<PAGE>   1
================================================================================
              UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

   
                                  FORM 10-K/A
                                Amendment No. 2
    

   
      This Form 10-K/A is being filed to revise Item 1, Item 7, Item 9,
                    Item 10, Item 11, Item 12 and Item 13
           to Form 10-K for the fiscal year ended August 31, 1996.
    

(MARK ONE)
   [x]          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended August 31, 1996
                                     OR
   [ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934
           For the transition period from. . . . . . to. . . . . .

                       Commission file number 0-18656

                           PONDER INDUSTRIES, INC.
           (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                 DELAWARE                                    75-2268672
      (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
      
          5005 RIVERWAY DRIVE, SUITE 550
                 HOUSTON, TEXAS                              77056
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)             (ZIP CODE)

     REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 965-0653

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


          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF EACH CLASS:                       NAME OF EXCHANGE ON WHICH REGISTERED:
--------------------                       -------------------------------------
  COMMON STOCK,                            NATIONAL ASSOCIATION OF SECURITIES
  $.01 PAR VALUE                           DEALERS AUTOMATED QUOTATION SYSTEM
                                           BOSTON STOCK EXCHANGE

      SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  None

         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 NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS
OF DECEMBER 4, 1996 IS  12,635,997 INCLUSIVE OF 289,873 SHARES HELD AS TREASURY
STOCK.
    

         THE AGGREGATE MARKET VALUE OF THE STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF DECEMBER 4, 1996 WAS APPROXIMATELY $18,242,000.


================================================================================
<PAGE>   2
        This Annual Report on Form 10-K contains certain "forward-looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to the Company and its subsidiaries that
are based on the beliefs of the Company's management as well as assumptions
made by and information currently available to the Company's management. When
used in this report, the words "anticipate," "believe," "estimate," "expect"
and "intend" and words or phrases of similar import, as they relate to the
Company or its subsidiaries or Company management, are intended to identify
forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitations, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein. Based upon
changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to
update these forward-looking statements.


                                    PART I.


ITEM 1.  BUSINESS

         GENERAL

         Ponder Industries, Inc. (the "Company" or "Ponder") is engaged in the
business of providing specialized oilfield services and rental equipment to the
oil and gas industry.  The Company's principal executive offices are located in
Houston, Texas, at 5005 Riverway Drive, Suite 550, Houston, Texas 77056 and its
telephone number at that address is (713) 965-0653.  The Company currently has
operating facilities in Texas, Louisiana, Oklahoma, Arkansas, Illinois,
Mississippi and the United Kingdom.

         Ponder was founded as a Texas corporation in 1981.  In 1990, Ponder
became a Delaware corporation through the merger of Ponder Industries, Inc., a
Texas corporation, into Ponder Industries, Inc., a Delaware corporation.  In
July 1995, Larry D. Armstrong became President and Chief Executive Officer of
the Company, succeeding Mack Ponder, the founder of the Company.  Under Mr.
Armstrong's leadership, a new business strategy was implemented in 1996 that
focused on improving Ponder's domestic and international market position by
pursuing opportunities for acquisitions in strategic oil and gas markets and
internal growth.

         Ponder rents a full line of specialized equipment and tools utilized
in fishing operations.  Fishing services are required by the oil and gas
industry whenever there is an obstruction in the borehole of a well.  At times
during the life of a well, cable, tubulars, casing, wellbore tools or debris
may become detached and stuck in the well.  Likewise, equipment can be
accidentally dropped in a well.  Events such as these can create major
obstructions that impede work and raise drilling and completion costs.  Ponder
provides expert "fishing" and cutting services to remove such obstructions and
return the wellsite to normal operation.

         Fishing services require a variety of equipment designed to catch or
snag "fish" or "junk" in a well or to grind, cut or otherwise eliminate the
obstruction.  The equipment is generally rented but may also be designed and
built by the Company.  Specialized fishing tool equipment is often not owned by
drilling contractors and operators because of the high cost of owning and
maintaining the full range of equipment required for the various types of
situations encountered in the oil and gas industry throughout many geographic
areas.  The items of equipment available for rental from the Company include a
full line of fishing tools, such as milling tools, casing cutters, jars,
spears, overshots and whipstocks.  Ponder also provides supervisory services
relating to the operation of their fishing tool equipment and the proper
selection and assembly of the fishing string.  The fishing string consists of
jars, subs, overshots (external), spears (internal) and other tools for
removing the item or the "fish" from the well.

         The Company solicits orders for its services, products and incidental
equipment rentals primarily through its employee sales force.  Traditionally,
most U.S. orders have been received on a well-by-well basis, while
internationally, the Company generally obtains business through contracts with
customers who commit to use the Company's services, products and equipment for
a specified period of time or for a certain number of wells in a certain
geographic area.

         Upon the completion of operations by the customer, the tools are
returned to the Company where the tools are inspected and repaired as needed.
Repairs are at the cost of the customer and if the tools cannot be restored to
first class condition, the cost of the tool is charged to the customer.

<PAGE>   3

         SEASONALITY

         Demand for the Company's services and products is tied closely to the
seasonality of drilling activity.  Higher activity is generally experienced in
the spring, summer and fall.  In the United States and Europe, the lowest
drilling activity generally occurs during the early months of the year due to 
inclement weather.

         PATENTS AND LICENSES

         The Company has followed a policy of seeking U.S. and foreign patents
and licenses for products and equipment that appear to have commercial
applications.  The Company believes its patents and licenses to be adequate for
the conduct of its products and services business and, while it considers them
to be valuable in the aggregate, the Company does not believe that its business
is materially dependent upon its patents or licenses.  In management's opinion,
engineering, operation skills and application experience are more responsible
for the Company's market position than are patents or licenses.

         MARKETING

         The Company obtains orders through its direct sales force, supervisors
and fishermen.  Due to the short-term nature of the equipment rental and
service business, backlog is not meaningful.  The Company's backlog for
equipment rentals is not a significant percentage of the Company's consolidated
revenues.

         The Company's principal customers are major and independent national
and international oil and gas companies.

         RECENT ACQUISITIONS

   
         During fiscal 1996, the Company made the following
acquisitions:
    

   
    
         
   
         Effective September 1995, the Company acquired certain assets and
assumed certain liabilities of Armstrong Tool, Inc. (Armstrong). Armstrong was
wholly owned by Larry D. Armstrong and his wife, Gail. Consideration given for
Armstrong was the issuance of a $400,000 promissory note to the Company's
president plus assumption of various notes payable of approximately $450,000.
The $450,000 in notes payable were paid during fiscal 1996. Armstrong is
located in Fort Smith, Arkansas, and is in the business of buying and reselling
oilfield rental tools and equipment.
    

         The company acquired certain real property, vehicles and rental tools
and equipment from Apex Tools, a sole proprietorship, in October 1995 for
$200,000 cash and a promissory note payable in two installments of $200,000,
due March 15, 1996 and 1997.  Apex Tools is located in Healdton, Oklahoma, and
provides fishing and rental tool services in South Central Oklahoma and North
Texas.

         During the third quarter of fiscal 1996, Ponder completed the
acquisitions of Runyon Oil Tools, Inc. (Olney, Illinois), DiKor, Inc. (Carmi,
Illinois) and C & F Fishing Tools, Inc. (Maysville, Oklahoma) in separate
transactions for an aggregate of $283,425 and 331,455 shares of the Company's
restricted common stock.  Each of these companies was engaged in the business
of renting fishing tools throughout their geographic regions.

         Effective April 1, 1996, the Company expanded its operations into the
North Sea region by acquiring Panther Oil Tools (UK), Ltd., an England
corporation ("Panther"), and substantially all of the assets of Villain, Ltd.,
a Guernsey corporation ("Villain").  Panther and Villain were engaged in the
manufacture, sales and rental of fishing tool equipment in the North Sea
region.  The shareholders of Panther received 1,200,000 shares of the Company's



                                      -2-

<PAGE>   4

restricted common stock and $250,000 cash in exchange for all of the issued and
outstanding capital stock of Panther.  Additionally, $1,000,000 in cash was
paid for the acquisition of substantially all of the assets of Villain.
The assets acquired include leased property, goodwill, intellectual property
and equipment utilized in the rental of fishing tools.  Ponder owns and
operates the facilities and equipment acquired through its wholly owned
subsidiary, Ponder Energy Services, Inc., a Delaware corporation.

         In June 1996, Ponder acquired substantially all of the assets of
Reeled Tubular Components, Inc., a Texas corporation ("RTC"), including the
intellectual property rights to an obstruction removing device.  Ponder paid
$50,000 cash and 20,000 shares of the Company's restricted common stock for 
the assets of RTC.

