of Cash Flows

For the purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.

F-7
<PAGE>

Concentration of Credit Risk

All of the Company's receivables are due from oil and gas producing
companies located in the United States. The Company has not experienced any
significant credit losses related to its receivables.

Major Customers

Operators for producing oil and gas wells in which the Company holds
working interests sold the majority of oil and gas production to three customers
in 1994, 1995 and 1996. Sales to these customers exceeded 10% of oil and gas
revenues during the years indicated (in thousands):

1994 1995 1996
---- ---- ----
Enron Corp. its subsidiaries and
affiliates $ 154 $ 134 $ 43
Dow Hydrocarbon U.S.A. - - 493
Ada Crude Oil Company 120 82 47

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, securities held to
maturity and accounts receivable, approximate their fair values due to their
short-term nature.

Use of Estimates

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, if any, 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. Oil
and gas reserve estimates, which are the basis for units-of-production depletion
and the ceiling test, are inherently imprecise and are expected to change as
future information becomes available.

Prior Year Reclassifications

Certain prior year amounts have been reclassified to conform with the
current presentation.

Accounting Pronouncements

In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position No. 96-1, "Environmental Remediation Liabilities,"
which establishes new accounting and reporting standards for the recognition and
disclosure of environmental remediation liabilities. The provisions of the
statement are effective for fiscal years beginning after December 15, 1996. The
impact of this new standard is not expected to have a significant effect on the
Company's financial position or results of operations.

In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share," which establishes new computation, presentation,
and disclosure requirements for earnings per share for public companies. The
statement is effective for financial statements issued for periods ending after
December 15, 1997.

F-8
<PAGE>

3. INCOME TAXES

Significant components of the Company's deferred tax liabilities and assets
are as follows:

December 31,
---------------------------------------
1994 1995 1996
---- ---- ----
Deferred tax liability:
Exploration and development
expenditures deducted for tax and
capitalized for books................. $(345,831) $ (103,867) $ (325,812)

Other items, net....................... - (37,523) (54,872)
--------- ----------- -----------
Total deferred tax liability........ (345,831) (141,390) (380,684)
--------- ----------- -----------
Deferred tax assets:
Net operating loss carryforwards....... 653,394 1,238,317 2,039,546
Other items, net....................... 28,419 66,375 126,517
--------- ----------- -----------
Total deferred tax assets........... 681,813 1,304,692 2,166,063
Less: Valuation allowance.............. (335,982) (1,163,302) (1,785,379)
--------- ----------- -----------
Net deferred tax assets................. 345,831 141,390 380,684
--------- ----------- -----------
Net deferred tax liability.............. $ - $ - $ -
========= =========== ===========

The Company did not record any current or deferred income tax provision or
benefit in any of the periods presented. The Company's provision for income
taxes differs from the amount computed by applying the statutory rate due
principally to the valuation allowance recorded against its deferred tax asset
account relating to net operating tax loss carryforwards. Management believes
that such allowance is necessary until there is greater assurance that the net
operating tax loss carryforwards can be utilized.

The Company has recorded a valuation allowance against its deferred tax
assets in each year to reflect the estimated portion for which realization is
uncertain. As of December 31, 1996, the Company has tax net operating loss
carryforwards of $5,998,666 which begin to expire in 2008. As a result of
recent stock transactions, including the Initial Public Offering, (See Note 6),
there is a yearly limitation on the Company's utilization of its Net Operating
Losses under Section 382 of the Internal Revenue Code.

4. RELATED-PARTY TRANSACTIONS

The Company purchased technical equipment, supplies, and software and
hardware maintenance amounting to $118,630 in 1994, $521,128 in 1995, and
$267,007 in 1996 from Landmark.

5. MANDATORILY REDEEMABLE PREFERRED STOCK

The Company's Series B and Series C redeemable preferred stocks described
below were presented on the balance sheet outside of common equity because they
both had mandatory-redemption provisions outside the control of the Company, and
both were being accreted to their projected redemption values through a charge
to common equity during the periods such securities were outstanding.

