<PAGE>
 
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, DC  20549

                                  FORM 10-QSB


       [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                                       or

       [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           For the period from ________________ to _________________.

                        Commission file number 0-19753
 
     ---------------------------------------------------------------------

                           GOTHIC ENERGY CORPORATION
             (Exact name of registrant as specified in its charter)


                 OKLAHOMA                                 22-2663839
      (State or other jurisdiction of                    (IRS Employer
       incorporation or organization)                  Identification No.)


             5727 SOUTH LEWIS, #700, TULSA, OKLAHOMA    74105-7148
                    (Address of principal executive offices)


                                  918-749-5666
              (Registrant's telephone number, including area code)


     Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.   Yes     X        No           .
               ---------       ---------

 
                     APPLICABLE ONLY TO CORPORATE ISSUERS:

 As of November 11, 1996, 12,381,857 shares of the Registrant's Common Stock,
                       $.01 par value, were outstanding.
<PAGE>
 
                           GOTHIC ENERGY CORPORATION

                               TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
                                                                        PAGE
<S>                                                                     <C> 
PART I - FINANCIAL INFORMATION                     
 
         ITEM 1 - FINANCIAL STATEMENTS
 
         Consolidated Unaudited Balance Sheets
         September 30, 1996 and December 31, 1995                         3
 
         Consolidated Unaudited Statements of Operations
         Nine Months ended September 30, 1996 and 1995                    4
 
         Consolidated Unaudited Statements of Operations
         Three Months ended September 30, 1996 and 1995                   5
 
         Consolidated Unaudited Statements of Cash Flows
         Nine Months ended September 30, 1996 and 1995                    6
 
         Notes to Unaudited Consolidated Financial Statements             7
 
         ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

         Management's Discussion and Analysis or
         Plan of Operations                                              11


PART II - OTHER INFORMATION                                             PAGE

         Item 1 - Legal Proceedings                                      15
 
         Item 2 - Changes in Securities                                  15
 
         Item 3 - Defaults Upon Senior Securities                        15
 
         Item 4 - Submission of Matters to a Vote of Security Holders    15
 
         Item 5 - Other Information                                      16
 
         Item 6 - Exhibits and Reports on Form 8-K                       17
 
         Signatures                                                      18
</TABLE>

                                       2
<PAGE>
 
                   GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
 
                                                  SEPTEMBER 30,   DECEMBER 31,
                                                      1996           1995
                                                  -------------   ------------
                                                   (UNAUDITED)
<S>                                               <C>             <C>
                    ASSETS
                    ------
CURRENT ASSETS:
  Cash and cash equivalents                       $    471,419    $    157,559
  Oil and gas receivable                             2,377,577         295,344
  Receivable from officers and employees                33,607          16,459
  Other                                                 34,531          74,697
                                                  ------------    ------------
  TOTAL CURRENT ASSETS                               2,917,134         544,059
 
PROPERTY AND EQUIPMENT:
  Oil and gas properties on full cost method        35,593,890       8,640,480
  Equipment, furniture and fixtures                    308,715         135,807
  Accumulated depreciation and depletion            (3,051,414)       (780,414)
                                                  ------------    ------------
  PROPERTY AND EQUIPMENT, NET                       32,851,191       7,995,873

NOTES RECEIVABLE:
    Affiliate                                                -         123,000
    Other                                               61,648          61,648
  Investment                                                 -         200,000
  Other assets, net                                  1,617,704         377,541
                                                  ------------    ------------
  TOTAL ASSETS                                    $ 37,447,677    $  9,302,121
                                                  ============    ============
 
   LIABILITIES AND STOCKHOLDERS'EQUITY
   -----------------------------------
CURRENT LIABILITIES:
  Accounts payable trade                          $  1,128,075    $  1,019,543
  Revenues payable                                   1,793,780          94,841
  Accrued liabilities                                  219,420         516,176
  Notes payable                                         25,000       2,900,000
  Current portion long-term debt                     5,068,202       2,220,000
                                                  ------------    ------------
  TOTAL CURRENT LIABILITIES                          8,234,477       6,750,560
 
LONG-TERM DEBT                                      13,672,436       3,025,573
 
GAS IMBALANCE LIABILITY                              1,186,273               -
 
STOCKHOLDERS' EQUITY:
  Preferred stock, par value $.05,
   authorized 500,000 shares; issued 
   and outstanding 5,540 shares                            277               -

  Common stock, par value $.01,
   authorized 100,000,000 shares; issued 
   and outstanding 12,381,857 and 
   5,501,785 shares                                    123,819          55,018
  Additional paid in capital                        32,530,560      13,965,236
  Accumulated deficit                              (18,300,165)    (14,494,266)
                                                  ------------    ------------
  TOTAL STOCKHOLDERS' EQUITY                        14,354,491        (474,012)
                                                  ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $ 37,447,677    $  9,302,121
                                                  ============    ============
</TABLE>
                             See accompanying notes

                                       3
<PAGE>
 
                   GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                     FOR THE NINE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                     -------------------------
                                                        1996           1995
                                                     ----------    -----------
<S>                                                  <C>           <C>
REVENUES:
  Oil and gas sales                                  $ 7,270,252   $ 1,221,664
  Well operations                                        754,160        38,563
  Interest and other income                               48,705         1,139
                                                     -----------   -----------
    TOTAL REVENUES                                     8,073,117     1,261,366
 