         The Company also acquired, effective as of July 1996, all of the fixed
assets of Bosco Fishing and Rental Tools, Inc. of Laurel, Mississippi.  The
consideration for the acquisition consisted of an initial $200,000 cash payment
and the assumption by the Company of approximately $1,200,000 of liabilities.

         In August 1996, the Company acquired all of the issued ordinary shares
of Prime Pipe Limited, a United Kingdom company, for approximately $105,000 and
an obligation to issue 4,650 shares of restricted common stock of the Company.
Prime Pipe is a supplier of drilling pipe and other equipment to oil and gas
operations in the North Sea region.

         In May 1996, the Company signed a letter of intent to acquire Abilene,
Texas based G&L Fishing Tool Company for $4,000,000 and a $5,000,000 short-term
note.  At August 31, 1996, approximately $1,156,000 was in other assets on the
Company's consolidated balance sheet related to this pending acquisition,
including a $1,000,000 forfeitable deposit.  Management of the Company
anticipates that this acquisition will be completed by June 1997.

         In November 1996, the Company entered into a joint venture formation
agreement with Drilling Tools International, Ltd., a Gibraltar corporation 
("DTI") pursuant to which DTI will contribute all of its assets and liabilities
and the Company will make an equivalent contribution of assets.  The joint 
venture is to be based in Dubai, United Arab Emirates and be formed under the
laws and regulations of the Jebel Ali Free Zone Authority.  Until such time as
the joint venture is formed, the Company intends to lease to DTI the assets it
intends to contribute to the joint venture.

         Information concerning these acquisitions is contained in Note 16 of
the Notes to Consolidated Financial Statements.

         INDUSTRY CONDITION

         The oil and gas industry in which Ponder participates historically has
experienced significant volatility.  Demand for Ponder's services and products
depends primarily upon the number of oil and gas wells being drilled, the depth
and drilling conditions of such wells, the volume of production, the number of
well completions and the level of workover activity.  Drilling and workover
activity can fluctuate significantly in a short period of time, particularly in
the United States and Canada.

         The willingness of oil and gas operators to make capital expenditures
for the exploration and production of oil and natural gas will continue to be
influenced by numerous factors over which Ponder has no control, including the
prevailing and expected market prices for oil and natural gas.  Such prices are
impacted by, among other factors, the ability of the members of the
Organization of Petroleum Exporting Countries ("OPEC") to maintain price
stability through voluntary production limits, the level of production by
non-OPEC countries,





                                      -3-

<PAGE>   5

worldwide demand for oil and gas, general economic and political conditions,
costs of exploration and production, availability of new leases and
concessions, and governmental regulations regarding, among other things,
environmental protection, taxation, price controls and product allocations.  No
assurance can be given as to the level of future oil and gas industry activity
or demand for Ponder's services and products.

         FOREIGN OPERATIONS

         Information by geographic location for 1996 is shown below.  As
discussed in Note 3 of the Notes to Consolidated Financial Statements, the
Company's former operations in Azerbaijan are shown as discontinued operations
in the consolidated financial statements:

<TABLE>
<CAPTION>
                                                       Year Ended
                                                        August 31,
                                                          1996     
                                                       -----------
         <S>                                           <C>
         Net Sales-                                   
         Domestic                                      $10,857,215
         Foreign                                         1,103,538
                                                       -----------
                                                      
                          Total                        $11,960,753
                                                       ===========
                                                      
         Loss from continuing operations-             
         Domestic                                      $(5,122,718)
         Foreign                                          (147,773)
                                                       -----------
                                                      
                          Total                        $(5,270,491)
                                                       ===========
                                                      
         Identifiable assets-                         
         Domestic                                      $21,552,446
         Foreign                                         6,349,630
                                                       -----------
                                                      
                          Total                        $27,902,076
                                                       ===========
</TABLE>

         The Company's foreign operations relate to Panther and Villain as
discussed in Note 16 to the Notes to the Consolidated Financial Statements.

         COMPETITION

         The Company competes with numerous companies offering rental tool
services to the oil and gas industry.  The Company experiences competition from
both small and major companies in all of its areas of operations.  Many of the
Company's competitors are small, single-location companies, which offer only
specialized types of tools and services.  Ponder also competes with large,
international corporations such as Weatherford Enterra, Inc. and Tri-State (a
Baker Hughes Incorporated company) in most of the markets in which it
participates.  These competitors have multiple locations, larger inventories of
rental tools and access to financial resources greater than the Company.  The
principal methods of competition that apply to the Company's rental tools and
fishing tool services are price, quality, availability and reputation.  While
price is a major consideration to its customers, the Company believes that its
competitive position is enhanced by its experience, size, large inventory of
equipment, numerous locations in close proximity to drilling and production
sites, commitment to high quality equipment maintenance, customer service and
experienced personnel.





                                      -4-

<PAGE>   6

         GOVERNMENTAL REGULATIONS

         The Company currently is not directly subject to any specific
regulatory body, either state or federal.  The most significant regulations
that the Company must comply with are those imposed by the Occupational Safety
and Health Administration.  The Company has not had any material fines or
penalties levied against it due to unsafe working conditions for its employees.
Safety training programs are conducted on a regular basis.  There can be no
assurance that the cost of compliance with current environmental and safety
regulations or future changes in such laws and regulations will not have a
material adverse effect on the Company's operations.

         ENVIRONMENTAL MATTERS

         The trend in environmental regulations is to place more restrictions
on activities that may affect the environment, such as emissions of air and
water pollutants, generation and disposal of wastes, and the use and handling
of chemical substances.  While the Company believes the cost of compliance with
environmental laws and regulations are not currently material, such costs have
increased over the past few years and are expected to continue to increase in
the future.  Furthermore, because environmental laws and regulations are
frequently changed, and because environmental expenditures are often related to
unforeseen conditions with respect to facilities leased or acquired by the
Company and pre-acquisition activities of businesses acquired by the Company,
Ponder is unable to predict the impact that such laws and regulations may have
on its business in the future.

         EMPLOYEES

         As of December 4, 1996, the Company had approximately 180 full-time
employees, which does not include the supervisors who are independent
contractors.  None of the Company's employees belong to any labor unions, and
the Company believes its relationship with its employees is good.

         EXECUTIVE OFFICERS OF THE REGISTRANT

         The current executive officers of the Company, their names, ages,
positions and tenure with the Company as of December 4, 1996 are as follows:

<TABLE>
<CAPTION>
                                                                        Officer
       Name                Age           Position                        Since
       ----                ---           --------                        -----
<S>                        <C>      <C>                                  <C>
Larry D. Armstrong         56       Chairman, President and Chief        1995
                                    Executive Officer
                                    
Eugene L. Butler           55       Executive Vice President             1996
                                    and Chief Financial Officer
                                    
O. A. "Buddy" Jackson      58       Executive Vice President and         1996
                                    Chief Operating Officer

Gerald A. Slaughter        53       Senior Vice President and 
                                    Controller                           1996

Frank J. Wall              41       Senior Vice President of             1990
                                    Operations
                                    
Mark R. Paisley            43       Secretary                            1995
</TABLE>





                                      -5-

<PAGE>   7

         There are no family relationships among the officers listed, and there
are no arrangements or understandings pursuant to which any of them were
elected as officers.  Officers are elected annually by the Board of Directors
at its first meeting following the annual meeting of stockholders, each to hold
office until the corresponding meeting of the Board in the next year or until
his successor shall have been elected or shall have been qualified.

ITEM 2.  PROPERTIES

         The Company's principal executive offices are located at 5005 Riverway
Drive, Suite 550, Houston, Texas 77056 and its telephone number at that address
is (713) 965-0653.  The Company's administrative offices are located at 511
Commerce Drive, Alice, Texas and its telephone number at that address is (512)
664-5831.  The Company's other properties include 20 equipment rental and sales
facilities owned or leased in Texas, Louisiana, Mississippi, Oklahoma,
Arkansas, and Illinois. In addition, the Company has two facilities located in
the United Kingdom. Substantially all of the Company's fixed assets are pledged
as security to KBK Financial, Inc. as collateral for certain of the Company's
long term debt.  See Note 6 of Notes to Consolidated Financial Statements.  The
Company believes that its facilities are generally adequate for their
respective operations, and that the facilities of the Company are maintained in
good repair.  The Company is lessee under a number of cancelable and
noncancelable leases for certain real properties.  See Note 11 of Notes to
Consolidated Financial Statements.
         
