UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
 20549   FORM 10-Q  X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934  For the Quarterly Period Ended March 31, 2008   ̈ 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:  0000841533  INTERLINE RESOURCES CORPORATION (Exact name of
registrant as specified in its charter)  Utah 87-0461653 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)  160 West Canyon Crest Road, Alpine, Utah 84004 (Address of principal
executive office) (Zip Code)  Registrant's telephone
number, including area code:  (801) 756-3031  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 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports),     Yes o    No ý and
(2) has been subject to such filing requirements for the past 90 days. Yes
ý No o  Indicate by checkmark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company.  See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule
12b-3 of the Exchange Act.  (Check one):  Large accelerated filer
 ̈
Accelerated filer
 ̈Non-accelerated filer
 ̈
Smaller reporting company
ý(Do not check if a smaller reporting
company)  Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o  No ý  The
number of shares outstanding of the registrant's common stock as of December 15,
2008: Common
stock, par value $.005  17,955,919 shares    INTERLINE RESOURCES CORPORATION FORM
10-Q  FOR
THE QUARTER ENDED MARCH 31, 2008   INDEX  PART I
  Financial Information  Item
1.  Financial Statements  Consolidated
Condensed Balance Sheets 3 Consolidated
Condensed Statements of Operations 4 Consolidated
Condensed Statements of Cash Flows 5 Notes
to Consolidated Condensed Financial Statements 6  Item
2. Managements
Discussion and Analysis of Financial Condition and Results of Operations 15  Item
3. Quantitative
and Qualitative Disclosures About Market Risk 22  Item
4T.  Controls and Procedures 22   PART II
Other Information  Item
1. Legal
Proceedings 23  Item
1A.  Risk Factors 24  Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds 24  Item
3. Defaults
Upon Senior Securities 24  Item
4. Submission
of Matters to a Vote of Security Holders 24  Item
5. Other
Information 24  Item
6. Exhibits 24  Signatures 26   2   PART 1 - FINANCIAL
INFORMATION  ITEM 1.
 FINANCIAL STATEMENTS  INTERLINE RESOURCES CORPORATION AND
SUBSIDIARIESConsolidated Condensed Balance SheetsASSETS
March
31,2008(Unaudited)
December
31,2007Current
assets:Cash
and cash equivalents
$
           385,647
$
           252,299Accounts
receivable
792
792Prepaid
expenses and other current assets
34,086
48,081Total
current assets
420,525
301,172Property and
equipment, net
10,501,826
8,841,274Restricted
reclamation deposits
25,000
25,000Technology and
marketing rights, net
-
-$       10,947,351
$
        9,167,446LIABILITIES
AND STOCKHOLDERS DEFICITCurrent
liabilities:Accounts
payable
$
           121,192
$
           442,089Accrued
expenses  related parties
20,488
20,488Accrued
expenses
1,400,935
604,247Note
payable - related party
15,000
15,000Notes
payable and current portion of long-term debt
861,378
165,110Total
current liabilities
2,418,993
1,246,934Long-term
liabilities:Long-term
debt, net of discount of $80,912
and     $31,499, respectively
11,976,984
10,065,231Asset
retirement obligations
301,000
296,552Total
liabilities
14,696,977
11,608,717Commitments and
contingenciesStockholders
deficit:Preferred
stock; $.01 par value, 25,000,000
shares     authorized, no shares issued and
outstanding
-
-Common
stock; $.005 par value, 100,000,000
shares     authorized, 17,443,058 shares
issued and outstanding
87,215
87,215Additional
paid-in capital
9,990,716
9,977,157Accumulated
deficit
(13,827,557)
(12,505,643)Total
stockholders deficit
(3,749,626)
(2,441,271)$       10,947,351
$
        9,167,446See accompanying notes to consolidated
condensed financial statements   3     INTERLINE RESOURCES CORPORATION AND
SUBSIDIARIESConsolidated Condensed Statements of
Operations(Unaudited)  Three Months EndedMarch 31,2008
2007Revenues
$
               1,546
$
               8,286Operating costs
and expenses:Cost
of revenues
37,857
28,157Plant
start up costs
218,663
-General
and administrative
309,140
126,417Depreciation
21,354
18,863Total
operating costs and expenses
587,014
173,437Loss from
operations
(585,468)
(165,151)Other income
(expense):Interest
expense, net
(731,688)
(34,843)Loss
on disposal of assets
(4,758)
-Total
other income (expense), net
(736,446)
(34,843)Loss before
income taxes
(1,321,914)
(199,994)Provision for
income taxes
-
-Net loss
$
       (1,321,914)
$
          (199,994)Loss per common
share, basic and diluted
$
   (0.08)
$
   (0.01)Weighted
average number of shares  outstanding, basic and
diluted
17,443,058
16,666,045See accompanying notes to consolidated
condensed financial statements   4     INTERLINE RESOURCES CORPORATION AND
SUBSIDIARIESConsolidated Condensed Statements of Cash
Flows(Unaudited)  Three Months
Ended
March
31,2008
2007Cash flows from
operating activities:Net
loss
$
       (1,321,914)
$
       (199,994)Adjustments
to reconcile net loss to net     cash used in
operating activities:Depreciation
21,354
18,863Accretion
of asset retirement obligations
4,448