Series B

In November 1993, the Company negotiated an agreement pursuant to which
certain investors agreed to purchase 54,000 units (each unit consisting of one
share of redeemable Series B preferred stock and 30.215 shares of common stock)
for total consideration in the amount of $5,400,000. The sales of the units was
timed to be funded in two traunches to match the projected cash flow needs of
the Company, with the first traunch (consisting of 29,000 units) funded in
November 1993 and the second traunch (consisting of 25,000 units) funded in
October 1994. The terms of the agreement provided a substantial penalty for any
investor who committed to purchase units in the second traunch and failed to do
so. All investors who committed to purchase units in the second traunch did so
in October 1994. Sales of the 54,000 units were as follows: 4,500 units were
sold to members of management (8.3% of the total units sold), 4,000 units were
sold to Landmark (7.4% of the total units sold), 1,750 units were sold to
consultants to the Company (3.2% of the total units sold), 28,820 units were
sold to two investment funds (18,820 units to Citi Growth Fund L.P. and 10,000
units to R. Chaney & Partners - 1993 L.P.) whose purchases were conditioned on
the ability of each investor group to designate one member of the Board of
Directors (53.4% of the total units sold), 1,500 units were

F-9
<PAGE>

sold to one investor-designated member and one future member of the Board of
Directors (2.8% of the total units sold), and the remaining 13,430 units were
sold to other unrelated investors (24.9% of the total units sold).

In November 1993, the Company sold 29,000 equity units consisting of an
aggregate of 29,000 shares of the Company's redeemable Series B preferred stock,
par value of $.01 per share, and 876,237 shares of common stock, par value of
$.01 per share. The stock was sold for net proceeds of $94.1558 per share of
Series B preferred stock and $.19 per share of common stock. The difference
between the sales price and the redemption price of $100 per share was subject
to an annual pro-rata accretion charge to retained earnings, so that at the time
of the mandatory redemption, the value of each share of preferred stock will
equal the redemption price of $100. The Series B preferred stockholders were
entitled to 100 votes for each share held, and shall vote together with holders
of common stock and not as a separate class. The Series B preferred
stockholders were entitled to receive (out of any funds legally available
therefor) dividends (in cash or in shares of Series B preferred stock, as
determined by the Board of Directors) at an annual rate per share of $12.50 if
in cash or .13276 shares of Series B preferred stock if in stock, payable
annually on December 31, commencing in December 1994. In the event the Board of
Directors failed to declare the dividend in stock or cash ten working days prior
to the end of each year, the dividend was deemed declared in stock as of the end
of the year. As a result, the dividend was constructively cumulative. The Series
B preferred stock had a redemption price of $100 per share. The Series B
preferred stock also contained a mandatory-redemption feature under which the
stock was to be redeemed at the redemption price in two installments (50% on
November 9, 2002 and 50% on November 9, 2003). 3DX had the option to redeem the
outstanding Series B Preferred stock at any time with funds legally available
therefor. As consideration for the Series B preferred and common stock sale,
the Company received $2,875,019 in cash and promissory notes from two of its
founders amounting to $24,984. The Company incurred legal and other offering
costs of $103,659 in connection with this Series B preferred stock unit sale.

On October 24, 1994, the Company sold 25,000 equity units consisting of an
aggregate of 25,000 shares of the Company's redeemable Series B preferred stock,
par value of $.01 per share, and 755,378 shares of common stock, par value of
$.01 per share. The stock was sold for net proceeds of $94.1558 per share of
Series B preferred stock and $.19 per share of common stock. As consideration
for the Series B preferred and common stock sale, the Company received
$2,487,511 in cash and a promissory note from one of its founders amounting to
$12,492.

Dividends on the Series B preferred stock have been paid in stock rather
than in cash as determined by the Board of Directors.

In connection with the Initial Public Offering which became effective on
December 26, 1996, all of the issued and outstanding shares of the Series B
Preferred Stock were redeemed. A $365,810 redemption premium (which adjusts the
Series B Preferred Stock carrying value to the liquidation price of $100 per
share) was charged to the Company's accumulated deficit.