ITEM 3.  LEGAL PROCEEDINGS

         In October 1995, the Securities and Exchange Commission (the
"Commission") notified the Company that the staff of the Commission intended to
recommend that the Commission institute a cease and desist proceeding against
the Company and various former officers and directors of the Company on the
basis of alleged violations of the Securities Act of 1934 (the "Exchange Act"),
primarily related to the Company's accounting treatment with respect to revenue
recognition for the Company's former operations in Azerbaijan in the Company's
periodic reports filed with the Commission in late fiscal 1992 and fiscal 1993
and the Company's press release in August 1992 concerning the results of the
Azerbaijan operations.  The Company has requested that the Commission not
follow the recommendations of the staff on the grounds that its accounting
treatment with respect to the Azerbaijan operations was appropriate under the
then existing circumstances and that the revenue was recognized in good faith.
Recently, the staff indicated it would not recommend action concerning the
Exchange Act filings but did intend to recommend that the Commission take
action with respect to the press release.  That recommendation is currently
pending and at this time there has been no indication as to what action the
Commission will take.

         The Company is a defendant in a lawsuit by a former employee seeking
damages for wrongful termination.  The suit was filed on December 6, 1993.  The
suit seeks approximately $317,000 in unpaid wages and value of $142,695 for
38,052 shares of stock he would have earned during the remainder of his
contract term.  In May 1995, the former employee sought to enjoin the Company
from conducting an auction sale of certain assets; as a result of those
injunctive proceedings, the Court ordered that $200,000 of the proceeds from
the auction be tendered into the registry of the Court to satisfy any possible
adverse judgment against the Company.  The Company asserts that the former
employee was properly terminated under the terms of his contract and is
vigorously contesting the claim and believes that it has meritorious defenses
regarding this matter.

         In August 1996, a case was filed in the United States District Court
for the Western District of New York alleging that the Company breached an
obligation to convert certain debentures held by the plaintiff into the
Company's common stock.  The plaintiff asserts damages in an amount in excess
of $50,000, attorney's fees and costs and seeks an order





                                      -6-

<PAGE>   8

compelling the Company to convert the plaintiff's debentures into common stock.
The Company is contesting the plaintiff's claims and has responded to the
plaintiff's complaint by filing counterclaims and third-party claims against
the plaintiff, the Company's other convertible debenture holders and the
placement agent on the convertible debenture offering alleging various
violations of the Securities Exchange Act, common law fraud, civil conspiracy,
negligent misrepresentation, breach of contract, breach of fiduciary duty,
negligence, indemnification and seeking a declaration that the Company has no
obligation to convert the debentures and no liability for failure to so
convert.  Also, in August 1996, an action was filed in the United States
District Court for the Northern District of Illinois, Eastern Division, by two
other convertible debenture holders of the Company who allege that the Company
breached an obligation to convert certain debentures held by the plaintiffs
into the Company's common stock.  The plaintiffs seek a declaratory judgment
setting forth the rights and liabilities of the parties and an award of shares
of common stock or an undisclosed amount of money allegedly due them.  The
Company is contesting plaintiffs' claims and has removed the action to federal
court and has moved to transfer it to the Western District of New York pursuant
to a forum selection clause in the agreements between the parties.  The
plaintiffs have recently agreed to the transfer of the action to the Western
District of New York.

         The Company is also a party to additional claims and legal proceedings
arising in the ordinary course of business.  Although no assurances can be
given, the Company believes it has meritorious defenses to all of the above
actions and intends to defend itself vigorously.  The Company believes it is
unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party, including those described above, would have a material
adverse effect on the Company's financial statements; however, due to the
inherent uncertainty of litigation, the range of possible loss, if any, cannot
be estimated with a reasonable degree of precision and there can be no
assurance that the resolution of any particular claim or proceeding would not
have an adverse effect on the Company's results of operations for the interim
period in which such resolution occurred.  The Company has accrued $500,000 at
August 31, 1996, as its estimate of costs it expects to incur in defense of the
above actions.

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

         Not applicable.


                                    PART II.


ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         As of December 4, 1996, there were approximately 2,000 beneficial
owners of the Company's common stock which is traded on the NASDAQ Small Cap
System under the symbol "PNDR".  The Company's common stock is also listed on
the Boston Stock Exchange.  The following table sets forth, for the calendar
periods indicated, the range of high and low closing prices for the Company's
common stock, as reported by the NASDAQ Small Cap System:




                                     -7-

<PAGE>   9


<TABLE>
<CAPTION>
                                           1996                                      1995                 
                           -------------------------------------   ---------------------------------------

                                High              Low             High               Low
                               ------            -----           ------             -----
 <S>                           <C>               <C>             <C>               <C>
 First Quarter                 $1-5/8            $3/4            $3-7/8            $1-11/16

 Second Quarter                 4-1/16            1               2-1/16            31/32

 Third Quarter                  6-1/4             3-13/16         2-1/8              23/32

 Fourth Quarter                 4-7/8             1-5/16          1-17/32            11/16
</TABLE>


         The closing price of the Company's common stock on December 4, 1996
was $1-27/32.

         The Company has not paid dividends on its common stock the past three
years and anticipates that it will not pay dividends in the foreseeable future.
The terms of the Company's new loan agreements restrict the payment of
dividends.   See Note 6 of the Notes to Consolidated Financial Statements.

ITEM 6.  SELECTED FINANCIAL DATA

         The following selected financial data should be read in conjunction
with the Company's financial statements and related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere herein.

                            OPERATING STATEMENT DATA


<TABLE>
<CAPTION>
                                                                        Years Ended August 31
                                      -------------------------------------------------------------------------------------------
                                             1996              1995             1994             1993              1992  
                                           --------          --------         --------         --------          --------
 <S>                                       <C>               <C>              <C>              <C>              <C>
 Tool rentals and sales                    $11,960,753       $6,756,738       $7,634,902       $8,719,352       $12,262,070

 Loss from continuing operations            (5,270,491)        (440,532)      (1,567,034)      (1,279,860)       (1,890,239)

 Income (loss) from discontinued             
 operations                                  1,378,418       (3,790,911)      (1,531,642)               -                 -

 Cumulative effect of change in              
 accounting principle                                -        1,139,780                -                -                 - 

 Net loss                                   (3,892,073)      (3,091,663)      (3,098,676)      (1,279,860)       (1,890,239)

 Income (loss) per share-Continuing              
 operations                                      $(.60)           $(.07)           $(.25)           $(.20)            $(.36)

 Discontinued operations                           .16             (.59)            (.24)               -                 -

 Change in accounting principle                      -              .18                -                -                 -

 Net loss                                         (.44)            (.48)            (.49)            (.20)             (.36)
</TABLE>




                                     -8-

<PAGE>   10


                               BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                                                              August 31
                                      -------------------------------------------------------------------------------------------
                                                1996             1995             1994             1993              1992  
                                              --------         --------         --------         --------          --------
 <S>                                         <C>              <C>             <C>                <C>              <C>
 Working capital (deficit)                   $1,196,789       $1,209,627      $(3,388,984)        $425,140       $(1,166,915)

 Total assets                                27,902,076        6,815,177       10,829,276       13,554,999        15,630,746

 Long-term debt                               4,148,207        2,343,012                -        2,450,000                 -

 Stockholders' equity                         7,012,520        2,311,928        5,406,665        8,508,415         9,751,153

 Book value per common share                       $.59             $.36             $.85            $1.33             $1.46
</TABLE>


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

         The following discussion is included to describe the Company's
financial position and results of operations for each of the three years in the
period ended August 31, 1996.  The Consolidated Financial Statements and notes
thereto contain detailed information that should be referred to in conjunction
with this discussion.

         BUSINESS REVIEW

         Ponder is an international oil field service and rental tool company
that specializes in the use of fishing tools for the recovery of unwanted
obstructions in oil and gas wells.  The Company also rents specialized oil
field equipment such as pressure control equipment, tools, pipe and tubing used
in the drilling, completion and workover of wells.  Ponder currently has 20
locations domestically and two internationally serving the North Sea area.




         Since 1981, when the Company was founded, Ponder has been engaged
principally in providing fishing tool services to its customers in the United
States.  In 1992, however, the Company started a major project in Azerbaijan,
formerly a state in the Soviet Union, which appeared to have great potential.
Instead, the project was a financial disaster, causing management and the Board
of Directors to seek a new direction with a new strategy.  It started this new
direction by hiring Larry D. Armstrong as President and acquiring his company,
Armstrong Tool, Inc.  Mr. Armstrong commenced a new strategy of growth by
acquisition and internal expansion.

