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

                                    FORM 10-K

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

(Mark One)

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                       OR

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

                           COMMISSION FILE NO. 0-21841

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

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

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

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

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

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

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

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

       The aggregate market value of the common stock held by non-affiliates of
the registrant was approximately $7.6 million on March 13, 1998 based upon the
closing sale price of common stock on such date of $1.625 per share on the
NASDAQ National Market. As of March 13, 1998, the registrant had 7,260,993
shares of common stock issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         The information required by Part III is incorporated by reference to
the Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission on
or before April 30, 1998.

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                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S>     <C>              <C>                                                                              <C>
         ITEM 1.         BUSINESS..........................................................................1

         ITEM 2.         PROPERTIES........................................................................8

         ITEM 3.         LEGAL PROCEEDINGS................................................................14

         ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF
                         SECURITY HOLDERS.................................................................14

PART II

         ITEM 5.         MARKET FOR REGISTRANT'S COMMON EQUITY AND
                         RELATED STOCKHOLDER MATTERS  ....................................................14

         ITEM 6.         SELECTED FINANCIAL DATA..........................................................14

         ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                         FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................16

         ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................20

         ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................20

         ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH
                         ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...............................20

PART III

         ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............................21

         ITEM 11.        EXECUTIVE COMPENSATION...........................................................21

         ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................21

         ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................21


PART IV

         ITEM 14.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................ 21


SIGNATURES................................................................................................23
</TABLE>



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            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and section
21E of the Securities Exchange Act of 1934, as amended. Because such statements
include risks and uncertainties, actual results, events and circumstances could
differ materially from those expressed in or implied by such statements due to
various factors. Such factors include the possibility that the drilling of wells
in projects in which the Company has a working interest may be delayed or
abandoned, actual rates of production may not reach anticipated levels and
opportunities for the Company to acquire future working interests in additional
projects may be limited or unavailable, changing economic, regulatory and
competitive conditions, other technological developments and other risks and
uncertainties, including those set forth herein. The Company's future financial
results will depend primarily on: (i) the Company's ability to continue to
source and screen potential projects; (ii) the Company's ability to discover
commercial quantities of hydrocarbons; (iii) the market price for oil and gas;
and (iv) the Company's ability to obtain additional sources of funding to fully
implement its exploration and development program. There can be no assurance
that the Company will be successful in any of these respects or that the prices
of oil and gas prevailing at the time of production will be at a level allowing
for profitable production.


                                     PART I

ITEM 1.  BUSINESS.

OVERVIEW

         3DX Technologies Inc. ("the Company") is a knowledge-based oil and gas
exploration company whose core competence and strategic focus is the utilization
of 3-D seismic imaging and other advanced technologies in the search for
commercial quantities of hydrocarbons. The Company enters into arrangements that
enable it to combine its expertise and exploration capabilities with the
operating skills of other oil and gas companies. The Company participates in
selected exploration projects as a non-operating working interest owner, sharing
both risks and rewards with its partners. The Company commenced operations in
January 1993 to take advantage of perceived opportunities emerging from changes
in the domestic oil and gas industry, including the divestiture of domestic oil
and gas properties, advances in technology and the outsourcing of specialized
technical capabilities. By reducing drilling risk through 3-D imaging and
analysis, the Company seeks to improve the expected return on investment in its
oil and gas projects.

         The Company has developed a screening process that it applies to all
projects that it considers. The screening process, adapted continually to
incorporate the Company's ongoing experience, is designed to produce a balanced
portfolio of projects that have reliable and experienced operating partners, are
conducive to the application of advanced 3-D technology, have significant upside
potential and may be extended into exploration trends.

STRATEGY

         The Company's goal is to increase its proved reserves, production and
cash flow by quickly, accurately and economically locating commercial quantities
of hydrocarbons for itself and its partners. To reach its goal, the Company is
pursuing a business strategy that includes the following principal elements:

         Focusing Operational Efforts Exclusively on the Company's Expertise in
3-D Imaging and Analysis. The Company focuses all of its technical resources on
obtaining the best possible subsurface image and on identifying the most
effective location and target depth for each prospective well. To allow it to
focus its efforts exclusively on 3-D imaging and analysis, the Company relies on
its project partners to undertake the


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project's other operating functions, including land acquisition, drilling and
marketing. Although 3-D seismic technology is now routinely used in oil and gas
exploration projects, the Company believes that its focus, experience and
innovative methods of applying the technology provide it with advantages in
extracting useful information from seismic and other data.

         Developing and Supporting a Team of Technologically Sophisticated
Explorationists. The quality of information obtained from the application of 3-D
imaging is dependent to a large extent on the Company's ability to capitalize on
the intelligence, acquired knowledge and creativity of the experienced
geoscientists and engineers it employs. To allow the Company to capitalize fully
on the intellectual resources offered by such experts, the Company's
administrative operations and infrastructure are directed toward providing tools
and support to the Company's technical specialists. To continue its ability to
recruit, retain and motivate such experts, the Company is committed to providing
its oil and gas geoscientists and engineers with the most advanced imaging and
analytical technology commercially available and awards options to purchase
common stock to each of its experts and other employees.

         Maintaining a Research Program to Develop Innovative Application
Techniques Involving Advanced Exploration Technology. The Company relies upon
its ongoing applied research effort to continually develop and adapt technology
that will enable it to retain its position as a leading high technology
exploration company. For example, through its research efforts, the Company has
developed the 3DXpress process. The Company's 3DXpress process is an innovative
technique used in exploration that improves the quality of seismic data and
significantly compresses the time frame traditionally required for acquisition,
processing, imaging and analysis. This process allows analysis of 3-D data while
the survey is being conducted, giving the Company's explorationists the ability
to ensure data quality and steer data collection toward areas where prospects
are more likely to exist. Utilizing this technology, the Company believes it has
been able to image and analyze a larger number of projects concurrently and
identify potential drilling sites more rapidly and accurately than with
traditional methods. The Company also believes that the application of emerging
technologies, such as migration velocity analysis and depth migration
technology, provides the Company with a competitive advantage in its efforts to
effectively and efficiently locate commercial quantities of hydrocarbons.

         Pursuing a Disciplined Approach to Selective Project Participation,
Partnering and Drilling Efforts. The Company adheres to a disciplined screening
process and, based on its experience, continually adapts the criteria to select
projects which are likely to maximize the return on its capital investment. The
Company's selection criteria favor projects which (i) are managed by reliable
and successful operating partners; (ii) are located on properties to which 3-D
imaging can be effectively applied to evaluate the primary geologic risk; (iii)
have high upside potential; (iv) may be extended into trend plays; and (v) have
projected rates of return which make the production of hydrocarbons economically
attractive.

         Actively Managing the Company's Portfolio of Oil and Gas Projects. The
Company has developed and actively manages a portfolio of partners, projects and
producing assets having a diverse range of risk/reward ratios. Active portfolio
management enables the Company to reduce its exposure to non-geologic project
risks such as land acquisition, operator performance and drilling operations
that are not mitigated by the application of 3-D imaging and analysis
technologies. In addition, the Company believes that aggressive management of
its portfolio enables it to make more efficient use of available capital by
limiting the Company's exposure to any individual exploration project and by
allowing it to focus its resources toward trend play opportunities arising from
carefully selected projects.

PROJECT SELECTION AND MANAGEMENT METHODOLOGY

         Successful application of the Company's business plan is dependent upon
the Company's participation as an active working interest partner in select high
quality projects. The working interest acquired by the Company in any project is
determined through negotiation among the Company and its prospective partners
prior to the Company's commitment to participate. The percentage working
interest which the Company seeks to acquire varies with each project and is
dependent upon the project's anticipated costs, risk and potential return.
During the course of the project, the Company's working interest is subject to


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change as a result of negotiated cost and working interest sharing arrangements,
the terms of which are negotiated by the Company prior to its commitment to
participate. To identify these projects, the Company undertakes a rigorous
evaluation of the numerous projects proposed to it by its existing partners and
other project generators. The Company engages in the following steps to
evaluate, identify and manage high quality projects in which the Company
participates.

o        Initial Screening. Prior to committing technical resources to the
         evaluation of a potential project, the Company's business development
         team reviews both the potential project and its partners to determine
         if they satisfy certain initial business criteria. To evaluate a
         potential project, the Company considers geographic location, scale,
         geological model, anticipated drilling prospects, number of pay zones,
         trend potential and expected project economics. To evaluate a potential
         partner, the Company considers that partner's financial stability,
         reputation and record of success in exploration and production
         activities.

o        Technical Evaluation. If the potential project and partner satisfies
         the Company's initial business screening criteria, the project is then
         evaluated by a multidisciplinary team of the Company's technical
         experts. Such technical evaluation allows the Company to analyze and
         evaluate further the basic geological model, determine the seismic
         character of reservoirs within the project site, determine if the
         application of 3-D imaging technology will adequately address the
         primary geologic risk, investigate local and regional production trends
         for target reservoirs, refine its evaluation of project economics and
         determine if the capital required conforms to the Company's investment
         guidelines. If the project meets these criteria, the Company will
         participate in the project, committing its capital, technological
         resources and 3-D imaging and analytical expertise.

o        Earth Imaging. Once a project is approved for investment, the project
         team, led by one of the Company's geoscientists or engineers and
         including representatives of all or substantially all of the project's
         partners, commences its efforts to create the most accurate subsurface
         image possible. By integrating 3-D seismic data with other geologic and
         engineering data, the project team uses the derived subsurface image to
         model the potential reservoirs within the project's area. The seismic
         data collection, processing and analysis are usually managed by the
         Company to assure its integrity and consistency.

o        Drilling Decision. After the project team completes the earth imaging
         and analysis of a selected project, the project team determines if the
         applicable data identify economically attractive drilling
         opportunities. The economic return expected from drilling must satisfy
         certain criteria and must be commensurate with the perceived risk.
         Thereafter, the project team makes recommendations to the partnership
         regarding drill sites and target depths.

o        Post-Drilling Appraisal. Subsequent to the drilling of each well in a
         project, the Company integrates the information it has acquired in the
         drilling phase with its earth model, enabling it to enhance the model
         based on the best available data and knowledge. As a result, the
         Company builds an increasing base of knowledge upon which to make
         future drilling decisions with respect to each project.

         As a working interest partner, the Company shares all project costs in
proportion to its working interest percentage. In instances in which exploration
and development activities are unsuccessful, the Company incurs an economic loss
equal to its proportionate share of project costs prior to the time the project
is abandoned. Similarly, the Company incurs an economic loss if the Company's
proportionate share of revenue generated from production is insufficient to
cover the Company's share of project costs.

PROJECT GENERATION AND SIGNIFICANT BUSINESS RELATIONSHIPS

         By its participation in multiple projects, many with multiple partners,
the Company seeks to demonstrate its ability to improve project economics. Its
current partners are its best resource for future high


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quality projects. The Company believes that its existing partners, which have
benefited from the Company's ability to improve project economics by reducing
primary geologic risk, will seek such benefits with respect to future projects
and will therefore solicit the Company's involvement in such new projects. By
participating in projects with partners who possess experience and knowledge in
exploration operations that are complementary to the Company's imaging and
analytical focus area, the Company believes that it and each project partner
receive the benefit of the other's knowledge and expertise while achieving
results that are greater than any particular partner might be able to achieve
independently. The Company further believes that establishing long-term partner
relationships will enhance the flow of prospective opportunities and the quality
and stability of the business relationship, as well as reduce significant risks,
such as the partner's operating capabilities and financial stability.

         As of December 31, 1997, the Company's active exploration portfolio
consisted of 25 projects and included 12 operator partners, as reflected in the
table below:


<TABLE>
<CAPTION>
OPERATOR PARTNER                             OFFICE LOCATION                   AREA OF ACTIVITY
----------------                             ---------------                   ----------------
<S>                                         <C>                         <C>
Alta Mesa Resources, Inc.                      Houston, TX               Louisiana Gulf Coast Onshore
Aspect Resources LLC                            Denver, CO                 Texas Gulf Coast Onshore
Esenjay Petroleum Corporation               Corpus Christi, TX          Gulf Coast Onshore (TX,MS,AL)
Genesis Producing Company                   Corpus Christi, TX             Texas Gulf Coast Onshore
Louisiana Land & Exploration                 New Orleans, LA             Louisiana Gulf Coast Onshore
Phillips Petroleum Company                     Houston, TX                Texas Onshore and Offshore
Plains Resources, Inc.                         Houston, TX                 Florida Sunniland Trend
PrimeEnergy Corporation                        Stamford, CT                Texas Gulf Coast Onshore
Rutherford Oil Corporation                     Houston, TX                 Texas Gulf Coast Onshore
Santa Fe Energy Resources, Inc.                Houston, TX                West Africa and Deep Water
Sue Ann Production Company                     Houston, TX                 Texas Gulf Coast Onshore
Union Gas Corporation                          Houston, TX                 Texas Gulf Coast Onshore
</TABLE>

         The Company's strategy is to enter into long-term joint ventures and
alliances with high quality operator partners to enhance the flow of
opportunities presented to the Company and to assure consistent quality of
operations. As part of this strategy, the Company attempts to convert successful
relationships on individual projects with quality partners into long-term
strategic alliances.

3-D IMAGING TECHNOLOGY

         The Company's oil and gas exploration capabilities are dependent upon
the effective application of 3-D imaging technologies. Although the initial
application of 3-D imaging technology began in the late 1960's, its cost through
the 1970s justified use only in deep offshore applications and other
environments with substantial drilling costs and risk. During the latter half of
the 1980's, 3-D imaging was a principal tool used in exploration activities in
both the North Sea and the Gulf of Mexico. Advances in technology during the
1980's made the use of 3-D imaging more cost-effective and more readily
available for use onshore.

         In general, 3-D imaging technology provides an "image" of the
subsurface geology by collecting seismic data along multiple parallel lines and
creating a cube of information which is spatially sampled throughout. The data
acquired by use of 3-D imaging technology is of significantly higher quality and
provides significantly better information than the data acquired by 2-D seismic
technology. The higher fidelity and resolution of 3-D data results in more
accurate images than are possible using 2-D seismic and other conventional
methods. The productive application of 3-D imaging technology requires the
skills of highly trained experts.


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        The Company maintains an extensive computer facility to support its
oil-finding activities. A Silicon Graphics Power Challenge provides the
large-scale computing capacity to support real-time data processing and depth
migration. A network of eight Sun Sparc and Ultra Sparc workstations,
functioning in a client-server environment, provides the framework for synthesis
of the geological, geophysical and engineering data into an integrated image of
the subsurface. The principal supplier of the software used by the Company for
both processing and data interpretation is Landmark Graphics Corporation and its
subsidiaries. In addition, the Company maintains licenses for certain complex
geological and geophysical applications from Hampson-Russell Software Inc.,
Paradigm Geophysical, Inc., and Petrosoft Inc.