Series C

During the period from July 26, 1995 until September 25, 1995, the Company
sold a total of 2,662,241 shares of the Company's senior redeemable convertible
Series C preferred stock, par value of $.01 per share. The stock was sold for
$3 per share. Purchasers of the 2,662,241 shares of Series C Preferred Stock
consisted of members of management who purchased 89,237 shares (3.4% of the
total Series C shares sold), consultants to the Company who purchased 17,134
shares (0.6% of the total Series C shares sold), two members of the Board of
Directors who purchased 10,000 shares (0.4% of the total Series C shares sold),
other previous Series B unit investors who purchased 329,203 shares (including
125,467 shares purchased by Citi Growth Fund L.P. and 66,667 shares by R. Chaney
& Partners - 1993 L.P.) (12.3% of the total Series C shares sold), NationsBank
Capital Corporation whose purchase of 1,333,333 shares was conditioned on its
ability to designate a member of the Company's Board of Directors (50.1% of the
total Series C shares sold), and the remaining 883,334 shares were sold to other
unaffiliated investors (33.2% of the total Series C shares sold). The Series C
preferred stockholders were entitled to one vote for each number of common
shares their Series C preferred stock was convertible into, and voted together
with holders of common stock and not as a separate class. The Series C
preferred stockholders were entitled to receive when, as and if declared by the
Board of Directors (out of any funds legally available therefor) dividends (in
cash or in shares of Series C preferred stock, as determined by the Board of
Directors) at an annual rate per share of $.24 if in cash or .08 shares of
Series C preferred stock if in stock, payable or accruing quarterly, commencing
on December 31, 1995. If dividends are accrued, the unpaid dividends compound at
an annual interest rate of 8%. In the event the Board of Directors failed to
declare the dividend in stock or cash ten working days prior to the end of each
calendar quarter, the dividend was automatically deemed declared in cash as of
the end of the quarter. As a result the dividend was constructively cumulative.

F-10
<PAGE>

The Series C preferred stock also contained a right to convert to common
stock on a one share for one share basis at any time (See below for discussion
of the impact of the October 1996 reverse stock split), and the shares were to
be automatically converted upon the occurrence of certain automatic conversion
events (including the successful completion of an initial public offering of the
Company's common stock if certain pricing and other criteria were met). The
Series C preferred stock also contained a mandatory-redemption feature under
which the stock was to be redeemed (if requested in writing with at least 30
days notice by at least 67% of the holders) at the liquidation price in two
installments (50% on November 9, 2002 and 50% on November 9, 2003). In the
event of a merger, sale or dissolution of the Company, or initiation of
mandatory redemption of the senior preferred Series C stock where the proceeds
to the holders are less than two times the holders' original basis plus accrued
dividends, then in such event the holders were to receive the face value of
their investment plus accrued dividends and were also entitled to participate on
an "as if converted" basis in all remaining net proceeds of the Company. As
consideration for the Series C preferred stock sale, the Company received
$7,928,968 in cash, and promissory notes from two of its founders and one board
member amounting to $57,755. The Company incurred legal and other offering
costs of $87,834 in connection with this Series C preferred stock sale.

In October 1995, the Board of Directors granted each purchaser of shares of
senior redeemable convertible Series C preferred stock a warrant to purchase
additional shares equal to 10% of the shares owned by such purchaser, at an
exercise price of $3 per share, such shares to be exercisable at any time until
the earlier of (a) five years from the date of issuance and (b) the effective
date of an initial public offering of the Company's securities. No value was
assigned to these warrants as the computed value of the warrants using the
Black-Scholes model was zero.

In October 1996, the Board of Directors authorized a reverse stock split
whereby stockholders of common stock will receive .517 shares of common stock
for every one share previously owned. The previous conversion ratio of one
share of Series C Preferred Stock for one share of Common Stock was adjusted for
this reverse split so that one share of Series C Preferred Stock was convertible
into .517 shares of common stock.

In connection with the Initial Public Offering which became effective on
December 26, 1996, all of the issued and outstanding shares of the Series C
Preferred Stock, and all outstanding Series C Preferred Stock warrants were
converted into common stock.

During the year ended December 31, 1996, the Company accrued and paid
dividends on the Series C preferred stock of $795,649.

