SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, DC, 20549

                                   FORM 10-K

               Annual Report Pursuant to Section 13 or 15(d) of
                      The Securities Exchange Act of 1934

For the fiscal year ended December 31, 1996     Commission File No. 0-18774


                            Spindletop Oil & Gas Co.
            (Exact name of registrant as specified in its charter)


                 Texas                                         75-2063001   
--------------------------------------------          ----------------------
(State  or  other jurisdiction of incorporation       (IRS Employer or ID #)
 or organization)

9319 LBJ, Frwy., #205 Dallas, TX                               75243
(Address of principal executive                              (Zip Code)
offices)

Company's telephone number, including area code:  (972) 644-2581

Securities registered pursuant to Section 12(b) of the Act:

                                      None

Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock par value $0.01 per share
                               (Title of Class)

Indicate by check mark whether the Company (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  Company  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

            YES   X                             NO

As of March 15, 1997, 7,488,304 shares of the Company's common stock were issued
and  outstanding,  and the  aggregate  market  value of the voting stock held by
non-affiliates  of the  company  as of that  date is not  determinable  since no
significant  public trading market has been established for the Company's common
stock.








                                       1
<PAGE>




                                    PART I


Item 1. Description of Business.
(a) General Business Development.
Spindletop Oil & Gas Co. is engaged in the exploration, development and 
production of oil and natural gas; the rental of oilfield equipment;and through
one of its subsidiaries, the gathering and marketing of natural gas. The term
"Company" is used herein to refer to Spindletop Oil & Gas Co. and its wholly
owned subsidiaries,Prairie Pipeline Co.("PPL") and Spindletop Drilling Company
("SDC") .

The net crude oil and gas reserves of the Company as of December 31, 1996,  were
72,091 barrels of oil and condensate and 2,471,174 MCF (thousand  cubic feet) of
natural  gas.  The  Company  owns  rental   equipment,   including  natural  gas
compressors,  pumping units, natural gas dehydrators and other various pieces of
oilfield  production  equipment.  In addition,  the Company,  through PPL,  owns
approximately  25.7 miles of pipelines located in Texas,  which are used for the
gathering of natural gas. The Company's  principal executive offices are located
at 9319 LBJ  Freeway,  Suite  #205,  Dallas,  Texas.  The  telephone  number  is
(972)644-2581.

                                  BACKGROUND

The  Company  is a Texas  Corporation.  The  Company  was  previously  known as
Prairie  States  Energy Co.("PSE"). On July 13, 1990, Spindletop Oil & Gas Co.,
a Utah Corporation,("SOG UTAH") merged into PSE,and the name of PSE was changed
to Spindletop Oil & Gas Co.,the Company herein.

The Company was originally  incorporated  in Colorado as Mid-America  Drilling &
Exploration, Inc., on August 9, 1978 as a wholly-owned subsidiary of Mid-America
Petroleum,  Inc. ("MAP"). The principal business of the Company at that time was
contract  drilling  of oil and gas wells.  The  initial  public  offering of the
Company  occurred by prospectus  dated  December 13, 1979. In January 1981,  the
shares  of the  Company  owned  by MAP were  distributed  as a  dividend  to the
shareholders   of  MAP.  The  Company's  name  was  changed  to  Prairie  States
Exploration,  Inc. on March 15, 1983.  Prairie States  Exploration,  Inc. became
insolvent  in late  1983,  and  filed for  protection  under  Chapter  11 of the
Bankruptcy Code on December 14, 1983.

Prairie States Exploration, Inc. was successfully reorganized under Chapter 11
of the Bankruptcy Code, and the Bankruptcy Court approved the plan of
reorganization on September 9, 1985. Pursuant to the Plan, the Company merged
into a wholly-owned subsidiary, Prairie States Energy Co., a Texas Corporation.
The Plan of Reorganization was proposed and funded by Paul E. Cash.

Since the  reorganization,  the  Company  has engaged in the general oil and gas
business, including exploration, development, and production of oil and gas,
the rental of oilfield  production equipment and the ownership and construction
and operation of pipelines  for the gathering and marketing of natural gas.
SOG Utah was incorporated on August 15, 1975 as Main Street Equities, Inc., a
Utah corporation. SOG Utah sold 5,000,000 shares of common stock in a public
offering in 1976. Until 1981, the business of the company  consisted of minor 
real estate operations. In October  1981 the name was  changed to Aledo Oil and


                                       2
<PAGE>

Gas Company and in January 1983 the name was changed to Spindletop Oil & Gas Co.

The name  "Spindletop"  has been used by Paul E. Cash since 1975 in  conjunction
with several previous oil and gas businesses in which he was engaged.

On July 13, 1990,  SOG Utah was merged into PSE,  and the name of the  surviving
company was changed to  Spindletop  Oil & Gas Co., a Texas  corporation.  In the
merger,  each shareholder of PSE received  one-half share of the common stock of
the  surviving  company,  the Company,  for each share of PSE owned prior to the
merger.  Each  shareholder  of SOG Utah received one and one-half  shares of the
common stock of the surviving company, for each share of SOG Utah owned prior to
the merger.  After the merger, the Company had outstanding  44,922,564 shares of
common  stock,  32,255,195  of which were owned by the  shareholders  of PSE and
12,667,369 by shareholders of SOG Utah. Shares issued to the former shareholders
of SOG Utah have not been registered with the Securities and Exchange Commission
but according to Rule 144-K these shares would automatically become free trading
three years from date of issuance.  The Company's  management  believes that all
shares  issued to the former  shareholders  of SOG Utah are now free  trading in
accordance with Rule 144-K. On January 31, 1997, the Company  effected a one for
six reverse stock split.  The Company reduced the authorized  common shares from
150,000,000  to  100,000,000  and increased the par value from $.001 to $.01 per
share.

                               PLAN OF OPERATION

In 1994 and 1995 the Company  successfully  concentrated  its efforts on oil and
gas property  acquisitions.  With increased competition for oil and gas property
acquisitions  and  with a  corresponding  increase  in oil and gas  prices,  the
Company,  in 1996,  returned  its focus to its  primary  business of oil and gas
exploration and production.  The Company's long-term strategy is to build an oil
and gas production  company through an exploration  program.  Additionally,  the
Company  will  continue  to rework  existing  wells in an  attempt  to  increase
production and reserves.

The Company  will  continue to generate  and  evaluate  prospects  using its own
geological and land staff. The Company intends to fund operations primarily from
cash flow generated by operations.  The Company's  primary area of operation has
been and  will  continue  to be in  Texas  with an  emphasis  in the  geological
provinces known as the Ft. Worth Basin in Texas.

The  Company  will  attempt to expand its  pipeline  system.  Expansion  will be
dependent upon success in its  exploration  programs,  since all of its existing
pipelines  are connected to wells which it operates.  In addition,  the oilfield
rental  equipment  business  will be expanded as needed,  but this  segment also
depends upon the success of the exploration and development program.

The  Company  in 1996  expanded  its  current  pipeline  system  by 6.7 miles by
acquiring, at no cost, a pipeline system in Hood County, Texas.


                                       3
<PAGE>



(b) Financial information relating to Industry Segments
The Company has two identifiable business segments: exploration, development and
production  of oil and natural gas, and gas  gathering  and oil field  equipment
rental.  Footnote 15 to the Consolidated  Financial Statements filed herein sets
forth the relevant  information  regarding revenues,  income from operations and
identifiable assets for these segments.

(c) Narrative Description of Business
The Company and SDC are engaged in the  exploration, development and production
of oil and natural gas, and the rental of oil and gas production equipment. PPL
is engaged in the gathering and marketing of natural gas.

(i) Principal Products, Distribution and Availability.
The  principal products  marketed  by the Company are crude oil and natural gas
which are  sold  to  major  oil  and  gas  companies,  brokers,  pipelines  and
distributors, and oil and gas properties which are acquired and sold to oil and
gas development entities. Reserves of oil and gas are depleted upon extraction,
and the Company is in competition  with other entities for the discovery of new
prospects.

The Company is also  engaged in the  gathering  and  marketing  of natural  gas
through  its  subsidiary  PPL. The  Company  owns 26.1 miles of  pipelines  and
currently  gathers  approximately  592 MCF of gas per day. Gas is gathered for a
fee.  Substantially  all of the gas gathered by the Company is gas produced from
wells which the Company operates and in which it owns a working interest.

The Company is also  engaged in the  business  of rental of oilfield  production
equipment.  The  equipment  is  comprised  of pumping  units,  compressors, gas
dehydrators  and  related  production  equipment.   Substantially  all  of  such
equipment is located on wells which the Company  operates and in which it owns a
working interest.

(ii)  Patents,  Licenses and  Franchises.  Oil and gas leases of the Company are
obtained  from the owner of the mineral  estate.  The leases are generally for a
primary term of 1 to 5 years,  and in some  instances as long as 10 years,  with
the provision  that such leases shall be extended into a secondary term and will
continue  during  such  secondary  term as long as oil and gas are  produced  in
commercial  quantities  or other  operations  are  conducted  on such  leases as
provided  by the terms of the  leases.  It is  generally  required  that a delay
rental be paid on an annual  basis  during the primary  term of the lease unless
the  lease is  producing.  Delay  rentals  are  normally  $1.00 to $5.00 per net
mineral acre.

The Company currently holds interests in producing and non-producing oil and gas
leases. The existence of the oil and gas leases and the terms of the oil and gas
leases are important to the business of the Company because future  additions to
reserves will come from oil and gas leases  currently owned by the Company,  and
others that may be acquired, when they are proven to be productive.  The Company
is  continuing  to purchase oil and gas leases in areas where it  currently  has
production, and also in other areas.


                                       4
<PAGE>



(iii) Seasonality.
The  Company's  oil and gas  activities  generally are conducted on a year round
basis with only minor interruptions caused by weather.

(iv) Working Capital Items.
The Company  finances the majority of its operations,  including the purchase of
oil and gas leases,  the development of wells, the construction of pipelines and
acquisition of oil field rental  equipment from its internal  working capital as
well as some borrowings.

(v) Dependence on Customers.
The following is a summary of significant  purchasers of the oil and natural gas
produced by the Company for the three year period ended December 31, 1996:

<TABLE>
<CAPTION>


                                          December 31, Percent (1)
                Purchaser                   1996    1995     1994
                                           ------  ------  ------
<S>                                        <C>     <C>     <C>
                                          
Lone Star Gas Company and affiliates           -%    - %      29%
Mitchell Marketing Co.                        12%    - %       -%
Tristar Gas Company                           10%    - %       -%
Texas Utilities Fuel Co.                      18%    23%      28%
</TABLE>

(1) Percent of total oil and gas sales


In the past The  Company  sold gas under  long term  contracts  to Lone Star Gas
Company  and its  affiliates.  Such  contracts  are no  longer  in  effect.  Gas
previously  marketed  under those  contracts is now sold to other  parties under
market sensitive, short term contracts.