GEOLOGIC, GEOPHYSICAL AND ENGINEERING EXPERTISE

         The Company has assembled a group of talented and experienced
geologists, geophysicists and engineers that work in multidisciplinary teams to
enable the Company to exploit fully the advantages afforded by 3-D imaging
technologies. As of December 31, 1997, the Company employed 17 full-time experts
who design and manage the process of seismic data acquisition, processing,
imaging and analysis and drill site selection using computer systems and
software owned or licensed by the Company. The majority of these geoscientists
and engineers have between five to 20 years of experience involving the
utilization of seismic data imaging and analysis, and they have extensive
experience with 3-D seismic projects in diverse geologic trends throughout the
world. If a project requires technical expertise not available from the
Company's or project partners' personnel, the Company's project manager will
identify and recruit an industry expert to join the project team. By assembling
in-house technical expertise, the Company is able to manage fully and
effectively the imaging and analytical phase of the projects in which it
participates. The Company provides its technical expertise exclusively to those
projects in which it participates as a working interest partner.

RESEARCH AND DEVELOPMENT

         The Company believes that it possesses a competitive advantage over
other oil and gas companies by utilizing the experience of its in-house
scientific experts to continually develop innovative techniques and tools to
optimize the Company's utilization of 3-D imaging technologies. The Company's
ongoing research and development and its continuous accumulation of knowledge
have resulted in technical improvements and innovations that the Company
believes provide it with significant competitive advantages. The Company
enhances its ongoing research program by forging strategic alliances with select
suppliers of hardware and software which have demonstrated foresight in the
science of earth imaging. The Company believes that its strategy of applied
research and development will allow it to remain at the forefront of oil and gas
exploration technology.

         The Company has been able to adapt and refine concurrent imaging
methods to create the Company's 3DXpress process through the effective
application of its applied research and development strategy. In its first
commercial application of the 3DXpress process, the Company commenced and
completed a project's imaging and analysis phase in a four week period.
Thereafter, the project operator successfully drilled and completed seven of the
eight resulting wells in a complex geologic setting relying upon the Company's
drill site and target depth recommendations.

         Other innovations and improvements to the imaging process resulting
from the Company's ongoing research include the use of digital orthomaps for
survey planning and control, the use of GPS locators on seismic vibrators for
positioning control, application of AVO, inversion and geostatistics to the
process of reservoir characterization and the application of interactive
migration velocity analysis and depth migration to achieve superior image
reconstruction. Many of these innovations and improvements are the result of
strategic alignments with pioneering technology suppliers such as GPS
Technologies, Inc., Hampson-Russell Software, Inc., Landmark Graphics
Corporation and Paradigm Geophysical, Inc.

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REGULATION

         The Company's operations are subject to numerous federal, state and
local laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Public interest
in the protection of the environment has increased dramatically in recent years.
Offshore drilling in certain areas has been opposed by environmental groups and,
in certain areas, has been restricted. The Company believes that the trend of
more expansive and stricter environmental legislation and regulations will
continue. To the extent laws are enacted or other governmental action is taken
which prohibit or restrict onshore and offshore drilling or impose environmental
protection requirements that result in increased costs to the oil and gas
industry in general, the business and prospects of the Company could be
adversely affected.

         The Oil Pollution Act of 1990 (the "OPA") and regulations thereunder
impose a variety of requirements on "responsible parties" related to the
prevention of oil spills and liability for damages resulting from such spills in
United States waters. A "responsible party" includes the owner or operator of a
facility or vessel, or the lessee or permittee of the area in which an offshore
facility is located. The OPA assigns liability to each responsible party for oil
removal costs and a variety of public and private damages including natural
resource damages. While liability limits apply in some circumstances, a party
cannot take advantage of liability limits if the spill was caused by gross
negligence or willful misconduct or resulted from violation of a federal safety,
construction or operating regulation. If the party fails to report a spill or to
cooperate fully in the cleanup, liability limits likewise do not apply. Few
defenses exist to the liability imposed by the OPA.

         Under the OPA and regulations promulgated thereunder, owners and
operators of "offshore facilities" must satisfy certain financial assurance
requirements to evidence their ability to cover potential environmental cleanup
and restoration costs. In projects in which the Company has a participating
working interest, the operator partner is responsible for all demonstrations of
financial responsibility including the posting of any indemnity bonds which are
required by applicable governmental regulations. The expenses incurred in the
operator partner's demonstration of financial responsibility are expenses which
are allocated to each project partner based on the respective partner's working
interest.

         The OPA also imposes other requirements, such as the preparation of an
oil spill contingency plan. The Company has such a plan in place. Failure to
comply with ongoing requirements or inadequate cooperation during a spill event
may subject a responsible party to civil or criminal enforcement actions.

         To complement the OPA, the State of Texas enacted the Oil Spill
Prevention and Response Act (OSPRA). The Texas General Land Office (GLO) is the
lead agency for carrying out OSPRA, and to that end the GLO has promulgated
regulations affecting anyone who owns or operates a vessel or facility that
stores or transfers oil in areas where a spill could reach Texas coastal waters.

         In addition, the Outer Continental Shelf Lands Act ("OCSLA") authorizes
regulations relating to safety and environmental protection applicable to
lessees and permittees operating on the Outer Continental Shelf (the "OCS").
Specific design and operational standards may apply to OCS vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to the OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution.


                                      -6-
<PAGE>   9

         The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources. Additionally, it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the hazardous substances
released into the environment. Further, certain oilfield wastes are subject to
the Resource Conservation & Reservation Act ("RCRA") with respect to the
regulation of hazardous wastes. The RCRA regulates the generation,
transportation and disposal of hazardous wastes.

         The Texas Railroad Commission has issued rules for management of
certain types of hazardous waste generated in the oilfield. However, until
delegation of the RCRA program to the Railroad Commission, hazardous wastes
generated in the oilfield are regulated by the Texas Natural Resources
Conservation Commission. The Texas Railroad Commission regulates pollution of
groundwater and surface water resulting from exploration, production and
development of oil and natural gas resources.

         The Clean Water Act (CWA) and regulations promulgated thereunder
prohibit the discharge of pollutants into waters of the United States without a
permit pursuant to the National Pollutant Discharge Elimination System (NPDES)
provisions. The CWA also requires reporting of oil spills to the National
Response Center. The United States Environmental Protection Agency (EPA) has
issued general NPDES permits for oil and gas platforms in the Gulf of Mexico,
which permits impose limits on discharges of such things as oil, grease,
produced water and drilling fluids. Onshore platforms may also be subject to the
requirement for NPDES permits for both production discharges and for discharges
of stormwater. In Louisiana, the NPDES permit program has recently been
delegated to the State of Louisiana. In Texas, the NPDES permit program is
administered by the EPA. Failure to obtain the proper permit may result in both
civil and criminal penalties as well as an order to cease discharges, which in
effect is an order to shut down production.

         Management believes that the Company is in substantial compliance with
current applicable environmental laws and regulations. Compliance with such laws
and regulations has not historically represented a significant expense for the
Company and management does not foresee the need for material expenditures to
ensure continued compliance with currently existing laws and regulations. Laws
and regulations in these areas are, however, subject to change and there can be
no assurance that future laws or regulations will not have a material adverse
effect on the Company.

OPERATING HAZARDS AND INSURANCE

         The oil and gas business involves a variety of operating risks,
including the risk of fire, explosions, blow-out, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. In addition
to the foregoing, offshore operations are subject to the additional hazards of
marine operations, such as capsizing, collision and adverse weather and sea
conditions.

         The Company maintains insurance coverage, both directly for its own
account and indirectly through its operator partners, against some, but not all,
operating risks. The insurance maintained by project operator partners generally
does not cover claims relating to failure of title to oil and gas leases,
trespass during 3-D survey acquisition or surface damage attributable to seismic
operations, business interruption nor does it protect against loss of revenues
due to well failure. There can be no assurance that any insurance obtained


                                      -7-
<PAGE>   10
by the Company or its project operator partners covering claims related to
worker's compensation, comprehensive general liability for bodily injury and
property damage, comprehensive automobile liability and pollution, cleanup,
underground blowout and evacuation will be adequate to cover any losses or
liabilities which may be incurred within projects in which the Company
participates. The Company is an additional named insured on the insurance
policies procured and maintained by operator partners. The Company cannot
predict the continued availability of insurance coverage or the availability of
insurance at premium levels that justify its purchase. If the Company or any
project operator partner were unable to procure insurance at an acceptable cost
with respect to each of the projects in which the Company participates, the
occurrence of significant adverse events not fully insured or indemnified
against could materially and adversely affect the Company's financial condition
and operations.

COMPETITION

         Competition in the oil and gas industry is intense, particularly with
respect to the acquisition of acreage and capital. The Company's competitors in
the provision of seismic imaging, analytical and other related services and in
the exploration for oil and gas include numerous major and independent oil and
gas companies, smaller, technology-driven service companies, individual
proprietors, drilling and income programs and partnerships. Many of the
Company's competitors possess and employ financial and personnel resources
substantially in excess of those available to the Company and may, therefore, be
able to define, evaluate, bid for and participate in a greater number of oil and
gas properties than the Company. The Company believes that technology,
experience and reliability are the primary elements upon which the Company
competes in the industry, as oil and gas exploration companies demand higher
quality seismic data delivered and analyzed in increasingly shorter time frames
and greater assurances that the interests of such company are respected and
advanced. Although the Company believes that it competes effectively in each of
these areas, there can be no assurance that the Company's ability to attract and
invest in high quality projects will not be adversely affected if its current
competitors or new market entrants introduce new services with better quality
technology than those offered by the Company.

EMPLOYEES AND INDEPENDENT CONSULTANTS

         As of December 31, 1997, the Company had 23 full-time employees
including 17 explorationists. The Company believes that its relationship with
its employees is good. None of the Company's employees is covered by a
collective bargaining agreement. The Company expects to continue a program,
which it commenced in August 1996, to hire recent college graduates and advanced
degree holders.

ITEM 2.  PROPERTIES

SIGNIFICANT PROJECTS AND PROPERTIES

         The Company's exploration activities are primarily focused in the
onshore Gulf Coast region of the United States, principally in Texas, but also
include projects in Louisiana, Mississippi, Alabama and Florida. Additionally,
the Company has active exploration projects offshore in the Gulf of Mexico and
internationally in West Africa, offshore both The Republic of Cote d'Ivoire and
Ghana.

         3-D seismic imaging is an effective tool to identify the structural and
stratigraphic features in the Gulf Coast region and provides the Company with an
ability to identify hydrocarbon potential in and around existing fields that
could not be detected with 2-D seismic and earlier exploration techniques. Due
to geologic complexities within this region, it may be possible to identify
multiple prospects within a single project. These prospects typically offer
multiple drilling opportunities with individual wells capable of penetrating
multiple reservoirs.

         The extensive drilling history within Gulf Coast trends provides a
powerful subsurface and production database to which seismic data can be
calibrated. This data provides the foundation required to design a


                                      -8-
<PAGE>   11

seismic program that optimizes resolution at targeted reservoirs. This
subsurface information, when combined with 3-D seismic data, provides a more
accurate assessment of reservoir quality, productivity, reserve potential and,
in some instances, fluid type.

          As demonstrated by its election to participate in projects located in
The Republic of Cote d'Ivoire and Ghana, the Company believes it can extend its
trend strategy into other select geographic areas where the application of 3-D
imaging technology can be utilized to reduce the primary geological risks prior
to drilling.

         The major producing areas in which the Company holds an interest are
reflected in the table below as of and for the year ended December 31, 1997:

<TABLE>
<CAPTION>
                                     Proved Reserves      1997 Production
                                     ---------------      ----------------
                                      Gas      Oil         Gas        Oil
Area/Trend                            Mmcf     Mbo         Mmcf       Mbo
----------                           ---------------      ----------------
<S>                                 <C>                    <C>
Miocene Trend                         1,498     --           777       --
Ramrod Deep Frio                      1,047     24            --       --
Offshore Gulf of Mexico                 639      1           242       --
Geronimo Area                           449     12            36        2
Other Properties                        299     52            77       12
                                     ------ ------        ------    -----
                                      3,932     89         1,132       14
                                     ====== ======        ======    =====

</TABLE>

GULF COAST AREA

         Of the 23 wells which were evaluated in 1997 and in which the Company
held an interest, 21 were in the Gulf Coast area, including 16 in Texas, 3 in
Mississippi and Alabama, and 2 in Louisiana. All of the Company's 11 successful
wells in 1997 were in the Gulf Coast area.

         TEXAS GULF COAST. This trend area includes both onshore and near-shore
properties and generally extends along the Texas coast for a distance of
approximately 100 miles inland from the coastline. Prospective geology in the
trend is characterized by numerous stacked sand formations that were deposited
continuously by river channels and deltas. The trend's primary oil and gas
producing formations include the Miocene, Frio, Vicksburg, Yegua, and Wilcox.
The Company has active exploration projects targeting each of these oil and gas
formations from depths of 3,000' to 15,000'. Of the Company's 25 active
exploration projects, 15 are in the Texas Gulf Coast area. The Company completed
eight major 3-D seismic shoots in the Texas Gulf Coast region during 1997,
covering over 350 square miles. Below is a discussion of certain of the active
exploration projects in this area:

         Miocene Trend. The Company currently has nine producing gas wells in
         the Miocene Trend area in Calhoun and Matagorda Counties, Texas, at
         depths between 3,000' and 6,000'. The Company owns working interests
         ranging from 20% to 40% in these wells, which are operated by Prime
         Operating Company, a subsidiary of PrimeEnergy Corporation. The Miocene
         Trend projects in which the Company currently owns an interest are
         considered to be substantially developed and the Company does not plan
         to drill any additional wells on these projects in 1998. However, the
         Company may continue to pursue additional opportunities in this trend
         area.

         Geronimo and Geronimo Extension. The Company completed acquisition of a
         total of 115 square miles of 3-D seismic data in 1996 and 1997
         utilizing the 3DXPRESS process on these projects which are located in
         San Patricio County, Texas. Primary target formations include the Frio
         and Vicksburg sands. The Company spudded four wells on these projects
         in 1997, two of which were successful, one of which was lost due to
         mechanical failure, and the fourth of which was drilling at December
         31, 1997. The well which was lost did not fully evaluate the target
         formation and is expected to be


                                      -9-
<PAGE>   12

         redrilled in 1998. The Company owns working interests ranging from 11%
         to 22% in these projects, which are operated by Esenjay Petroleum
         Corporation.