The following table summarizes the 1994, 1995 and 1996 activity of Series B
and Series C mandatorily redeemable preferred stock:
<TABLE>
<CAPTION>
Redeemable Preferred Stock
--------------------------------------------------
Series B Series C
---------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1993...... 29,560 $ 2,683,615 - $ -
-
Shares issued in October 1994..... 25,000 2,315,844 - -
Accrual of dividends.............. 4,474 421,696 - -
Accretion to redemption value..... - 30,367 - -
------- ----------- ---------- -----------
Balance at December 31, 1994...... 59,034 5,451,522 - -
Shares issued in 1995............. - - 2,662,241 7,986,723
Issuance costs.................... - (860) - (87,834)
Accrual of dividends.............. 7,837 783,700 - -
Accretion to redemption value..... - 43,464 - 4,944
------- ----------- ---------- -----------
Balance at December 31, 1995...... 66,871 6,277,826 2,662,241 7,903,833
Accretion to redemption value..... - 43,464 - 11,380
Redemption of Series B Preferred.. (66,871) (6,321,290) - -
Exercise of outstanding warrants
For cash...................... - - 32,029 96,087
Under cashless tender......... - - 110,653 -
Conversion to common stock........ - - (2,804,923) (8,011,300)
------- ----------- ---------- -----------
Balance at December 31, 1996...... - $ - - $ -
======= =========== ========== ===========
</TABLE>

F-11
<PAGE>

6. COMMON STOCKHOLDERS' EQUITY (DEFICIT)

On January 27, 1993, the Company sold 768,117 shares of common stock to its
founding stockholders for $44,572 ($.06 per share). These shares were subject
to a stock purchase and restriction agreement under which the Company had
retained a right to repurchase any "unvested" shares at the original sales price
of $.06 per share. These shares became fully vested on January 26, 1997.

On November 9, 1993, the Company sold 259,172 shares of common stock to its
founding stockholders at $.19 per share. As consideration for the common stock
sale, the Company received net proceeds of $33,587 in cash and a promissory note
from one of its founders amounting to $16,543. (See Note 8).

On May 24, 1995, the stockholders approved a 10-for-1 stock split of the
Company's common stock. All references in this report to number of common shares
outstanding reflect stock splits retroactively to inception of the Company.

In October 1996, the Board of Directors authorized a reverse stock split
whereby stockholders of common stock received .517 shares of common stock for
every one share previously owned. The previous conversion ratio of one share of
Series C Preferred Stock for one share of Common Stock was also adjusted for
this reverse split so that one share of Series C Preferred Stock was convertible
into .517 shares of common stock. In addition, authorized, issued, and
outstanding options under the Company's 1994 stock option plan were revised to
reflect the impact of the reverse stock split on share and option prices. All
references in this report to number of common shares outstanding reflect this
reverse stock split retroactively to inception of the Company.

Initial Public Offering

On December 26, 1996, the Company completed an Initial Public Offering for
the sale of 2,400,000 shares of Common Stock. From the date of the Initial
Public Offering through March 26, 1997, the net proceeds of the Offering which
approximated $23.6 million, have been used (1) to redeem all the issued and
outstanding shares of the Series B Preferred Stock, (2) for capital and
exploration expenditures, (3) to pay dividends accrued on the issued and
outstanding Series C Preferred Stock and (4) for general corporate purposes,
including expenses associated with hiring additional personnel. The Company
plans to use the remaining proceeds to fund future capital and exploration
programs and general corporate purposes.

F-12
<PAGE>

7. STOCK OPTIONS

In June 1994, the Board of Directors approved the 1994 Stock Option Plan
(the Plan) for employees, officers, directors and certain consultants of the
Company. The ten year options vest for employees over four years (annually for
the first two years and monthly the last two years) and for directors and
consultants over three years (annually with 50% in year one) and certain of
these options are eligible for accelerated vesting upon a change of control of
the Company. At December 31, 1996 the Company had reserved 1,504,937 shares of
common stock for issuance under this Plan.