COSTS AND EXPENSES:
  Lease operating expenses                             3,481,114       728,961
  Depletion, depreciation and                          2,318,975       422,550
   amortization
  Selling, general and administrative                  1,250,484       719,383
   expense
  Provision for impairment of oil and                  5,050,000       486,000
   gas properties
  Provision for impairment of investment                       -       802,287
  Loss on termination of option                                -     1,850,000
                                                     -----------   -----------
Operating loss                                        (4,027,456)   (3,747,815)
Interest expense                                       1,061,017     1,282,680
                                                     -----------   -----------
 
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM      $(5,088,473)  $(5,030,495)
 
INCOME TAX BENEFIT                                     2,992,547             -
                                                     -----------   -----------
 
LOSS BEFORE EXTRAORDINARY ITEM                        (2,095,926)   (5,030,495)
 
LOSS ON EARLY EXTINGUISHMENT OF DEBT                   1,432,973             -
                                                     -----------   -----------
 
NET LOSS                                             $(3,528,899)  $(5,030,495)
                                                     ===========   ===========
 
PREFERRED DIVIDEND                                       277,000             -
                                                     -----------   -----------
 
NET LOSS AVAILABLE FOR COMMON SHARES                 $(3,805,899)  $(5,030,495)
                                                     ===========   ===========
 
LOSS PER COMMON SHARE                                $      (.33)  $     (1.25)
                                                     ===========   ===========
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING            11,443,994     4,009,315
                                                     ===========   ===========
</TABLE>

                             See accompanying notes

                                       4
<PAGE>
 
                   GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                    FOR THE THREE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                    --------------------------
                                                        1996          1995
                                                    -----------    ----------- 
<S>                                                 <C>            <C>
REVENUES:
  Oil and gas sales                                 $ 2,927,126    $   734,630
  Well operations                                       270,295         26,459
  Interest and other income                              17,063         (6,156)
                                                    -----------    -----------
    TOTAL REVENUES                                    3,214,484        754,933
 
COSTS AND EXPENSES:
  Lease operating expenses                            1,421,379        453,890
  Depletion, depreciation and amortization              732,193        246,650
  Selling, general and administrative expense           432,160        261,962
  Provision for impairment of investment                      -        802,287
  Loss on termination of option                               -      1,850,000
                                                    -----------    -----------
Operating income (loss)                                 628,752     (2,859,856)
Interest expense                                        412,756        417,915
                                                    -----------    -----------
 
NET INCOME (LOSS)                                   $   215,996    $(3,277,771)
 
PREFERRED DIVIDEND                                      103,875              -
                                                    -----------    -----------
 
NET INCOME (LOSS) AVAILABLE FOR COMMON SHARES       $   112,121    $(3,277,771)
                                                    ===========    ===========
 
INCOME (LOSS) PER COMMON SHARE                      $      0.01    $     (0.63)
                                                    ===========    ===========
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING           12,353,190      5,163,651
                                                    ===========    ===========
</TABLE>

                             See accompanying notes

                                       5
<PAGE>
 
                   GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                   FOR THE NINE MONTHS ENDED
                                                         SEPTEMBER 30,
                                                  ---------------------------
                                                      1996           1995
                                                  ------------   ------------
<S>                                               <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                        $ (3,528,899)  $ (5,030,495)
  ADJUSTMENTS TO RECONCILE NET LOSS TO
   NET CASH PROVIDED (USED) BY OPERATING
   ACTIVITIES:
  Depreciation and amortization                      2,318,975        422,550
  Amortization of discount and loan costs                    -        919,285
  Provision for impairment of oil and gas 
   properties                                        5,050,000        486,000
  Provision for impairment of investment                     -        802,287
  Loss on termination of option                              -      1,850,000
  Deferred income tax benefit                       (2,992,547)             -
  Loss on early extinguishment of debt               1,432,973              -

CHANGES IN ASSETS AND LIABILITIES:
  Increase in accounts receivable                     (899,853)      (243,848)
  Decrease (increase) in other current assets           57,226        (38,365)
  Increase in accounts and revenues payable            500,878        573,033
  Increase (decrease) in accrued liabilities          (754,667)       239,070
  Decrease in other assets                             226,555              -
                                                  ------------   ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES     1,410,641        (20,483)

NET CASH USED BY INVESTING ACTIVITIES:
  Proceeds from sale of investment                     200,000              -
  Proceeds from collection on note receivable          123,000              -
  Proceeds from sale of property                       991,507        306,318
  Purchase of property and equipment               (11,552,620)   (10,589,675)
  Property development                                (676,216)      (368,753)
  Acquisition of business, net of cash acquired    (17,592,973)             -
                                                  ------------   ------------
NET CASH USED BY INVESTING ACTIVITIES              (28,507,302)   (10,652,110)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments on short-term debt                      (1,560,000)      (150,000)
   Proceeds of short-term debt                               -      2,000,000
   Payments on long-term debt                       (8,768,135)      (614,366)
   Proceeds of long-term debt                       21,022,395      7,194,654
   Proceeds from sale of common stock, net          13,141,368      1,777,552
   Proceeds from sale of preferred stock, net        3,997,430              -
   Payment of Dividends                               (173,125)             -
   Other                                              (249,412)      (198,432)
                                                  ------------   ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES           27,410,521     10,009,408
 