         Ponder's strengths were its history, reputation, quality of service
and its people.  Despite this, the new strategy would prove difficult to
implement because Ponder was financially unstable and losing significant cash.
Growing the Company would require the use of equity to acquire assets and raise
much needed cash to fund its operating losses, open new locations, hire strong
management and sales teams, and buy additional equipment.

   
         In fiscal 1996 management raised over $12 million in cash from         
financing activities including the sale of convertible debentures and common
stock.  Subsequent to fiscal year-end, Ponder completed a new $10 million
financing agreement to pay off existing bank debt and provide additional
working capital for continuing growth.  Ponder has acquired 10 companies,
including Armstrong Tool, Inc. and has opened three new locations, two in
Louisiana and one in Texas.  One of the companies acquired, Panther Oil Tools,
is located in the North Sea area.  The Company also recently signed an
agreement to form a joint venture for operations in the Middle East.  Revenues
were nearly $12 million for the year ended August 31, 1996 and are almost 
double compared to last year, with 1996 fourth quarter revenues approaching $5
million.
    




                                     -9-

<PAGE>   11

         Demand for the Company's services and rentals depends primarily on the
number of oil and gas wells being drilled, the depth and drilling conditions of
such wells, and the level of workover activity.  Drilling and workover activity
is largely dependent on the prices for oil and natural gas.  Demand for oil and
natural gas the past year has allowed for much higher prices in 1996 than the
average prices for the past several years.  World oil prices have been in the
mid to low $20's per barrel for several months and many industry analysts are
forecasting this situation to continue in 1997.  These favorable market
conditions should continue and allow Ponder to continue its growth and return
to profitability.

         FINANCIAL CONDITION

         In November 1996, the Company completed a $10 million financing
agreement with KBK Financial, Inc.  The agreement includes a $4 million
Revolving Receivable Facility, a $2.5 million Revolving Credit Note and a $3.5
million Term Note.  The Receivable Facility is a two year facility that is
based on accounts receivable and will be utilized for short-term liquidity
needs.  The $2.5 million Revolving Credit Note is a five year facility, based
on inventory and equipment and these funds will be used to acquire capital
assets to expand the business.  The $3.5 million Term Note is a five and one
half year note, interest only for the first six months and amortizes over the
remaining five years, collateralized by equipment.  The funds will be used to
pay off existing bank debt of $3 million, with the balance being used to
acquire capital equipment.  This loan agreement was completed subsequent to
year end but is significant to the liquidity of the Company and its continuing
expansion program during 1997.

         In April 1996, the Company raised approximately $10 million, net of
fees, by issuing eight percent Convertible Debentures.  These debentures are
convertible into Common Stock, subject to defined conversion factors, and the
balance at year end was $9,150,000.

         The Company acquired approximately $14 million of property and
equipment during the year.  The sources used to purchase these assets were 
provided primarily from securities issued and funds received on the convertible
debentures issuance.

         Working capital was approximately $1.2 million at August 31, 1996 and
1995.  The current ratio at year end was approximately 1.2 to 1.0 compared to
1.6 to 1.0 last year.  The long-term debt (assuming the conversion of the
convertible debentures) as a percent of total capitalization was 26% at year end
compared to 56% last year.  The overall liquidity of the Company has improved
significantly in 1996 compared to 1995.  The Company will have approximately $5
million available under its financing agreements after paying off the bank debt
and certain payables outstanding at August 31, 1996.

         Management believes the combination of working capital, the unused
portion of existing credit facilities and anticipated cash flows from
operations provide the Company with sufficient capital resources and liquidity
to manage its routine operations.

         YEAR ENDED AUGUST 31, 1996 V. 1995

         A net loss of $3,892,000, or $.44 per share, was recorded in 1996
compared with a net loss of $3,092,000, or $.48 per share, in 1995. The
Company's loss from continuing operations in 1996 was $5,270,000, or $.60 per
share, as compared to a loss of $440,000, or $.07 per share, in 1995.  In 1995,
the Company recognized a $3,791,000 loss, or $.59 per share, as a result of the
write-off of its operations in Azerbaijan and recognized income of $1,140,000,
or $.18 per share, due to a cumulative effect of a change in accounting
principle for its inventory of parts.  In 1996 the Company disposed of its
operations in Azerbaijan.  The sale resulted in a gain of $1,400,000 and income
from discontinued operations of $1,378,000, or $.16 per share.




                                     -10-

<PAGE>   12

   
         Revenues increased $5,204,000, or 77%, to $11,961,000 in 1996 compared
to $6,757,000 in 1995.  The increase is due to a significant increase in the
domestic marketing effort and an increase in operating locations. Revenues
attributable to the four Texas stores and the machine shop operation in place
at the beginning of the year increased $1,248,000, or 18%, to $8,005,000 in
1996 as compared to $6,757,000 in 1995.  During 1996 the Company added nine new
store locations  in Oklahoma, Arkansas, Louisiana, Mississippi, Illinois and
Texas, and these new locations contributed approximately $2,852,000 to the
current year increase.  Effective April 1, 1996, the Company acquired Panther
Oil Tools, (UK) Ltd. (an England corporation), and the assets of Villain Ltd.
(a Guernsey Corporation).  These acquisitions resulted in an additional
$1,104,000 in 1996 revenues.
    

         Cost of sales and service increased $1,959,000, or 58%, to $5,320,000
in 1996 from $3,361,000 in 1995.  Operating expenses increased $2,711,000, or
122%, to $4,941,000 in 1996 as compared to $2,230,000 in 1995.  Cost of sales
and operating expenses increased relative to the increase in revenues, while
operating expenses increased in a greater percentage, due to the start-up cost
incurred in establishing the new store locations and the addition of 62
operating personnel.

         General and administrative expenses increased $3,875,000, or 149%, to
$6,478,000 in 1996 from $2,603,000 in 1995. During 1996, the Company
significantly increased its domestic marketing effort by adding 41 personnel in
the regional and corporate sales group and has established a marketing presence
in Oklahoma, Arkansas, Illinois and the Gulf Coast region.  During the year,
the Company relocated its corporate offices to Houston, Texas with the Alice,
Texas facility remaining as the administrative office. The Company has added 15
personnel in the corporate and administrative functions as a result of the
expansion effort.  The employee costs and other related expenses associated
with this expansion accounts for approximately $2,450,000, or 63% of the
current year increase.  Fees for professional services increased $650,000, or
17% of the current year increase, primarily due to the Company's accrual of
legal fees of $500,000 as the estimated cost it expects to incur in defense of
certain contingencies discussed in Notes 13 and 18.  Additionally, the Company
incurred increased accounting, legal and public corporation expenses associated
with the increase in business activity.  Expenses of $700,000 were recognized
during the year, relating to a stock grant and consulting arrangement with the
former chairman of the Company, as discussed in Notes 18 and 19.

         Interest expense, net increased $202,000, or 43%, to $673,000 in 1996
from $471,000 in 1995.  The increase is due primarily to $285,000 non-cash
interest expense on the 8% Convertible Debentures issued effective April 26,
1996, as discussed in Note 7, offset by a reduction in the average interest
rate of bank debt during the year and increased interest income.

         The gain (loss) on disposal of assets decreased from a gain of
$1,320,000 in 1995 to a loss of $12,000 in 1996.  In 1995, the Company
conducted an auction of its excess rental tools and certain equipment with a
resultant $1,358,000 gain from disposal of assets.

         YEAR ENDED AUGUST 31, 1995 V. 1994

   
         Revenues decreased $878,164 in 1995 when compared to 1994. The
reduction was attributed to a decrease in domestic marketing efforts. In
August 1995, the Company increased its domestic sales effort by placing sales
personnel in major marketing areas of the Company. The Company expanded its
marketing coverage through an acquisition in Oklahoma and opened two Company
stores. These additions along with increased marketing efforts initiated the
Company's aggressive expansion program for 1996. A change in the accounting
procedure for inventory to better reflect of sales on parts resulted in a
one-time gain of $1,139,780. A write-off of all Azerbaijan assets and a one-time
charge of $400,000 for shut-down costs resulted in a one-time sales loss of
$3,400,000.
    
   
    




                                     -11-

<PAGE>   13
   
    

ITEM 8.  FINANCIAL STATEMENTS AND SCHEDULES

         The reports of the Company's Independent Public Accountants, Financial
Statements and Notes to Financial Statements appear herein commencing on page
F-1.