The following table summarizes option balances and activity for the Plan:

Year Ended December 31,
--------------------------
1994 1995 1996
---- ---- ----
Option shares:

Outstanding at beginning
of year................... - 438,783 686,943
Granted during year..... 438,783 248,160 267,806
Exercised during year... - - (3,124)
Canceled during year.... - - (157,146)
-------- -------- --------
Outstanding at end of year. 438,783 686,943 794,479
Options exercisable at end
of year................... - - -
Shares available for grant
at end of year............ 549,154 300,994 707,334

Weighted average price of
options:
Granted during year....... $ 0.22 $ 0.56 $ 2.81
Exercised during year..... - - $ 0.19
Outstanding at end of year... $ 0.22 $ 0.42 $ 0.70

Weighted average fair
value of options granted
during year............... - $ 3.72 $ 8.95

At December 31, 1996 At December 31, 1996
----------------------------------- ------------------------------------
Weighted- Weighted- Weighted -
Range of average average average
exercise prices Number outstanding exercise price contractual life Number exercisable exercise price
- - --------------- ------------------ --------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$0.19-0.58 761,908 $ 0.37 8.0 337,980 $0.28
$7.95 27,401 $ 7.95 9.8 - -
$11.00 5,170 $ 11.00 9.8 - -
------- -------
Total Options 794,479 $ 0.70 8.1 337,980 $0.28
======= =======
</TABLE>

In connection with stock options granted within one year of the Initial
Public Offering, the Company has recorded deferred compensation as additional
paid in capital and an offsetting contra-equity account. Such compensation
accrual is based on the difference between the option price and the $11.00 per
share Initial Public Offering common stock price. Such deferred compensation is
being recorded as compensation over the period during which the options become
vested.

F-13
<PAGE>

In October 1995, the FASB issued SFAS No. 123. SFAS No. 123 is a new standard of
accounting for stock-based compensation and establishes a fair value method of
accounting for awards granted after December 31, 1995 under stock compensation
plans. The Company has elected to continue accounting for grants of employee
stock options under Accounting Principles Board Opinion No. 25. Had the Company
elected to apply SFAS No. 123, the estimated effects on net income and earnings
per share resulting from grants made after December 31, 1994 would have been as
follows:

1995 1996
---- ----

Net Loss As Reported $(2,488,375) $(2,735,364)
Pro forma (2,480,893) (2,450,298)
Primary and Fully Diluted
Earnings per Share As Reported $ (1.14) $ (1.16)
Pro forma $ (1.14) $ (1.07)
Pro forma Assumptions:
Risk Free Interest Rate: Maximum 5.98% 6.68%
Minimum 5.59% 5.35%
Expected Option Life: Maximum 5.0 years 4.5 years
Minimum 4.6 years 3.7 years

Volatility was not considered in the above calculation as the Company was not
publicly traded until December 26, 1996.

8. NOTES RECEIVABLE FROM STOCK SALES

During 1994, 1995 and 1996, two officers and one member of the Board of
Directors purchased common or preferred stock for notes, which are reflected as
an offset to equity in the accompanying financial statements. The notes were
full recourse promissory notes bearing interest at a fixed rate of 6% per annum.
The notes from the two employees were collateralized by certain vested stock
options the individuals hold from their former employer. The principal and all
accrued interest on the notes held at December 31, 1995 were repaid in 1996.

9. SAVINGS PLAN

The Company has joined with Landmark in offering its employees an employee
401-K savings plan (the Plan) which became effective upon inception of the
Company. The Plan covers substantially all employees and entitles them to
contribute up to 15% of their annual compensation, subject to maximum
limitations imposed by the Internal Revenue Code. While the Plan allows for
employer matching of a portion of the employee contributions, the Company has
elected not to match contributions.

10. COMMITMENTS

Effective March 1, 1995, the Company entered into a 5-year office
facilities operating lease agreement which required an 18-month rent prepayment
at inception, and contains typical renewal options and escalation clauses.

Future minimum payments under non-cancelable office facilities and office
equipment operating leases having initial terms of one year or more are as
follows at December 31, 1996:

1997.......................................... $ 99,681
1998.......................................... 99,870
1999.......................................... 99,374
2000.......................................... 18,037
Thereafter.................................... 189
--------
Total minimum lease payments.................. $317,151
========

Rental expense under these operating leases was approximately $61,000 in 1994,
$90,370 in 1995, and $106,825 in 1996.