Sales of natural gas to Texas  Utilities Fuel Company  ("TUFCO") are pursuant to
contracts  expiring in 1994 through  1999.  Gas previouly  marketed  under those
contracts  and from those  contracts  that will expire is sold to other  parties
under market sensitive, short-term contracts.

(vi) Competition.
Numerous  entities and individuals,  many of whom have far greater financial and
other  resources  than  the  Company,  are  active  in the  exploration  for and
production of oil and gas. Substantial competition exists for leases, 
prospects and equipment, all of which are necessary for successful operations.
Competition is focused primarily on the discovery of new prospects which can be
developed and made productive.

The market  prices  received for the  Company's  products  depend on a number of
factors beyond the control of the Company,  including consumer demand, worldwide
availability,   transportation   facilities,   and  United  States  and  foreign
government  regulation  of  exports,  imports,  production  and  prices.  Widely


                                       5
<PAGE>

fluctuating  prices for oil and gas over recent years,  have had a direct effect
on the profitability of the Company's operations.

(vii) Development Activities.
The  Company's  primary oil and gas  prospect  acquisition  efforts have been in
known producing areas in the United States with emphasis devoted to Texas.

The Company  intends to use a portion of its available  funds to  participate in
drilling activities.  Any drilling activity is performed by independent drilling
contractors.  The Company does not refine or  otherwise  process its oil and gas
production.

Exploration  for oil and gas is normally  conducted  with the Company  acquiring
undeveloped oil and gas prospects,  and carrying out exploratory drilling on the
prospect  with the  Company  retaining  a  majority  interest  in the  prospect.
Interests in the property are sometimes  sold to key  employees  and  associated
companies at cost. Also, interests may be sold to third parties with the Company
retaining  an  overriding  royalty  interest,   carried  working  interest,   or
reversionary  interest.  A prospect is a  geographical  area  designated  by the
Company for the purpose of searching  for oil and gas  reserves  and  reasonably
expected  by it to  contain  at  least  one oil or gas  reservoir.  The  Company
utilizes  its own  funds  to  acquire  oil and gas  leases  covering  the  lands
comprising  the  prospects.  These  leases are  selected  by the Company and are
obtained  directly from the  landowners,  as well as from  landmen,  geologists,
other oil  companies,  some of whom may be affiliated  with the Company,  and by
direct purchase,  farm-in,  or option agreements.  After an initial test well is
drilled on a property, any subsequent development of such prospect will normally
require the Company's participation for the development of the discovery.

(viii) Environmental Regulation.
The Company's oil and gas exploration  and production  activities are subject to
Federal,  State  and  environmental  quality  and  pollution  control  laws  and
regulations.  Such  regulations  restrict  emission and discharge of wastes from
wells,  may require permits for the drilling of wells,  prescribe the spacing of
wells and rate of production, and require prevention and clean-up of pollution.

Although the Company has not in the past incurred substantial costs in complying
with  such  laws  and   regulations,   future   environmental   restrictions  or
requirements may materially increase the Company's capital expenditures,  reduce
earnings,  and delay or prohibit certain activities.  However, such restrictions
and  requirements  would  also  apply to the  Company's  competitors,  and it is
unlikely that  compliance by the Company  would  adversely  affect the Company's
competitive position.


(ix) Additional Government Regulation.
In addition to environmental regulations, the production and sale of oil and gas
is subject to regulation by Federal,  State and local  governmental  authorities
and  agencies.  Such  regulations  encompass  matters  such as the  location and
spacing of wells,  the  prevention of waste,  the rate of  production,  the sale
price of certain oil and gas, conservation, and safety.

                                       6
<PAGE>

Oil Price Regulation
Historically, regulatory policy affecting crude oil pricing was derived from the
Emergency  Petroleum  Allocation  Act of 1973,  as amended,  which  provided for
mandatory  crude  oil price  controls  until  June 1,  1979,  and  discretionary
controls through September 30,1981. On April 5, 1979,  President Carter directed
the Department of Energy to complete administrative procedures designed to phase
out, commencing June 1, 1979, price controls on all domestically  produced crude
oil by October 1, 1981. However,  on January 28, 1981,  President Reagan ordered
the  elimination  of  remaining  federal  controls on domestic  oil  production,
effective  immediately.  Consequently,  oil may currently be sold at unregulated
prices.

Gas Price Regulation.
The Natural Gas Act of 1938 ("NGA") regulates the interstate  transportation and
certain  sales for resale of natural  gas.  The  Natural  Gas Policy Act of 1978
("NGPA")  regulates  the maximum  selling  prices of certain  categories of gas,
whether sold in so-called  "first sales" in  interstate or intrastate  commerce.
These  statutes are  administered  by the Federal Energy  Regulatory  Commission
("FERC").  The NGPA established  various  categories of natural gas and provided
for  graduated  deregulation  of price  controls  for  first  sales  of  several
categories  of natural gas.  With  certain  exceptions,  all price  deregulation
contemplated  under the NGPA as  originally  enacted in 1978 has  already  taken
place.  Under  current  market  conditions,  deregulated  gas  prices  under new
contracts  tend to be  substantially  lower than most  regulated  price ceilings
prescribed by the NGPA.

On July 26, 1989,  the Natural Gas Wellhead  Decontrol  Act of 1989  ("Decontrol
Act") was enacted.  The  Decontrol Act amended the NGPA to remove as of July 27,
1989 both price and  non-price  controls from natural gas not subject to a first
sale  contract in effect on July 26, 1989.  The  Decontrol Act also provided for
the phasing out of all price regulation under the NGPA by January 1, 1993.

(x)  Special Tax Provisions.
See footnote 8 to Consolidated Financial Statements

(xi) Employees.
The Company employs a total of 12 people, 7 persons in its offices in Dallas
and 5 in its field  operation. All are full-time employees.

(d) Financial information about foreign and domestic operations and export
     sales.

All of the Company's business is conducted domestically, with no export sales.


                                       7
<PAGE>












Item 2. Properties
Oil and Gas Properties.
The following table sets forth pertinent data with respect to the  Company-owned
oil and gas  properties,  all located within the continental  United States,  as
estimated by the Company:

<TABLE>
<CAPTION>


                                               Year Ended December 31,
                                            1996         1995         1994
                                         ----------   ----------   ----------
<S>                                      <C>          <C>          <C>
Gas and Oil Properties (net) (1):
Proved Developed Gas Reserves-MCF (2)     2,181,212    1,758,260    1,528,355
Proved Undeveloped Gas Reserves-
 MCF(3)                                     289,962      266,927      262,710
    Total Proved Gas Reserves-MCF         2,471,174    2,025,187    1,791,065

Proved Developed Crude Oil and
Condensate Reserves-Bbls (2)                 72,091       70,257       55,446
Proved Undeveloped Crude Oil and
Condensate Reserves-Bbls (3)                      -        1,811            -
    Total Proved Crude Oil and
    Condensate Reserves-Bbls                 72,091       72,068       55,446

</TABLE>

                      (See footnotes on Page 9 following)



                                       8
<PAGE>


<TABLE>
<CAPTION>


                                            Year Ended December 31,
                                         1996         1995         1994
                                    ------------ ------------ ------------
<S>                                 <C>          <C>          <C>
Present Value of Estimated
   Future Net Revenues
   From Proved Reserves (4) (5):
   Developed                         $ 2,228,000 $  1,464,000 $   1,401,000
   Developed and Undeveloped           2,381,000    1,625,000     1,527,000
Productive Wells (6):
   Gas Wells
    Gross                                    247          266           217
    Net                                    33.98        36.03         30.98
   Oil Wells
     Gross                                   224          234           322
     Net                                   15.43        15.71         16.66
Acreage:
   Developed Acres (Producing)
     Gross                                83,642       90,539        80,564
     Net                                   8,600       10,007         9,132
   Undeveloped Acres
     Gross                                81,805       81,805        81,805
     Net                                   8,793        8,793         8,793


                (See footnotes below and on Page 10 following)
<FN>

(1) The estimate of the net proved oil and gas  reserves,  future net  revenues,
and the present value of future net revenues.

(2) "Proved Developed Oil and Gas Reserves" are reserves that can be expected to
be recovered  through  existing  wells with  existing  equipment  and  operating
methods.

(3) "Proved Undeveloped Reserves" are reserves that are expected to be recovered
from new wells on undrilled  acreage,  or from existing wells where a relatively
major expenditure is required for recompletion.

(4) "Estimated  Future Net Revenues" are computed by applying  current prices of
oil and gas, less the estimated future  expenditures (based on current costs) to
be incurred in developing and producing the proved reserves.

(5) "Present Value of Estimated  Future Net Revenues" is computed by discounting
the  Estimated  Future Net Revenues at the rate of ten percent (10%) per year in
accordance with the Securities and Exchange Commission Rules and Regulations.