         Ramrod. The Company completed acquisition of 34 square miles of 3-D
         seismic data in early 1997 on this project, which targeted both Miocene
         and Frio potential. The Company owns a 40% working interest and
         together with its partner, PrimeEnergy Corporation, drilled 5 wells on
         this project in 1997, all of which were successful. Four of the wells
         were Miocene wells. The fifth well drilled was the St. George #1, which
         made a potentially significant discovery in the deeper section of the
         Frio. This well was tested subsequent to December 31, 1997 at rates
         exceeding 10 Mmcf of gas and 200 barrels of condensate per day with a
         flowing tubing pressure of almost 9,000 psi. The Company plans to
         produce this first well for a period of at least three months before
         continuing with development plans for the field. Because this well is a
         new field wildcat without nearby analogs, the estimate of proved
         reserves assigned to it by the Company's independent reservoir
         engineers was very conservative.

         Hall Ranch. The Company has a 25% working interest in the Hall Ranch
         prospect, which is located in Karnes County, Texas. Esenjay Petroleum
         is the operator of the project. The partnership completed a 42 square
         mile 3-D seismic survey on this project in the second quarter of 1997.
         The primary objective in the area is the lower Wilcox formation at
         depths of 10,000' to 13,000'. The Company drilled one well on this
         prospect in 1997 which experienced mechanical difficulties and had to
         be plugged and abandoned prior to evaluating the objective formation.
         The redrill of this well and an additional well in a separate fault
         block are planned for drilling in the first half of 1998.

         Galveston Bay Area. The Company has two major projects in the Galveston
         Bay area. This area targets potential production in the upper and lower
         sections of the Frio formation and the Vicksburg formation. There has
         been extensive recent exploration activity in this area and several
         significant discoveries have been announced by other companies within
         the industry. The first Company project at Smith Point, onshore in
         Chambers County, Texas, contains 40,000 acres under lease or option.
         The Company, which owns a 15% working interest in this project,
         completed an 80 square mile 3-D survey during 1997 and has developed
         four drilling locations for 1998, with further evaluation continuing.
         The operator of this project is Rutherford Oil Corporation. The second
         project, Gillock, which is located in Galveston County, Texas, was
         generated by Aspect Resources LLC. The Company owns a 15% working
         interest in this project. A 60 square mile 3-D seismic survey is
         planned for the second quarter of 1998 on this project.

         Wilcox Trend. The Company has two projects in the counties of Lavaca
         and Dewitt, Texas. This area contains production primarily from the
         Upper and Middle Wilcox formations. The first project, Matthews, is
         operated by Union Gas Corporation. 3DX has a 20% working interest in
         this project. A 19 square mile 3-D seismic survey was completed in the
         third quarter of 1997 and the Company plans to drill its first well in
         the second quarter of 1998. The other project, Thomaston, is operated
         by Phillips Petroleum Company and represents one of the first projects
         in what the Company seeks to be a continuing strategic alliance with
         Phillips. A 65 square mile 3-D seismic survey was completed on this
         project in the fourth quarter of 1997 and was acquired and processed
         using the Company's 3DXpress process for real-time seismic acquisition
         and processing.

         LOUISIANA. The Company has two active exploration projects in
Louisiana. The Four Isle Dome prospect in Terrebonne Parish, operated by
Louisiana Land and Exploration, targets Miocene-age sands at depths up to
15,000'. The Company has a 5% working interest in Four Isle Dome. The Hayes
prospect, in Calcasieu and Jefferson Davis Parishes, targets Miocene age sands
at depths up to 14,000'. The Company has a 10% working interest in this project.
The Company intends to drill wells on both of these projects in 1998.


                                      -10-
<PAGE>   13

         MISSISSIPPI/ALABAMA. This area includes onshore properties and
generally extends across a seven-county area from Newton County in Southern
Mississippi eastward through Southern Alabama to the Florida border. Prospective
geology in the trend is characterized by discrete occurrences of basement and
salt-related features that deform shallower sand formations to create potential
structural traps for oil and gas. The primary historical oil and gas producing
formations in the trend have been the Cotton Valley, Lower Haynesville,
Smackover and Norphlet. The Company drilled three wells during 1997 on its
Lipsmacker project in this area, each of which was unsuccessful. The Company has
identified two additional drilling locations on the Lipsmacker project which it
intends to drill in 1998.

         FLORIDA. The Company has an active exploration effort in the Sunniland
trend area in Florida, which is operated by Plains Resources, Inc. ("Plains").
Prospective geology in the trend is characterized by carbonate reefs and shoals.
The primary oil and gas producing formation is the Cretaceous-age Sunniland
formation, which extends from south of Ft. Myers, Florida to northwest of Miami,
Florida. In 1998, the Company plans to drill a well on a prospect that may
confirm an extension of the Raccoon Point Field. Cumulative production from this
field, located in Collier County, Florida, has exceeded 9.5 MMBOE. The Company
and Plains are exploring other project opportunities within the Sunniland trend
by acquiring, reprocessing and analyzing 2-D seismic data along with other
exploration techniques. The Company holds an 8% working interest in this
exploration project.

OTHER PROJECTS

         OFFSHORE GULF OF MEXICO. The Company has two producing properties and
three active exploratory projects offshore in the Gulf of Mexico. The two
producing properties, the Cove project at Matagorda Island Block 487-L and the
Hollywood project at East Cameron Block 42, are at this time considered to be
fully developed. The Company owns a 7% and 5% working interest in these
projects, respectively. One of the exploratory projects is part of the Company's
initial joint venture with Phillips Petroleum which commenced in July 1997. On
this project, the Company committed to conduct a field study on an existing
producing block in the Gulf of Mexico with the objective of identifying
additional exploratory or exploitation opportunities. The Company has the right
to participate as a 5% working interest partner in future drilling on this
block. The other exploratory projects consist of two deep water projects in the
flex trend of the Gulf of Mexico. These projects have eight-year lease terms
which expire in March 2005. The Company does not currently plan to drill wells
on either of these projects during 1998. A third deep water block was also
acquired in 1997. The Company participated in the drilling of an exploration
well on this block in 1997 which was unsuccessful.

         WEST AFRICA. The Company joined its partner, Santa Fe Energy Resources
(Cote d'Ivoire) Ltd., in January 1997 to evaluate Block CI-24 which consists of
190,000 acres located in the offshore waters of The Republic of Cote d'Ivoire.
Pursuant to a production sharing contract, the Company and its partner purchased
and reprocessed existing seismic data, which includes an 81 square mile 3-D
seismic survey, and completed an engineering and economic study. The partnership
plans to drill the first exploratory well on this project in 1998. The Company
owns a 10% working interest in the project. During 1997, the Company and Santa
Fe acquired an additional project offshore Cote d'Ivoire, Block CI-202. Late in
1997, the partnership began work on a 400 square kilometer 3-D seismic survey,
which was completed during the first quarter of 1998. The Company holds a 10%
working interest in Block CI-202. Also during 1997, the Company and Santa Fe
acquired a concession offshore Ghana covering a total area of almost 3 million
acres. The Company's working interest in the project, which is in the early
stage of exploration, ranges from 5% to 10%.

OIL AND GAS RESERVES

         All of the Company's proved reserves described below are located
onshore and offshore Texas and in the Federal waters offshore Louisiana. All of
the Company's proved reserves reflected in the table are proved developed
reserves. The reserve estimates as of December 31, 1995 were based on estimates
prepared by the Company, while the reserve estimates subsequent to that date
were prepared by the independent engineering consulting firm Ryder Scott Company
Petroleum Engineers. In accordance with


                                      -11-
<PAGE>   14
applicable requirements of the Securities and Exchange Commission, the estimated
discounted future net revenues from estimated proved reserves are based on
prices and costs as of the date of the estimate unless such prices or costs are
contractually determined at such date. The Company has not provided any
estimates of total proved reserves, comparable to those disclosed herein, in any
reports filed with federal authorities or agencies other than the Securities and
Exchange Commission.

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              --------------------------------
                                                                  1997       1996      1995
                                                              ----------- ---------- ---------
<S>                                                           <C>         <C>        <C>
Estimated Net Proved Reserves Data:
     Gas (Mmcf)                                                     3,932      2,464       443
     Oil and condensate (Mbbl)                                         89         32        41
     Total equivalent, converted at 6:1 (Mmcfe)                     4,466      2,656       689
Pre-tax present value of proved reserves discounted at 10%
     (in thousands)                                                $7,048     $6,623      $771
Standardized Measure of Discounted Future Net Cash Flows (in
     thousands) (1)                                                $7,048     $6,623      $771
--------------
</TABLE>

(1)      In accordance with statutory requirements of the Securities and
         Exchange Commission, these amounts represent the present value of
         estimated future net revenues after income taxes discounted at 10%. The
         present value amounts are the same before taxes and after projected
         income taxes as a result of the Company's substantial net operating
         loss carryforwards.

         The process of estimating proved developed and proved undeveloped oil
and gas reserves is very complex, requiring significant subjective decisions in
the evaluation of available geologic, engineering and economic data for each
reservoir. The data for a given reservoir may change over time as a result of
additional development activity, production history and viability of production
under varying economic conditions. The actual production, revenues, severance
taxes, development and operating expenditures with respect to the Company's
reserves will likely vary from such estimates, and such variances could be
material.

PRODUCTIVE WELLS

         At December 31, 1997, 1996 and 1995, the Company held interests in the
following productive wells:

<TABLE>
<CAPTION>
                                                  AT DECEMBER 31,
                -------------------------------------------------------------------------
                         1997                     1996                     1995
                -----------------------   ----------------------  -----------------------
<S>                <C>        <C>           <C>        <C>          <C>        <C>
                   GROSS       NET          GROSS       NET          GROSS       NET
                   -----       ----         -----       ----         -----       ----
 Oil Wells             9       0.54             8       0.31             7       0.16
 Gas Wells            21       4.49            11       1.71             5       0.74
                   -----       ----         -----       ----         -----       ----
   Total Wells        30       5.03            19       2.02            12       0.90
                   =====       ====         =====       ====         =====       ====
</TABLE>

         The number of gross wells equals the total number of wells in which the
Company owns a working interest. The number of net wells equals the sum of the
Company's fractional working interests owned in gross wells.

OIL AND GAS DRILLING ACTIVITIES

         The following table sets forth the gross and net number of productive,
dry and total exploratory and development wells that the Company drilled in each
of 1997, 1996 and 1995:


                                      -12-
<PAGE>   15

<TABLE>
<CAPTION>
                                                 GROSS WELLS                        NET WELLS
                                         ---------------------------      -----------------------------
                                         PRODUCTIVE    DRY     TOTAL      PRODUCTIVE     DRY      TOTAL
                                         ----------    ---     -----      ----------     ---      -----
<S>                                      <C>           <C>     <C>        <C>           <C>       <C>
EXPLORATORY WELLS
Year ended December 31, 1997                  11        9        20         2.98         1.83      4.81
Year ended December 31, 1996                   7        7        14         0.74         0.84      1.58
Year ended December 31, 1995                   2        -         2         0.28            -      0.28
DEVELOPMENT WELLS
Year ended December 31, 1997                   -        3         3            -         0.48      0.48
Year ended December 31, 1996                   3        -         3         0.60            -      0.60
Year ended December 31, 1995                   -        -         -            -            -         -
</TABLE>

         As of December 31, 1997, the Company was participating in 2 gross (0.32
net) exploratory wells.

PRODUCTION

         The following table summarizes the net volumes of oil and gas produced
and sold and the average prices received with respect to such sales from all
properties in which the Company held an interest during 1997, 1996 and 1995,
respectively.

<TABLE>
<CAPTION>
                                                        GAS                          OIL
                                              -----------------------       ------------------------
                                                  NET        AVERAGE           NET          AVERAGE
                                              PRODUCTION      SALES         PRODUCTION       SALES
                                                (MMCF)      PRICE/MCF         (MMCF)       PRICE/BBL
                                              ----------    ---------       ----------     ---------
  <S>                                         <C>           <C>             <C>            <C>
   Year ended December 31, 1997                  1,131.8        2.46            14.1         18.54
   Year ended December 31, 1996                    271.2        2.50             8.5         20.43
   Year ended December 31, 1995                     97.1        1.59             6.7         17.89
</TABLE>

         Average oil and gas operating expenses per Mcfe including severance and
ad valorem taxes, were $0.36, $0.33, and $0.57 for 1997, 1996 and 1995,
respectively.

ACREAGE

         The following table sets forth the developed and undeveloped oil and
gas acreage in which the Company held an interest as of December 31, 1997.
Undeveloped acreage consists of those lease acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether or not such acreage contains
proved reserves.

<TABLE>
<CAPTION>
                                             DEVELOPED                UNDEVELOPED
                                      -----------------------     -----------------------
                                         GROSS         NET          GROSS          NET
                                      ---------     ---------     ---------     ---------
<S>                                   <C>           <C>           <C>           <C>
Texas ...........................         6,627         1,822        69,769        14,542
Louisiana .......................           267            13        23,733         1,387
Mississippi .....................            --            --         3,922           981
Offshore Federal ................         1,440            72        32,054         2,917
Cote d'Ivoire ...................            --            --       359,537        35,954
Ghana ...........................            --            --     2,594,345       172,952
                                      ---------     ---------     ---------     ---------
    Total .......................         8,334         1,907     3,083,360       228,733
                                      =========     =========     =========     =========
</TABLE>

         In addition to the above acreage, as of December 31, 1997, the Company
had agreements, options or farm-ins to acquire leases on 149,319 gross (31,493
net) acres of undeveloped land located in Florida, Mississippi and Texas.



                                      -13-
<PAGE>   16
ITEM 3.  LEGAL PROCEEDINGS

         The Company has not been the subject of any legal proceedings since its
organization. There can be no assurance, however, that the Company will not in
the future be involved in litigation incidental to the conduct of its business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         There were no matters submitted to a vote of security holders during
the fourth quarter of 1997.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

           The Company's common stock is traded over the counter on the NASDAQ
National Market under the symbol "TDXT". The following table sets forth, on a
per share basis for the periods indicated, the high and low prices as quoted by
the NASDAQ National Market since the shares became publicly traded on December
26, 1996. As of January 23, 1998 there were approximately 580 record holders of
the common stock.

<TABLE>
<CAPTION>
                                                   HIGH        LOW
                                                   ----        ----
<S>                                               <C>       <C>
1997
    Fourth Quarter ended December 31, 1997        $  9.25    $  2.25
    Third Quarter ended September 30, 1997          12.50       8.00
    Second Quarter ended June 30, 1997              10.50       7.75
    First Quarter ended March 31, 1997              13.13      10.00

1996
    Fourth Quarter ended December 31, 1996        $ 11.25    $ 10.88
</TABLE>

DIVIDEND POLICY

         The Company has not declared or paid any cash dividends on its common
stock since its formation. The Company's current credit agreement prohibits the
payment of cash dividends. The Company does not anticipate paying cash dividends
on its common stock in the foreseeable future. The Company currently intends to
retain any future earnings to finance the expansion and continued development of
its business.