F-14
<PAGE>

11. SALE OF ASSETS

In April 1995, the Company sold 66.67% of its working interest in the
Double Diamond/Jones Ranch prospect to a group of individual investors who are
stockholders in the Company (through a limited partnership). Proceeds from the
sale, which represented both the estimated fair market value of the interest
sold as well as 3DX's proportionate cost to date on the prospect, amounted to
$480,931. No gain or loss was recorded on this transaction.

12. SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes cash paid for interest and taxes as well as
non-cash transactions for the indicated years:

1994 1995 1996
---- ---- ----

Cash paid during the year for interest... $ - $ - $ 289
Non-cash Transactions:
Dividends declared but not paid.......... $ - $275,256 $ -
Accretion on preferred stock............. 30,367 48,408 54,844
Sale of Series B preferred and common
stock in exchange for promissory note
from one of the founders
(October 24, 1994)...................... 12,492 - -
Stock dividend on Series B preferred
stock................................... 421,699 783,700 -
Sale of Series C preferred stock in
exchange for promissory notes from two
of the founders......................... - 57,755 -
10 for 1 common stock split (Note 6)..... - - -
Exercise of outstanding warrants......... - - 572

13. SUBSEQUENT EVENTS

In January 1997, the Company's underwriters exercised their 30-day option
to purchase 375,000 additional shares of Common Stock at the Offering price of
$11.00 per share, less underwriting discounts and commissions. The Company
received net proceeds of approximately $3.8 million upon issuance of these
shares. This option was granted to the underwriters to cover over-allotments in
connection with the Initial Public Offering and sale of 2,400,000 shares of the
Company's common stock which became effective on December 26, 1996.

On January 21, 1997, the Company entered into an agreement with Esenjay
Petroleum Corp., one of 3DX's active partners, to increase the 3DX working
interest in three active projects in the Texas Gulf Coast trend and one active
project in the Mississippi/Alabama trend for a consideration of $1,337,500.

On March 5, 1997, the Company, along with Santa Fe Energy Resources, Inc.,
one of 3DX's active partners, was the successful bidder on four offshore blocks
offered in the Federal Lease Sale No. 166, Central Gulf of Mexico. These
successful bids are subject to final review and approval by the Minerals
Management Service, and are not final until approval is obtained. The Company
has incurred pre-lease costs of $260,000 and has committed an additional
$839,765 for this acreage.

F-15
<PAGE>

14. RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

The following table sets forth the Company's results of operations for oil
and gas producing activities for the years ended December 31, 1994, 1995 and
1996.

1994 1995 1996
---- ---- ----
Oil and gas revenues................ $ 303,836 $ 274,511 $ 851,827
Lease operating costs............... 14,225 60,877 49,016
Production taxes.................... 19,812 17,656 58,660
Impairment of oil and gas
properties......................... - 1,627,321 1,476,690
Depletion, depreciation and
amortization....................... 90,672 158,336 422,839
---------- ----------- -----------
Income (loss) before income taxes... 179,127 (1,589,679) (1,155,378)
Income tax expense (credit)......... - - -
---------- ----------- -----------
Net income (loss)................... $ 179,127 $(1,589,679) $(1,155,378)
========== =========== ===========
Amortization per physical unit of
production (equivalent Mcf of gas). $ 0.64 $ 1.15 $ 1.31
========== =========== ===========

The results of operations from oil and gas producing activities were
determined in accordance with Statement of Financial Accounting Standards No.
69, "Disclosures About Oil and Gas Producing Activities" ("SFAS No. 69") and,
therefore, do not include corporate overhead, interest and other general income
and expense items.

15. COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

The aggregate amounts of capitalized costs relating to the Company's oil
and gas producing activities and the related accumulated depletion,
depreciation, and amortization and impairment at December 31, 1994, 1995 and
1996 were as follows:

1994 1995 1996
---- ---- ----
Unproved properties................. $ 828,321 $ 1,375,145 $ 4,403,165
Proved properties................... 1,575,146 2,648,724 7,164,397
--------- ----------- -----------
Total capitalized costs............. 2,403,467 4,023,869 11,567,562
Less-accumulated depletion,
depreciation and amortization...... (90,672) (1,876,329) (3,775,858)
---------- ----------- -----------
$2,312,795 $ 2,147,540 $ 7,791,704
========== =========== ===========

Unevaluated properties and associated costs not currently being amortized
and included in oil and gas properties were $828,321, $1,375,145, and $4,403,165
at December 31, 1994, 1995 and 1996, respectively. The projects represented by
these costs were at such dates undergoing exploration or development activities
or projects in which the Company intends to commence such activities in the
future. The Company will begin to amortize these costs when proved reserves are
established or impairment is determined. The Company believes that the
unevaluated properties at December 31, 1996 will be fully evaluated in 24 to 36
months.