NET CHANGE IN CASH AND CASH EQUIVALENTS                313,860       (663,185)
 
CASH AND CASH EQUIVALENTS, BEGINNING OF 
 PERIOD                                                157,559        824,978
                                                  ------------   ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD          $    471,419   $    161,793
                                                  ============   ============
</TABLE>
                             See accompanying notes

                                       6
<PAGE>
 
                   GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   GENERAL AND ACCOUNTING POLICIES

     BUSINESS - The consolidated financial statements include the accounts of
Gothic Energy Corporation, (the "Company"), and its subsidiaries, Gothic Energy
of Texas, Inc. ("Gothic Texas"), since its inception in 1995 and Buttonwood
Energy Corporation and its subsidiaries Buttonwood Petroleum, Inc. and Dakota
Services, Inc. ("Buttonwood") since their acquisition on January 30, 1996.
Since November 1994, the Company has been primarily engaged in the business of
acquiring, developing and exploiting oil and gas reserves.

     Preparation of Financial Statements  -  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.  The December 31, 1995 consolidated balance sheet data was derived
from the audited financial statements but does not include all disclosures
required by generally accepted accounting principles.  The condensed financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995.

     In the opinion of management of the Company, the accompanying financial
statements contain all adjustments, none of which were other than normal
recurring accruals, necessary to present fairly the financial position of the
Company as of September 30, 1996, and the results of its operations and cash
flows for the periods ended September 30, 1996 and 1995.  The results of
operations for the periods represented are not necessarily indicative of the
results of operations to be expected for the full year.

NOTE 2.   OIL AND GAS PROPERTY ACQUISITIONS

     VARIOUS WORKING INTEREST ACQUISITIONS- On August 5, 1996 the Company
completed the acquisition, from various sellers, of working interest in
approximately 120 wells in the Anadarko Basin of Western Oklahoma, and the
Arkoma Basin of Eastern Oklahoma and Arkansas.  The Company currently operates
70 of the wells in which the interests were acquired. The purchase price was
financed through an increase in the amount of borrowings under the Company's
Loan Agreement dated January 19, 1996 with Bank One, Texas, N.A. of $2,792,200,
and from the Company's working capital.

     COMSTOCK ACQUISITION  -  On May 16, 1996 the Company completed the
acquisition, effective as of January 1, 1996, from Comstock Oil and Gas, Inc.
and Comstock Offshore Energy, Inc. ("Comstock"), of various working interests in
145 producing oil and gas properties.  The Company operates 70 of the wells.
The purchase price for the properties acquired was $6,600,000, subject to
certain post-closing  adjustments which reduced the amount paid to $6,430,195.
Substantially all of the properties acquired are located in the Anadarko Basin
of western Oklahoma and the Arkoma Basin of eastern Oklahoma and Arkansas.  The
purchase was financed through an increase in the amount of borrowings under the
Company's Loan Agreement dated January 19, 1996 with Bank One, Texas, N.A.

     STRATUM OVERRIDE ACQUISITION  -  On May 16, 1996 the Company completed the
acquisition of the Stratum Group, L.L.C. ("Stratum") 7% overriding royalty
interests in the Company's Johnson Ranch wells.  The purchase price for the
interests acquired was $800,000.  The purchase price was financed through an
increase in the Company's borrowing facility at Bank One, Texas, N.A. and from
the Company's working capital.

                                       7
<PAGE>
 
                  GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

     BUTTONWOOD ACQUISITION  -  On January 30, 1996 the Company completed the
acquisition of Buttonwood Energy Corporation (the "Buttonwood Acquisition"), at
a price of $17,912,500, net of a $1,000,000 deposit paid in 1995 and charged to
expense.  The aggregate purchase price of $18,008,712 including acquisition
costs of $389,212, was allocated to the assets acquired and liabilities assumed
as follows:

                    Current assets              $  1,632,327
                    Property and equipment        20,784,016
                    Other assets                   1,435,500
                    Current liabilities           (1,660,628)
                    Gas imbalance                 (1,189,956)
                    Deferred income taxes         (2,992,547)
                                                ------------
                    Aggregate purchase price      18,008,712
                    Less:  Cash acquired            (415,739)
                                                ------------
                          Net cash paid         $ 17,592,973
                                                ============

     The Buttonwood Acquisition was financed with proceeds from a public
offering of the Company's common stock and preferred stock, a bridge financing
and the establishment of a credit facility with Bank One, Texas.  The public
offering and the preferred stock financing, generated net proceeds of
$17,216,000.   The remaining purchase price was paid out of the proceeds from
the Bank One, Texas Credit Facility.  The acquisition was accounted for under
the purchase method and, accordingly, results of operations of the acquired
operations are included in the Company's results of operations since the date of
acquisition.