                                       9
<PAGE>


(6)   Operated Wells having multiple completions are as follows:
                   1996         1995         1994
               Gross    Net Gross    Net Gross    Net
               -----    --- -----    --- -----    ---
Gas             7      1.66   8     2.13   8    2.13
Oil            -0-      -0-  -0-     -0-  -0-     -0-
The Company has  interests in numerous  wells which are operating by third party
operators.  Information as to multiple  completions  with respect to third party
operated wells is not available to the Company.
</FN>
</TABLE>

The Company's  working  interests in exploration and development wells completed
during the years indicated were as follows:
<TABLE>


                                 Year Ended December 31,
                             1996          1995         1994
                         ------------  ------------ ------------
                         Gross   Net   Gross   Net  Gross   Net
<S>                     <C>     <C>    <C>     <C>  <C>     <C>
Exploratory wells:
    Productive            1        -     -       -    -       -
    Non-Productive        -        -     -       -    -       -
                         ---     ---    ---    ---   ---    ---
          Total           1        -     -       -    -       -
                         ---     ---    ---    ---   ---    ---

Development wells:
    Productive            -        -     -       -    -       -
    Non-Productive        -        -     -       -    -       -
                         ---     ---    ---    ---   ---    ---
          Total           -        -     -       -    -       -
                         ---     ---    ---    ---   ---    ---

Total Exploratory and
Development wells:
    Productive            1        -     -       -    -       -
    Non-Productive        -        -     -       -    -       -
                         ---     ---    ---    ---   ---    ---
    Total                 1        -     -      -     -       -
                         ---     ---    ---    ---   ---    ---

</TABLE>


                                       10
<PAGE>






The following  tables set forth  additional data with respect to production from
Company-owned oil and gas properties,  all located within the continental United
States:
<TABLE>
<CAPTION>


                                           Year Ended December 31,
                                   1996     1995     1994      1993      1992
                                 -------- -------- --------  -------- --------
<S>                              <C>      <C>      <C>       <C>      <C>
Oil and Gas Production (net):
  Gas                             371,074  322,465   284,903  252,240   261,636
  Crude Oil and Condensate -
  Bbls                             17,276   17,873    11,584    7,153     1,815
Average Sales Price Per Unit
Produced:
  Gas - per Mcf                 $   2.48  $   2.28  $  2.57  $  2.30   $  2.39
  Crude Oil and Condensate -
  per Bbl.                      $  21.16  $ 16.61   $ 15.71  $ 15.30   $ 15.86
Average Production Cost Per
Equivalent Barrel (1) (2)       $   8.90  $  8.81   $  7.62  $  5.33   $  7.94
<FN>
(1)  Includes severance taxes and ad valorem taxes.
(2) Gas production is converted to equivalent barrels at the rate of six mcf per
barrel,  representing  the estimated  relative  energy content of natural gas to
oil.
</FN>
</TABLE>

The Company owns producing  royalties and overriding  royalties under properties
located in Texas. The revenues from these properties is not significant.

Current Activities - March 15, 1997.
Gross Wells in Process of Drilling                     -0-
Net Wells in Process of Drilling                       -0-
Waterfloods in Process of Installation                 -0-
Pressure Maintenance Operations                        -0-

The Company is not aware of any major  discovery  or other  favorable or adverse
event that is  believed  to have caused a  significant  change in the  estimated
proved reserves since December 31, 1996.

Office Space.

The Company leases office space as follows:

Location           Square Feet       Lease Expires
Dallas, Texas         5,393           May 31, 1997


                                       11
<PAGE>

Pipelines.
The company owns,  through its  subsidiary  Prairie  Pipeline Co., 26.1 miles of
natural gas  pipelines  in Parker,  Hood and  Eastland  Counties,  Texas.  These
pipelines  are  steel  and  polyethylene  and  range in size  from 2 inches to 6
inches.  These pipelines primarily gather natural gas from wells operated by the
Company and in which the  Company  owns a working  interest,  but also for other
parties.  The Company  normally  does not purchase  and resell  natural gas, but
gathers gas for a fee. The fees charged in some cases are subject to regulations
by the State of Texas and the  Federal  Energy  Regulatory  Commission.  Average
daily volumes of gas gathered by the pipelines owned by the Company was 484, 491
and 615 MCF per day for 1996, 1995, and 1994 respectively.

Oil Field Production Equipment.
The Company owns various natural gas compressors, pumping units, dehydrators and
various other pieces of oil field production equipment.

Substantially all of the equipment is located on oil and gas properties in which
the Company owns a working  interest and which are operated by the Company.  The
rental fees are charged as lease operating fees to each property and each owner.

Item 3.  Legal Proceedings
Neither the Registrant nor its  subsidiaries  nor any officers or directors is a
party to any material  pending legal  proceedings  for or against the Company or
its subsidiary nor are any of their properties subject to any proceedings.

Item 4.  Submission of Matters of Security Holders to a Vote
None

                                    PART II

Item 5.  Market for the Company's Common Stock and Related Stockholder Matters.
No  significant  public trading  market has been  established  for the Company's
common stock.  The common stock of the Company is traded on an occasional  basis
by dealers in the over the counter market,  the terms of which are not available
to the Company.  The Company  does not believe  that  listings of bid and asking
prices for its stock in the pink sheets are  indicative  of the actual trades of
its  stock,  since  trades are made  infrequently.  There is no amount of common
stock  which is subject to  outstanding  options or  warrants  to  purchase,  or
securities  convertible into, common stock of the Company.  On January 31, 1997,
the Company  effected a one for six reverse stock split. The Company reduced the
authorized  common shares from  150,000,000 to 100,000,000 and increased the par
value from $.001 to $.01 per share.

The approximate  number of record holders of the Company's Common Stock on March
15, 1997, was 650.

The Company has not paid any dividends  since its  reorganization  and it is not
contemplated  that  it  will  pay  any  dividends  on its  Common  Stock  in the
foreseeable  future.  There are no financing  agreements in place which restrict
payment of dividends.

The Registrant currently serves as its own stock transfer agent and registrar.



                                       12
<PAGE>



Item 6.  Selected Financial Data
The selected financial  information presented should be read in conjunction with
the consolidated financial statements and the related notes thereto.
<TABLE>
<CAPTION>

                                    Years Ended December 31,
                      1996        1995        1994        1993        1992
                   ----------  ----------  ----------  ----------  ----------
<S>                <C>         <C>         <C>         <C>         <C>       
Total Revenue      $1,693,000  $1,448,000  $1,396,000  $1,208,000  $1,125,000
Net Income            141,000       7,000     102,000      89,000      46,000
Earnings Per Share(1)    (.02)          -          .01         .01         .01
At End of Periods
Total Assets        2,154,000   1,949,000   2,212,000   2,125,000   2,110,000
Long-Term Debt             -           -        3,000      17,000          -
<FN>

 (1) After 1 for 6 stock split discussed in Note 2 to  Consolidated  Financial
Statements.
</FN>
</TABLE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations  Liquidity and Capital  Resources The Company's  operating capital
needs, as well as its capital  spending  program are generally  funded from cash
flow generated by operations. Because future cash flow is subject to a number of
variables,  such as the  level  of  production  and the  sales  price of oil and
natural  gas,  the Company can provide no  assurance  that its  operations  will
provide cash  sufficient to maintain  current  levels of capital  spending.  The
Company has  established  a $95,000  line of credit  with its bank.  The line of
credit was established for oil and gas property acquisitions.  Accordingly,  the
Company may be required to seek additional financing from third parties in order
to fund its exploration and development programs.

Results of Operations

1996 Compared to 1995
Oil and gas revenues  increased due to an increase in production and an increase
in oil and gas prices. Severance taxes also increased due to the same reason.

1995 Compared to 1994
Lease  operating  expenses  increased  because of an  increase  in monies  spent
reworking existing wells.


1994 Compared to 1993
Oil and gas revenues increased  $209,000 due to further  acquisitions of oil and
gas properties.  Additionally  some of the properties  purchased in 1993 were in


                                       13
<PAGE>

production for a full year in 1994.
Accordingly, lease operating expenses also increased in 1994.

General  and  administrative  increased  $73,000  in 1994 which was  primarily
due to the  addition  of one full-time employee.

Item 8. Consolidated Financial Statements and Schedules, index at page 21.

Item 9. Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

The  accountants  for the  Company  are Farmer,  Fuqua,  Hunt &  Munselle,  P.C.
Certified  Public  Accountants,  who have  prepared  audit reports for the years
ended December 31, 1994, 1995, and 1996.

There have been no disagreements  between the Company and Farmer,  Fuqua, Hunt &
Munselle,  P.C. on any matter of accounting  principles or practices,  financial
statement disclosure, or auditing scope or procedure.



                                       14
<PAGE>






                                   PART III

Item 10.  Directors and Executive Officers of the Registrant
(a) and (b)The Directors and Executive Officers of the Company and certain
           information concerning them is set forth below:


Name                      Age            Position
Paul E. Cash (1)          64   Director and President
K. Paul Cash              40   Director, Vice President
                               and Secretary
Gary Goodnight            42   Director, Vice President,
                               and Treasurer
Ralph Butler              44   Director and Vice President
Kyle Wood                 41   Director and Vice President


(1) In addition,  Paul E. Cash is the controlling  shareholder,  Vice President,
Secretary and Director of Loch  Exploration,  Inc., and a Director,  Officer and
Shareholder  in  Double  River Oil & Gas Co.,  both of which are  publicly-owned
companies engaged in the oil and gas business.

All directors hold office until the next annual meeting of the  shareholders  or
until their  successors are duly elected and qualified.  Officers of the Company
serve at the discretion of the board of directors.

(c) Significant employees
      Not applicable

(d) Family relationships
      Paul E. Cash is the father of K. Paul Cash.

(e) Business experience
Paul E. Cash is a graduate of The University of Texas (B.B.A.-Accounting) and is
a Certified  Public  Accountant.  He has been active in the oil and gas industry
for over 25 years,  during which time he has served as financial  officer of two
publicly-owned  companies,  Texas Gas  Producing Co. and Landa Oil Co., and also
served  as  president  of  publicly-owned   Continental  American  Royalty  Co.,
Bloomfield  Royalty Co., Southern Bankers  Investment Co.,  Spindletop Oil & Gas
Co. (a Utah Corporation),  Double River Oil & Gas Co., and Loch Exploration Inc.
During the last 15 years,  Mr.  Cash has also been an officer  and part owner of
several  private oil and gas companies and  partnerships,  and is an officer and
director of Double River Oil & Gas Co. and Loch Exploration,  Inc. Mr. Cash also
formerly served as Mayor of the City of Sunnyvale, Texas.


                                       15
<PAGE>

Gary Goodnight,  a Certified Public Accountant, is a Director,  Vice President,
Treasurer, Controller and Principal Accounting Officer. Mr.  Goodnight  joined
the Company in November 1986. Mr. Goodnight  was employed by KPMG Peat  Marwick
LLP from 1977 to 1979. From 1979 until joining the Company,  Mr. Goodnight was
employed by various independent oil and gas exploration  companies. He received
a B.B.A. from the University of Texas at Austin in 1977.

Ralph Butler, Director, Vice President/Engineering  and Production, joined the
Company in February 1981. Prior to joining the Company, Mr. Butler was employed
by United Gas Pipeline Co. and Lone Star Gas Co. He received a B.S. in  
Engineering  Technology and a B.S. in Civil  Engineering  from Texas A & M 
University in 1979.

K. Paul Cash,  Director,  Vice  President and  Secretary, joined the Company in
1993. Prior to joining the Company he had been a Director  and  President  of 
Daltex Oil & Gas Co., a privately  held  company for more than five years.  K. 
Paul Cash is a geologist,  having  received a degree in geology from the  
University of Texas at Arlington in 1981.

