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

                                   FORM 10-K/A

     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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<PAGE>




                                EXPLANATORY NOTE


          3DX Technologies Inc. is filing its financial  statements for the year
ended  December  31,  1997 which have been  updated  by  modifying  Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,  and
adding a new footnote, an updated auditor's report and a new exhibit.



<PAGE>

                                     PART II

           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 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.

         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.

RESULTS OF OPERATIONS

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

                                       2
<PAGE>

<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
per barrel 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
sands and produce  relatively  small amounts of water,  so there are  negligible
treating or disposal costs  associated  with such wells.  These wells require no

                                       3
<PAGE>

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 (which  represents  approximately  $2.3 million of the total
writedown),  (2) a relatively large investment in three unsuccessful exploratory
wells all of which were  evaluated in fourth  quarter of 1997 (which  represents
another $3.3 million),  and (3) a conservative  estimate of proved reserves on a
potentially  significant  discovery  on the Ramrod  prospect  (which  represents
another  $0.9  million),  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.

                                       4
<PAGE>

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 - AS OF MARCH 31, 1998

         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 scheduled
redetermination.  Based on  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.

                                       5
<PAGE>

         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
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.

LIQUIDITY AND CAPITAL RESOURCES - RECENT DEVELOPMENTS

         See further  discussion  of these issues under Note 11 to the financial
statements, "Recent Developments - Going Concern Uncertainty."

          As of June 30, 1998,  the Company had a deficit in working  capital of
approximately $2.8 million.  On December 18, 1997, the Company executed a credit
agreement  with a commercial  bank,  the borrowing  capacity of which was set at
$2.0 million in April 1998.  During the quarter  ended June 30, 1998 the Company
borrowed  $2.0 million  under the credit  agreement.  Such amount is the maximum
amount  currently  available  for  borrowing  under  the  credit  facility.  The
borrowing  capacity is a function of the value of the  Company's  proved oil and
gas reserves,  and is redetermined on a semi-annual basis. The bank is currently
conducting  a scheduled  redetermination.  Although  the Company  increased  its
proved reserves as a result of successful drilling operations during the quarter
ended June 30, 1998,  the bank has not  concluded  whether it will  increase the
borrowing   capacity  at  this  time.   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.  As of June 30, 1998, the Company was not in compliance  with
certain covenants of the credit agreement  pertaining to minimum working capital
and aging of accounts  payable.  The bank has agreed to waive these instances of
non-compliance through September 30, 1998. The Company has contacted the bank to
secure an additional waiver of non-compliance  through December 31, 1998. In the
absence of an improvement in the Company's  working capital and accounts payable
aging, future waivers from the bank will be necessary.

         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  occasionally  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 has been recognized on these  transactions.  In September 1998, the
Company  sold  one  of  its  properties   located  in  Cove  Field,   Texas  for
approximately  $440,000  (of which  $200,000  was used to reduce the  balance of
borrowings on the company's bank credit agreement). In accordance with full-cost
accounting  rules,  no gain or loss  was  recorded  on this  sale of oil and gas
property.   The  Company  is  currently  reviewing  its  portfolio  to  identify
properties  to  be  marketed  to  industry  partners  for  cash   consideration,
reversionary working interests or some combination  thereof.  Such interests may
consist of both producing wells and future drilling locations.

                                       6
<PAGE>

         As of the date of this filing, there were three probable property sales
with proceeds aggregating  approximately $3.7 million, each of which is expected
to close in the fourth  quarter of 1998.  Management  intends to utilize all the
proceeds  from these  property  sales to reduce the balance of borrowings on the
company's bank credit agreement and current payables.  Because none of the sales
are expected to have a significant  effect on the oil and gas property depletion
rate,  no gain or loss is  expected  to be  recognized  in income on these sales
transactions.  The properties'  discounted future net cash flows as of September
30, 1998 totaled  approximately $3.2 million. Net revenues from these properties
for the year ended  December  31, 1997 and the  six-month  period ended June 30,
1998 approximated $0.2 million and $0.8 million, respectively.

         However,  there can be no  assurance  that the Company  will be able to
complete any such  property  sales,  or that the terms of such  potential  sales
would be acceptable to the Company.