NOTE 3.   FINANCING ACTIVITIES

     BANK ONE LOAN  -  Effective January 30, 1996, the Company entered into an
$11 million revolving credit facility with Bank One Texas.  The proceeds of the
borrowing were used to finance a portion of the purchase price of the Buttonwood
Acquisition , and to repay outstanding indebtedness to Stratum Group, L.L.C.
("Stratum").   On May 16, 1996 the revolving credit facility was increased to
$17.7 million.  The proceeds from this increase were used to finance the
purchase price of the Comstock and Stratum acquisitions (See Note 2).  Of the
increase $669,895 was part of a one-time $1 million Special Advance which must
be repaid in full prior to November 1, 1996 and bears interest at a rate of 5%
over the bank's base rate.  The Company anticipates repaying the special advance
out of excess working capital and through the sale of marginal properties.  The
remaining increase was granted under the original terms of the credit facility.
On July 31, 1996 the revolving credit facility was increased to $19.3 million.
The proceeds from this increase were used to finance the purchase of various
working interest in some 120 wells (See Note 2).  The total amount outstanding
on the Bank One Loan was $18,726,795 at September 30, 1996.

     The terms of the Bank One Loan provide for principal reduction payments at
the rate of $290,000 per month, plus interest with all outstanding principal and
interest due and payable on January 30, 1999.  Interest is payable at the option
of the Company, either at the rate of 1% over Bank One's base rate or up to
3.75% (based on the principal balance outstanding), over the rate for borrowed
dollars by the lending bank in the London Interbank Market. The indebtedness is
collateralized by first liens on all of the Company's oil and gas properties,
including those acquired from Buttonwood and Comstock.  The loan agreement
relating to the credit facility includes various affirmative and negative
covenants including, among others, the requirements that the Company maintain
certain ratios of current assets to current liabilities, and debt service
coverage.  The loan agreement also established an amount of minimum tangible net
worth and places a limitation on annual selling, general and administrative
expenses.  Material breaches of these or other covenants which are not cured or
waived could result in this indebtedness becoming immediately due and payable
and empowering the lender to foreclose against the collateral for the loan.  At
September 30, 1996, the Company was not in compliance with its secured bank
loan agreement requiring a 1:1 ratio of current assets to current liabilities.
The Company has obtained a waiver from the bank in regard to this non
compliance.

                                       8
<PAGE>
 
                  GOTHIC ENERGY CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (CONTINUED)

     STRATUM LOAN  -  On June 2, 1995, Gothic Texas entered into an agreement
with Stratum in which Stratum agreed to loan Gothic Texas a maximum amount of
$8,131,500, of which $6,756,500 was drawn and used to complete the Johnson Ranch
Acquisition.  At January 30, 1996 the amount outstanding was $6,575,687.  On
that date the Company, with proceeds from its new credit facility, paid Stratum
in full and terminated its loan agreement with them.  This transaction resulted
in a loss on extinguishment of debt of $1,432,973.

     Effective January 30, 1996 Quest Capital Corporation ("Quest"), converted
$1,290,000 of its $1,850,000 note into 1,290 shares of the Company's 7 1/2%
Cumulative Convertible Preferred Stock.  The remaining $560,000 of indebtedness
and $265,000 of accrued interest and other amounts due Quest were converted into
a subordinated note in the principal amount of $825,000 which was paid in full
by the Company on March 13, 1996.

     BRIDGE FINANCING  -  A $1,000,000 note owing to Quest, Epoch Capital
Corporation and another lender , along with accrued interest, was paid in full,
on January 30, 1996 at the closing of the public offering by the Company.

     PUBLIC OFFERING  - During the quarter ended March 31, 1996, the Company
completed a public offering of 2,545,000 Units at a price of $6.00 per Unit.
Each Unit consisted of three shares of the Company's $.01 par value common stock
and three redeemable common stock purchase warrants, each exercisable for one
share of common stock at $2.40 per share.  The offering netted the Company
approximately $12,970,000, which, together with the proceeds from the credit
facility and preferred stock financing, was applied to the purchase of
Buttonwood and the repayment of indebtedness.

     PREFERRED STOCK OFFERING  -  On January 30, 1996 the Company completed a
preferred stock financing of 5,540 shares of the Company's 7 1/2% Cumulative
Convertible Preferred Stock.  The financing included 1,290 shares issued to
Quest in exchange for $1,290,000 principal amount of a note. The remaining 4,250
shares were sold for an aggregate cash price of $4,250,000.  The 5,540 shares of
7 1/2% Cumulative Convertible Preferred Stock issued are convertible commencing
December 31, 1996, into shares of the Company's Common Stock at a conversion
price per share of Common Stock of $2.00.  On the basis of the above mentioned
conversion price, an aggregate of 2,770,000 shares of Common Stock would be
issuable on conversion.

NOTE 4.   STOCKHOLDERS' EQUITY

     On  August 13, 1996 at the Annual Shareholders' meeting, the shareholders
approved; (I) an increase in the number of shares of common stock authorized
from 30,000,000 to 100,000,000; (ii) the 1996 Omnibus Incentive Plan; (iii) the
1996 Non-Employees Stock Option Plan; and (iv) an increase in the shares
reserved for issuance under the 1989 Incentive Stock Option Plan from 1,500,000
to 2,500,000. The shareholders approved the merger of the Company into a newly-
formed wholly-owned subsidiary, incorporated in the State of Oklahoma, which
changed the Company's state of incorporation from Delaware to Oklahoma. This
transaction was accounted for as a combination of entities under common control,
similar to a pooling of interests, and had no effect on the Company's results of
operations or financial position.