Kyle D. Wood, has been Vice President,  and a Director since December 1994. From
1979 until now,  he has been  employed  by  Spindletop  Oil & Gas Co. or related
companies.  From  January  1981,  to January  1983 he served as Land Manager and
Office  Manager  of   Spindletop's   former  Illinois  Basin  branch  office  in
Evansville,  Indiana.  From  February,  1983 to April 1987 he served as Land and
Contracts Manager for Heflin Oil Company. He attended the University of Oklahoma
majoring in Petroleum Land Management and is a Certified Professional Landman.

(f) Involvement in certain legal proceedings.
None of the directors or executive  officers of the Registrant,  during the past
five  years,  has been  involved  in any civil or  criminal  legal  proceedings,
bankruptcy  filings or has been the  subject of an order,  judgment or decree of
any Federal or State authority involving Federal or State securities laws.

Item 11.  Executive Compensation
(a) Cash Compensation
For the year ended December 31, 1996, none of the Company's  executive  officers
were paid cash  compensation  at the annual  rate in excess of  $60,000.  During
1996, the Company paid cash compensation of approximately $167,000 to all of its
officers.

(b) Compensation Pursuant to Plan.  None

(c) Other Compensation
Key employees of the Company, other than Mr. Cash, are permitted to purchase, at
cost,  a small  interest  (usually  a  maximum  of 1 to 2% each) of the  working
interest in  prospects to be drilled by the Company.  Mr.  Cash,  or  affiliated
companies, usually purchase a working interest of 20 to 50% at cost.

Key  employees  of the  Company,  except Paul E. Cash,  are  sometimes  assigned
overriding  royalty  interests  and/or  carried  working  interest in  prospects
acquired by or generated  by the Company.  These  interests  normally  vary from


                                       16
<PAGE>

one-half to one percent for each employee. There is no set formula or policy for
such  program,  and the  frequency  and amounts are  largely  controlled  by the
economics of each particular prospect.


(d) Compensation of Directors
Directors are not currently  compensated  nor are there plans to compensate them
for their services on the board.

(e) Termination of Employment and Change of Control Arrangement
There are no plans or  arrangements  for payment to officers or  directors  upon
resignation or a change in control of the Registrant.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.
(a) & (b) Security ownership of certain beneficial owners and managers
The table below sets forth the information  indicated regarding the ownership of
the  Registrant's  common stock,  $.01 par value,  the only  outstanding  voting
securities,  as of December 31, 1996 with respect to: (i)any person who is known
to the  Registrant  to be the  owner  of  more  than  five  percent  (5%) of the
Registrant's  common stock;(ii) the common stock of the Registrant  beneficially
owned by each of the directors of the Registrant  and, (iii) by all officers and
directors  as a group.  Each person has sole  investment  and voting  power with
respect to the shares indicated,  except as otherwise set forth in the footnotes
to the table.
<TABLE>
<CAPTION>
                                                                 %BASED ON
                                                NATURE OF      OUTSTANDING
NAME AND ADDRESS OF               NUMBER OF     BENEFICIAL      PERCENT OF
BENEFICIAL OWNER                   SHARES       OWNERSHIP         CLASS
----------------                ---------       ---------      ------------
<S>                             <C>             <C>            <C>   
Paul E. Cash                    6,169,357        Direct             82.39%
9319 LBJ Frwy, Suite 205
Dallas, TX  75243
K. Paul Cash                       72,667        Direct              0.97%
9319 LBJ Frwy, Suite 205
Dallas, TX  75243
Gary Goodnight                    103,334        Direct              1.38%
9319 LBJ Frwy, Suite 205
Dallas, TX  75243
Ralph Butler                      103,459        Direct              1.38%
9319 LBJ Frwy, Suite 205
Dallas,  TX  75243
Kyle Wood                         103,334        Direct              1.38%
9319 LBJ Frwy, Suite 205
Dallas, TX  75243
All officers and directors      6,552,151                           87.50%
as a group
<FN>

(c) Changes in control
The  Company is not aware of any  arrangements  or pledges  with  respect to its
securities which may result in a change in control of the Company.
</FN>
</TABLE>

                                       17
<PAGE>



Item 13. Certain  Relationships  and Related  Transactions (a) Transactions with
management and others.
A portion  of the  business  of the  Company is the  development  of oil and gas
drilling prospects.  In some instances,  prospects are developed on leases owned
by Paul E. Cash, President, Director and Majority Shareholder of the Registrant.
Prospects  have been  developed  on leases  owned by Mr.  Cash,  and the Company
expects  that  prospects  will be  developed  on leases owned by Mr. Cash in the
future.  In the event that the company  develops the prospect on leases owned by
Mr.  Cash,  the company  will  acquire all or a portion of such  leases,  at the
actual cost to Mr. Cash or the fair market value thereof, whichever is less. Mr.
Cash may retain an interest in the leases and  participate  in the  drilling and
development of wells thereon on an actual cost basis.

In addition,  Mr. Cash and other employees of the Company may participate in the
drilling  of wells on  leases  owned by the  Company.  In the  event  that  such
participation occurs, Mr. Cash and the employees of the Company will participate
on an actual cost basis to the Company.

The  Company  operates  approximately  120 oil and gas wells.  Mr.  Cash owns an
interest in approximately 90 of these wells, with an average working interest in
such wells of 50.6%.  Double River owns an interest in approximately 20 of these
wells,  with an average  working  interest of 22.4% in those wells.  All of such
wells are operated  pursuant to standard  industry  operating  agreements  which
provide  for the  reimbursement  to the  operator  of its  actual  costs  in the
operation  of the  properties  and a  reimbursement  for the overhead at a fixed
price on a monthly basis,  subject to annual increases.  The Registrant believes
that all of the overhead  rates charged are  reasonable,  and are at rates which
would not be less than would be charged by third party  operators.  In addition,
officers and directors of the Company,  other than Mr. Cash, own small interests
in approximately 25 of the wells operated by the company.

(b) Certain Business Relationships
Paul E. Cash was the majority shareholder of Double River Oil & Gas Co., (Double
River) a  publicly-owned  oil and gas  company,  until March 1994,  when he sold
control of Double River to an unrelated person. Mr.
Cash remains an officer and director of Double River.

Double River was the  majority  shareholder  in Loch  Exploration,  Inc.  until
February 1994, when the controlling interest was purchased from Double River by
Paul E. Cash. Mr. Cash is an officer and a director of Loch Exploration, Inc.

In 1995,  Double River utilized the offices of the Company and certain employees
of the Company for a fee of $575 per month. This arrangement ended in 1996. Loch
Exploration maintains separate offices and employees. Additionally, Double River
and Loch both participate in various wells operated by the Company.

Key  employees  of the  Company,  except Paul E. Cash,  are  sometimes  assigned
overriding  royalty  interests  and/or  carried  working  interests in prospects
acquired by or generated  by the Company.  These  interests  normally  vary from
one-half to one percent for each employee. There is no set formula or policy


                                       18
<PAGE>

for such  program, and the frequency and amounts are largely controlled  by the
economics of each particular prospect.

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                                    PART IV

     (a)  The following documents filed as part of this Report
          1.  Independent Auditors' Report
              Consolidated Balance Sheets at December 31, 1996 and 1995
              Consolidated Statements of Income for the years ended December
              31, 1996, 1995, and 1994
              Consolidated Statements of Changes in Shareholders' Equity for
              the years ended December 31, 1996, 1995, and 1994
              Consolidated Statements of Cash Flows for the years ended
              December 31, 1996, 1995, and 1994
              Notes to Consolidated Financial Statements
          2.  Financial Statement Schedules required to be filed by Item 8 and
              Paragraph (d) of this Item 14
              Schedule II Valuation and Qualifying Accounts
              All other schedules have been omitted because they are not
              applicable or required under the rules of Regulation S-X or the
              information has been supplied in the consolidated financial 
              statements or notes thereto.
              Such schedules and reports are at page 42 of this Report.
          3.  The Exhibits are listed in the index of Exhibits Required by Item
              601 of Regulation S-K at Item (c) below and included at page 43.

     (b) No reports on Form 8-K were filed during the last quarter of the
         period covered by this Report.
     (c) The Index of Exhibits is included  following  the Financial  Statement
         Schedules beginning at page 43 of this Report.
     (d) The Index to Consolidated Financial Statements and Supplemental 
         Schedules is included following the signatures, beginning at page 21
         of this Report.




                                       19
<PAGE>









                                  SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.


                                       SPINDLETOP OIL & GAS CO.



Dated March 27, 1997


                                       By__________________________
                                          Paul E. Cash
                                          President, Director


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been  signed  below by the  following  on behalf of the  Company  and in the
capacities and on the dates indicated.




         Signatures                   Capacity                  Date
Principal Executive Officers:

/s/ Paul E. Cash               President, Director         March 27, 1997
----------------------
    Paul E. Cash

/s/ K. Paul Cash               Secretary, Director         March 27, 1997
----------------------
    K. Paul Cash

/s/ Ralph H. Butler            Vice President,             March 27, 1997
----------------------         Director
    Ralph H. Butler

/s/ Gary D. Goodnight          Treasurer, Director         March 27, 1997
----------------------
    Gary D. Goodnight

/s/ Kyle D. Wood                Vice President,             March 27, 1997
----------------------          Director
    Kyle D. Wood



                                       20
<PAGE>

                   SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
           Index to Consolidated Financial Statements and Schedules


                                                                        Page

Independent Auditors' Report...........................................22

Consolidated Balance Sheets - December 31, 1996
and 1995...............................................................23-24

Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994.................................25

Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1996,
1995, and 1994.........................................................26

Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995
and 1994...............................................................27

Notes to Consolidated Financial Statements.............................28-42

Schedules for the years ended December 31, 1996,
1995 and 1994
      II - Valuation and Qualifying Accounts...........................43




All other  schedules  have been  omitted  because they are not  applicable,  not
required,  or the  information has been supplied in the  consolidated  financial
statements or notes thereto.




                                       21
<PAGE>





                         INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Spindletop Oil & Gas Co.