ITEM 6.  SELECTED FINANCIAL DATA

         The financial information set forth below for the years ended December
31, 1997, 1996, 1995 and 1994 and for the period from inception of operations on
January 6, 1993 through December 31, 1993 is derived from the financial
statements of the Company, which were audited by Arthur Andersen LLP. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements of the Company, the notes related thereto and other financial data
included elsewhere in this Form 10-K.



                                      -14-
<PAGE>   17

<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:                                        YEAR ENDED DECEMBER 31,
                                                -------------------------------------------------------------------
                                                     1997          1996          1995         1994         1993(A)
                                                   --------      --------     ---------     ---------     ---------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                               <C>          <C>            <C>           <C>          <C>
  Revenues (b):
    Oil and gas ..............................     $  3,046      $    852      $    275      $    304      $     --
    Interest and other .......................          585           248           236            53             8
                                                   --------      --------      --------      --------      --------
       Total revenues ........................        3,631         1,100           511           357             8
                                                   --------      --------      --------      --------      --------
  Costs and expenses:
    Total lease operating ....................          437           107            79            34            --
    Impairment of oil and gas properties .....        9,061         1,477         1,627            --            --
    Depletion, depreciation & amortization ...        2,636           423           158            91            --
    General and administrative (b) ...........        2,533         1,828         1,135           617           623
                                                   --------      --------      --------      --------      --------
     Total costs and expenses ................       14,667         3,835         2,999           742           623
                                                   --------      --------      --------      --------      --------
  Net loss from operations ...................      (11,036)       (2,735)       (2,488)         (385)         (615)
  Dividends and accretion on preferred stock .
                                                         -           (941)       (1,108)         (452)          (67)
                                                    --------     --------      --------      --------      --------

  Net loss from operations applicable to
     common stockholders .....................     $(11,036)     $ (3,676)     $ (3,596)     $   (837)     $   (682)
                                                   ========      ========      ========      ========      ========

  Basic and diluted net loss per common share
     as previously reported ..................     $  (1.53)     $  (1.16)     $  (1.14)     $  (0.33)     $  (0.59)
  Retroactive effect of change in accounting
     principle (c) ...........................           --         (0.05)        (0.06)        (0.02)        (0.10)
                                                   --------      --------      --------      --------      --------
  Basic and diluted net loss per common share
                                                   $  (1.53)     $  (1.21)     $  (1.20)     $  (0.35)     $  (0.69)
                                                   ========      ========      ========      ========      ========
  Weighted average number of common shares
     outstanding .............................        7,194         3,042         2,988         2,373           993
                                                   ========      ========      ========      ========      ========


STATEMENT OF CASH FLOW DATA:
  Net cash provided by (used in) operating
     activities ..............................     $  1,430      $    615      $   (503)     $     16      $    619
  Net cash used by investing activities ......       21,187         5,022         4,113         2,018           401
  Net cash provided by financing activities ..        3,803        16,225         7,876         2,515         2,950


BALANCE SHEET DATA:                                                       AS OF DECEMBER 31,
                                                   ------------------------------------------------------------------
                                                      1997          1996          1995          1994         1993
                                                      ----          ----          ----          ----         ----
                                                                             (IN THOUSANDS)

Working capital..............................      $  (632)         $15,987      $ 7,265        $2,103      $2,003
Property and equipment, net..................       18,372            8,576        2,935         2,669         636
Total assets.................................       21,310           26,827       10,451         5,197       2,792
Series B preferred stock.....................           --               --        6,278         5,452       2,631
Series C preferred stock.....................           --               --        7,904            --          --
Stockholders' equity (deficit)...............      $17,818          $24,574      $(4,240)       $ (674)     $   16
</TABLE>

(a)  Period from inception of operations, January 6, 1993, through December 31,
     1993.
(b)  As discussed in Note 2 to the financial statements, rental income has been
     reflected as a reduction of general and administrative expenses in all
     periods presented.
(c)  As discussed in Note 2 to the financial statements, earnings per share for
     periods prior to the Company's initial public offering have been restated
     to retroactively reflect the effect of SAB No. 98.



                                      -15-
<PAGE>   18

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         The following is a discussion of the financial condition and results of
operations of the Company for the three years ended December 31, 1997, 1996 and
1995. This discussion should be read in conjunction with the financial
statements of the Company, the notes thereto and the other financial data
included elsewhere in this Annual Report on Form 10-K.

Overview

         The Company is a knowledge-based oil and gas exploration company whose
core competence and strategic focus is the utilization of 3-D imaging and other
advanced technologies in the search for commercial quantities of hydrocarbons.
The Company enters into arrangements that enable it to combine its expertise and
exploration capabilities with the operating skills of other oil and gas
companies. The Company participates in selected exploration projects as a
non-operating working interest owner, sharing both risks and rewards with its
partners. The Company commenced operations in January 1993 to take advantage of
perceived opportunities emerging from changes in the domestic oil and gas
industry, including the divestiture of domestic oil and gas properties, advances
in technology and the outsourcing of specialized technical capabilities. By
reducing drilling risk through 3-D imaging and analysis, the Company seeks to
improve the expected return on investment in its oil and gas projects.

         As a working interest partner, the Company shares all project costs in
proportion to its working interest percentage. In instances in which exploration
and development activities are unsuccessful, the Company incurs an economic loss
equal to its proportionate share of project costs prior to the time the project
is abandoned. Similarly, the Company incurs economic loss if the Company's
proportionate share of revenue generated from production is insufficient to
cover the Company's share of project costs.

         The Company's future financial results will depend primarily on: (i)
the Company's ability to continue to source and screen potential projects; (ii)
the Company's ability to discover commercial quantities of hydrocarbons; (iii)
the market price for oil and gas; and (iv) the Company's ability to fully
implement its exploration and development program, which is dependent on the
availability of capital resources. There can be no assurance that the Company
will be successful in any of these respects, that the prices of oil and gas
prevailing at the time of production will be at a level allowing for profitable
production, or that the Company will be able to obtain additional funding to
increase its currently limited capital resources.

         The Company recorded a valuation allowance against the estimated amount
of deferred tax assets for which realization is uncertain. The Company reviews
the valuation allowance at the end of each quarter and makes adjustments, as
necessary, if it is determined that it is more likely than not that the deferred
tax assets will be realized. As of December 31, 1997, the Company had tax net
operating loss carryforwards ("NOL's") of approximately $11.2 million which
begin to expire in 2008. As a result of the recent stock transactions, including
the initial public offering, there is a yearly limitation placed on the
Company's utilization of its NOL's under Section 382 of the Internal Revenue
Code of 1986, as amended. See Note 3 to the financial statements of the Company
included elsewhere herein.


                                      -16-
<PAGE>   19

RESULTS OF OPERATIONS

         The following table sets forth certain operating information of the
Company during the periods indicated:


<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                  ----------------------------
                                                    1997      1996      1995
                                                    ----      ----      ----
<S>                                               <C>        <C>         <C>
PRODUCTION:
    Gas (MMcf)                                     1,131.8     271.2      97.1
    Oil and condensate (Mbbls)                        14.1       8.5       6.7
    Total equivalent, converted at 6:1 (Mmcfe)     1,216.2     322.2     137.3
AVERAGE SALES PRICE:
    Gas (per Mcf)                                  $  2.46   $  2.50   $  1.59
    Oil and condensate (per Bbl)                     18.54     20.43     17.89
AVERAGE EXPENSES (per Mcfe):
    Lease operating (1)                            $  0.36   $  0.33   $  0.57
    Depletion of oil and gas properties               2.17      1.31      1.15
</TABLE>

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

(1)      Includes all lease operating expenses and taxes attributable to the
         Company's properties, including production and ad valorem taxes.

Oil and Gas Revenues. Oil and gas revenues increased to $3,045,447 for the year
ended December 31, 1997 (the "1997 period") from $851,827 for the year ended
December 31, 1996 (the "1996 period"). This increase was primarily attributable
to higher oil and gas production levels. Production increased by over 277% to
1,216.2 Mmcfe for the 1997 period, from 322.2 Mmcfe for the 1996 period. The
increased production resulted from successful wells drilled during the last
three months of 1996 and throughout the year in 1997. The number of productive
wells in which the Company owned an interest increased to 30 (5.03 net) at the
end for the 1997 period from 19 (2.02 net) at the end of the 1996 period. The
average sales price for natural gas, which accounted for 93% of equivalent
production during the 1997 period, decreased by 2% to $2.46 per Mcf from $2.50
per Mcf for the 1996 period. The average sales price for oil decreased to $18.54
during the 1997 period versus $20.43 per barrel for the 1996 period.

         Oil and gas revenues increased to $851,827 for the 1996 period from
$274,511 for the 1995 period. This increase was attributable to both higher oil
and gas production levels and a significant increase in the average price for
both natural gas and oil. Production increased by over 135% to 322.2 Mmcfe for
the 1996 period, from 137.3 Mmcfe for the 1995 period. The increased production
resulted from successful wells drilled during the last six months of 1995 and
throughout the year in 1996. The average sales price for natural gas, which
accounted for 84% of equivalent production during the 1996 period, increased by
57% to $2.50 per Mcf for the 1996 period from $1.59 per Mcf for the 1995 period.
The average sales price for oil increased to $20.43 during the 1996 period
versus $17.89 for the 1995 period.

Lease Operating Expenses. Total lease operating expenses, including production
taxes, increased to $436,243 for the 1997 period from $107,676 for the 1996
period. This increase was primarily attributable to the additional costs of
operating new producing wells drilled during the last three months of 1996 and
throughout the year in 1997 and is comparable to the increase in production
during the corresponding periods. Lease operating expenses per Mcfe of
production increased slightly to $0.36 per Mcfe for the 1997 period from $0.33
per Mcfe for the 1996 period.

         Total lease operating expenses, including production taxes, increased
to $107,676 for the 1996 period from $78,533 for the 1995 period. Lease
operating expenses per Mcfe decreased to $0.33 for the 1996 period from $0.57
per Mcfe for the 1995 period. Substantially all of this decrease in lease
operating expenses per Mcfe was the result of lower lease operating expenses per
Mcfe for certain wells completed during the 1996 period. These wells were
producing at relatively high rates from onshore, shallow, highly permeable gas



                                      -17-
<PAGE>   20
sands and produce relatively small amounts of water, so there are negligible
treating or disposal costs associated with such wells. These wells require no
artificial lift or compression so the power and maintenance costs associated
with such wells are minimal. Additionally, the highly permeable nature of the
producing zones resulted in relatively high production rates, which lowered the
operating expenses associated with production from these wells on a per Mcfe
basis.

Depletion, Depreciation and Amortization Expense. Depletion of oil and gas
properties for the 1997 period increased to $2,636,305 from $422,839 for the
1996 period. The increase in depletion of oil and gas properties resulted from
both the increase in oil and gas production during the 1997 period, as discussed
above, and an increase in the depletion rate for this period. Depletion of oil
and gas properties per Mcfe for the 1997 period increased to $2.17 per Mcfe, or
66%, from the rate of $1.31 per Mcfe in the corresponding period in 1996. The
increase in the rate resulted from greater additions to evaluated oil and gas
property costs than the additions to oil and gas reserves relative to the
existing depletion rate per Mcfe. This was principally the result of the costs
of unsuccessful wells drilled in 1997.

         Depletion of oil and gas properties for the 1996 period increased to
$422,839 from $158,336 for the 1995 period. The increase in depletion of oil and
gas properties resulted from both the increase in oil and gas production during
the 1996 period and a 14% increase in the depletion rate. Depletion of oil and
gas properties per Mcfe for the 1996 period increased to $1.31 per Mcfe over the
rate of $1.15 per Mcfe in the corresponding period in 1995. The increase in the
rate resulted from greater additions to evaluated oil and gas property costs
than the additions to oil and gas reserves relative to the existing depletion
rate per Mcfe.

Impairment of Oil and Gas Properties. Under the rules of the full-cost
accounting method as prescribed by the Securities and Exchange Commission, the
Company is required to compare the net costs of its evaluated properties to the
net present value of its proved reserves, using prices and costs in effect at
the end of each quarterly period. If such evaluated costs, net of accumulated
depreciation, depletion and amortization exceed the present value of proved
reserves, an impairment charge is required to writedown those excess costs. Oil
and gas impairment charges recorded during 1997 were $9,061,240, all of which
were attributable to the fourth quarter ended December 31, 1997. This writedown
results principally from three factors: (1) the significant decline in oil and
gas prices being received by the Company on December 31, 1997 as compared to
September 30, 1997, (2) a relatively large investment in three unsuccessful
exploratory wells all of which were evaluated in fourth quarter of 1997, and (3)
a conservative estimate of proved reserves on a potentially significant
discovery on the Ramrod prospect, as discussed in Item 2, "Properties."
Impairments recorded during 1996 and 1995 totaled $1,476,690, and $1,627,321,
respectively, primarily as a result of the evaluated costs of prospects which
had poor drilling results during those periods.

General and Administrative Expense. General and administrative expense, net of
costs capitalized to exploration and development projects, increased 39% to
$2,532,957 for the 1997 period from $1,827,946 for the 1996 period. The increase
is primarily a result of personnel costs associated with hiring which occurred
during 1997 and increased professional fees and other costs associated with
being a public company offset by a decrease in the amount of $390,616 relating
to the amortization of deferred compensation expense. The 1996 amount
represented a 61% increase from $1,134,882 incurred during the year ended
December 31, 1995. This increase was primarily attributable to the amortization
of deferred compensation expense recognized in connection with stock options
granted within one year of the filing of the registration statement for the
initial public offering, which expense is based on the difference between the
option price and the initial $11.00 per share initial public offering price of
the common stock.

Interest and Other Income. Interest and other income increased 136% to
approximately $585,154 for the 1997 period from approximately $247,960 for the
comparable period during 1996. This increase reflects interest income on the
higher level of short-term investments during 1997 as a result of investment of
the proceeds of the Company's initial public offering. The 1996 amount
represents a 5% increase from $236,186 earned during the comparable 1995 period,
as a result of interest income attributable to short-term investment of the
proceeds of the Series C preferred stock.


                                      -18-
<PAGE>   21
Net Loss. As a result of the foregoing, the Company's net loss increased to
approximately $11.0 million for the 1997 period from approximately $2.7 million
for the 1996 period. The most significant factor which caused the increase in
net loss was the impairment of oil and gas properties recorded under full-cost
accounting rules. The net loss for 1996 increased slightly from the net loss of
$2.5 million in 1995, as a result of all of the foregoing.