          The Company  expects that its projected net cash flows from  currently
producing   properties   will  be  sufficient  to  fund  its  cash  general  and
administrative  costs for the remainder of 1998 and the first six month of 1999,
including  technical  employee  and related  costs which are  capitalized  under
full-cost   accounting.   The  Company's   short-term  and  mid-term  cash  flow
projections,  including planned capital  expenditures,  are unusually  uncertain
because  they will be  significantly  affected  by the  outcome of the  possible
property sales  discussed  above.  The Company's  projections of cash flows from
currently  producing  properties could also be adversely affected by declines in
oil and gas  prices  below  current  levels  or  anticipated  seasonal  lows and
unanticipated declines in oil and gas production from existing properties.

         The Company intends to seek additional financing to satisfy its capital
requirements.  The Company is currently  evaluating other alternatives to obtain
additional equity  financing,  which include future sales of common or preferred
stock. In the absence of additional  financing,  the Company anticipates that it
will be  required  to modify  the  implementation  and timing of its oil and gas
exploration  and  development   capital   spending  for  1998  and  1999,  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.  The  Company's
inability to obtain additional financing would have a material adverse effect on
the Company.

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.

                                       7
<PAGE>

                                     PART IV


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

     (a)(1) FINANCIAL STATEMENTS:

     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-15

     (a)(2) FINANCIAL STATEMENT SCHEDULES:

           Not applicable

     (a)(3)EXHIBITS:

     INDEX TO EXHIBITS

EXHIBIT
NUMBER                         DESCRIPTION OF EXHIBIT

4.2       Common  Stock  Subscription  Agreement,  dated as of August  21,  1998
          between 3DX  Technologies,  Inc. and Santa Fe Energy  Resources,  Inc.

23.1      Consent of Arthur Andersen LLP

23.2      Consent of Ryder Scott Company


     (b)  REPORTS ON FORM 8-K:

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

(1)  Current  Report  on  Form  8-K  filed  with  the  Securities  and  Exchange
     Commission on June 16, 1998.

(2)  Current  Report  on  Form  8-K  filed  with  the  Securities  and  Exchange
     Commission on September 9, 1998.

                                       8

<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Stockholders and the 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.

As discussed  further in Note 11,  subsequent to February 25, 1998,  the date of
our original report, the Company's capital spending commitments exceeded sources
of financing  ultimately  arranged  during the second  quarter and the unaudited
financial  statements  as of and for the  six-month  period ended June 30, 1998,
reflected  that the Company had incurred  losses of $6.4 million and its current
liabilities  exceeded its current assets by $2.8 million.  These factors,  among
others as described in Note 11,  create  substantial  doubt about the  Company's
ability to continue as a going  concern.  Management's  plans in regard to these
matters are also described in Note 11. The accompanying  financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying  amounts or the amount and  classification  of  liabilities  that
might result should the Company be unable to continue as a going concern.


                                       ARTHUR ANDERSEN LLP

Houston, Texas
February 25, 1998, except as to
Note 11, which is as of
September 8, 1998

                                      F-1

<PAGE>



                              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
                                                                                ------------         -----------
Property 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
                                                                                ============         ===========
</TABLE>

<TABLE>
<CAPTION>

                                                         LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                                           <C>                  <C>
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 thesefinancial statements.


                                      F-2

<PAGE>

                              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>

                              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          -         -      888,855       (888,855)               -           -                  -
   options...................
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          -         -         96,106       (96,106)               -          -                 -
   options...................
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) $       -       $  7,817,888
                               =========    ======     ==========     ==========     ===========   =============    ===========
</TABLE>



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


                                      F-4



<PAGE>

                              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>

 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.

         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

                                      F-6
<PAGE>

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:
<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.

                                      F-7
<PAGE>

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.

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:

                                      F-8
<PAGE>

<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.

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

                                      F-9
<PAGE>

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 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.

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

                                      F-10
<PAGE>
<TABLE>
<CAPTION>
                                                                    REDEEMABLE PREFERRED STOCK
                                                    -----------------------------------------------------------
                                                            SERIES B                         SERIES C
                                                   ---------------------------      ----------------------------
                                                     SHARES        AMOUNT            SHARES         AMOUNT

<S>                                                  <C>       <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.

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:

                                      F-11
<PAGE>

<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>           <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>

         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:

                                      F-12
<PAGE>

<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.

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

                                      F-13
<PAGE>

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:

 1998.......................................................        $  94,633
 1999.......................................................           94,633
 2000.......................................................           15,772
                                                                      -------
 Total minimum lease payments...............................         $205,038
                                                                      =======

         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.