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

   
         The firm of Hairston, Kemp, Sanders & Stich, P.C., certified public
accountants ("Hairston") served as the independent auditors of the Company
until January 8, 1996 at which time the Company replaced the firm now known as
Kemp & Stich, P.C. and engaged William B. Sanders, C.P.A. ("Sanders") as the
principle accountant of the Company (see Form 8-K dated January 8, 1996).  On
April 10, 1996, Sanders was replaced by Arthur Andersen LLP ("Andersen"). 
The decision to change accountants was recommended by the board of
directors of the Company.
    

         In connection with the audits of the two fiscal years ended August 31,
1995, and the subsequent interim period through April 10, 1996, there were no
disagreements with Hairston or Sanders on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused
them to make reference in connection with their opinion to the subject matter
of the disagreement.

         Other than a qualification of opinion as to the Company's ability to
continue operations as a going concern due to recurring losses from continuing
operations for the past three years contained in the independent auditor's
report filed by Hairston in connection with the Company's consolidated
financial statements for the fiscal years ended August 31, 1995 and August 31,
1994 and a qualification of opinion regarding the recovery of the Company's
cost of its Azerbaijan operations contained in the 1994 independent auditor's
report, the audit reports of Hairston on the consolidated financial statements
of the Company as of and for the years ended August 31, 1994 and 1995, did not
contain any adverse opinion or disclaimer of opinion nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.

   
        On April 10, 1996, Andersen was engaged to audit the financial
statements of the Company for its fiscal year ended August 31, 1996.  The
Company has authorized Sanders to respond fully to inquiries of Andersen.  The
Company did not contact Andersen during the Company's two most recent fiscal
years, or any subsequent interim period, regarding (1) any disagreement with
Sanders or Hairston or (2) the application of accounting principles to a
specified transaction or the type of audit opinion that might be rendered on
the Company's financial statements.  Prior to its agreement, Andersen was
neither asked for, nor has it expressed any opinion on any accounting issues
concerning the Company.
    



                                     -12-

<PAGE>   14
                                   PART III.

ITEM 10.         DIRECTORS OF THE REGISTRANT
   
         The following table sets forth certain information with respect to the
directors and executive officers of the Company:
    

   
<TABLE>
<CAPTION>
                                                                                                 DIRECTOR
                                                                                                 --------
            NAME                   AGE                          POSITION                          SINCE
            ----                   ---                          --------                          -----
 <S>                               <C>        <C>                                                  <C>
 Larry D. Armstrong                56         Chairman, President and Chief Executive Officer      1995

 Eugene L. Butler                  55         Executive Vice President, Chief Financial            1996
                                              Officer and Director

 O. A. "Buddy" Jackson             58         Executive Vice President and Chief                   1996
                                              Operating Officer

 Gerald A. Slaughter               54         Senior Vice President and Controller                 1996

 Frank J. Wall                     41         Senior Vice President of Operations and Director     1982

 Mark R. Paisley                   43         Secretary                                            1995

 John  M. Le Seelleur              46         Director                                             1996

 Rittie W. Milliman, Sr.           43         Director                                             1994

 Joe R. Nemec                      53         Director                                             1986

 John Roane                        67         Director                                             1985

 Bill M. Van Meter                 63         Director                                             1996
</TABLE>
    

   
There are no family relationships among any director or executive
officer listed. In connection with the Company's acquisition of Panther Oil
Tools, Ltd., Mr. Le Seelleur was elected to serve as a Director of the Company. 
Except for Mr. Le Seelleur, there are no arrangements or understandings
pursuant to which any of these persons were elected as officers or directors. 
Officers are elected annually by the Board at its first meeting following the
annual meeting of stockholders, each to hold office until the corresponding
meeting of the Board in the next year or until his successor shall have been
elected or shall have been qualified.
    

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

   
LARRY D. ARMSTRONG was employed as President and Chief Operating Officer and
Director effective June 1, 1995 and was elected Chairman and Chief Executive 
Officer in April 1996.  Mr. Armstrong has been involved in the oilfield rental
and fishing tool business since 1963, in which year he founded his own company
which was later acquired by PETCO in 1978, a NASDAQ-listed company.  He served
PETCO in several executive positions and as chief operating officer until 1983. 
After leaving PETCO, he acted as chief executive officer of several companies
until assuming his present position.
    
        
   
EUGENE L. BUTLER joined the Company in February 1996 and became Executive Vice
President, Chief Financial Officer and Director in April 1996.  Since 1991, Mr.
Butler has also served as chairman of the board and chief executive officer of
Intercoastal Terminal, Inc., a company engaged in operating a petrochemical
storage and terminal facility.  From 1974 through 1991, Mr. Butler served in
various executive capacities for Weatherford/Enterra, Inc., a multinational
energy corporation, including director, president, chief executive officer and
chief operating officer.  Mr. Butler received his degree in accounting from
Texas A&M University in 1963 and is a Certified Public Accountant.
    






                                      -13-
<PAGE>   15
   
O. A."BUDDY" JACKSON joined the Company in August 1995 as East Texas Regional
Vice President of Ponder's Fishing Tool Division and was made Executive Vice
President and Chief Operating Officer in January 1997. Prior to joining the
Company, Mr. Jackson served as salesman for Armstrong PETCO and in various
other capacities in the oil and gas drilling and production business.
    

   
GERALD A. SLAUGHTER was employed as Vice President and Controller in March 1996
and was made Senior Vice President and Controller in January 1997. Since 1991,
Mr. Slaughter had been self-employed in an oil and gas industry accounting
practice. He has held accounting and financial positions with Corpus Christi
Oil and Gas Company and Pennzoil Company. Mr. Slaughter started his career with
Arthur Andersen & Co. in 1973 after receiving his accounting degree and MBA
from Baylor University. He is a Certified Public Accountant.
    

FRANK J. WALL has served as a Director of the Company since August 1990 and an
officer since 1982.  Mr. Wall has 18 years of experience in the fishing tool
industry and has been with the Company since 1981.  Since joining the Company,
Mr. Wall has served in various executive capacities and now serves as Senior
Vice President of Operations.
        
JOHN M. LE SEELLEUR has been a Director of the Company since October 1996 and
is the owner of Petresearch International, Inc., an oil exploration joint
venture and farm-out advisory firm headquartered in Aberdeen, Scotland.  Mr. Le
Seelleur is the former chairman of Panther Oil Tools, Ltd., a wholly-owned
subsidiary of the Company.  Mr. Le Seelleur has over 20 years of experience in
oilfield operations and management throughout the North Sea and Middle East.
Mr. Le Seelleur holds a diploma in business studies from Kingston College,
London.

   
RITTIE W. MILLIMAN, SR. was elected a Director in August 1994. He is
President of the Milliman Group, Inc., an oilfield services and equipment firm. 
From March 1992 to February 1996, Mr. Milliman served as the Company's Vice
President of Operations. From 1984 to 1993 he was an independent consultant and
equipment supplier for wireline logging and perforating of wells.
    

   
JOE R. NEMEC has been a Director of the Company since 1986 and is an original   
shareholder of the Company. Since September 1995, he has served as Director of
Norwest Bank Texas of Alice, Texas. From 1987 through 1995 Mr. Nemec served as
Secretary of the Company. Mr. Nemec is a Certified Public Accountant and has 
owned his own accounting practice since 1972.
    

   
MARK R. PAISLEY was elected Secretary of the Company at the Annual Meeting in
February 1995. He is a member of the law firm of Warburton, Adami, McNeill,
Paisley and McGuire, P.C., and he has served as counsel to the Company since
1990.
    

   
JOHN ROANE has been a Director of the Company since March 1985.  He has been a 
fishing tool supervisor for the Company since 1981 and is one of the original
shareholders.  Prior to joining the Company in 1981, Mr. Roane was a fishing
tool supervisor for Wilson Downhole.  His experience includes all aspects of
the drilling and production of oil and gas as a consultant and drilling 
superintendent.
    

   
BILL M. VAN METER has been a Director of the Company since October 1996.  Mr.   
Van Meter recently retired from Energy Companies of ONEOK, Inc., a gas
exploration, production and marketing company based in Tulsa, Oklahoma, where
he had been president since 1986.  Since September 1996, he has served as a
Director of Hallwood Consolidated Resources Co.  He is also a former executive
vice president of Natomas Energy Company.  Mr. Van Meter earned a degree in
petroleum engineering from the University of Oklahoma.
    


   
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
    

         Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Common Stock to file with the Commission
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company.  The Company believes that
through the end of its fiscal year ended August 31, 1996, its officers,
directors and holders of more than 10% of the Common Stock complied with the
Section 16(a) filing requirements with the following exceptions: Larry D.
Armstrong and Mack Ponder each filed one Form 4 late.