LIQUIDITY AND CAPITAL RESOURCES

         To date, net cash provided by operating activities has been limited and
the Company has funded its oil and gas exploration activities principally
through cash provided by the sale of equity securities. On December 26, 1996,
the Company consummated an initial public offering of common stock which
provided approximately $23.6 million in proceeds, net of offering expenses. In
January 1997, the Company's underwriters exercised their over-allotment option
to purchase 375,000 additional shares of common stock, resulting in additional
net proceeds to the Company of approximately $3.8 million. Approximately $7.5
million of the proceeds of the initial public offering was used to redeem all
the issued and outstanding shares of the Series B preferred stock and to pay
accrued dividends on the issued and outstanding Series C preferred stock. The
balance of the net proceeds were designated to fund the Company's exploration
and development capital expenditures and for general corporate purposes,
including expenses associated with hiring additional personnel.

         The Company's business requires substantial oil and gas capital
expenditures. To achieve its near-term goals, the Company has been and will be
required to make oil and gas capital expenditures substantially in excess of its
net cash flow from operations in order to acquire, explore and develop oil and
gas properties. Capital expenditures for oil and gas exploration and development
activities during the years ended December 31, 1997, 1996, and 1995, were $19.9
million, $6.2 million and $2.2 million, respectively. The Company has not set a
final capital expenditure budget for 1998, but has opportunities to invest in
excess of $10 million in exploration and development projects in which the
Company currently owns an interest. The Company continues to define new
opportunities on both its active exploration projects and new projects. However,
the level of capital spending in 1998 is dependent upon the Company's ability
to obtain additional sources of funding.

         As of December 31, 1997, the Company had a deficit in working capital
of approximately $632,000. On December 18, 1997, the Company executed a credit
agreement with a commercial bank. The credit agreement provided borrowing
capacity of $3.0 million at December 31, 1997. Such borrowing capacity is a
function of the value of the Company's proved oil and gas reserves, and is
redetermined on a quarterly basis. The bank is currently conducting a schedule
redetermination. Based of preliminary indications from the bank, the Company
expects the revised borrowing base to be between $2.0 and $3.0 million. The
credit agreement is secured by substantially all of the Company's oil and gas
properties and contains restrictions on dividends and additional liens and
indebtedness and requires the maintenance of a minimum current ratio and net
worth, each as defined in the credit agreement. There were no borrowings under
the credit agreement during 1997. The Company prefers to use debt only to fund
development drilling and not to finance exploration costs. However, the Company
expects to use funds available under the credit agreement as a source of
financing to fund both exploration and development activities until additional
equity or other sources of permanent funding are obtained.

         As a result of the Company's periodic review of each of its oil and gas
exploration and development properties and its available capital, the Company
has on two occasions sold partial interests in specific oil and gas projects to
other investors to reduce its total investment commitment to such projects. No
gain or loss was recognized on either transaction. The Company is currently
reviewing its portfolio and has identified one property in which it intends to
sell the majority of its interests to provide additional capital for its
exploration program. Such interests consist of both producing wells and future
drilling locations. The Company may identify additional properties for sale in
the course of its continuing review. There can be no assurance, however, that
the Company will be able to sell any such interests, or that the terms of such
sale will be acceptable to the Company.

         The Company expects that its projected cash flows from currently
producing properties will be sufficient to fund its cash general and
administrative costs for the next twelve months, including technical employee
and related costs which are capitalized under full-cost accounting, and will
also provide limited funding for its capital program. The Company's projections
of cash flows from currently producing properties are dependent on the following
assumptions: (i) there are no significant declines in oil and gas prices below


                                      -19-
<PAGE>   22
current levels or anticipated seasonal lows, and (ii) there are no significant
declines in oil and gas production from existing properties other than declines
in production currently anticipated based on engineering estimates of the
decline curves associated with such properties.

         To enable it to continue to take advantage of oil and gas exploration
and development opportunities, the Company intends to seek additional financing
in 1998 to satisfy its capital requirements. The Company is currently evaluating
alternatives to obtain additional equity financing, which include sales of
common or preferred stock. The Company anticipates funding its short-term
capital spending from a combination of expected cash flow generated from
operations, borrowings under the credit agreement and proceeds from the sale of
oil and gas properties. In the absence of additional financing, the Company
could be required to modify the implementation and timing of its oil and gas
exploration and development capital spending for 1998, which modification could
have a material adverse effect on the Company. No assurance can be given that
the Company will be able to obtain additional financing on terms which would be
acceptable to the Company, if at all.

EFFECTS OF INFLATION AND CHANGES IN PRICE

         The Company's results of operations and cash flows are affected by
changing oil and gas prices. If the price of oil and gas increases (decreases),
there could be a corresponding increase (decrease) in the operating cost that
the Company is required to bear for operations, as well as an increase
(decrease) in revenues. Historically, general price inflation has had a minimal
effect on the Company.

OTHER

         In connection with stock options granted within one year prior to the
initial filing of the registration statement relating to the initial public
offering, the Company recorded deferred compensation expense based on the
difference between the option exercise price and the fair value of the Company's
common stock at the date of grant, using the $11.00 per share initial public
offering price as an estimate of the fair value. Such deferred compensation is
being amortized as additional compensation expense over the vesting period for
the options. As of December 31, 1997, the Company had unamortized deferred
compensation of $512,132 which will be charged to expense during the next three
years. The Company has elected not to adopt the fair value accounting of SFAS
No. 123 for employees and continues to account for these plans under APB Opinion
No. 25.

         The Company has assessed the expected impact of the date change in the
Year 2000 on the software programs used in its operations. The majority of the
Company's technical applications are not date sensitive. The applications that
do have date sensitive aspects, including the Company's accounting software,
have either been updated to compensate for the date change in the Year 2000 or
are currently being updated by the software vendors. Based on this assessment,
the Company does not expect to have any significant operational issues or
material costs related to the Year 2000 software issue.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements required by this item are incorporated under
         Item 14 in Part IV of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.


                                      -20-
<PAGE>   23
                                    PART III

ITEMS 10 TO 13 INCLUSIVE.

              These items have been omitted in accordance with the general
instructions to Form 10-K Annual Report. The Registrant will file with the
Securities and Exchange Commission in April 1998, pursuant to Regulation 14A, a
definitive proxy statement that will involve the election of directors. The
information required by these items will be included in such proxy statement and
are incorporated herein by reference.

                                     PART IV

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

<TABLE>
<CAPTION>

     (A)(1) FINANCIAL STATEMENTS:
<S>                                                                                                       <C>
        INDEX TO FINANCIAL STATEMENTS                                                                     PAGE

        Report Of Independent Public Accountants....................................................       F-1

                  Balance Sheets as of December 31, 1997 and 1996...................................       F-2

                  Statements of Operations for the three years ended December 31, 1997..............       F-3

                  Statements of Changes in Common Stockholders' Equity for the three
                       years ended December 31, 1997................................................       F-4

                  Statements of Cash Flows for the three years ended December 31, 1997..............       F-5

                  Notes to Financial Statements.....................................................       F-6

                  Supplementary Information - Unaudited.............................................       F-16

     (A)(2) FINANCIAL STATEMENT SCHEDULES:

           Not applicable
</TABLE>

                                      -21-
<PAGE>   24


     (a)(3)EXHIBITS:

       INDEX TO EXHIBITS

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                                 DESCRIPTION OF EXHIBIT
          -------                                -----------------------
         <S>             <C>
          3.1(i)          Sixth Restated Certificate of Incorporation of the Company (incorporated by reference to
                          Exhibit 3.1(i)(d) to the Company's Amendment No. 2 to the Registration Statement on Form S-1
                          (No. 333-14473), filed December 16, 1996).

          3.1(ii)         Second Amended and Restated Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.1 to
                          the Form 10-Q for the period ended June 30, 1997).

          4.1             Form of Specimen Stock Certificate, incorporated by reference to Exhibit 4.1 to the Company's
                          Amendment No. 1 to Registration Statement on Form S-1 (No. 333-14473), filed November 27, 1996.

          10.1            Technical Services Agreement between Landmark Graphics Corporation and Novera Energy Inc.
                          dated January 1993 (incorporated by reference to Exhibit 10.1 to the Company's Registration
                          Statement on Form S-1 (No. 333-14473), filed October 18, 1996

          10.2 *          Credit Agreement with NationsBank of Texas dated December 18, 1997

          10.3            1994 Stock Option Plan (incorporated by reference to Exhibit 10.9 to the Company's
                          Registration Statement on Form S-1 (No. 333-14473), filed October 18, 1996 +

          10.4            Stock Purchase Agreement among the Company, C. Eugene Ennis, Douglas C. Nester, Peter M. Duncan
                          and the Investors named therein dated November 9, 1993 (incorporated by reference to Exhibit
                          10.2 to the Company's Registration Statement on Form S-1 (No. 333-14473), filed October 18, 1996).

          10.5            Series C Preferred Stock Purchase Agreement among the Company, C. Eugene Ennis, Douglas C. Nester,
                          Peter M. Duncan and the Investors named therein dated July 26, 1995 (incorporated by reference
                          to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (No. 333-14473), filed October
                          18, 1996).

          10.6            Lease Contract dated January 22, 1995 between the Company and The Penn Mutual Life Insurance
                          Company and Letter dated March 1, 1995 from Trammell Crow Houston, Inc. (incorporated by reference
                          to Exhibit 10.8 to the Company's Registration Statement of Form S-1 (No. 333-14473), filed October
                          18, 1996).

          11.1 *          Computation of Earnings per Share

          23.1 *          Consent of Arthur Andersen LLP

          23.2 *          Consent of Ryder Scott Company

          24.1 *          Power of Attorney (included on signature page)

          27.1 *          Financial Data Schedule for December 31, 1997

          27.2 *          Financial Data Schedule for December 31, 1996 (restated)

          27.3 *          Financial Data Schedule for December 31, 1995 (restated)
</TABLE>


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

*  filed herewith
+  management contract or compensating plan

     (b)   REPORTS ON FORM 8-K:

           There were no Current Reports on Form 8-K filed during the quarter
              ended December 31, 1997 and through the date hereof.



                                      -22-
<PAGE>   25
                                   SIGNATURES

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

                          3DX TECHNOLOGIES INC.



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

         Know All Men By These Presents, that each individual whose signature
appears below hereby constitutes and appoints C. Eugene Ennis, Randall D. Keys
and Peter M. Duncan and each of them individually, his true and lawful agent,
proxy and attorney-in-fact, with full power of substitution and resubstitution,
for him in his name, place and stead, in any and all capacities, to (i) act on,
sign and file with the Securities and Exchange Commission any and all amendments
to this report together with all schedules and exhibits thereto, (ii) act on,
sign and file with the Securities and Exchange Commission any exhibits to this
report, (iii) act on, sign and file such certificates, instruments, agreements
and other documents as may be necessary or appropriate in connection therewith
and (iv) take any and all actions which may be necessary or appropriate in
connection therewith, granting unto such agents, proxies and attorneys-in-fact
and each of them individually, full power and authority to do and perform each
and every act and thing necessary or appropriate to be done, as fully for all
intents and purposes as he might or could do in person, hereby approving,
ratifying and confirming all that such agents, proxies and attorneys-in-fact,
any of them or any of his or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
      DATE                        SIGNATURE                                   TITLE(S)
      ----                        ---------                                   --------
 <S>                  <C>                                    <C>
 March 27, 1998        /s/ C. Eugene Ennis                    President, Chief Executive Officer; Director
                      --------------------------------------- (Principal Executive Officer)
                      C. Eugene Ennis


 March 27, 1998        /s/ Randall D. Keys                    Vice President, Finance, Chief Financial
                      --------------------------------------- Officer and Secretary (Principal Financial
                      Randall D. Keys                         and Accounting Officer)


 March 27, 1998        /s/ Peter M. Duncan                    Vice President, Chief Geophysicist and
                      --------------------------------------- Treasurer
                      Peter M. Duncan
</TABLE>


                                      -23-
<PAGE>   26
<TABLE>
 <S>                  <C>                                    <C>
 March 27, 1998        /s/ Douglas C. Nester                  Vice President and Chief Geologist
                      ---------------------------------------
                      Douglas C. Nester


 March 27, 1998        /s/ Ronald P. Nowak                    Vice President, Exploration
                      ---------------------------------------
                      Ronald P. Nowak


 March 27, 1998        /s/ Robert J. Bacon, Jr.               Vice President, Joint Ventures
                      ---------------------------------------
                      Robert J. Bacon, Jr.


 March 27, 1998        /s/ Joseph Schuchardt, III             Vice President, Business Development
                      ---------------------------------------
                      Joseph Schuchardt, III


 March 27, 1998        /s/ Jon W. Bayless                     Director
                      ---------------------------------------
                      Jon W. Bayless


 March 27, 1998        /s/ Charles E. Edwards                 Director
                      ---------------------------------------
                      Charles E. Edwards


 March 27, 1998        /s/ C.D. Gray                          Director
                      ---------------------------------------
                      C.D. Gray


 March 27, 1998        /s/ Douglas C. Williamson              Director
                      ---------------------------------------
                      Douglas C. Williamson
</TABLE>


                                      -24-
<PAGE>   27
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


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

         We have audited the accompanying balance sheets of 3DX Technologies
Inc. (a Delaware corporation) as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of 3DX Technologies
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.