11. RECENT DEVELOPMENTS (AS OF SEPTEMBER 8, 1998) - GOING CONCERN UNCERTAINTY

         The accompanying  financial statements have been prepared assuming that
the Company will  continue as a going  concern.  During  1998,  the Company made
capital spending commitments with the contractual understanding that it had $5.0
million of  available  borrowing  capacity  under its credit  agreement  and the
expectation that it would be successful in obtaining  additional capital through
the sale of property interests and additional equity offerings.

         In April 1998,  the bank,  based on their  assessment  of the Company's
proved reserves at December 31, 1997, reduced the Company's  available borrowing
capacity to $2.0  million,  all of which had been  borrowed as of June 30, 1998.
Also,  the  Company  has  not  yet  sold  any of its  interests  in oil  and gas
properties.

         On June 3,  1998,  the  Company  signed  a  common  stock  subscription
agreement  for the sale of  1,462,044  shares of its common  stock at a purchase
price of $1.50. The agreement also granted the purchasers the option to purchase
up to 1,871,290 additional shares of common stock at a per share price of $1.50.
On June 10, 1998 the Company  successfully  completed  the sale of the 1,462,044
shares of common  stock for net  proceeds of  approximately  $2.1  million.  The
related option to purchase additional shares expired without being exercised.

         As of June 30,  1998,  the Company was not in  compliance  with certain
covenants of the credit agreement pertaining to minimum working capital balances
and aging of  accounts  payable.  The bank agreed to waive  these  instances  of
non-compliance  through  September  30,  1998.  As  a  result  of  the  covenant
violation, the Company had to classify the balance of its long-term debt of $2.0
million as a current liability in the June 30, 1998 unaudited balance sheet.

         The Company's  continuation  as a going  concern is dependent  upon its
ability to generate  sufficient  cash flow to meet its  obligations  on a timely
basis and to comply with the terms of its financing agreement.  Based on current
economic conditions,  the Company will require sources of capital in addition to

                                      F-14
<PAGE>

projected   cash   generated   from   operations  to  fund  its  future  capital
expenditures.  Management  of the Company  continues  to be actively  engaged in
soliciting new investors to provide  additional funding for its capital program.
Although the Company has identified  potential  sources of capital,  it does not
currently have any firm commitments from potential investors.

         The lack of firm  commitments for additional  financing,  combined with
recurring  losses  and a deficit  in  working  capital  (the  unaudited  interim
financial  statements  reflect  an  additional  $6.4  million  of losses for the
six-month  period  ended  June 30,  1998 and a working  capital  deficit of $2.8
million as of June 30, 1998),  raise  substantial doubt about the ability of the
Company to continue as a going concern. In the absence of additional  financing,
the Company may be required to reduce its planned level of capital  expenditures
or pursue other financial alternatives,  which could include a sale or merger of
the Company. The financial statements do not include any adjustments relating to
the  recoverability  and  classification of asset carrying amounts or the amount
and  classification  of  liabilities  that might result from the outcome of this
uncertainty.











                                      F-15
<PAGE>



                              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  $9,061,240 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>



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>

         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>

<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
                                                          =======          =======          =======
</TABLE>
<TABLE>
<CAPTION>

                                                                        GAS (MCF)
                                                     ------------------------------------------------
<S>                                                     <C>                <C>            <C>
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>

         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

                                      F-19
<PAGE>

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>


                                   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.

                                              /s/ Ronald P. Nowak
                                           By:---------------------------------
                                              Ronald P. Nowak
                                              Chief Executive Officer

         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>
          SIGNATURES                         TITLE OR CAPACITIES                           DATE
          ----------                         -------------------                           ----
<S>                                      <C>                                          <C>

/s/ C. Eugene Ennis
-------------------------------          Chairman of the Board                        October 30, 1998
C. Eugene Ennis


/s/ Ronald P. Nowak
-------------------------------          President and Chief Executive, and           October 30, 1998
Ronald P. Nowak                          Director (Principal Executive Officer)

                                         
/s/ Russel L. Allen
-------------------------------          Chief  Financial Officer  (Principal         October 30, 1998
Russell L. Allen                         Financial Officer)


-------------------------------          Director                                     October   , 1998
Jon W. Bayless


/s/ Charles E. Edwards
-------------------------------          Director                                     October 30, 1998
Charles E. Edwards


-------------------------------          Director                                     October   , 1998
C.D. Gray


/s/ Douglas C. Williamson
-------------------------------          Director                                     October 30, 1998
Douglas C. Williamson

</TABLE>