We have audited the accompanying consolidated balance sheets of Spindletop Oil &
Gas Co. (a Texas Corporation) and subsidiaries as of December 31, 1996 and 1995,
and the related  consolidated  statements  of income,  changes in  shareholders'
equity and cash flows for each of the three years in the period  ended  December
31, 1996. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  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 consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Spindletop Oil & Gas Co. and  subsidiaries as of December 31, 1996 and 1995, and
the  consolidated  results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  1996,  in  conformity  with
generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial statements taken as a whole. The schedules listed in the
index of  consolidated  financial  statements  are  presented  for  purposes  of
complying with the Securities and Exchange  Commission's  rules and are not part
of the  basic  consolidated  financial  statements.  These  schedules  have been
subjected  to the  auditing  procedures  applied  in  the  audits  of the  basic
consolidated  financial  statements  and, in our opinion,  fairly state,  in all
material  respects,  the  financial  data  required  to be set forth  therein in
relation to the basic consolidated financial statements taken as a whole.

FARMER, FUQUA, HUNT & MUNSELLE, P.C.



Dallas, Texas
March 10, 1997



                                       22
<PAGE>

<TABLE>
<CAPTION>


                  SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                                                        December 31,
                                                    1996             1995
                                                 ----------       ----------
                   Assets
<S>                                              <C>              <C>
Current Assets
    Cash                                      $     476,000   $      229,000
    Accounts receivable                             399,000          349,000
    Accounts receivable, related parties             34,000           64,000
    Shareholder Loans                                34,000           22,000
    Inventory                                        31,000            7,000
                                                 ----------       ----------
          Total Current Assets                      974,000          671,000
                                                 ----------       ----------

Property and Equipment - at cost
    Oil and gas properties (full cost method)     2,522,000        2,427,000
    Rental equipment                                329,000          329,000
    Gas gathering systems                           145,000          145,000
    Other property and equipment                    178,000          167,000
                                                 ----------      -----------
                                                  3,174,000        3,068,000
Accumulated depreciation and amortization        (2,055,000)      (1,852,000)
                                                 ----------      -----------
                                                  1,119,000        1,216,000
                                                 ----------      -----------

Other Assets, net of accumulated
amortization of $65,000 and $54,000 at
December 31,1996 and 1995 respectively
                                                     61,000           62,000
                                                  ---------       ----------
Total Assets                                  $   2,154,000   $    1,949,000
                                                  =========       ==========

</TABLE>

The accompanying notes are an integral part of these statements.




                                       23
<PAGE>




<TABLE>
<CAPTION>


                 SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                 CONSOLIDATED BALANCE SHEETS - (Continued)

                                                       December 31,
                                                   1996           1995
                                                ----------      ----------
<S>                                             <C>             <C>
    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Accounts payable and accrued liabilities   $    638,000   $    591,000
   Notes payable                                    12,000          3,000
   Tax savings benefit payable                      94,000         85,000
                                                ----------      ----------
        Total Current Liabilities                  744,000        679,000
                                                ----------      ----------

Shareholders' Equity
 Common stock, $.01 par value;100,000,000
 shares authorized;7,488,304 issued
 (53,654,479 at December 31,1995)                   75,000         54,000 
 Additional paid-in capital                        727,000        885,000
 Retained earnings                                 608,000        467,000
                                                ----------      ----------
                                                 1,410,000      1,406,000
 Less treasury stock, at cost; 8,725,625
 shares at December 31, 1995                          -          (136,000)
                                                ----------      ----------
                                                 1,410,000      1,270,000
                                                ----------      ----------

 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $  2,154,000   $  1,949,000
                                               ===========     ===========
</TABLE>

The accompanying notes are an integral part of these statements.



                                       24
<PAGE>


<TABLE>
<CAPTION>





                   SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME


                                       Years ended December 31,
                                   1996          1995          1994
                                ----------    ---------     ---------
<S>                             <C>           <C>           <C>
Revenues
      Oil and gas revenues     $ 1,287,000  $ 1,033,000  $    913,000
      Revenue from lease
      operations                   215,000      228,000       256,000
      Gas gathering fees            19,000       23,000        34,000
      Equipment rental             114,000      126,000       128,000
      Interest income                4,000        5,000         3,000
      Other                         54,000       33,000        62,000
                                ----------    ---------     ---------
                                 1,693,000    1,448,000     1,396,000
                                ----------    ---------     ---------
Expenses
      Pipeline and rental
      operations                    69,000       57,000        60,000
      Lease operations             704,000      631,000       450,000
      Depreciation and
      amortization                 237,000      253,000       245,000
      General and
      administrative               539,000      496,000       528,000
      Interest expense               3,000        4,000        11,000
                                ----------   ----------    ----------
                                 1,552,000    1,441,000     1,294,000
                                ----------   ----------     ---------

Net Income                     $   141,000  $     7,000  $    102,000
                                ==========   ==========   ===========

Net Income Per Share Of        $      0.02  $      0.00  $       0.01
                                ==========   ==========    ==========
Common Stock
Weighted average shares  
outstanding                     7,488,304    7,488,271     7,488,191
                                ==========   ==========    ==========

</TABLE>


    The accompanying notes are an integral part of these statements.



                                       25
<PAGE>






<TABLE>
<CAPTION>




                    SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1996, 1995, and 1994

                                                                   
                                                                           
                                                  Additional            
                              Common Stock         Paid-in   Treasury  Retained
                             Shares      Amount    Capital    Stock    Earnings
                            -----------  --------  --------  --------  -------
<S>                         <C>          <C>       <C>       <C>        <C>     
Balance January 1,1994      53,653,519 $  54,000 $  885,000  $(136,000) $358,000
                                                                                
Common stock issued to former  
 shareholders                      560       -          -           -        -
Net income                         -        -          -           -    102,000
                            -----------  --------   --------  --------  --------
Balance December 31, 1994    53,654,079   54,000    885,000   (136,000)  460,000
Common stock issued to former
 shareholders                       400       -         -           -        -
Net income                        -          -         -           -     7,000
                            -----------  --------   --------  --------  --------
Balance December 31, 1995    53,654,479   54,000    885,000   (136,000)  467,000
Other                              -          -      (1,000)        -         -
Effect of 1 for 6
 stock split                (44,711,903) (45,000)    45,000         -         -
Effect of change in
 par value                        -       81,000    (81,000)        -         -
Retirement of treasury
 stock                       (1,454,272) (15,000)  (121,000)   136,000        -
Net income                        -           -         -          -     141,000
                            -----------  --------  ---------  --------  --------
Balance December 31, 1996    7,488,304  $ 75,000  $ 727,000  $     -   $ 608,000
                            ===========  ========  =========  ========  ========



</TABLE>



The accompanying notes are an integral part of these statements.



                                       26
<PAGE>



<TABLE>
<CAPTION>





                   SPINDLETOP OIL & GAS CO AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                  Years ended December 31,
                                                 1996        1995       1994
                                               ---------   ---------  ---------
<S>                                            <C>         <C>        <C>
Cash Flows from Operating Activities
 Net Income                                    $ 141,000   $   7,000  $102,000
 Reconciliation of net income to net cash
  provided by operating activities
   Depreciation and amortization                 237,000     253,000   245,000
   (Increase) decrease in accounts receivable    (30,000)   (133,000)  (23,000)
   (Increase) decrease in inventory              (24,000)         -      4,000
   Increase (decrease) in accounts payable        46,000     100,000    72,000
                                                ---------   ---------  ---------
Net cash provided by operating activities        370,000     227,000   400,000
                                                ---------   ---------  ---------

Cash Flows from Investing Activities
 Capitalized acquisition, exploration and
 development                                    (132,000)   (322,000)  (161,000)
 Proceeds from sale of properties                 47,000     146,000        -
 Purchase of property and equipment              (14,000)    (18,000)   (75,000)
 Principal collected on note receivable               -       35,000        -
                                                ---------   ---------  ---------
Net cash used by investing activities            (99,000)   (159,000)  (236,000)
                                                ---------   ---------  ---------

Cash Flows from Financing Activities
 Repayment of notes payable                      (11,000)   (104,000)   (68,000)
 Proceeds from borrowings                             -          -       48,000
 Repayment of shareholder loans                       -      (54,000)   (67,000)
 Net advances to shareholder                     (12,000)        -          -
 Other                                            (1,000)        -          -
 Increase in other assets                             -          -      (11,000)
                                                ---------   ---------  ---------
Net cash used by financing activities            (24,000)   (158,000)   (98,000)
                                                ---------   ---------  ---------
Increase (decrease) in cash                      247,000     (90,000)    66,000
Cash at beginning of period                      229,000     319,000    253,000
                                                ---------   ---------  ---------
Cash at end of period                          $ 476,000  $  229,000 $  319,000
                                                =========   ========   ========

</TABLE>

The accompanying notes are an integral part of these statements.



                                       27
<PAGE>







                  SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION AND ORGANIZATION
Merger and Basis of Presentation
On July 13, 1990, Prairie States Energy Co., a Texas corporation, (the Company)
merged with Spindletop Oil & Gas Co., a Utah corporation (the Acquired Company).
The name of Prairie States Energy Co. was changed to Spindletop Oil & Gas Co. at
the time of the merger.

Organization and Nature of Operations
The  Company  was  organized  as a  Texas  Corporation  in  September  1985,  in
connection with the Plan of Reorganization  (the Plan),  effective  September 9,
1985,  of  Prairie  States   Exploration,   Inc.,   (Exploration),   a  Colorado
Corporation, which had previously filed for Chapter 11 bankruptcy. In connection
with the Plan,  Exploration was merged into the Company,  with the Company being
the surviving  corporation.  After giving effect to the stock split discussed in
Note 2, up to a total of 166,667 of the Company's common shares may be issued to
Exploration's  former  shareholders.  As of December 31, 1996,  1995,  and 1994,
122,436, 122,436, and 122,369 shares,  respectively,  have been issued to former
shareholders in connection with the Plan.

Spindletop Oil & Gas Co. is engaged in the  exploration,  development and 
production of oil and natural gas; the rental of oilfield  equipment; and 
through one of its  subsidiaries, the gathering  and  marketing of natural gas.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant  accounting  policies  consistently  applied in the
preparation of the accompanying financial statements follows:

Consolidation
The consolidated  financial statements include the accounts of Spindletop Oil &
Gas Co. and its wholly-owned subsidiaries, Prairie Pipeline Co. and  Spindletop
Drilling  Company. All significant  intercompany transactions and accounts have
been eliminated.

Oil and Gas Properties
The  Company  follows  the full cost  method of  accounting  for its oil and gas
properties. Accordingly, all costs associated with acquisition,  exploration and
development  of oil and gas reserves are  capitalized  and accounted for in cost
centers,  on a  country-by-country  basis.  If  unamortized  costs within a cost
center  exceed the cost center  ceiling (as  defined),  the excess is charged to
expense during the year in which the excess occurs.