     The 1996 Omnibus Incentive Plan provides for compensatory awards
representing or corresponding to up to an aggregate of 1,000,000 shares of
Common Stock of the Company to officers, directors and certain other key
employees.  Awards may be granted for no consideration and consist of stock
options, stock awards, stock appreciation rights, dividend equivalents, other
stock-based awards (such as phantom stock) and performance awards consisting of
any combination of the foregoing.  Generally, options will be granted at an
exercise price equal to the lower of (I) 100% of fair market value of the shares
of Common Stock on the date of grant or (ii) 85% of the fair market value of the
shares of

                                       9
<PAGE>
 
Common Stock on the date of exercise.  Each option will be exercisable for the
period or periods specified in the option agreement, which will generally not
exceed 10 years from the date of grant.  No options have been issued under the
Omnibus Incentive Plan.

     The 1996 Non-Employee Stock Option Plan provides a means by which non-
employee Directors of the Company and consultants to the Company can be given an
opportunity to purchase stock in the Company.  The Plan provides that a total of
1,000,000 shares of the Company's Common  Stock may be issued pursuant to
options granted under the Non-Employee Plan, subject to certain adjustments.
The exercise price for each option granted under the Non-Employee Plan will be
not less than the fair market value of the Common Stock underlying the option on
the date of grant.  Each option granted under the Non-Employee Plan is 10 years
after the date of grant.  Options granted  to Directors will terminate to the
extent such options have not been previously exercised thirty (30) days after
the date the Director is no longer a Director of the Company.  No options have
been issued under the Non-Employee Plan.

NOTE 5.   CONTINGENCIES

     A former officer and employee of the company, on May 6, 1996, commenced an
arbitration proceeding under the Rules of the American Arbitration Association
against the Company seeking to recover damages for an alleged breach of contract
and intentional interference with contract.  The damages sought are
approximately $384,000.  The Company believes that it has adequate basis to
prove that the termination for cause was appropriate.

NOTE 6.   SUBSEQUENT EVENTS

     PROPERTY SALE - Subsequent to the quarter ended September 30, 1996, the
Company completed the sale of its interest in approximately 290 wells of which
15 were operated by the Company.  The net sales price was $2,080,550.  The
Company used $1,143,701 to reduce its revolving credit facility with Bank One
and $444,501 to repay the Bank One Special Advance.  The remaining sale proceeds
were used as working capital.

                                       10
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The following is management's discussion and analysis of certain
significant factors which have affected the Company's earnings, financial
condition and liquidity during the periods included in the accompanying
Consolidated Financial Statements.

     On January 19, 1995, the Company completed its first acquisition of oil and
gas reserves, the Egolf Acquisition, and on June 2, 1995, the Company completed
a second acquisition of oil and gas reserves, the Johnson Ranch Acquisition.

     On January 30, 1996, the Company completed the following transactions:  
(i) it completed the acquisition of Buttonwood Energy Corporation (the
"Buttonwood Acquisition"); (ii) it borrowed $11 million pursuant to a credit
facility (the "Credit Facility") entered into with a bank; (iii) it completed
the public sale of securities (the "Offering") yielding net proceeds of
approximately $12,970,000; and (iv) it sold 5,540 shares of 7 1/2% Cumulative
Preferred Stock (the "Preferred Stock Financing") for aggregate consideration of
$5,540,000 inclusive of $1,290,000 principal amount of a note of the Company
exchanged for the preferred shares.

     On May 16, 1996, the Company completed the acquisition from Comstock of
various working interests in 145 producing oil and gas properties for the
purchase price of $6,430,195.  In addition, on May 16, 1996, the Company
completed the acquisition of the Stratum 7% overriding royalty interests in the
Company's Johnson Ranch wells for the purchase price of $800,000.  The purchase
prices were financed through an increase in the Company's borrowing facility at
Bank One, Texas, N.A. and from the Company's working capital.

     On August 5, 1996 the company completed the acquisition from various
sellers, of working interest in approximately 120 wells in the Anadarko Basin of
Western Oklahoma, and the Arkoma Basin of Eastern Oklahoma and Arkansas.  Gothic
currently operates 70 of the wells in which the interests were acquired.  The
purchase price of the transaction was approximately $3.3 million.  This amount
was financed through an increase in the Company's borrowing facility at Bank
One, Texas N.A. of $2,792,200, and from the Company's working capital.

RESULTS OF OPERATIONS
---------------------

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED 
SEPTEMBER 30, 1995

     Revenues were $8,073,117 for the nine months ended September 30, 1996, as
compared to $1,261,366 for the same period ended September 30, 1995.  This
increase is primarily the result of acquisitions of oil and gas properties made
by the Company since September 1995, as described above.  Higher prices for oil
and gas sales also contributed to the increase.  Oil and gas revenues for the
period ended September 30, 1996 were $7,270,252 with $2,648,801 coming from oil
sales and $4,621,451 from gas sales.  Oil sales were based on the sale of
131,020 barrels at an average price of $20.22 per barrel.  Gas sales were based
on  the sale of 2,396,746 mcf at an average price of $1.93 per mcf.
 