The following table represents an analysis of remaining unevaluated oil and
gas property costs at December 31, 1996, and the years in which they were
incurred:

1994 1995 1996
========== =========== ===========
Acquisition costs.................. $ 13,075 $ 70,865 $ 3,512,948
Exploration costs.................. 7,114 3,617 795,546
---------- ----------- -----------
Total............................ $ 20,189 $ 74,482 $ 4,308,494
========== =========== ===========

F-16
<PAGE>

The following table sets forth the costs incurred in the Company's oil and
gas property acquisition, exploration and development activities for the years
presented:

1994 1995 1996
---- ---- ----
Property acquisition costs-
Proved $ - $ - $ -
Unproved 372,134 490,141 1,171,217
Exploration costs 1,618,149 1,611,192 6,269,266
Development costs - - 103,210
---------- ---------- ----------
$1,990,283 $2,101,333 $7,543,693
========== ========== ==========

16. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

Reserves

The process of estimating proved developed and proved undeveloped oil and
gas reserves is very complex, requiring significant subjective decisions in the
evaluation of available geologic, engineering and economic data for each
reservoir. The data for a given reservoir may change over time as a result of,
among other things, additional development activity, production history and
viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates may occur in the future.
Although every reasonable effort is made to ensure that reserve estimates are
based on the most accurate and complete information possible, the significance
of the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.

The Company began its exploration program in 1993, by participating in an
exploration program as a royalty owner. The Company did not produce any
discovered oil and gas reserves in 1993.

The Company added proved oil and gas reserves in 1994 as a result of
exploration efforts on one prospect.

In 1995, the Company added proved reserves from one additional well in the
1994 prospect, and drilled one additional successful well in a new prospect. In
addition, there was a significant downward revision in oil and gas reserves
associated with the Bright Falcon project. The primary factors contributing to
the reserve revision include (1) the premature loss of a well due to mechanical
reasons which was unanticipated at the time of the initial estimate, and (2) the
removal of proved, undeveloped reserves attributable to a well location, which
the project partners elected not to drill.

In the year ended December 31, 1996, the Company added proved reserves from
ten successful wells from drilling on various prospects. The Company also made
certain downward revisions to its previous estimates. Such revisions result from
additional production and performance information which became available during
1996.

F-17

<PAGE>

The following information regarding estimates of the Company's proved
oil and gas reserves, all located in the United States, is based on reports
prepared on behalf of the Company by independent petroleum engineers, Ryder
Scott Company. The following table sets forth the changes in the Company's total
proved reserves (all of which are developed) for the years ended December 31,
1994, 1995 and 1996.
<TABLE>
<CAPTION>

Year Ended December 31,
-----------------------------------
1994 1995 1996
--------- ---------- ---------
Oil (Bbls)
-----------------------------------
<S> <C> <C> <C>
Proved reserves at the beginning of the
year................................... 4,000 39,886 41,193
Extensions, discoveries, and other
additions.............................. 42,000 26,000 9,797
Revisions of previous estimates......... - (18,000) (10,079)
Production.............................. (6,114) (6,693) (8,483)
--------- -------- --------
Proved reserves at the end of the year.. 39,886 41,193 32,428
========= ======== ========

Gas (Mcf)
-----------------------------------
Proved reserves at the beginning of the
year................................... 20,000 1,236,915 442,795
Extensions, discoveries, and other
additions.............................. 1,322,000 104,000 2,284,482
Revisions of previous estimates......... - (801,000) 7,661
Production.............................. (105,085) (97,120) (271,202)
--------- --------- ---------
Proved reserves at the end of the year.. 1,236,915 442,795 2,463,736
========= ========= =========
</TABLE>