                                      -14-
<PAGE>   16
ITEM 11.         EXECUTIVE COMPENSATION


                           SUMMARY COMPENSATION TABLE

         The following table sets forth information with respect to the cash
compensation awarded to, earned by, or paid to the Company's Chief Executive
Officer and the remaining most highly compensated executive officers of the
Company whose total annual salary and bonus for the fiscal year ended August
31, 1994, August 31, 1995 and August 31, 1996, was at least $100,000.


   
<TABLE>
<CAPTION>
                                                                Long-Term Compensation    
                                                             -----------------------------
                                                                        Awards            
                                                             -----------------------------
                                      Annual Compensation          Other                                      
                                      -------------------         Annual          Stock            All Other     
Name and Principal Position  Year     Salary       Bonus       Compensation     Options(#)(1)   Compensation($)  
---------------------------  ----     ------       -----      --------------    -------------   ---------------
 <S>                         <C>     <C>            <C>           <C>             <C>           <C>
 Mack Ponder(2)               1994   $120,000       --            $46,432         5,500          $  1,531(4)
   Chairman of the Board and  1995   $120,000       --            $46,432         5,500          $  1,238(4)
   Chief Executive Officer    1996   $120,000       --            $55,553         5,500          $  1,422(4)
                          

 Larry D. Armstrong(5)        1994      --          --              --              --                --
   Chairman of the Board,     1995   $ 15,185       --            $ 1,600(6)        --           $186,604(7)
   Chief Executive Officer    1996   $111,538       --            $ 8,406(6)      5,500               --
   and President
          
</TABLE>
    
----------

   
(1) Issued pursuant to the Company's 1994 Directors' Stock Option Plan.
    

(2) Mr. Ponder resigned as Chairman of the Board and Chief Executive Officer of
    the Company in April 1996.

   
(3) Premium on life insurance, vehicle allowance and directors' fees.
    

   
(4) Royalty fees paid.
    

(5) Mr. Armstrong became President and Chief Operating Officer in June 1995 and
    was made Chairman of the Board, President and Chief Executive Officer in
    April 1996.  Effective September 1, 1995, the Company entered into an
    employment agreement with Mr. Armstrong which provides for an annual salary
    of $100,000 over the next four years.
        
   
(6) Includes vehicle allowance and director's fees.
    

   
(7) Before his employment and not as an employee and prior to his election as
    President, Chief Operating Officer and Director in June 1995, Mr. Armstrong
    personally guaranteed a promissory note of the Company in the amount of
    $2,500,000 and a revolving line of credit for $500,000 and performed various
    services for the Company in the auction sale of excess tools and equipment. 
    Mr. Armstrong was paid for such services by the issue of 459,333 shares of
    the restricted Common Stock of the Company with a fair market value at the
    date of grant of $186,604. The closing market price of the Company's Common
    Stock on June 26, 1995 was $.94.
    
        

                       OPTION GRANTS IN LAST FISCAL YEAR

   The following table provides information concerning grants of stock options
by the Company to the named executive officers in fiscal 1996.  The Company has
not granted any stock appreciation rights.

   
<TABLE>
<CAPTION>
                                  Individual Grants                                     Potential Realizable  
-------------------------------------------------------------------------------------     Value at Assumed    
                                             Percentage of                              Annual Rates of Stock 
                                             Total Options                               Price Appreciation   
                                             Granted to                                 for the Option Term   
                             Options         Employees in     Exercise      Expiration  ---------------------
   Name                    Granted (1)       Fiscal Year      ($/Share)        Date         5%        10%  
---------------------      -----------       -------------   ----------     ----------   --------   --------
 <S>                       <C>               <C>             <C>            <C>          <C>        <C>
 Larry D. Armstrong           5,500               20%          $3.6875       2/16/06     $12,755    $32,323
 Mack Ponder                  5,500               20%          $3.6875       2/16/06     $12,755    $32,323
 Frank J. Wall                5,500               20%          $3.6875       2/16/06     $12,755    $32,323
 Eugene L. Butler             5,500               20%          $3.6875       2/16/06     $12,755    $32,323
</TABLE>
    

----------------
   
(1) Options were granted under the Company's 1994 Directors' Stock Option Plan
    and are fully exercisable.
    





                                      -15-
<PAGE>   17
               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                      AND FISCAL YEAR-END OPTION VALUES

        The following table provides information on option exercises in fiscal
1996 by the named executive officers and the value of such officers'
unexercised options at August 31, 1996.

   
<TABLE>
<CAPTION>
                                                               NUMBER OF UNEXERCISED              VALUE OF UNEXERCISED
                                   SHARES                          OPTIONS/SARS                       IN-THE-MONEY
                                  ACQUIRED                   <SAT FISCAL YEAR-END (#)             AT FISCAL YEAR-END(1)             
                                 ON EXERCISE     VALUE      ---------------------------    ---------------------------------
NAME                                 (#)        REALIZED    EXERCISABLE   UNEXERCISABLE     EXERCISABLE        UNEXERCISABLE
----                            -------------   --------    -----------   -------------    --------------      -------------
<S>                             <C>             <C>         <C>           <C>              <C>                 <C>
Larry D. Armstrong                   -0-           -0-          5,500         -0-              -0-                  -0-
Mack Ponder                          -0-           -0-         16,500         -0-            $7,133                 -0-
Eugene L. Butler                     -0-           -0-          5,500         -0-              -0-                  -0-
Frank J. Wall                        -0-           -0-         16,500         -0-            $7,133                 -0-
</TABLE>
    

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

1.   The "value" of any option set forth in the table above is determined by 
     subtracting the amount which must be paid upon exercise of the options 
     from the market value of the underlying Common Stock as of August 31, 1996
     (based on the closing sales price as reported by the NASDAQ Small-Cap 
     Market).

   
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
    

   
         During fiscal 1996, the entire Board performed the functions of the
Compensation Committee. During this period, Mr. Armstrong, Mr. Ponder, Mr. Wall
and Mr. Butler were executive officers of the Company. The Compensation
Committee is now comprised of Mr. Roane, Mr. Van Meter and Mr. Milliman. 
    

                           COMPENSATION OF DIRECTORS

   
         During fiscal 1996, directors received $200 compensation per meeting
attended. The Board changed this policy in October 1996 and directors who are
not officers or employees of the Company now receive $500 compensation per
meeting for their services as members of the Board. In addition, directors
are entitled to receive options to acquire 5,500 shares of the Company's Common
Stock on the date of each annual stockholders' meeting pursuant to the Company's
1994 Directors' Stock Option Plan.  The Company also reimburses its directors
for expenses incurred in attending each Board meeting.
    

         Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, in whole or in part, the
following reports and the Performance Graph shall not be incorporated by
reference into any such filings.


                         COMPENSATION COMMITTEE REPORT
                           ON EXECUTIVE COMPENSATION

   
         During fiscal 1996, the Company had no formal compensation policies
with respect to executive officers.  Because there are no formal compensation
policies in place, the compensation of executive officers was determined by the
entire Board based generally on the qualifications and prior experience of the
executive officers. The following paragraphs set forth the basis of the
compensation paid in fiscal 1996 to Mack Ponder and Larry D. Armstrong.
    

         In April 1996, the Board elected Larry D. Armstrong as Chairman of the
Board, President and Chief Executive Officer of the Company.  At that time, the
Board established Mr. Armstrong's salary at $111,538 per year for the remainder
of fiscal year 1996.  The Board set Mr. Armstrong's compensation package based
on the key role he was to hold within the Company and in view of competitive
compensation packages offered to his peer group in the industry.

         For fiscal year 1996, the Board set Mr. Ponder's salary at $120,000
per year.  The Board set Mr. Ponder's compensation package based on the key
role he was to hold within the Company and in view of competitive compensation
packages offered to his peer group in the industry.


                             COMPENSATION COMMITTEE

   
                               Larry D. Armstrong
                                  Joe R. Nemec
                            Rittie W. Milliman, Sr.
                                   John Roane
                                 Michael Morgan
                                  Mack Ponder
                                   Frank Wall
                               Charles Greenwood
    





                                      -16-
<PAGE>   18
                               PERFORMANCE GRAPH

         The following performance graph compares the performance of the Common
Stock to the NASDAQ Stock Market (US Companies) and to a Peer Group of other
public companies.  The information was provided by the Center for Research in
Security Prices of The University of Chicago Graduate School of Business.  The
Peer Group Index is comprised of NASDAQ- listed companies having the three
digit standard industry classification codes 7350-7359 (Miscellaneous Equipment
Rental and Leasing).  The graph assumes that the value of the investment in the
Common Stock and each Index was 100 at August 30, 1991, and that all dividends
were reinvested.