     The Company incurred lease operating expenses during the nine months ended
September 30, 1996 of $ 3,481,114.  This compares to $ 728,961 for the same
period in 1995.  This increase is also a result of the  acquisitions completed
since  September, 1995, as described above.

     Depletion, depreciation and amortization expense increased to $2,318,975
for the nine months ended September 30, 1996 from $422,550 for the same period
in the prior year.  Depletion of the oil and gas properties increased to
$2,244,000 for the nine months ended September 30, 1996 from $395,000 for the
comparable period in 1995 primarily due to the acquisitions since September
1995, as described above.
 
     Selling, general and administrative costs were $1,250,484 for the nine
months ended September 30, 1996, as compared to $719,383 for the nine months
ended September 30, 1995.  The major reason for this increase is the addition of
personnel and related costs due to acquisitions made since September of 1995.
The increase also includes some nonrecurring costs related to the completion of
the Buttonwood transaction.  The Company also recorded a $5,050,000 full cost
ceiling write-down on its oil and gas properties at March 31, 1996.

                                       11
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
          (CONTINUED)

     Interest and financing costs decreased to $1,061,017 for the nine months
ended September 30, 1996. This compares to $1,282,680 for the same period in
1995.  The decrease is the result of  the Company's  debt  restructuring which
was completed in January 1996, and lower financing costs.

     The Company recorded an extraordinary loss of $1,432,973 on the early
extinguishment of debt during the quarter ended March 31, 1996, with the payoff
of the Stratum loan.  The Company also recognized $277,000 in preferred
dividends on its 7 1/2% cumulative preferred stock during the nine months ended
September 30, 1996.

THREE MONTHS ENDED  SEPTEMBER 30, 1996 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995.

     Revenues were $3,214,484 for the three months ended September 30, 1996, as
compared to $754,933 for the same period ended September 30, 1995.  This
increase is the result of acquisitions of oil and gas properties made by the
Company since September 1995, as described above.  Oil and gas revenues for the
period ended September 30, 1996 were $2,927,126 of which $1,071,681 came from
oil sales and $1,855,445 from gas sales.  Oil sales were based on the sale of
48,294 barrels at an average price of $22.19    per barrel.  Gas sales were
based on  the sale of  997,058 mcf at an average price of $1.86 per mcf.
 
     The Company incurred lease operating expenses during the three months ended
September 30, 1996 of $1,421,379.  This compares to $453,890 for the same period
in 1995.  This increase is also a result of the  acquisitions completed since
September 1995, as described above.

     Depletion, depreciation and amortization expense was $732,193 for the three
months ended September 30, 1996 as compared to $246,650 for the same period in
the prior year.  Such increase was primarily due to higher volumes of oil and
gas produced related to the properties acquired since September of 1995.

     Selling, general and administrative costs were $432,160 for the three
months ended September 30, 1996, as compared to $261,962 for the three months
ended September 30, 1995.  The major reason for this increase is the addition of
personnel and related costs due to acquisitions made since September of 1995.

     Interest and financing costs remained relatively constant at $412,756 for
the three months ended September 30, 1996 as compared to $417,915 for the same
period in 1995.

     The Company also recognized $103,875 in preferred dividends on its 7 1/2%
cumulative preferred stock during the three months ended September 30, 1996.

CAPITAL RESOURCES AND LIQUIDITY
-------------------------------

GENERAL
-------

     The Company's capital requirements relate to the acquisition, exploration,
enhancement, development and operation of oil and gas producing properties.  In
general, because oil and gas reserves the Company has acquired and intends to
acquire are depleted by production over time, the success of its business
strategy is dependent upon a continuous acquisition, exploitation, enhancement,
development and operation program.  In order to achieve profitability and
generate cash flow, the Company is dependent upon acquiring or developing
additional oil and gas properties or entering into joint oil and gas well
development arrangements.  The Company will continue to require access to debt
and equity capital or the availability of joint venture development
arrangements, among other possible sources, to pursue its business strategy of
additional property acquisition and development.  No assurance can be given that
the Company will be able to obtain additional capital or enter into joint
venture development arrangements on satisfactory terms to implement the
Company's business strategy.  The Company has funded its recent capital needs
through the issuance of capital stock and borrowings.   Without  raising
additional capital or

                                       12
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
          (CONTINUED)

entering into joint oil and gas well development arrangements, the Company will
be unable to acquire additional producing oil and gas properties and its ability
to develop its existing oil and gas properties will be limited to the extent of
the available cash flow.  No assurance can be given as to the availability or
terms of any such additional capital or joint development arrangements or that
such terms as are available may not be dilutive to the interests of the
Company's stockholders.

     At September 30, 1996 the Company had a cash position of $471,419 and a
working capital deficit of $5,317,343 including $5,068,202 of current portion of
long-term debt, of which $1,588,202 has been paid subsequent to the period end
with proceeds received from the sale of properties (See Note 6).

ACQUISITION FINANCING
---------------------

     Under the terms of the Buttonwood Acquisition agreement, which was
completed on January 30, 1996, the Company paid $17,912,500, in consideration
for the acquisition, net of a $1,000,000 deposit paid in 1995 and charged to
expense.