Houston, Texas
February 25, 1998                                   ARTHUR ANDERSEN LLP


                                      F-1
<PAGE>   28
                              3DX TECHNOLOGIES INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                             ------------------------------
                                                                                  1997                1996
                                                                                  ----                ----
                                     ASSETS

<S>                                                                        <C>                <C>
Current assets:
   Cash and cash equivalents............................................     $  1,568,091      $ 17,521,745
   Accounts receivable .................................................        1,181,083           554,210
   Prepaid expenses.....................................................          110,681           165,095
                                                                             ------------      ------------
     Total current assets...............................................        2,859,855        18,241,050
                                                                             ------------      ------------
Propery and equipment:
   Oil and gas properties, full-cost method:
     Evaluated..........................................................       22,521,673         7,164,397
     Unevaluated........................................................       10,098,698         4,403,165
   Technical interpretation equipment...................................        2,605,439         1,505,534
   Other property and equipment.........................................          273,780           205,531
                                                                             ------------      ------------
                                                                               35,499,590        13,278,627
     Less accumulated depletion, depreciation and amortization..........      (17,127,846)       (4,702,296)
                                                                             ------------      ------------
                                                                               18,371,744         8,576,331
Other assets............................................................           78,041             9,808
                                                                             ------------      ------------
                                                                             $ 21,309,640      $ 26,827,189
                                                                             ============      ============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable ....................................................     $  1,713,209      $  1,960,984
   Accrued liabilities .................................................        1,778,543           292,581
                                                                             ------------      ------------
     Total current liabilities .........................................        3,491,752         2,253,565
                                                                             ------------      ------------
Stockholders' equity:
   Preferred stock, $.01 par value, 1,000,000 shares authorized,
       none issued .....................................................             --                --
   Common stock, $.01 par value, 20,000,000 shares authorized, 7,225,462
     and 6,841,177 shares issued and outstanding, respectively
                                                                                   72,255            68,412
   Paid-in capital .....................................................       38,085,357        34,189,700
   Deferred compensation ...............................................         (512,132)         (893,040)
   Accumulated deficit .................................................      (19,827,592)       (8,791,448)
                                                                             ------------      ------------
     Total stockholders' equity ........................................       17,817,888        24,573,624
                                                                             ------------      ------------
                                                                             $ 21,309,640      $ 26,827,189
                                                                             ============      ============
</TABLE>

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


                                      F-2
<PAGE>   29

                              3DX TECHNOLOGIES INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                          -----------------------------------------------
                                                            1997               1996               1995
                                                            ----               ----               ----
<S>                                                      <C>              <C>               <C>
Revenues:
   Oil and gas ........................................  $  3,045,447      $    851,827      $    274,511
   Interest and other .................................       585,154           247,960           236,186
                                                         ------------      ------------      ------------
     Total revenues ...................................     3,630,601         1,099,787           510,697
                                                         ------------      ------------      ------------

Costs and expenses:
   Lease operating ....................................       257,291            49,016            60,877
   Production taxes ...................................       178,952            58,660            17,656
   Impairment of oil and gas properties ...............     9,061,240         1,476,690         1,627,321
   Depletion, depreciation, and amortization ..........     2,636,305           422,839           158,336
   General and administrative .........................     2,532,957         1,827,946         1,134,882
                                                         ------------      ------------      ------------
     Total costs and expenses .........................    14,666,745         3,835,151         2,999,072
                                                         ------------      ------------      ------------

Net loss ..............................................   (11,036,144)       (2,735,364)       (2,488,375)
Dividends on preferred stock ..........................          --            (520,393)       (1,058,956)
Redemption premium on Series B preferred stock ........          --            (365,810)             --
Accretion on preferred stock ..........................          --             (54,844)          (48,408)
                                                         ------------      ------------      ------------


Net loss applicable to common stockholders ............  $(11,036,144)     $ (3,676,411)     $ (3,595,739)
                                                         ============      ============      ============

Basic and diluted net loss per common share ...........  $      (1.53)     $      (1.21)     $      (1.20)
                                                         ============      ============      ============


Weighted average number of common shares outstanding...     7,193,837         3,042,466         2,987,908
                                                         ============      ============      ============
</TABLE>


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


                                      F-3
<PAGE>   30
                              3DX TECHNOLOGIES INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                  COMMON STOCK                                                         STOCK
                                -----------------      PAID-IN        DEFERRED       ACCUMULATED    SUBSCRIPTIONS
                                SHARES     AMOUNT      CAPITAL      COMPENSATION       DEFICIT        RECEIVABLE       TOTAL
                                ------     ------      -------      ------------       -------        ----------       -----
<S>                           <C>          <C>        <C>           <C>              <C>              <C>            <C>
Balance at December 31, 1994.  2,987,908   $29,879    $   841,604 $             -     $ (1,519,298)    $(26,157)     $   (673,972)
Principal collections........          -         -              -               -                -       36,156            36,156
Shares issued during 1995....          -         -              -               -                -      (57,755)          (57,755)
Accrual of dividends.........          -         -              -               -       (1,058,956)           -        (1,058,956)
Accretion on preferred stock.          -         -              -               -          (48,408)           -           (48,408)
Deferred compensation
   related to certain stock
   options...................          -         -        888,855        (888,855)               -            -                 -
Compensation expense related
   to certain stock options..          -         -              -          50,991                -            -            50,991
Net loss.....................          -         -              -               -       (2,488,375)           -        (2,488,375)
                              ----------  --------   ------------     -----------     ------------   ----------       -----------
Balance at December 31, 1995.  2,987,908    29,879      1,730,459        (837,864)      (5,115,037)     (47,756)       (4,240,319)
Principal collections........          -         -              -               -                -       47,756            47,756
Shares issued upon exercise
   of stock options..........      3,124        31            573               -                -            -               604
Accrual of dividends.........          -         -              -               -         (520,393)           -          (520,393)
Accretion on preferred stock.          -         -              -               -          (54,844)           -           (54,844)
Deferred compensation
   related to certain stock
   options...................          -         -        922,806        (922,806)               -            -                 -
Compensation expense related
   to certain stock options..          -         -              -         867,630                -            -           867,630
Shares issued in Initial
   Public Offering (net of
   offering costs)...........  2,400,000    24,000     23,539,064               -                -            -        23,563,064
Conversion of Series C
   preferred to common stock.  1,450,145    14,502      7,996,798               -                -            -         8,011,300
Redemption of Series B
   preferred stock...........          -         -              -               -         (365,810)           -          (365,810)
Net loss.....................          -         -              -               -       (2,735,364)           -        (2,735,364)
                              ----------  --------   ------------     -----------     ------------   ----------       -----------
Balance at December 31, 1996.  6,841,177    68,412     34,189,700        (893,040)      (8,791,448)           -        24,573,624
Shares issued for
   over-allotment............    375,000     3,750      3,796,396               -                -            -         3,800,146
Shares issued for exercise
   of stock options..........      9,285        93          3,155                                -            -             3,248

Deferred compensation
   related to certain stock
   options...................          -         -         96,106         (96,106)               -            -                 -
Compensation expense related
   to certain stock options..          -         -              -         477,014                -            -           477,014
Net loss.....................          -         -              -               -      (11,036,144)           -       (11,036,144)
                              ----------  --------   ------------     -----------    -------------  --------------   ------------
Balance at December 31, 1997.  7,225,462  $ 72,255   $ 38,085,357     $  (512,132)   $ (19,827,592) $         -      $ 17,817,888
                              ==========  ========   ============     ===========    =============  ==============   ============
</TABLE>

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



                                      F-4
<PAGE>   31
                              3DX TECHNOLOGIES INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                               -----------------------------------------------
                                                                 1997               1996              1995
                                                                 ----               ----              ----
<S>                                                          <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss .............................................     $(11,036,144)     $ (2,735,364)     $ (2,488,375)
   Adjustments to reconcile net loss to net cash provided
     by (used in) operating activities:
        Depletion, depreciation and amortization ........        3,366,242           883,962           446,350
        Compensation expense related to certain stock
           options ......................................          477,014           867,630            50,991
        Impairment of oil and gas properties ............        9,061,240         1,476,690         1,627,321
        Increase in accounts receivable .................         (626,873)         (440,506)          (45,485)
        (Increase) decrease in prepaid expenses .........           54,414           (79,309)          (76,188)
        Increase (decrease) in accounts payable .........         (107,291)          388,767            (3,005)
        Increase (decrease) in accrued liabilities ......          240,963           253,415           (14,540)
                                                              ------------      ------------      ------------
   Net cash provided by (used in) operating activities ..        1,429,565           615,285          (502,931)
                                                              ------------      ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to oil and gas properties ..................      (19,948,293)       (6,166,219)       (2,185,804)
   Sales of oil and gas properties ......................             --                --             480,931
   Purchases of technical and other equipment ...........       (1,168,154)         (456,264)         (800,573)
   Proceeds from (purchases of) securities held to
      maturity ..........................................             --           1,595,167        (1,595,167)
   Other ................................................          (70,166)            5,000           (12,886)
                                                              ------------      ------------      ------------
   Net cash used in investing activities ................      (21,186,613)       (5,022,316)       (4,113,499)
                                                              ------------      ------------      ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Common stock proceeds, net of issuance costs .........        3,803,394        23,563,668              --
   Series B preferred stock proceeds, net of issuance
     costs...............................................             --                --              25,297
   Series C preferred stock proceeds, net of issuance
     costs ..............................................             --             143,843         7,851,133
   Redemption of Series B preferred stock ...............             --          (6,687,100)             --
   Payment of Series C preferred stock dividends ........             --            (795,649)             --
                                                              ------------      ------------      ------------
   Net cash provided by financing activities ............        3,803,394        16,224,762         7,876,430
                                                              ------------      ------------      ------------
Net change in cash and cash equivalents .................      (15,953,654)       11,817,731         3,260,000
Cash and cash equivalents at beginning of year ..........       17,521,745         5,704,014         2,444,014
                                                              ------------      ------------      ------------
Cash and cash equivalents at end of the year ............     $  1,568,091      $ 17,521,745      $  5,704,014
                                                              ============      ============      ============

SUPPLEMENTAL CASH FLOW INFORMATION
  NON-CASH TRANSACTIONS:
     Dividends declared but not paid ....................     $       --        $       --        $    275,256
     Accretion on preferred stock .......................             --              54,844            48,408
     Redemption premium on Series B preferred stock .....             --             365,810              --
     Stock dividend on Series B preferred stock .........             --                --             783,700
     Sale of Series C preferred stock in exchange for
         promissory notes ...............................             --                --              57,755
</TABLE>


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


                                      F-5
<PAGE>   32

                              3DX TECHNOLOGIES INC.

                          NOTES TO FINANCIAL STATEMENTS


1. ORGANIZATION AND BASIS OF PRESENTATION

         3DX Technologies Inc. ("3DX" or the "Company") began operations in
January 1993 to offer 3-D seismic imaging and computer-aided exploration
capabilities as a partner to experienced oil and gas operators. The Company
combines its 3-D imaging capabilities with the operator's local knowledge and
infrastructure to evaluate and exploit drilling opportunities. The Company
primarily invests in prospects in the Gulf Coast region of the U.S., where 3-D
seismic evaluation and interpretation is expected to reduce drilling risk.
Working interests in major prospects have ranged from 5% to 40% in property
investments to date.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Oil and Gas Properties

         3DX accounts for its oil and gas properties using the full-cost method.
All costs associated with the acquisition, exploration and development of oil
and gas properties, including such costs as leasehold acquisition costs,
geological and geophysical expenditures, dry hole costs and tangible and
intangible development costs, are capitalized as incurred. Included in
capitalized costs for 1997, 1996 and 1995 are general and administrative costs
of $1,962,691, $1,146,722, and $618,614, respectively. Such capitalized costs
include payroll and related costs of exploration department personnel which are
directly attributable to the Company's current exploration and development
activities. Other costs, such as office and facilities costs, technical
equipment maintenance, depreciation and support and communication costs are also
capitalized to the extent they are attributed to the Company's oil and gas
property acquisition and exploration activities and would not otherwise be
incurred if such activities were not being undertaken.

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

         The evaluated costs of oil and gas properties plus estimated future
development and dismantlement costs (including plugging, abandonment and
site-restoration costs) are charged to operations as depreciation, depletion,
and amortization using the unit-of-production method based on the ratio of
current production to estimated proved recoverable oil and gas reserves. The
Company excludes unevaluated property costs from the depreciation, depletion and
amortization calculations until proved reserves have been discovered or a
determination of impairment has been made. Unevaluated properties are evaluated
for impairment on a property-by-property basis.

         Impairment of capitalized costs of oil and gas properties is determined
for each cost center on a country-by-country basis. For each cost center, to the
extent that capitalized costs of oil and gas properties, net of related
accumulated depreciation, depletion and amortization and any related deferred
income taxes, exceed the future net revenues of estimated proved oil and gas
reserves, discounted at 10% and net of any income tax effects, plus the lower of
cost or fair value of unevaluated properties, such excess costs are charged to
operations as an impairment of oil and gas properties. Writedowns of $9,061,240,
$1,476,690 and $1,627,321 were recorded during 1997, 1996 and 1995,
respectively.

                                      F-6
<PAGE>   33
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


         Other property and equipment, consisting of technical interpretation
equipment and related software and office furniture, equipment and leasehold
improvements are recorded at cost. Depreciation is determined on a straight-line
basis over the estimated useful lives of the assets, which range from three to
five years. Depreciation of other property and equipment totaled $728,005,
$459,189 and $288,014 for 1997, 1996 and 1995, respectively, and is included in
general and administrative expenses.

Accounting for Income Taxes

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

Natural Gas Revenues

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

Rental Income

         The Company has an informal income-sharing arrangement with a seismic
processing company whereby the Company receives a percentage of the seismic
processing company's gross billings in exchange for office space and the use of
technical equipment provided by the Company. The Company's share of billings
under this arrangement amounted to $264,651, $229,556, and $58,195 in 1997, 1996
and 1995, respectively, and is reflected as a reduction of the Company's general
and administrative expenses.

Net Loss per Common Share

         In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which establishes new computation, presentation, and disclosure
requirements for earnings per share for public companies. The statement is
effective for financial statements issued for periods ending after December 15,
1997. In connection with this new statement, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) No. 98, which prescribes a new
accounting treatment for the impact on earnings per share of "nominal issuances"
of common stock and common stock options issued within one year prior to the
filing of a registration statement for an initial public offering of common
stock. Under the prior rules, common stock options having a nominal exercise
price issued within one year of an initial public offering were required to be
reflected retroactively in the computation of earnings per share for all periods
even if the effect was antidilutive. Under SAB No. 98, these common stock
options are only required to be reflected in earnings per share if the effect is
dilutive. The Company has restated all prior periods to reflect this change in
accounting principle. The effect of this change is presented in the following
table:


                                      F-7
<PAGE>   34

<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                              ----------------------------
                                                              1997        1996       1995
                                                              ----        ----      -----
      <S>                                                  <C>       <C>          <C>
      Basic and diluted net loss per common share, as
        previously reported .............................. $  (1.53)  $  (1.16)  $  (1.14)
      Retroactive effect of change in accounting
        principle ........................................       --      (0.05)     (0.06)
                                                               -----     -----      -----
      Basic and diluted net loss per common share ........ $  (1.53)  $  (1.21)  $  (1.20)
                                                              =====      =====      =====
</TABLE>

         The computation of basic and diluted net loss per common share was
based entirely on the weighted average common shares outstanding. Stock options
which are potentially dilutive were excluded from the net loss per common share
calculation in each of the years presented as the effect would have been
antidilutive. See Note 7 for the number of stock options outstanding.

Statements of Cash Flows

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

Concentration of Credit Risk

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

Major Customers

         Operators for producing oil and gas wells in which the Company holds
working interests sold the Company's share of oil and gas production to three
major customers during the years ended December 31, 1997, 1996 and 1995. Sales
to one customer represented 63% and 58% of oil and gas revenues in 1997 and
1996, respectively. During 1995, sales to two customers represented 79% of oil
and gas revenues.

Fair Value of Financial Instruments

         The carrying amounts of cash and cash equivalents, accounts receivable,
account payable and accrued liabilities are short-term in nature and approximate
fair value.

Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Oil and
gas reserve estimates, which are the basis for units-of-production depletion and
impairment of oil and gas properties, are inherently imprecise and are expected
to change as future information becomes available.