F-18

<PAGE>

Standardized Measures of Discounted Future Net Cash Flows

The Company's standardized measure of discounted future net cash flows, and
changes therein, related to proved oil and gas reserves are as follows (in
thousands):
<TABLE>
<CAPTION>

December 31,
-----------------------------
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Future cash inflow $ 2,997 $ 1,405 $ 9,354
Future production, development and
abandonment costs (755) (329) (1,430)
------- ------- -------
Future cash flows before income taxes 2,242 1,076 7,924
Future income taxes - - -
------- ------- -------
Future net cash flows 2,242 1,076 7,924
10% Discount factor (636) (305) (1,301)
------- ------- -------
Standardized measure of discounted
future net cash flow $ 1,606 $ 771 $ 6,623
======= ======= =======

Changes in standardized measure of discounted
future net cash flows:
Sales of oil, gas and natural gas
liquids, net of production costs $ (270) $ (196) $ (744)
Extensions, discoveries and other
additions 1,878 349 6,594
Revisions of estimates of reserves
proved in prior years:
Quantities estimated - (1,280) (200)
Net changes in price and
production cost - (71) 173
Accretion of discount 6 161 77
Changes in future development costs (112) 103 (82)
Changes in production rates
(timing) and other 44 99 34
------ ------- -------
Net change $1,546 $ (835) $ 5,852
====== ======= =======
</TABLE>

Estimated future cash inflows are computed by applying year-end prices of
oil and gas to year-end quantities of proved reserves. Future price changes are
considered only to the extent provided by contractual arrangements. Estimated
future development and production costs are determined by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions. Estimated future income tax
expense is calculated by applying year-end statutory tax rates to estimated
future pretax net cash flows related to proved oil and gas reserves, less the
tax basis (including net operating loss carryforwards projected to be usable) of
the properties involved.

These estimates were determined in accordance with SFAS No. 69. Because of
unpredictable variances in expenses and capital forecasts, crude oil and gas
prices and oil and gas reserve volume estimates, as well as the arbitrary
pricing and discounting assumptions used in these cash flow estimates,
management believes the usefulness of this data is limited. These estimates of
future net cash flows do not necessarily represent management's assessment of
estimated fair market value, future profitability or future cash flow to the
Company. Management's investment and operating decisions are based upon reserve
estimates that include proved as well as probable reserves and upon different
price and cost assumptions from those used herein.

The future cash flows presented in the "Standardized Measures of Discounted
Future Net Cash Flows" are based on year-end oil and gas prices for oil and gas
reserves which as of December 31, 1996 were approximately $24.64 per barrel of
oil and approximately $3.47 per Mcf of gas. The Company does not have oil and
gas reserves which are committed under oil and gas contracts.

F-19

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Houston, State of Texas on the 30th day of April,
1997.

3DX TECHNOLOGIES INC.

By: /s/ Randall D. Keys
---------------------------------------------
Vice President of Finance and Chief Financial
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 to the Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
the 30th day of April 1997.

Signature Title(s)
--------- --------

/s/ C. Eugene Ennis President, Chief Executive Officer,
- - -------------------------------- Director (Principal Executive Officer
C. Eugene Ennis and Principal Accounting Officer)

Peter M. Duncan * Vice President, Technology
- - --------------------------------
Peter M. Duncan

Douglas C. Nester * Vice President, Exploration
- - --------------------------------
Douglas C. Nester

Robert J. Bacon, Jr. * Vice President, Joint Ventures
- - --------------------------------
Robert J. Bacon, Jr.

Joseph Schuchardt, III * Vice President, Business Development
- - --------------------------------
Joseph Schuchardt, III

/s/ Randall D. Keys Vice President of Finance, Chief
- - -------------------------------- Financial Officer (Principal
Randall D. Keys Accounting and Financial Officer)

Jon W. Bayless * Director
- - --------------------------------
Jon W. Bayless

Robert H. Chaney * Director
- - --------------------------------
Robert H. Chaney

Charles E. Edwards * Director
- - --------------------------------
Charles E. Edwards

Douglas C. Williamson * Director
- - --------------------------------
Douglas C. Williamson

By: /s/ C. Eugene Ennis
-----------------------------
C. Eugene Ennis
Attorney-in-fact