                                   [GRAPH]

   
<TABLE>
<CAPTION>
CRSP TOTAL RETURNS INDEX FOR:                 08/30/91   08/30/92   08/30/93   08/30/94   08/30/95    08/30/960
-----------------------------                 --------   --------   --------   --------   --------    ---------
<S>                                             <C>         <C>        <C>        <C>        <C>        <C> 
Ponder Industries, Inc.                         100.0       78.2       78.2       48.6       21.4       64.3
Nasdaq Block Market (US Companies)              100.0      108.5      145.1      148.8      200.5      228.1
Nasdaq Stocks SIC 7360-7968 US Companies)       100.0      144.0      256.5      280.5      301.1      370.0
Miscellaneous Equipment  Rental and Leasing
</TABLE>
    

   
NOTES:
    

   
A.   The lines represent index levels derived from compounded daily returns
     that include all dividends.
    
   
B.   The indexes are reweighed daily, using the market capitalization on the
     previous trading day.
    
   
C.   If the monthly interval, based on the fiscal year-end, is not a trading
     day, the preceding trading day is used.
    
   
D.   The index level for all series was set to $100.0 on 08/30/91.
    
   
E.   No trading activity recorded for Ponder Industries, Inc. from 01/23/93 to
     01/26/93.
    




                                      -17-
<PAGE>   19
ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   
         The following table sets forth information concerning any person who
was the beneficial owner of five percent or more of the Company's outstanding
Common Stock as of January 21, 1997.  The table also shows information
concerning beneficial ownership by all directors and nominees, by each of the
executive officers named in the Summary Compensation Table and by all directors
and executive officers as a group.  The number of shares beneficially owned by
each director or executive officer is determined under rules of the 
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose.  Under such rules, beneficial ownership
includes any shares as to which the individual has the sole or shared voting
power or investment power and also any shares which the individual has the
right to acquire within 60 days of December 27, 1996 through the exercise of
any stock option or other right.  Unless otherwise indicated, each person has
the sole investment and voting power (or shares such powers with his or her
spouse) with respect to the shares set forth in the following table.
    

   
<TABLE>
<CAPTION>
                                                                   AMOUNT AND NATURE OF          PERCENT
                                                                   BENEFICIAL OWNERSHIP          OF CLASS
                                                                   --------------------          --------
 <S>                                                                    <C>                        <C>
 Washington Economics, Ltd.  . . . . . . . . . . . . . . . .            1,150,000                9.314%
 Chambers, Dame Court
 Dublin 2
 Republic of Ireland

 Mack Ponder (1)(2)  . . . . . . . . . . . . . . . . . . . .              900,640                7.295%
 Green Acres 1
 P.O. Box 79
 Alice, Texas 78383

 Mohsen Hekmat(3)  . . . . . . . . . . . . . . . . . . . . .              740,000                5.994%
 241 Baker Street
 London, England
 United Kingdom NW1 6XE

 Panther Oil Tools, Ltd(4).  . . . . . . . . . . . . . . . .            1,200,000                9.719%
 Sydney Vane House
 P. O. Box 201
 Rue Du Commerce
 St. Peter Port
 Guernsey, Channel Islands

 Larry D. Armstrong(5)(6)  . . . . . . . . . . . . . . . . .              614,218                4.975%

 Eugene L. Butler(6) . . . . . . . . . . . . . . . . . . . .                6,500                   *

 Frank J. Wall(2)  . . . . . . . . . . . . . . . . . . . . .               29,858                   *
                                                                                  
 Rittie W. Milliman, Sr.(7)  . . . . . . . . . . . . . . . .               17,000                   *
                                                                                  
 Joe R. Nemec(2) . . . . . . . . . . . . . . . . . . . . . .              150,583                1.219%

 John Roane(2) . . . . . . . . . . . . . . . . . . . . . . .               50,267                   *
                                                                                  
 John M. Le Seelleur(8)  . . . . . . . . . . . . . . . . . .               83,333                   *

 Bill M. Van Meter . . . . . . . . . . . . . . . . . . . . .                 -0-                   -0-
                                                                                  
 All directors and executive officers as a group (11                      655,791                 5.4%
 persons)(9)                                                                     
</TABLE>
    


----------------------------
*Less than one percent

   
(1)      Mr. Ponder's ownership of shares of the Company's Common Stock is
         determined based on the best of the Company's knowledge and the 
         information contained in a Form 4 filed March 6, 1996.
    
        




                                      -18-
<PAGE>   20
   
    
(2)      Includes 16,500 shares of Common Stock issuable upon exercise of
         options granted pursuant to the Company's 1994 Directors' Stock Option
         Plan.
(3)      Based on the information provided to the Company in a letter dated
         December 9, 1996 from a broker representing Mr. Hekmat.
   
(4)      Mr. John M. Le Seelleur, a director of the Company, is the owner of 
         70% of the issued and outstanding shares of capital stock of Panther 
         Oil Tools, Ltd. and may be deemed to be the beneficial owner of such 
         shares.
    
   
(5)      Includes 459,333 shares of the Company's restricted Common Stock
         issued to Mr. Armstrong in consideration for services rendered to the
         Company prior to his employment with the Company, and 145,555 shares
         of Common Stock issuable upon exercise of an option granted to Mr.
         Armstrong pursuant to his employment agreement.
    
(6)      Includes 5,500 shares of Common Stock issuable upon exercise of
         options granted pursuant to the Company's 1994 Directors' Stock Option
         Plan.
(7)      Includes 11,000 shares of Common Stock issuable upon exercise of
         options granted pursuant to the Company's 1994 Directors' Stock Option
         Plan.
   
(8)      Does not include 1,200,000 shares of the Company's Common Stock issued
         to Panther Oil Tools, Ltd., a Jersey, Channel Islands corporation
         ("Panther").  Mr. Le Seelleur is the owner of 70% of the outstanding
         capital stock of Panther, and may be deemed to be the beneficial owner
         of such shares.
    
   
(9)      Includes 88,000 shares of Common Stock issuable upon exercise of
         options granted pursuant to the Company's 1994 Directors' Stock Option
         Plan.
    

                            EMPLOYMENT AGREEMENTS

   
         The Company and Larry Armstrong entered into an employment agreement
on September 1, 1995, which terminates August 31, 1999. Under the agreement,
Mr. Armstrong receives $100,000 per annum, and if the Company achieves certain
financial criteria, stock options granting him the right to purchase up to
$100,000 of Common Stock. Such options immediately vest and expire after three
(3) years. They may be exercised at the opening market price of Common Stock on
the first day of the fiscal year in which they were granted.
    

ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   
        On April 4, 1996, 500,000 shares of Common Stock were issued to Mr.
Ponder in consideration of his years of service to the Company, continued
personal guarantees of Company indebtedness and his return to the Company of    
options to purchase up to 2,000,000 shares of the Company's Common Stock at an
exercise price of $5.25  per share. The closing market price of the Company's
Common Stock on April 4, 1996 was $4.94. On or about the same date, the Company
retained Mr. Ponder's services as a consultant at salary of $120,000 per annum.
    

         Effective April 1, 1996, the Company acquired Panther Oil Tools (UK),
Ltd., an England corporation ("Panther (UK)", and substantially all of the
assets of Villain, Ltd., a Guernsey corporation ("Villain").  Panther Oil
Tools, Ltd., a Jersey, Channel Islands corporation ("Panther"), as the sole
stockholder of Panther (UK), received 1,200,000 shares of the Company's
restricted Common Stock and $250,000 in cash in exchange for all of the issued
and outstanding capital stock of Panther (UK).  Panther was also granted
certain "piggy-back" registration rights and an undertaking by the Company to
provide the stockholders of Panther with equivalent registration rights as
those granted to Panther in the event that Panther should be dissolved and such
Common Stock is distributed to the stockholders of Panther.  Additionally,
$1,000,000 in cash was paid for the acquisition of substantially all of the
assets of Villain.  All of the outstanding shares of capital stock of Villain,
were owned by John M. Le Seelleur, a director and stockholder of the Company.  
Mr. Le Seelleur also owns 70% of the outstanding capital stock of Panther.  In
addition, Mr. Le Seelleur purchased, pursuant to a Subscription Agreement dated
May 23, 1996, 83,333 shares of the Company's Common Stock for an aggregate
purchase price of $250,000.

   
         In September 1995, the Company acquired Armstrong Tool, Inc. (Fort
Smith, Arkansas), from Larry D. Armstrong, the President and Chief Executive 
Officer of the Company, and his wife. The consideration for the assets of 
Armstrong Tool, Inc. consisted of the issuance of a promissory note for 
$400,000 to Mr. Armstrong and the assumption by the Company of approximately 
$450,000 of liabilities.
    