                                      F-8
<PAGE>   35
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


Prior Year Reclassifications

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

Accounting Pronouncements

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS 130 establishes
standards for reporting and displaying of comprehensive income and its
components. SFAS No. 131 establishes standards for the way that public
enterprises report information about operating segments and related information
in interim and annual financial statements. SFAS 130 and 131 are effective for
periods beginning after December 15, 1997. These two statements will not have
any effect on the Company's 1997 financial position or results of operations.
Management is presently evaluating what, if any, additional disclosures may be
required when these two statements are implemented.

3. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                  -----------------------------
                                                      1997              1996
                                                      ----              ----
<S>                                              <C>              <C>
Deferred tax liability:
  Exploration and development expenditures
   deducted for tax and capitalized
   for books ................................     $   981,479      $  (325,812)
  Other items, net ..........................         (70,968)         (54,872)
                                                  -----------      -----------
        Total deferred tax liability ........         910,511         (380,684)
                                                  -----------      -----------
Deferred tax assets:
  Net operating loss carryforwards ..........       3,803,419        2,039,546
  Other items, net ..........................         836,151          126,517
                                                  -----------      -----------
        Total deferred tax assets ...........       4,639,570        2,166,063
  Less: Valuation allowance .................      (5,550,081)      (1,785,379)
                                                  -----------      -----------
Net deferred tax assets .....................        (910,511)         380,684
                                                  -----------      -----------
Net deferred tax liability ..................     $        --      $        --
                                                  ===========      ===========
</TABLE>

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

         The Company has recorded a valuation allowance against its deferred tax
assets in each year to reflect the estimated portion for which realization is
uncertain. As of December 31, 1997, the Company had tax net operating loss
carryforwards of approximately $11.2 million which begin to expire in 2008. As a
result of recent stock transactions, including the initial public offering, the
Company's utilization of its net operating losses under Section 382 of the
Internal Revenue Code is limited.


                                      F-9
<PAGE>   36
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


4. CREDIT AGREEMENT

         On December 18, 1997, the Company executed a credit agreement with a
commercial bank. The credit agreement expires on June 30, 2002 and provides for
total borrowings of $25 million, subject to availability under a borrowing base
calculation which is redetermined on a quarterly basis. The credit agreement,
which is secured by substantially all of the Company's producing oil and gas
properties, had a current availability of $3.0 million under Tranche A of the
agreement as of December 31, 1997. There was no availability under Tranche B.
Tranche A advances carry an interest rate, at the Company's option, of either
the London Interbank Offered Rate ("LIBOR") plus 2% or the lender's prime rate.
Tranche B advances carry an interest rate of either LIBOR plus 4% or the
lender's prime rate plus 2%. The credit agreement contains restrictions on
dividends and additional liens and indebtedness and requires the maintenance of
a minimum current ratio and net worth, each as defined in the credit agreement.
There were no borrowings under the credit agreement during the year ended
December 31, 1997.

5. MANDATORILY REDEEMABLE PREFERRED STOCK

Series B

         In November 1993, the Company issued 29,000 Series B equity units at
$100 per unit, for total proceeds before offering costs of $2,900,000. In
October 1994, the Company issued 25,000 additional Series B equity units at $100
per unit, for total proceeds before offering costs of $2,500,000. Each equity
unit consisted of one share of redeemable Series B preferred stock, par value
$.01 per share ("Series B Preferred Stock"), at $94.1558 per share and 30.215
shares of common stock, par value $.01 per share, at $0.19 per share. The Series
B Preferred Stock carried a redemption value of $100 per share. The difference
between the sales price and the redemption value was subject to pro-rata
accretion which was charged to retained earnings, such that the book value of
each share of Series B Preferred Stock would equal $100 at the required
mandatory redemption in two installments commencing in November 2002. The Series
B Preferred Stock also carried a cumulative annual dividend, payable on December
31 of each year, of $12.50 per share if paid in cash or .13276 shares of Series
B Preferred Stock if paid in stock. All dividends were paid in additional shares
of Series B Preferred Stock. Series B equity units totaling $1,025,000, or 19%
of the total proceeds of the offering, were sold to related parties, consisting
of officers of the Company, consultants and Landmark. Additionally, units
totaling $3,032,000, or 56%, were sold to two investors and their affiliates,
each of which required the right to designate one member of the Board of
Directors of the Company.

         In connection with the initial public offering which was completed on
December 26, 1996 (see Note 6), all of the issued and outstanding shares of
Series B Preferred Stock were redeemed. The unamortized redemption premium of
$365,810 was charged to the Company's accumulated deficit.

Series C

         During the period from July 26, 1995 through September 25, 1995, the
Company sold a total of 2,662,241 shares of senior redeemable convertible Series
C preferred stock, par value $.01 per share ("Series C Preferred Stock"), at
$3.00 per share, for total proceeds before offering costs of $7,986,723. The
Series C Preferred Stock carried a cumulative dividend at an annual rate of $.24
per share if paid in cash or .08 shares of Series C Preferred Stock if paid in
stock, payable or accruing quarterly, commencing on December 31, 1995. Unpaid
dividends earned interest at an annual interest rate of 8%. During the year
ended December 31, 1996, the Company paid accrued dividends on Series C
Preferred Stock of $795,649. Shares totaling $925,515, or 12% of the total
proceeds, were sold to related parties, including consultants to and officers of
the Company, as well as two directors and their affiliates. Additionally, one
investor purchased


                                      F-10
<PAGE>   37
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

shares totaling $3,999,999, or 50% of the offering, on the condition that it
be given the right to designate one member of the Company's Board of
Directors.

         Each share of Series C Preferred Stock was convertible into one share
of common stock. Subsequent to the reverse stock split in October 1996, each
share was convertible into .517 shares of common stock. The Series C Preferred
Stock could be automatically converted to common stock upon the occurrence of
certain conversion events, including the successful completion of an initial
public offering of the Company's common stock if certain pricing and other
criteria were met. The Series C preferred stock also contained a
mandatory-redemption feature under which the stock could be redeemed, at the
option of at least 67% of the holders, at the $3.00 per share liquidation value
in two installments commencing in November 2002.

         In October 1995, the Board of Directors granted the holder of each
share of Series C Preferred Stock a warrant to purchase additional shares equal
to 10% of the shares owned by such holder, at an exercise price of $3.00 per
share. Such shares were exercisable at any time until the earlier of (a) five
years from the date of issuance and (b) the effective date of an initial public
offering of the Company's securities. No value was assigned to these warrants as
the computed value of the warrants using the Black-Scholes model was zero.

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

Stock Subscriptions Receivable

         Certain officers and directors of the Company purchased Series B equity
units and Series C Preferred Stock for promissory notes, which are reflected as
an offset to equity in the accompanying financial statements. The promissory
notes were full recourse and carried interest at a fixed rate of 6% per annum.
The notes from the Company's officers were collateralized by certain vested
stock options the individuals held from their former employer. The principal and
accrued interest on all notes for the purchase of equity securities of the
Company were paid off as of December 31, 1996.


                                      F-11
<PAGE>   38
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


         The following table summarizes the 1996 and 1995 activity of Series B
and Series C Preferred Stock:

<TABLE>
<CAPTION>
                                         REDEEMABLE PREFERRED STOCK
                                         --------------------------
                                               SERIES B                         SERIES C
                                          -----------------------        -------------------------
                                          SHARES          AMOUNT             SHARES        AMOUNT
                                          ------          ------             ------        -------
<S>                                      <C>          <C>               <C>           <C>
Balance at December 31, 1994 ......       59,034      $ 5,451,522             --       $      --
Shares issued during 1995 .........         --               --          2,662,241       7,986,723
Offering costs ....................         --               (860)            --           (87,834)
Accrual of dividends ..............        7,837          783,700             --              --
Accretion to redemption value .....         --             43,464             --             4,944
                                       ---------      -----------     -----------      -----------
Balance at December 31, 1995 .......      66,871        6,277,826        2,662,241       7,903,833
Accretion to redemption value ......        --             43,464             --            11,380
Redemption premium .................        --            365,810
Redemption of Series B preferred ...     (66,871)      (6,687,100)            --              --
Exercise of outstanding warrants
    For cash .......................        --               --             32,029          96,087
    Under cashless tender ..........        --               --            110,653            --
Conversion to common stock .........        --               --         (2,804,923)     (8,011,300)
                                       ---------      -----------      -----------     -----------
Balance at December 31, 1996 .......        --        $      --        $      --       $      --
                                       =========      ===========      ===========     ===========
</TABLE>

6. STOCKHOLDERS' EQUITY

         In May 1995, the stockholders approved a 10-for-1 stock split of the
Company's common stock. In October 1996, the stockholders approved a reverse
stock split whereby holders of common stock received .517 shares of common stock
for every share previously owned. All references in this report to number of
common shares outstanding reflect stock splits retroactively to inception of the
Company.

         On December 26, 1996, the Company completed an initial public offering
for the sale of 2,400,000 shares of common stock at $11.00 per share, less
offering costs. In January 1997, the Company's underwriters exercised their
30-day over-allotment option to purchase 375,000 additional shares of common
stock at the offering price of $11.00 per share, less underwriting discounts and
commissions. Total proceeds to the Company from the initial public offering, net
of offering costs, were approximately $27.4 million.


                                      F-12



<PAGE>   39
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


7. STOCK OPTIONS

         In June 1994, the Board of Directors approved the 1994 Stock Option
Plan (the "Plan") for employees, officers, directors and certain consultants of
the Company. The ten year options vest over four years for employees (25% at the
end of each of the first two years and monthly over the last 24 months. For
directors and consultants, the options vest 50% at the end of the first year and
25% at the end of the second and third years. Certain of these options are
eligible for accelerated vesting upon a change of control of the Company. The
Company has reserved a total of 2,004,937 shares of common stock for issuance
under this Plan, of which 611,778 shares were available for grant as of December
31, 1997. The following table summarizes option balances and activity for the
Plan:


<TABLE>
<CAPTION>
                                                                                          WEIGHTED
                                                                             NUMBER        AVERAGE
                                                                                 OF       EXERCISE
                                                                             SHARES          PRICE
                  <S>                                                      <C>            <C>
                   --------------------------------------------------- -------------- -------------
                   Options outstanding, December 31, 1994...........        438,783         $ 0.22
                   Granted..........................................        248,160           0.56
                   Exercised........................................             --             --
                   Canceled.........................................             --             --

                   --------------------------------------------------- -------------- -------------
                   Options outstanding, December 31, 1995...........        686,943           0.34
                   Granted..........................................        267,806           1.52
                   Exercised........................................         (3,124)          0.19
                   Canceled.........................................       (157,146)          0.57

                   --------------------------------------------------- -------------- -------------
                   Options outstanding, December 31, 1996...........        794,479           0.70
                   Granted..........................................        628,656          10.33
                   Exercised........................................         (9,285)          0.35
                   Canceled.........................................        (33,100)          5.03

                   --------------------------------------------------- -------------- -------------
                   Options outstanding, December 31, 1997..........       1,380,750         $ 4.98
                   --------------------------------------------------- -------------- -------------
                   Exercisable options -
                       December 31, 1995............................        109,696          $0.22
                       December 31, 1996............................        344,396           0.28
                       December 31, 1997............................        554,183           0.56
                   --------------------------------------------------- -------------- -------------
</TABLE>

<TABLE>
<CAPTION>
                                                       WEIGHTED      WEIGHTED                       WEIGHTED
                      RANGE OF           OPTIONS        AVERAGE       AVERAGE         OPTIONS        AVERAGE
                      EXERCISE       OUTSTANDING      REMAINING      EXERCISE     EXERCISABLE       EXERCISE
                        PRICES       AT 12/31/97     LIFE (YRS)         PRICE     AT 12/31/97          PRICE
           -------------------- ----------------- -------------- ------------- --------------- --------------
              <S>                       <C>               <C>       <C>             <C>             <C>
                $0.19 to $0.58           734,693           7.02      $   0.37         537,897       $   0.32
               $7.79 to $11.88           646,057           9.40      $  10.23          16,286       $   8.30
                  Total                1,380,750           8.14      $   4.98         554,183       $   0.56
</TABLE>


                                      F-13
<PAGE>   40
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)


         In connection with stock options granted within one year of the initial
public offering, the Company recorded deferred compensation as additional paid
in capital with a corresponding offset to stockholders' equity. The amount of
deferred compensation is based on the difference between the option exercise
price and the $11.00 per share initial public offering common stock price for
those options. Deferred compensation is being amortized as compensation expense
over the option vesting period, and totaled $477,014, $867,630 and $50,991
during the years ended December 31, 1997, 1996 and 1995, respectively.
Unamortized deferred compensation as of December 31, 1997 amounted to $512,132.

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

<TABLE>
<CAPTION>
                                                                    1997           1996            1995
                                                                    ----           ----            ----
       <S>                                                    <C>             <C>            <C>
        Net loss attributable to common stockholders:
             As reported.................................     $(11,036,144)    $(3,676,411)   $(3,595,739)
             Pro forma...................................      (11,587,856)     (3,391,345)    (3,588,257)
        Basic and diluted earnings per share:
             As reported.................................          $ (1.53)        $ (1.21)       $ (1.20)
             Pro forma...................................            (1.61)          (1.11)         (1.20)
        ---------------------------------------------------------------------------------------------------
        Pro forma assumptions:
             Risk free interest rate:
                Maximum..................................             6.72%           6.68%          5.98%
                Minimum..................................             5.91%           5.35%          5.59%
             Expected option life:
                Maximum..................................         4.5 years       4.5 years      5.0 years
                Minimum..................................         3.7 years       3.7 years      4.6 years
        ---------------------------------------------------------------------------------------------------
        Weighted  average  fair  value of  options  granted
             during the year.............................             $6.39           $8.95          $3.72
        ---------------------------------------------------------------------------------------------------
        Volatility factor................................              .703               -              -
        ---------------------------------------------------------------------------------------------------
</TABLE>

         Volatility was not considered in the calculation of option values prior
to December 26, 1996, as the Company was not publicly traded.

8. SAVINGS PLAN

         The Company's employees participated, prior to January 1, 1998, in
Landmark's 401-K employee savings plan (the Plan), which became effective upon
inception of the Company. The Plan covers substantially all employees and
entitles them to contribute up to 16% of their annual compensation, subject to
limitations imposed by the Internal Revenue Code. The Company did not make any
contributions to the Plan on behalf of employees during any of the years
presented. Effective January 1, 1998, the Company established a separate
employee savings plan exclusively for its employees with substantially the same
terms and provisions as the previous Plan.


                                      F-14
<PAGE>   41
                              3DX TECHNOLOGIES INC.