     The Bank One Credit Facility currently  enables the Company to borrow up to
$19.3 million.  On January 30, 1996, $11 million of the credit facility was used
to finance a portion of the purchase price for the Buttonwood Acquisition and
repay outstanding indebtedness.  Additional proceeds of $7,230,195 were used on
May 16, 1996 to finance the purchase of the Comstock and Stratum well interests,
and on July 31, 1996, proceeds of $2,792,200 were used to finance the
acquisition of well interests from various sellers.  The Company has repaid
$2,295,600 under the facility since January 30, 1996.  The terms currently
provide for amortization payments at the rate of $290,000 per month commencing
September 1, 1996, with all outstanding principal and interest due and payable
on January 30, 1999.  Interest is payable, at the option of Company, either at
the rate of 1% over the lending bank's base rate or up to 3.75% (based on the
principal balance outstanding) over the rate for borrowed dollars by the lending
bank in the London Interbank market.  The indebtedness is collateralized by
first liens on all of the Company's oil and gas properties.  The loan agreement
relating to the Credit Facility includes various affirmative and negative
covenants, including, among others, the requirements that the Company (i)
maintain a ratio of current assets to current liabilities, as defined, of not
less than 1.0 to 1.0, (ii)  maintain a debt service coverage ratio of net cash
flow per quarter to required quarterly reduction of indebtedness of not less
than 1.10 to 1.0, (iii)  maintain minimum tangible net worth at the end of each
fiscal quarter of $10,250,000, plus certain percentages of net income and
proceeds received from the sale of securities, and (iv)  maintain selling,
general and administrative expenses per quarter not in excess of 25% of
consolidated net revenues.  Material breaches of these or other covenants which
are not cured or waived could result in a default under the loan agreement
resulting in this indebtedness becoming immediately due and payable and
empowering the lender to foreclose against the collateral for the loan.  At
September 30, 1996, the Company was not in compliance with its secured bank
loan agreement requiring a 1:1 ratio of current assets to current liabilities.
The Company has obtained a waiver from the bank in regard to this non
compliance.

     Pursuant to the Preferred Stock Financing, the Company issued and sold
5,540 shares of its 7 1/2% Cumulative Convertible Preferred Stock for an
aggregate consideration of $5,540,000, of which $4,250,000 was paid in cash, and
$1,290,000 was paid by Quest by exchange of $1,290,000 of outstanding principal
amount of indebtedness held by Quest for 1,290 shares.  The proceeds were used
by the Company, together with the net proceeds from the offering and the Credit
Facility, for the balance of the purchase price of the Buttonwood Acquisition
and to repay indebtedness and expenses of the 1996 transactions.  The 5,540
shares of 7 1/2% Cumulative Convertible  Preferred Stock are convertible,
commencing December 31, 1996, into shares of the Company's Common Stock at a
conversion price per share of Common Stock equal to the lesser of (i)  $2.00 or
(ii)  a price equal to the average of the closing prices of the Company's Common
Stock during the 30 business days prior to the day the shares are converted less
a discount of 12 1/2%.  The number of shares of Common Stock to be issued on
conversion is determined by multiplying the number of shares of 7 1/2%
Cumulative Convertible Preferred Stock to be converted by $1,000 and dividing
the result by the conversion price in effect.  The shares pay a cumulative
preferred dividend of 7 1/2% of the stated value per annum payable semi-
annually.  The shares of 7 1/2% Cumulative Convertible Preferred Stock have no
voting rights.

                                       13
<PAGE>
 
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
          (CONTINUED)

     After reflecting the exchange of $1,290,000 principal amount of
indebtedness for 1,290 shares of 7 1/2% Cumulative Convertible Preferred Stock
in the Preferred Stock Financing, the remaining $560,000 of principal and
accrued interest of $173,000 owing to Quest on a note, and other obligations
owing to Quest aggregating $92,000 were replaced at the closing of the Preferred
Stock Financing with a new subordinated note in the principal amount of $825,000
bearing interest at 7 1/2% per annum, due, together with all accrued interest
thereon, ten years from the date it is issued.  The $825,000 note was repaid on
March 13, 1996.

CASH FLOW
---------

     Net cash provided by operating activities increased to $1,410,641 for the
nine months ended September 30, 1996 as compared to net cash used of $20,483 for
same period in 1995.  This was primarily the result of an increase in cash flow
from operations, partially offset by an increase in working capital.

     The Company used $28,507,302 of net cash in investing activities for the
first nine months of 1996 compared with $10,652,110 for the same period in 1995.
This was primarily due to the acquisition of Buttonwood, net of cash acquired,
for $17,592,973, the acquisition of Comstock for $6,430,195, net of adjustments,
the August Working Owner acquisition for $3,290,000, and oil and gas well
enhancements in the amount of $676,216 and other producing property acquisitions
of $1,832,425.

     Net cash provided by financing activities for the nine months ended
September 30, 1996 was $27,410,521 compared to $10,009,408 provided in 1995.
During the nine months ended September  30, 1996 the Company received proceeds
from long-term debt of $21,022,395 proceeds from the issuance of common stock of
$13,141,368 and proceeds from the issuance of preferred stock of $3,997,430.
The Company also used funds of $10,328,135 to pay short and long-term debt
during the period, and $173,125 to pay preferred dividends.