Depreciation  and  amortization for each cost center are computed on a composite
unit-of-production  method,  based on estimated proved reserves  attributable to
the respective cost center. All costs associated with oil and gas properties are
currently  included in the base for  computation  and  amortization.  Such costs
include all acquisition, exploration and development costs. All of the Company's
oil and gas properties are located within the continental United States.

                                       28
<PAGE>

Gains and losses on sales of oil and gas  properties  are treated as adjustments
of capitalized costs. Gains or losses on sales of property and equipment,  other
than oil and gas properties, are recognized as part of operations.  Expenditures
for  renewals  and  improvements  are   capitalized,   while   expenditures  for
maintenance and repairs are charged to operations as incurred.

Property and Equipment
The Company, as operator,  leases equipment to owners of oil and gas wells, on a
month-to-month basis.

The Company,  as operator,  transports gas through its gas gathering systems, in
exchange for a fee.

Depreciation is provided in amounts sufficient to relate the cost of depreciable
assets to  operations  over  their  estimated  service  lives (5 to 10 years for
rental equipment and gas gathering  systems, 4 to 5 years for other property and
equipment).  The  straight-line  method of  depreciation  is used for  financial
reporting purposes, while accelerated methods are used for tax purposes.

Inventory
Inventory  consists of oil field materials and supplies,  stated at the lower of
average cost or market.

Goodwill
The goodwill resulting from the contingent  consideration,  as discussed in Note
8, is being  amortized  over the remaining  life of the net  operating  loss and
investment  credit  carryforwards  existing at the time of the Plan discussed in
Note 1, which expire at various dates through 2000.

Income Taxes
The Company  accounts  for income  taxes  pursuant  to  Statement  of  Financial
Accounting  Standards No. 109  "Accounting  for Income Taxes" (SFAS 109),  which
requires the recognition of deferred tax liabilities and assets for the expected
future tax  consequences  of events that have been  recognized  in the Company's
financial statements or tax returns. Under this method, deferred tax liabilities
and  assets  are  determined  based  on the  difference  between  the  financial
statement  carrying  amounts  and tax bases of  assets  and  liabilities,  using
enacted tax rates in effect in the years in which the  differences  are expected
to  reverse.  These  temporary  differences  primarily  relate to  depreciation,
depletion and  intangible  drilling  costs.  The Company has  established a full
valuation allowance against these carryforward  benefits,  due to uncertainty as
to the Company's ability to utilize the loss carry forwards.

Investment Tax Credits
Investment  tax credits are  accounted  for by the  "flow-through"  method which
recognizes  the  credits as a  reduction  of income tax  expense in the year the
credit is utilized.


                                       29
<PAGE>



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 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.

Stock Split
In December 1996 the Board of Directors  declared a 1-for-6  reverse stock split
on the Company's  common stock.  The record date was January 31, 1997. All share
and per share data as appropriate,  reflect this split.  The effect of the split
is presented  retroactively  within stockholder's equity at December 31, 1996 by
transferring  the par value for the  additional  shares  issued from  additional
paid-in capital to the common stock accounts.

Treasury Stock
Effective December 31, 1996 the Company retired all treasury shares. The Company
transferred the appropriate  amounts to the common stock and additional  paid-in
capital accounts.

<TABLE>
<CAPTION>

3.  ACCOUNTS RECEIVABLE
                                               December 31,
                                            1996         1995
                                          ----------  ---------- 
<S>                                       <C>         <C>      
       Trade                             $  416,000   $ 335,000
       Accrued revenues                     203,000     208,000
       Other                                 10,000       6,000
                                          ----------  ----------
                                            629,000     549,000
       Less allowance for losses           (230,000)   (200,000)
                                          ----------  ----------
                                         $  399,000   $ 349,000
                                          ==========  ==========
</TABLE>

<TABLE>
<CAPTION>


4.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                              December 31,
                                            1996         1995
                                          ----------  ----------
<S>                                      <C>          <C>      
       Trade payables                    $  175,000   $ 189,000
       Production proceeds payable          376,000     323,000
       Accrued production taxes               7,000       8,000
       Other                                 80,000      71,000
                                          ----------  ----------
                                         $  638,000   $ 591,000
                                          ==========  ==========
</TABLE>

                                       30
<PAGE>




5.  RECLASSIFICATION

Certain amounts have been reclassified in the 1995 consolidated  financial 
statements to conform to the 1996 presentation.

6.  NOTES PAYABLE
<TABLE>
<CAPTION>
                                                         December 31,
                                                     1996          1995
                                                 ----------     ----------
<S>                                              <C>            <C>
Notes  payable to banks,  bearing
interest at rates ranging from 8.0%
to 9.75%, collateralized by equipment
with an original cost of $20,000,
payable in monthly installments 
totaling $1,600 through December 1997             $  12,000     $   2,000



Line of credit  with a bank,  under
which the Company may borrow up to
$95,000, bearing  interest  at 9%,
due on demand or, if no demand be
made,in monthly installments of 
$4,000 through May 1996, collateralized
by equipment with an original cost 
of $164,000                                            -           1,000

                                                    12,000         3,000
Less current portion                               (12,000)       (3,000)
                                                 ----------     ----------
                                                $     -        $     -
                                                 ==========     ==========

</TABLE>


Substantially  all of the  Company's  debt  is  personally  guaranteed  by Mr.
Paul E. Cash,  the majority shareholder.


7.  RELATED PARTY TRANSACTIONS

From March 1994 until 1996, the Company has provided various  personnel,  office
space, supplies and other administrative  services to a related company,  Double
River Oil & Gas Co. (Double River) for a fee of $575 per month.

At December 31, 1996, and 1995,  approximately  $3,000 and $3,000  respectively,
are due from Double River.  Double River purchased some of the Company's natural
gas for resale to third parties.  In July 1992,  the Company  entered into a Gas
Purchase Agreement with Double River,  whereby the Company agreed  to  sell 
natural gas to Double River at a price equal to 99% of Double River's resale 
price under certain sales contracts between Double River and three  independent
purchasers.The  agreement  expired in March 1995 and was  assigned  to Prairie
Pipeline in March 1994 as discussed below.  Sales of natural gas to Double 
River amounted to $-0- in 1996,  $-0- in 1995 and  $143,000  in 1994. 


                                       31
<PAGE>

Mr. Cash was the  majority shareholder of Double River until March 1994, when he
sold  control of Double River to an  unrelated  person.  Mr. Cash  remains an 
officer, shareholder and director of Double River. The Gas  Purchase  Agreement
discussed  above was assigned by Double  River to Prairie  Pipeline Co. at the 
time control of Double River was sold.


Included in the  accompanying  balance  sheets are the following  amounts  
related to Mr.Cash:
<TABLE>
<CAPTION>
                                                      December 31,
                                                   1996          1995
                                                ----------   ----------
<S>                                            <C>           <C>      
Accounts receivable, trade                     $    4,000    $  24,000
Production proceeds payable                             -      (37,000)
Shareholder loans, non-interest bearing            34,000       22,000
</TABLE>

Key  employees  of the  Company,  except Paul E. Cash,  are  sometimes  assigned
overriding  royalty  interests  and/or  carried  working  interest in  prospects
acquired by or generated  by the Company.  These  interests  normally  vary from
one-half to one percent for each employee. There is no set formula or policy for
such  program,  and the  frequency  and amounts are  largely  controlled  by the
economics of each particular prospect.

In January  and  February  1997,  the  Company  made cash  advances  to Mr. Cash
totaling $114,000.

8.  INCOME TAXES

The Company  accounts  for income  taxes  pursuant  to  Statement  of  Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
utilizes the liability method of computing deferred income taxes.

For  Federal  income  tax  purposes,  the  Company  has net  operating  loss and
investment   credit   carryovers  of  approximately   $1,334,000  and  $367,000,
respectively,  which  expire  at  various  dates  through  2010.  Of  these  tax
carryovers,   $1,106,000   resulted   from   losses   occurring   prior  to  the
reorganization discussed in Note 1.

In connection  with the Plan  discussed in Note 1, the Company agreed to pay, in
cash, to Exploration's unsecured creditors,  as defined,  one-half of the future
reductions of Federal  income taxes which were  directly  related to any allowed
carryovers of  Exploration's  net operating  losses and  investment tax credits.
Such payments are to be made on a pro-rata  basis.  Amounts  incurred under this
agreement,  which are  considered  contingent  consideration  under APB No.  16,
totaled $9,000, $18,000, and $-0- in 1996, 1995 and 1994, respectively, and
have been recorded as goodwill.  As of December 31, 1996 the Company has not
received a ruling from the Internal Revenue Service concerning the net 
operating loss and investment credit  carryovers. Until the tax  savings  which
result from the utilization  of these carryforwards is assured, the Company will


                                       32
<PAGE>

not pay to Exploration's unsecured creditors any of the tax savings benefit.
As of December 31,  1996 and 1995,  the  Company  owes  $94,000  and  $85,000 
respectively  to Exploration's unsecured creditors.

In calculating tax savings benefits described above,  consideration was given to
the alternative minimum tax, where applicable,  and the tax effects of temporary
differences, as shown below:

<TABLE>
<CAPTION>
                                      1996          1995          1994
                                 ------------- ------------- ---------
<S>                              <C>             <C>         <C>        
Intangible drilling costs        $ (110,000)     $ (95,000)  $  (20,000)
Differences between book and
tax depreciation, depletion and
amortization                         32,000       104,000       103,000
</TABLE>

Deferred income taxes reflect the effects of temporary  differences  between the
tax bases of assets and liabilities and the reported amounts of those assets and
liabilities for financial reporting purposes. Deferred income taxes also reflect
the value of net  operating  losses,  investment  tax credits and an  offsetting
valuation  allowance.  The Company's total deferred tax assets and corresponding
valuation allowance at December 31, 1996 and 1995 consisted of the following:

<TABLE>
<CAPTION>
                                                      December 31,
                                                   1996          1995
                                               ----------    ----------
<S>                                            <C>           <C>
Deferred tax assets
  Net operating loss carryforwards             $  334,000    $  352,000
  Investment tax credit carryforwards             367,000       367,000
  Depreciation, depletion and amortization        118,000       110,000
  Other, net                                        7,000         7,000
                                               ----------    ----------
      Total                                       826,000       836,000
Deferred tax liabilities
  Intangible drilling costs                      (138,000)     (110,000)
                                               -----------   -----------

Net deferred tax assets                           688,000       726,000
  Less valuation allowance                       (688,000)     (726,000)
                                               -----------   -----------
Net deferred tax asset                         $       -    $        -
                                               ===========   ===========
</TABLE>

SFAS 109  requires  that a valuation  allowance  be recorded  against tax assets
which are not  likely to be  realized.  The  Company's  carryforwards  expire at
specific  future dates and  utilization of certain  carryforwards  is limited to
specific  amounts  each  year.  However,  due to the  uncertain  nature of their
ultimate  realization  based upon past  performance  and expiration  dates,  the
Company has established a full valuation  allowance  against these  carryforward
benefits and is recognizing the benefits only as reassessment  demonstrates they
are  realizable.  Realization  is entirely  dependent  upon  future  earnings in
specific  tax  jurisdictions.  While the need for this  valuation  allowance  is


                                       33
<PAGE>

subject to periodic review, if the allowance is reduced, the tax benefits of 
the carryforwards  arising  prior to  reorganization  will be credited to 
additional paid-in capital, because they bear no relationship to current 
operations,  while the tax benefits of carryforwards  arising after 
reorganization will be recorded in future operations as a reduction of the 
Company's income tax expense.