                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

9. RELATED PARTIES

         Prior to the Company's initial public offering of common stock in
December 1996, Landmark was the beneficial owner of greater than 5% of the
issued and outstanding Common Stock and was considered a related party. In
connection with its initial capitalization, the Company entered into a Technical
Services Agreement with Landmark pursuant to which Landmark agreed to grant to
the Company ongoing licenses to use Landmark software as Landmark first made
such software available to its customers. In addition, the agreement provides
for a strategic alliance between Landmark and the Company, which enables the
Company to request, and requires Landmark to deliver, enhancements and
modifications to existing Landmark software and, in certain instances, to
develop new software for use in the Company's oil and gas exploration efforts.
In exchange for such rights, the Company has agreed to serve as an alpha test
site for software developed by Landmark. During 1997, 1996 and 1995, the Company
purchased technical equipment and software, supplies and hardware maintenance
from Landmark in the amounts of $645,109, $267,007 and $521,128, respectively.

         In addition, the Company and Landmark were also parties to an informal
arrangement pursuant to which the Company's employees participated in Landmark's
medical insurance plan, life insurance plans and 401(k) employee savings plan.
The Company reimburses Landmark for the costs of providing these benefits,
together with an administrative fee. Effective January 1, 1998, the Company
ceased to participate in this informal arrangement and established separate
benefit plans exclusively for its employees.

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

10. COMMITMENTS

         In March 1995, the Company entered into a 5-year office lease
agreement. Future minimum payments under this non-cancelable office lease are as
follows at December 31, 1997:

<TABLE>
<S>                                              <C>
 1998.....................................        $  94,633
 1999.....................................           94,633
 2000.....................................           15,772
                                                   --------
 Total minimum lease payments.............         $205,038
                                                   ========
</TABLE>

         Rental expense under this office lease amounted to $94,633, $94,633 and
$83,919 during the years ended December 31, 1997, 1996 and 1995, respectively.



                                      F-15
<PAGE>   42
                              3DX TECHNOLOGIES INC.

                      SUPPLEMENTARY INFORMATION - UNAUDITED


QUARTERLY FINANCIAL DATA (UNAUDITED)

         The table below sets forth selected unaudited quarterly financial
information for 1997 and 1996:

<TABLE>
<CAPTION>
        --------------------------------------------------------------------------------------------------------
                                                                       QUARTER ENDED:
        --------------------------------------------------------------------------------------------------------
                                                MARCH 31          JUNE 30        SEPTEMBER 30      DECEMBER 31
                                                --------          -------        ------------      -----------
        <S>                                   <C>              <C>             <C>                  <C>
        1997:
        Revenues (a)......................     $   839,273     $    890,846      $   840,705         $ 1,059,777
        Net loss (b)......................         (40,458)        (460,474)        (590,225)         (9,944,987)
        Net loss applicable to common
            stockholders..................         (40,458)        (460,474)        (590,225)         (9,944,987)
        Basic and diluted net loss per
            common share (c)..............           (0.01)           (0.06)           (0.08)             (1.38)

        1996:
        Revenues (a)......................     $   183,310     $    169,041      $   273,786        $    473,650
        Net loss (b)......................        (453,139)      (1,372,840)        (445,590)           (463,795)
        Net loss applicable to common
          stockholders....................        (638,434)      (1,554,939)        (624,496)           (858,542)
        Basic and diluted net loss per
          common share as reported........           (0.20)           (0.49)           (0.20)             (0.26)
        Retroactive effect of change in
          accounting principle (d)........           (0.01)           (0.03)           (0.01)             (0.01)
                                                     ------           ------           ------             ------
        Basic and diluted net loss per
          common share (c)................           (0.21)           (0.52)           (0.21)             (0.27)
                                                     ======           ======           ======             ======
</TABLE>

(a)  As discussed in Note 2, rental income has been reflected as a reduction of
     general and administrative expense in all periods presented.
(b)  As discussed in Note 2, the Company recorded a writedown of oil and gas
     properties of $19,061,240 in the fourth quarter of 1997, and writedowns
     totaling $1,476,690 in 1996, including $1,090,718 in the second quarter of
     1996.
(c)  Net loss per common share are computed independently for each of the
     quarters presented and therefore may not sum to the totals for the year.
(d)  As discussed in Note 2, earnings per share amounts for periods prior to the
     Company's initial public offering have been restated to retroactively
     reflect the effect of SAB No. 98.



                                      F-16
<PAGE>   43
                              3DX TECHNOLOGIES INC.

                      SUPPLEMENTARY INFORMATION - UNAUDITED
                                   (Continued)


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

         The following table sets forth the Company's results of operations for
oil and gas producing activities for the years ended December 31, 1997, 1996 and
1995.

<TABLE>
<CAPTION>
                                                      1997              1996             1995
                                                      ----              ----             ----
<S>                                                        <C>             <C>              <C>
Oil and gas revenues ........................     $ 3,045,447      $   851,827      $   274,511
Lease operating costs .......................         257,291           49,016           60,877
Production taxes ............................         178,952           58,660           17,656
Impairment of oil and gas properties ........       9,061,240        1,476,690        1,627,321
Depletion, depreciation and amortization ....       2,636,305          422,839          158,336
                                                  -----------      -----------      -----------
Loss before income taxes ....................      (9,088,341)      (1,155,378)      (1,589,679)
Income tax expense (credit) .................             --               --               --
                                                  -----------      -----------      -----------
Net loss ....................................     $(9,088,341)     $(1,155,378)     $(1,589,679)
                                                  ===========      ===========      ===========

Amortization per physical unit of production
 (equivalent Mcf of gas, converted at
 6 to 1) ....................................     $      2.17      $      1.31      $      1.15
                                                  ===========      ===========      ===========
</TABLE>

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

COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

         The aggregate amounts of capitalized costs relating to the Company's
oil and gas producing activities and the related accumulated depletion,
depreciation, and amortization and impairment at December 31, 1997, 1996 and
1995 were as follows:

<TABLE>
<CAPTION>
                                                              1997            1996            1995
                                                              ----            ----            ----
 <S>                                                  <C>              <C>               <C>
  Evaluated oil and gas properties.................    $ 22,521,673     $ 7,164,397       $ 2,648,724
  Unevaluated oil and gas properties...............      10,098,698       4,403,165         1,375,145
                                                       ------------     -----------       -----------
  Total capitalized costs..........................      32,620,371      11,567,562         4,023,869
  Less-accumulated depletion, depreciation and
      amortization and impairments.................     (15,473,403)     (3,775,858)       (1,876,329)
                                                       ------------     -----------       -----------
                                                       $ 17,146,968     $ 7,791,704       $ 2,147,540
                                                       ============     ===========       ===========
</TABLE>

         The costs of unevaluated oil and gas properties consists of projects
which at each date were undergoing exploration or development activities or were
projects on which the Company planned to commence such exploration activities in
the future. The Company will begin to amortize these costs when proved reserves
are established or impairment is determined. The Company believes that
substantially all of the unevaluated properties at December 31, 1997 will be
fully evaluated within the succeeding two-year period.


                                      F-17
<PAGE>   44
                              3DX TECHNOLOGIES INC.

                      SUPPLEMENTARY INFORMATION - UNAUDITED
                                   (Continued)


         The following table represents an analysis of remaining unevaluated oil
and gas property costs at December 31, 1997 according to the years in which they
were incurred:

<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                             ------------------------
                                        1997             1996           1995
                                        ----             ----           ----
<S>                              <C>               <C>            <C>
Acquisition costs...............  $3,145,580       $   219,748     $   21,525
Exploration costs...............   5,459,965         1,251,881             --
                                  ----------        ----------     ----------
     Total......................  $8,605,545        $1,471,629     $   21,525
                                  ==========        ==========     ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                            YEARS ENDED DECEMBER 31,
                                            ------------------------
                                      1997              1996           1995
                                      ----              ----           ----
<S>                              <C>            <C>              <C>
Property acquisition costs-
    Proved ....................   $    70,000     $        --     $        --
    Unproved ..................     4,794,238       1,171,217         490,141
Exploration costs .............    15,654,152       6,269,266       1,611,192
Development costs .............       534,419         103,210              --
                                  -----------     -----------     -----------
                                  $21,052,809     $ 7,543,693     $ 2,101,333
                                  ===========     ===========     ===========
</TABLE>

OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

RESERVES

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

         The following information regarding estimates of the Company's proved
oil and gas reserves, all located in the United States, is based on reports
prepared on behalf of the Company by the Company's independent petroleum
engineers. The following table sets forth the changes in the Company's total
proved reserves for the years ended December 31, 1997, 1996 and 1995. All of the
reserve quantities reflected in the table below are proved developed reserves.



                                      F-18
<PAGE>   45

                              3DX TECHNOLOGIES INC.

                      SUPPLEMENTARY INFORMATION - UNAUDITED
                                   (Continued)

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                  -------------------------------------------
                                                   1997           1996               1995
                                                   ----           ----               ----
                                                                OIL (BBLS)
                                                                ----------
<S>                                            <C>             <C>              <C>
Proved reserves at the beginning of the
    year ...................................       32,428           41,193           39,886
Extensions, discoveries, and other
    additions ..............................       43,497            9,797           26,000
Revisions of previous estimates ............        5,489          (10,079)         (18,000)
Purchases of reserves in place .............       21,405               --               --
Production .................................      (14,068)          (8,483)          (6,693)
                                               ----------       ----------       ----------
Proved reserves at the end of the year .....       88,751           32,428           41,193
                                               ==========       ==========       ==========

                                                                GAS (MCF)
                                                                ---------

Proved reserves at the beginning of the
    year ...................................    2,463,736          442,795        1,236,915
Extensions, discoveries, and other
    additions ..............................    2,546,337        2,284,482          104,000
Revisions of previous estimates ............       53,855            7,661         (801,000)
Purchases of reserves in place .............           --               --               --
Production .................................   (1,131,819)        (271,202)         (97,120)
                                               ----------       ----------       ----------
Proved reserves at the end of the year .....    3,932,109        2,463,736          442,795
                                               ==========       ==========       ==========
</TABLE>


Standardized Measures of Discounted Future Net Cash Flows

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

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                            ------------------------------------
                                                              1997           1996          1995
                                                              ----           ----          ----
<S>                                                         <C>          <C>           <C>
Future cash inflow ....................................     $ 10,427      $  9,354      $  1,405
Future production, development and abandonment costs ..       (2,195)       (1,430)         (329)
                                                            --------      --------      --------
Future cash flows before income taxes .................        8,232         7,924         1,076
Future income taxes ...................................         --            --            --
                                                            --------      --------      --------
Future net cash flows .................................        8,232         7,924         1,076
10% Discount factor ...................................       (1,184)       (1,301)         (305)
                                                            --------      --------      --------
Standardized measure of discounted future net cash
    flow ..............................................     $  7,048      $  6,623      $    771
                                                            ========      ========      ========
</TABLE>


    CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS:

<TABLE>
<S>                                                              <C>             <C>         <C>
Sales of oil, gas and natural gas liquids, net of production
    costs ..................................................     $(2,609)     $  (744)     $  (196)
Extensions, discoveries and other additions ................       4,737        6,594          349
Revisions of previous quantity estimates ...................         124         (200)      (1,280)
Net changes in prices and production costs .................      (2,468)         173          (71)
Accretion of discount ......................................         662           77          161
Changes in future development costs ........................          60          (82)         103
Purchases of reserves in place .............................         109           --           --
Changes in production rates (timing) and other .............        (190)          34           99
                                                                 -------      -------      -------
Net change .................................................     $   425      $ 5,852      $  (835)
                                                                 =======      =======      =======
</TABLE>


                                      F-19
<PAGE>   46
                              3DX TECHNOLOGIES INC.

                      SUPPLEMENTARY INFORMATION - UNAUDITED
                                   (Continued)

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

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

         The future cash flows presented in the "Standardized Measures of
Discounted Future Net Cash Flows" are based on year-end oil and gas prices for
oil and gas reserves which as of December 31, 1997 were approximately $16.17 per
barrel of oil and approximately $2.29 per Mcf of gas. The Company does not have
oil and gas reserves which are committed under long-term oil and gas sales or
hedging contracts.


                                      F-20
<PAGE>   47



                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER                                 DESCRIPTION OF EXHIBIT
          -------                                -----------------------
         <S>             <C>
          3.1(i)          Sixth Restated Certificate of Incorporation of the Company (incorporated by reference to
                          Exhibit 3.1(i)(d) to the Company's Amendment No. 2 to the Registration Statement on Form S-1
                          (No. 333-14473), filed December 16, 1996).

          3.1(ii)         Second Amended and Restated Bylaws of the Company, as amended (incorporated by reference to Exhibit 3.1 to
                          the Form 10-Q for the period ended June 30, 1997).

          4.1             Form of Specimen Stock Certificate, incorporated by reference to Exhibit 4.1 to the Company's
                          Amendment No. 1 to Registration Statement on Form S-1 (No. 333-14473), filed November 27, 1996.

          10.1            Technical Services Agreement between Landmark Graphics Corporation and Novera Energy Inc.
                          dated January 1993 (incorporated by reference to Exhibit 10.1 to the Company's Registration
                          Statement on Form S-1 (No. 333-14473), filed October 18, 1996

          10.2 *          Credit Agreement with NationsBank of Texas dated December 18, 1997

          10.3            1994 Stock Option Plan (incorporated by reference to Exhibit 10.9 to the Company's
                          Registration Statement on Form S-1 (No. 333-14473), filed October 18, 1996 +

          10.4            Stock Purchase Agreement among the Company, C. Eugene Ennis, Douglas C. Nester, Peter M. Duncan
                          and the Investors named therein dated November 9, 1993 (incorporated by reference to Exhibit
                          10.2 to the Company's Registration Statement on Form S-1 (No. 333-14473), filed October 18, 1996).

          10.5            Series C Preferred Stock Purchase Agreement among the Company, C. Eugene Ennis, Douglas C. Nester,
                          Peter M. Duncan and the Investors named therein dated July 26, 1995 (incorporated by reference
                          to Exhibit 10.3 to the Company's Registration Statement on Form S-1 (No. 333-14473), filed October
                          18, 1996).

          10.6            Lease Contract dated January 22, 1995 between the Company and The Penn Mutual Life Insurance
                          Company and Letter dated March 1, 1995 from Trammell Crow Houston, Inc. (incorporated by reference
                          to Exhibit 10.8 to the Company's Registration Statement of Form S-1 (No. 333-14473), filed October
                          18, 1996).

          11.1 *          Computation of Earnings per Share

          23.1 *          Consent of Arthur Andersen LLP

          23.2 *          Consent of Ryder Scott Company

          24.1 *          Power of Attorney (included on signature page)

          27.1 *          Financial Data Schedule for December 31, 1997

          27.2 *          Financial Data Schedule for December 31, 1996 (restated)

          27.3 *          Financial Data Schedule for December 31, 1995 (restated)
</TABLE>


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

*  filed herewith
+  management contract or compensating plan