     CAUTIONARY STATEMENT  -  Reference is made to the Cautionary Statement for
                                                       ------------------------
Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation
-----------------------------------------------------------------------------
Reform Act of 1995 contained in the Company's Annual Report on Form 10-KSB for
------------------                                                            
the year ended December 31, 1995, which Cautionary Statement is incorporated
herein by reference.

                                       14
<PAGE>
 
                         PART II.    OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

     (a) A former officer and employee of the Company, Larry L. Terry, on May 6,
1996, commenced an arbitration proceeding under the Rules of the American
Arbitration Association against the Company seeking to recover damages for an
alleged breach of contract and intentional interference with contract.  The
damages sought are approximately $384,000.  The Company believes that it has
adequate basis to prove that the termination of Mr. Terry for cause was
appropriate.

ITEM 2.   CHANGES IN SECURITIES

          Not applicable

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not applicable
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     (a) The Company held an annual meeting of stockholders on August 13, 1996.
On August 13, 1996, the following proposals were voted on.

          (i) The following persons were elected as Directors to serve until the
annual meeting of stockholders in 1997 and until their successors have been
elected and qualified by the following vote:

<TABLE>
<CAPTION>
                                    Votes for      Votes against
                                    ----------     -------------
               <S>                  <C>            <C>
               John J. Fleming      10,912,153         55,772
               Michael K. Paulk     10,912,153         55,772
               John L. Rainwater    10,911,103         56,822
               Morton A. Cohen      10,912,153         55,772
               Brian E. Bayley      10,912,153         55,772
</TABLE>

          (ii) The Proposal to increase the number of shares of common stock
authorized from 30,000,000 to 100,000,000 was approved by the following vote:

<TABLE>
<CAPTION>
                                      Votes
                                   -----------
               <S>                  <C>
               In favor             10,420,812
               Against                 368,213
               Abstentions              73,900
               Not voted               105,000
</TABLE> 
 
          (iii) The proposal to approve the 1996 Omnibus Incentive Plan was
approved by the following vote:

<TABLE> 
<CAPTION> 
                                     Votes
                                   ---------
               <S>                 <C> 
               In favor            3,991,499
               Against               419,092
               Abstentions           158,525
               Not voted           6,398,809
</TABLE>

          (iv) The proposal to approve the 1996 Non-Employee Stock Option Plan
was approved by the following vote:

<TABLE>
<CAPTION>
                                     Votes
                                   ---------
               <S>                 <C>
               In favor            4,019,129
               Against               462,887
               Abstentions            87,100
               Not voted           6,398,809
 
</TABLE>

                                       15
<PAGE>
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)

          (v) The proposal to approve the amendment of the Company's 1989
Incentive Stock Option Plan so as to increase the number of shares reserved for
the grant of options thereunder from 1,500,000 to 2,500,000 was approved by the
following vote:

<TABLE>
<CAPTION>
                                     Votes
                                   ---------
               <S>                 <C>
               In favor            3,988,579
               Against               490,037
               Abstentions            90,500
               Not voted           6,398,809
</TABLE>

     (b) At an adjournment of the Annual Meeting held on October 4, 1996, the
following proposals were voted on.

          (i) The proposal  to reincorporate the Company as an Oklahoma
corporation by merger of the Company into a newly-formed wholly-owned subsidiary
of the Company incorporated in Oklahoma was approved by the following vote:

<TABLE>
<CAPTION>
                                     Votes
                                   ---------
               <S>                 <C>
               In favor            6,252,140
               Against               206,927
               Abstentions            80,350
               Not voted           4,956,911
</TABLE>

          (ii) The proposal to increase the number of shares of Preferred Stock
authorized from 500,000 to 2,500,000 was not approved by the following vote:

<TABLE>
<CAPTION>
 
                               Common Stock    Preferred Stock
                               ------------    ---------------
          <S>                  <C>             <C>
          In favor               5,912,614          4,100
          Against                  514,103
          Abstentions              103,700
          Non-voted              4,956,911          1,440
</TABLE>

ITEM 5.   OTHER INFORMATION

          On October 22, 1996, Gothic Energy Corporation, a Delaware
corporation, merged with and into its wholly owned subsidiary corporation
incorporated under the laws of the State of Oklahoma.  Thereby the Company
changed its state of incorporation from Delaware to Oklahoma.

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

     (a)  Exhibits:

          6(i) Certificate of Incorporation of Gothic Energy Newco, Inc., an
               Oklahoma corporation

         6(ii) Bylaws of Gothic Energy Newco, Inc.

        6(iii) Certificate of Ownership and Merger filed with the State of
               Oklahoma

     (b)  Reports on Form 8-K

          During the quarter ended September 30, 1996, the Company filed an
Amendment No. 1 to its Current Report on Form 8-K dated May 16, 1996, reporting
under "Item 7 - Financial Statements and Exhibits".

                                      17

<PAGE>
 
                                  SIGNATURES

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


                                       GOTHIC ENERGY CORPORATION



DATE: NOVEMBER 18, 1996                BY: /S/ MICHAEL PAULK
                                           -----------------
                                           MICHAEL PAULK,
                                           PRESIDENT, CHIEF EXECUTIVE OFFICER



DATE: NOVEMBER 18, 1996                BY: /S/ ANDREW MCGUIRE
                                           ------------------
                                           ANDREW MCGUIRE,
                                           CONTROLLER
   

                                       18