9.  CASH FLOW INFORMATION
The Company does not consider any of its assets to meet the definition of a cash
equivalent.

Net cash provided by operating activities includes cash payments for  interest 
of $3,000, $4,000 and $11,000 in 1996, 1995, and 1994, respectively.

Excluded  from the  Consolidated  Statements  of Cash Flows were the  effects of
certain non-cash investing and financing activities, as follows:

<TABLE>
<CAPTION>

                                       1996         1995         1994
                                     ----------  ----------   ----------
<S>                                  <C>         <C>          <C>
Purchase of equipment for  notes
payable                              $  20,000   $       -    $   15,000

Retirement of fully depreciated
assets                                  23,000        7,000       27,000

Goodwill capitalized as additional
cost of acquired company                 9,000       18,000           -

Tax savings benefit payable              9,000       18,000           -

Retirement of treasury stock           136,000           -            -

Effect of 1 for 6 reverse stock
split and change in par value          137,000           -            -

Acquisition of oil and gas
properties in exchange for
forgiveness of accounts receivable      10,000           -            -

</TABLE>

10.  EARNINGS PER SHARE
Earnings  per common  share is based on the  weighted  average  number of shares
outstanding  during  each year,  adjusted  for the  effects  of the stock  split
discussed in Note 2.


11.  CONCENTRATIONS OF CREDIT RISK
As  of  December  31,  1996,  the  Company  and  one  of  its  subsidiaries  had
approximately $266,000 and $199,000,  respectively,  in checking accounts at one
bank.

                                       34
<PAGE>

Most of the Company's business activity is in Texas.  Accounts  receivable as of
December 31, 1996 and 1995 are primarily  from a wide variety of individual  and
institutional  owners of joint  interests in oil and gas wells. A portion of the
Company's  ability to collect  these  receivables  is  dependent  upon  revenues
generated from sales of oil and gas produced by the related wells.


12. FINANCIAL INSTRUMENTS

The estimated fair value of the Company's financial instruments at December 31,
1996 and 1995 follow:
<TABLE>
<CAPTION>
                                         1996                        1995
                                 -------------------       -------------------
                                 Carrying      Fair        Carrying      Fair
                                  Amount       Value        Amount       Value
                                 ---------  --------       ---------  --------- 
<S>                            <C>         <C>           <C>         <C>       
 Cash                          $  476,000  $  476,000    $  229,000  $  229,000
 Accounts receivable              399,000     399,000       349,000     349,000
 Accounts receivable,
   related parties                 34,000      34,000        64,000      64,000
 Shareholder loans                 34,000      34,000        22,000      22,000
 Notes payable                     12,000      12,000        32,000      32,000
</TABLE>

 The fair value  amounts  for each of the  financial  instruments  listed  above
approximate carrying amounts due to the short maturities of these instruments.


13.  COMMITMENTS AND CONTINGENCIES
The Company's lease for office space expires in May 1997. Rent expense  incurred
under this operating  lease was  approximately  $39,000,  $38,000 and $43,000 in
1996, 1995 and 1994, respectively.

In connection with the Plan of  Reorganization  discussed in Note 1, the Company
agreed to pay, in cash, to Exploration's unsecured creditors, as defined, one-
half of the future  reduction of Federal  income  taxes which were  directly
related to any allowed  carryovers of  Exploration's  net  operating  losses and
investment  tax credits.  These net operating  losses and investment tax credits
expire at various dates through 2000.

In June 1993,  Spindletop  Drilling  Company entered into an agreement with Loch
Exploration,  Inc.,  whereby the  parties  agreed to combine  their  talents and
resources  to  evaluate  and acquire  producing  and  non-producing  oil and gas
properties at various auctions.  Any such properties acquired under the terms
of this agreement are to be acquired by initial  assignment to the Company. The
Company has agreed to provide Loch with a recordable assignment of its 
interest, such interest to be determined by the proportionate share of monies
expended for the acquisition of said properties. All costs are to be borne by
the Company and Loch in the  same  proportions  as their  respective  ownership
interests. The Company will serve as administrator  for properties  acquired in
connection with this agreement, and will be entitled to an overhead 
reimbursement for properties for which the Company serves as operator.  This 
agreement had an initial term of six months,  and continues month to month 
thereafter, until canceled by either party.

                                       35
<PAGE>

In March 1994, the Company  entered into an agreement  with PGC Gas Company,  an
unaffiliated  entity,  under terms similar to those of the  agreement  with Loch
Exploration,  Inc.,  described above.  This agreement has an initial term of six
months,  and will continue month to month  thereafter,  until canceled by either
party.

The Company's oil and gas exploration  and production  activities are subject to
Federal,  State  and  environmental  quality  and  pollution  control  laws  and
regulations.  Such  regulations  restrict  emission and discharge of wastes from
wells,  may require permits for the drilling of wells,  prescribe the spacing of
wells and rate of production, and require prevention and clean-up pollution.

Although the Company has not in the past incurred substantial costs in complying
with  such  laws  and   regulations,   future   environmental   restrictions  or
requirements may materially increase the Company's capital expenditures,  reduce
earnings, and delay or prohibit certain activities.

14.  ADDITIONAL OPERATIONS AND BALANCE SHEET INFORMATION
Certain information about the Company's  operations for the years ended December
31, 1996, 1995, and 1994 follows.

Significant Oil and Gas Purchasers
The  Company's  oil sales are made on a day to day  basis at  approximately  the
current  area  posted  price.  The loss of any oil  purchaser  would not have an
adverse  effect upon  operations.  The Company  generally  contracts to sell its
natural gas to purchasers  pursuant to both short-term and long-term  contracts.
Additionally,  some of the Company's  natural gas not under  contract is sold at
the then current prevailing "spot" price on a month to month basis. Following is
a summary of  significant  oil and gas  purchasers  during the three year period
ended December 31, 1996.


<TABLE>
<CAPTION>

                                                  Year Ended
                                                 December 31,
                                           1996     1995     1994
                                          ------   ------   ------
<S>                                       <C>      <C>      <C>
Lone Star Gas Company and Affiliates         -%       -%       29%
Mitchell Marketing Co.                       12       -        -
Tristar Gas Company                          10       -        -
Texas Utilities Fuel Company                 18       23       28
</TABLE>

There are no other  customers of the Company  which  individually  accounted for
more than 10% of the Company's oil and gas revenues during the three years ended
December 31, 1996.

                                       36
<PAGE>



<TABLE>
<CAPTION>

                                        Year Ended December 31,
                                      1996            1995           1994
                                  -------------   -------------  -------------
Capitalized costs relating to
oil and gas producing
activities:
<S>                              <C>             <C>             <C>         
    Unproved properties          $      21,000   $       41,000  $     41,000
    Proved properties                2,501,000        2,386,000     2,210,000
                                    ----------      -----------   -----------

    Total Capitalized Costs          2,522,000        2,427,000     2,251,000
    Accumulated amortization        (1,560,000)      (1,386,000)   (1,190,000)
                                    -----------     -----------   -----------
                                 $     962,000   $    1,141,000  $  1,061,000
                                    ===========      ===========    ===========
</TABLE>


<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                  1996       1995       1994
                                              ---------  ---------   ---------
Costs incurred in oil and gas property
acquisition, exploration and development:
<S>                                          <C>         <C>         <C>       
 Acquisition of Properties                   $  43,000   $ 212,000   $  141,000
 Exploration Costs                              31,000          -          - 
 Development Costs                              68,000     110,000       20,000
                                              ---------   ---------    ---------
                                             $ 142,000   $ 322,000   $  161,000
                                              =========   =========    =========
</TABLE>




<TABLE>
<CAPTION>

Results of operations from producing                Year ended December 31, 
activities:                                  1996          1995          1994
                                          -----------   -----------   ----------
<S>                                      <C>          <C>            <C>       
 Sales of oil and gas                    $ 1,287,000  $  1,033,000   $  913,000
                                          -----------   -----------   ----------

 Production costs                            704,000       631,000      450,000
 Amortization of oil and gas properties      174,000       196,000      185,000
                                          -----------   ----------    ----------
                                             878,000       827,000      635,000
                                          -----------   ----------    ----------
                                         $   409,000   $   206,000   $  278,000
                                          ==========    ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                               1996        1995        1994
                                             ---------   ---------   --------- 
<S>                                         <C>         <C>         <C>       
Sales price per equivalent Mcf              $     2.71  $     2.40  $     2.58
                                             =========   =========   =========
Production cost per equivalent Mcf          $     1.48  $     1.47  $     1.27
                                             =========   =========   =========
Amortization per equivalent Mcf             $      .37  $      .46  $      .52
                                             =========   =========   =========
Costs incurred in gas gathering and
equipment rental

Acquisition of property and equipment      $        -   $    8,000  $   37,000
                                             =========   =========  ==========

</TABLE>




                                       37
<PAGE>

<TABLE>
<CAPTION>

Results of operations from gas 
gathering and equipment rental:

<S>                                      <C>         <C>         <C>       
Revenues                                 $  133,000  $  149,000  $  162,000
                                            -------     -------    --------
Operating Expenses                           69,000      57,000      60,000
Depreciation                                 27,000      28,000      28,000
                                            -------     -------    --------
                                             96,000      85,000      88,000
                                            -------     -------    --------
                                         $   37,000  $   64,000  $   74,000
                                            =======     =======    ========
</TABLE>