                                      -19-
<PAGE>   21
   
    


                                    PART IV.

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

(a)1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                     ----
        <S>                                                                                                          <C>
        Report of Independent Public Accountants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-1

        Independent Auditors' Report  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-2

        Consolidated Balance Sheets - August 31, 1996 and 1995  . . . . . . . . . . . . . . . . . . . . . . . . . .   F-3

        Consolidated Statements of Operations for the years ended 
        August 31, 1996, 1995 and 1994  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-4

        Consolidated Statements of Stockholders' Equity for the years
        ended August 31, 1996, 1995 and 1994  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-5

        Consolidated Statements of Cash Flows for the years ended
        August 31, 1996, 1995 and 1994  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-6

        Notes to Consolidated Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   F-8
</TABLE>





                                     -20-

<PAGE>   22

2.      FINANCIAL STATEMENT SCHEDULES

        None

        Schedules of the Company are omitted because of the absence of the
        conditions under which they are required or because the required
        information is included in the consolidated financial statements or
        notes thereto.


3.      EXHIBIT INDEX

   
<TABLE>
<CAPTION>
Exhibit
Number       Identification of Exhibit                                             Page Number
-------      -------------------------                                             -----------
<S>          <C>                                                                  
*2.1         Agreement for Sale and Purchase of Stock of Runyon Oil Tools, Inc.
             dated April 26, 1996, among Ponder Industries, Inc., Runyon Oil
             Tools, Inc., Steven E. Runyon, Freda M. Runyon, as Custodian for 
             Stephanie Runyon under the Illinois Uniform Transfers to Minors
             Act, Freda M. Runyon, as Custodian for Amanda Runyon under the
             Illinois Uniform Transfers to Minors Act, Freda M. Runyon, as
             Custodian for Lucas Runyon under the Illinois Uniform Transfers to
             Minors Act, and Freda M. Runyon, as Custodian for Blake Runyon under
             the Illinois Uniform Transfer to Minors Act. Incorporated herein by
             reference to Exhibit 2.1 of the Company's Quarterly Report on
             Form 10-Q filed July 15, 1996.
     
*2.2         Stock Purchase Agreement dated May 17, 1996, between Ponder
             Industries, Inc. and LJH Corporation. Incorporated herein by
             reference to the Company's Quarterly Report on Form 10-Q filed
             July 15, 1996.
     
*2.3         Letter Agreement dated July 23, 1996 between Ponder Industries, Inc.
             and LJH Corporation.
     
*2.4         Stock Purchase Agreement dated May 23, 1996, among Ponder Energy 
             Services, Inc., Panther Oil Tools (UK) Ltd. and Panther Oil Tools Ltd.
             Incorporated by reference to Exhibit 2.1 of the Company's Current 
             Report on Form 8-K filed June 7, 1996.
     
*2.5         Asset Purchase Agreement dated May 23, 1996, among Ponder Energy
             Services, Inc., Villain Ltd., John Le Seeleur, Mel Maitland and
             Wayne Tynon, Incorporated by reference to Exhibit 2.2 of the Company's
             Current Report on Form 8-K filed June 7, 1996.
     
*2.6         Asset Purchase Agreement dated December 6, 1996 to be effective as
             of July 1, 1996 among Ponder Industries, Inc., Bosco Fishing and
             Rental Tools, Inc. and Brooks Owens.
     
*3           Articles of Incorporation and Bylaws of Ponder Industries, Inc.
             Incorporated herein by reference to Exhibit 3 filed with Registration
             Statement on Form S-1 (Commission File No. 33-33190).
     
*4           Instruments Defining the Rights of Security Holders. Incorporated herein
             by reference to Exhibit 4 filed with Registration Statement on Form S-1
             (Commission File No. 33-33190).
     
*4.1         Form of 8% Convertible Debenture of Ponder Industries, Inc. dated April 26,
             1996. Incorporated herein by reference to the Company's Quarterly Report
             on Form 10-Q filed July 15, 1996.
     
*10.1        1994 Incentive Stock Option Plan. Incorporated herein by reference to
             Exhibits filed with Proxy Statement for the Company's annual meeting for
             1993.
     
*10.2        1994 Directors Stock Option Plan. Incorporated herein by reference to
             Exhibits filed with Proxy Statement for the Company's annual meeting
             for 1993.
     
*10.3        Regulation S Securities Subscription Agreement dated April 26, 1996,
             among each Subscriber for 8% Convertible Debentures of Ponder Industries,
             Inc. and Ponder Industries, Inc. Incorporated herein by reference to the
             Company's Quarterly Report on Form 10-Q filed July 15, 1996.
     
*10.4        Offshore Securities Subscription Agreement dated December 22, 1995,
             between Eagle Management Services Limited and Ponder Industries, Inc.
             Incorporated herein by reference to the Company's Quarterly Report
             On Form 10-Q filed July 15, 1996.
     
*10.5        Formation and Shareholders' Agreement of Ponder - DTI, Inc. dated
             November 15, 1996 between Ponder Energy Services, Inc. and Drilling
             Tools International, Ltd.
     
*10.6        Lease Agreement dated December 1, 1996 between Ponder Energy Services,
             Inc. and Drilling Tools International, Ltd.
     
*10.7        Offshore Securities Subscription Agreement dated December 22, 1995,
             between Atlantic Holdings Limited and Ponder Industries, Inc.
             Incorporated herein by reference to the Company's Quarterly Report on
             Form 10-Q filed July 15, 1996.
     
*10.8        Warrant to Purchase Common Stock, $.01 par value, of Ponder Industries,
             Inc. between Eagle Management Services Limited and Ponder Industries,
             Inc. Incorporated herein by reference to the Company's Quarterly
             Report on Form 10-Q filed July 15, 1996.
     
*10.9        Warrant to Purchase Common Stock, $.01 par value, of Ponder Industries,
             Inc. between Atlantic Holdings Limited and Ponder Industries, Inc.
             Incorporated herein by reference to the Company's Quarterly Report on
             Form 10-Q filed July 15, 1996.
     
*11          Computation of Earnings (Loss) Per Share
             
*21          Subsidiaries

<CAPTION>
                                                              Name Under Which
             Name            State of Incorporation            Doing Business 
             ----            ----------------------           ----------------
<S>          <C>             <C>                              <C>
             
             Ponder Energy                                     Ponder Energy
             Services, Inc.       Delaware                     Services, Inc.

*23.1        Consent of Arthur Andersen LLP
     
*23.2        Consent of Hairston, Kemp, Sanders & Stich, P.C.
     
*27          Financial Data Schedule

(b)  REPORTS ON FORM 8-K.  None.
--------------------------------
 *   Previously Filed 
</TABLE>
    




                                     -21-
<PAGE>   23
                                   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, in Houston, Texas,
on December 11, 1996.

                                        PONDER INDUSTRIES, INC.

                                        By /s/   LARRY D. ARMSTRONG 
                                          -------------------------------------
                                          Larry D. Armstrong, President, Chief
                                          Executive Officer And Chairman of the
                                          Board of Directors

                                        By /s/   EUGENE L. BUTLER          
                                          -------------------------------------
                                          Eugene L. Butler, Executive Vice
                                          President, Chief Financial Officer and
                                          Director


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, this report has been signed below by the following persons in the
capacities indicated on February 14, 1997.

             Signature                                   Title
             ---------                                   -----

                                         President, Chief Executive Officer and
 /s/  LARRY D. ARMSTRONG                 Chairman of the Board of Directors
------------------------------------   
LARRY D. ARMSTRONG                            
                                              
                                         Executive Vice President, Chief 
  /s/  EUGENE L. BUTLER                  Financial Officer and Director  
------------------------------------     
EUGENE L. BUTLER                         
                                         
                                         Executive Vice President of Operations
 /s/  FRANK J. WALL                      and Director
------------------------------------     
FRANK J. WALL                            
                                         

 /s/  JOE R. NEMEC                       Director
------------------------------------     
JOE R. NEMEC                             
                                         
                                         
 /s/  JOHN ROANE                         Director
------------------------------------     
JOHN ROANE                               




                                     -22-

<PAGE>   24

 /s/  RITTIE W. MILLIMAN, SR.            Director               
------------------------------------     
RITTIE W. MILLIMAN, SR.                  


/s/  JOHN LE SEELLEUR                    Director               
------------------------------------     
JOHN LE SEELLEUR                         


 /s/  BILL M. VAN METER                  Director               
------------------------------------     
BILL M. VAN METER                        




                                     -23-