15.  BUSINESS SEGMENTS
The Company's two business segments are (1) oil and gas exploration,  production
and  operations  and  (2)  transportation  of  natural  gas,  including  related
equipment rental.  The following is a summary of selected  information for these
segments for the three-year period ended December 31, 1996:
<TABLE>
<CAPTION>

                                          1996         1995         1994
                                      -----------  -----------  -----------
<S>                                   <C>          <C>          <C>
Revenues:
Oil and gas exploration, production
and operations                       $ 1,502,000   $ 1,261,000   $ 1,169,000
Gas gathering and equipment rental       133,000       149,000       162,000
                                      ----------     ---------     ---------
                                     $ 1,635,000   $ 1,410,000   $ 1,331,000
                                      ==========     =========     =========

Income from operations:
Oil and gas exploration, production
 and operations                          624,000   $   434,000   $   534,000
Gas gathering and equipment rental        37,000        64,000        74,000
                                       ---------     ---------     ---------
                                         661,000       498,000       608,000
Corporate and other (1)                 (520,000)     (491,000)     (506,000)
                                       ---------    ----------    ----------
Consolidated net income               $  141,000   $     7,000    $  102,000
                                       =========    ==========    ==========

Identifiable assets:
Oil and gas exploration, production
and operations                        $  962,000   $ 1,041,000   $ 1,061,000
Gas gathering & rental equipment          98,000       124,000       144,000
                                       ---------     ---------     ---------
                                       1,060,000     1,165,000     1,205,000
Corporate and other (2)                1,094,000       784,000     1,007,000
                                       ---------     ---------    ----------
                                     $ 2,154,000   $ 1,949,000   $ 2,212,000
                                       =========     =========     =========
<FN>

(1) Corporate and other  includes  general and  administrative  expenses,  other
non-operating income and expense and income taxes.

(2) Corporate and other includes cash, accounts and notes receivable, inventory,
other property and equipment and intangible assets.
</FN>
</TABLE>

                                       38
<PAGE>

16.  SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
                                                          Charged
                                                    Directly to Expense
                                                1996        1995       1994
                                              ---------   ---------  ---------
<S>                                          <C>         <C>        <C>      
Maintenance and Repairs                      $   70,000  $  57,000  $  60,000
Production taxes                                 74,000     51,000     47,000
Taxes, other than payroll and income taxes       19,000     27,000     28,000
</TABLE>

17.  SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The Company's net proved oil and gas reserves as of December 31, 1996,  1995 and
1994 have been  estimated by Company  personnel in  accordance  with  guidelines
established  by  the  Securities  and  Exchange  Commission.   Accordingly,  the
following  reserve  estimates  were based on  existing  economic  and  operating
conditions.  Oil and gas prices in effect at December 31 of each year were used.
Operating costs,  production and ad valorem taxes and future  development  costs
were based on current costs with no escalation.

There are numerous  uncertainties  inherent in  estimating  quantities of proved
reserves  and in  projecting  the  future  rates of  production  and  timing  of
development  expenditures.  The following reserve data represents estimates only
and should not be construed as being exact.  Moreover, the present values should
not be  construed  as the  current  market  value of the  Company's  oil and gas
reserves or the costs that would be incurred to obtain equivalent reserves.
<TABLE>

Changes in Estimated Quantities of Proved Oil and Gas Reserves
<CAPTION>
                                                    Oil           Gas
                                                    Bbls          Mcf
                                                  --------   ----------
<S>                                               <C>        <C>
Proved reserves:
Balance December 31, 1993                           44,935    1,825,634
Acquired properties                                 13,070      376,108
Extensions and discoveries                               -            -
Revisions of previous estimates                      9,025     (125,774)
Production                                         (11,584)    (284,903)
                                                   --------   ----------
Balance December 31, 1994                           55,446    1,791,065
Acquired properties                                 21,176      344,739
Sales of reserves in place                          (4,886)     (63,620)
Revisions of previous estimates                     18,205      275,468
Production                                         (17,873)    (322,465)
                                                   --------   ----------
Balance December 31, 1995                           72,068    2,025,187
Extensions and discoveries                               -      118,963
Sales of reserves in place                          (2,631)     (10,329)
Revisions of previous estimates                     19,930      708,427
Production                                         (17,276)    (371,074)
                                                   --------   ----------
Balance December 31, 1996                           72,091    2,471,174
                                                   =======    =========

Proved Developed Reserves:
Balance December 31, 1994                           55,446    1,528,355
Balance December 31, 1995                           70,257    1,758,260
Balance December 31, 1996                           72,091    2,181,212
</TABLE>

                                       39
<PAGE>

17.  SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED) - Continued

         Standardized Measure of Discounted Future Net Cash Flows and
            Changes Therein Relating to Proved Oil and Gas Reserves
                                  (Unaudited)

The Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating  to Proved  Oil and Gas  Reserves  ("Standardized  Measures")  does not
purport to present the fair market value of a company's oil and gas  properties.
An estimate of such value  should  consider,  among other  factors,  anticipated
future  prices  of oil and gas,  the  probability  of  recoveries  in  excess of
existing proved reserves,  the value of probable reserves and acreage prospects,
and perhaps  different  discount  rates.  It should be noted that  estimates  of
reserve quantities,  especially from new discoveries,  are inherently  imprecise
and subject to substantial revision.

Future net cash flows  were  computed  using the  contract  price  which was not
escalated.  Future production  includes  operating costs and taxes. No deduction
has  been  made  for  interest,  general  corporate  overhead,  depreciation  or
amortization.  Future  income tax  payable was not  computed  because of the net
operating  loss  carryforward  (See Note 8). The annual  discount  of  estimated
future  net cash  flows  is  defined,  for use  herein,  as  future  cash  flows
discounted at 10% per year, over the expected period of realization
<TABLE>
<CAPTION>

                                            December 31,
Standardized Measures of           1996          1995             1994
                               ------------ --------------  ----------
<S>                            <C>          <C>             <C>
Discounted Future Net Cash
Flows:

Future production revenue      $  6,429,000 $    4,859,000  $  4,393,000
Future development costs           (128,000)      (87,000)       (85,000)
Future production costs          (3,171,000)   (2,671,000)    (2,411,000)
                                  ----------   -----------    ----------

Future net cash flows before
Federal income tax                3,130,000     2,101,000      1,897,000
Future Federal income tax                 -             -              -
                                  ---------    ----------     ----------
Future net cash flows             3,130,000     2,101,000      1,897,000
Effect of discounting 10%
per year                          (749,000)       (476,000)     (370,000)
                                  ---------      ----------   ----------
                               $  2,381,000 $    1,625,000  $  1,527,000
                                  =========     ==========    ==========
</TABLE>


                                       40
<PAGE>



<TABLE>
<CAPTION>

                                       1996             1995           1994
                                    --------        ---------       ---------
Change Relating to the
Standardized Measures of
Discounted Future Net Cash
Flows:
<S>                           <C>              <C>              <C>           
Beginning balance             $     1,625,000  $    1,527,000   $    1,742,000
Oil and gas sales, net of
production costs                     (583,000)       (402,000)        (463,000)
Net change in prices, net of
production costs                      668,000         (18,000)        (126,000)
Extensions and discoveries            187,000              -                -
Purchase of reserves in place            -            250,000          245,000
Sales of reserves in place             (9,000)        (61,000)               -
Revisions of quantity
estimates                             999,000         339,000          (69,000)
Accretion of discount                 163,000         153,000          174,000
Other                                (669,000)       (163,000)          24,000
                                   -----------      -----------      ---------
                              $     2,381,000  $    1,625,000   $    1,527,000
                                   ===========     ===========       ==========

</TABLE>


18. SUBSEQUENT EVENT

In March 1997,  the  Company  signed a letter of intent  with  Network  Investor
Communications,  Inc.,  R. Deller,  F.  Schiemann  and K. Dickson  (collectively
"Network"),  whereby the Company has agreed to engage  Network to perform market
making  assistance,  investor  relations  services and to arrange for a licensed
stock  brokerage  firm or firms to assist the  Company in raising  approximately
$1,000,000 in new capital.  Fees payable to such stock  brokerage  firms are not
presently  expected  to exceed  13% of the total  funds  actually  raised,  plus
$40,000 to $50,000 of unspecified costs.

Per terms of the  letter of intent  the  Company  will pay  Network  fees not to
exceed  $5,000 per month for a period of three months,  plus direct  costs.  The
Company has the right to  approve,  in  advance,  any direct  costs in excess of
$500.  One-half  of the  $15,000  in fees for the  three  month  period  will be
deferred and payable only when the Company has successfully  raised the proposed
$1,000,000 in new capital.  At the end of three months, the Company can elect to
continue the services under terms to be negotiated.

Additionally,  the  Company  has agreed to issue a warrant to Network  for up to
1,000,000  shares  of the  Company's  $.01 par value  common  stock and to elect
one-third  of its board of directors  from  representatives  of Network,  in the
event that the new capital is successfully raised.

There can be no assurance that the new capital will be raised or that the market
making assistance and investor relations services will be successful.






                                       41
<PAGE>











                                                                   SCHEDULE II

               SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES
                   VALUATION AND QUALIFYING ACCOUNTS
                 YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994


<TABLE>
<CAPTION>
 
                                        Charged To
                                    Beginning  Costs and               Ending
       Description                   Balance   Expenses   Deductions   Balance
------------------------          ----------- ---------- ----------- ---------
Allowance for Doubtful Accounts:

<S>                               <C>           <C>         <C>     <C>       
December 31, 1994                 $   175,000   $ 25,000    $   -   $  200,000
                                      ========  ========    =======    =======
December 31, 1995                 $   200,000         -         -   $  200,000
                                      ========  ========    =======    =======
December 31, 1996                 $   200,000     30,000        -   $  230,000
                                      ========  ========    =======    =======

</TABLE>

                                       42
<PAGE>





                   SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES


                               Index to Exhibits
                                                            PAGE


22.  Subsidiaries of the Registrant                           44




                                       43
<PAGE>





                  SPINDLETOP OIL & GAS CO. AND SUBSIDIARIES




                          Subsidiaries the Registrant


Prairie  Pipeline Co. incorporated  June 22, 1983, under the laws of the State 
of Texas, is a wholly-owned subsidiary of Registrant.


Spindletop Drilling Company,  incorporated  September 5, 1975, under the laws of
the State of Texas, is a wholly-owned subsidiary of the Registrant.


                                       44
<PAGE>