4,191Stock
option expense
13,559
3,814Amortization
of debt discount to interest expense
11,534
3,050Accrued
salaries added to notes payable
-        related
parties
-
45,600Loss
on disposal of assets
4,758
-Changes
in operating assets and liabilities:Decrease
in accounts receivable
-
26,719(Increase)
decrease  in prepaid expenses and
other           current
assets
13,995
(5,807)Decrease
in deposits
-
5,750Increase
(decrease) in accounts payable
(363,528)
23,729Increase
in accrued expenses  related parties
-
12,236Increase
(decrease) in accrued expenses
796,688
(22,279)Net
cash used in operating activities
(819,106)
(84,128)Cash flows from
investing activities:Purchase
of property and equipment
(1,628,597)
-Net
cash used in investing activities
(1,628,597)
-Cash flows from
financing activities:Proceeds
from notes payable  related parties
-
19,000Payments
of notes payable  related parties
-
(12,000)Proceeds
from notes payable and long-term debt
2,590,643
50,000Payments
of notes payable and long-term debt
(9,592)
(10,121)Net
cash provided by financing activities
2,581,051
46,879Net increase
(decrease) in cash and cash equivalents
133,348
(37,249)Cash and cash
equivalents, beginning of period
252,299
53,210Cash and cash
equivalents, end of period
$
           385,647
$
             15,961See accompanying notes to consolidated
condensed financial statements   5     INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (Unaudited)   NOTE
1  ORGANIZATION AND BASIS OF PRESENTATION  Principles
of Consolidation  The consolidated financial statements include the
accounts of Interline Resources Corporation (the Company) and its wholly owned
subsidiaries, Interline Energy Services, Inc. and Interline Hydrocarbons, Inc.,
and NorthCut Refining, LLC (NorthCut), an entity controlled through a majority
member interest.  The consolidated condensed financial statements for 2007
include the operations and cash flows of NorthCut from the date of its formation
in July 2007.  All significant inter-company accounts and transactions have
been eliminated in consolidation.  Effective January 8, 2008, Interline
Energy Services, Inc. was merged into the Company.  Basis
of Presentation  The interim financial information of the Company as of
March 31, 2008 and for the three-month periods ended March 31, 2008 and 2007 is
unaudited.  The accompanying consolidated condensed financial statements
have been prepared in accordance with U. S. generally accepted accounting
principles for interim financial statements.  Accordingly, they omit or
condense footnotes and certain other information normally included in financial
statements prepared in accordance with U.S. generally accepted accounting
principles.  The accounting policies followed for quarterly financial
reporting conform with the accounting policies disclosed in Note 1 to the Notes
to Consolidated Financial Statements included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2007.  In the opinion of
management, all adjustments that are necessary for a fair presentation of the
financial information for the interim periods reported have been made.  All
such adjustments are of a normal recurring nature.  The results of
operations for the three months ended March 31, 2008 are not necessarily
indicative of the results that can be expected for the entire year ending
December 31, 2008.  The unaudited consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2007.   NOTE
2  GOING CONCERN  The
Companys consolidated condensed financial statements are prepared using
accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.  However, the
Company suspended a substantial portion of its operations in 2002 and
subsequently has not generated revenues sufficient to cover its operating costs.
 In addition, the Company has experienced delays in the completion of the
rebuild of NorthCuts Well Draw facility and commencement of its operations,
requiring additional debt financing and significant interest expense.  As a
result, the Company, on a consolidated basis, has a working capital deficit
of $1,998,468,
an accumulated deficit of $13,827,557 and a total
stockholders deficit of $3,749,626 at March 31, 2008, which together raises
substantial doubt about the Companys ability to continue as a going concern.
 The accompanying consolidated condensed financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.  Management
has obtained working capital primarily from debt financing and from the sale of
idle property and equipment.  The Company is in the process of arranging
other debt and equity financing from other sources.  In addition, the
Company has formed NorthCut and arranged financing to rebuild and operate its
Well Draw Plant.  As of March 31, 2008, the Well Draw Plant was not yet in
operation.  Financing is needed to complete modifications to the Well Draw
Plant in order for it to operate at full capacity and to purchase crude oil
inventories to commence operations.   The Company is currently in  6    default on a
$650,000 loan and has significant interest payment obligations in January and
February of 2009, which it currently does not have funds to pay.  

Without additional financing and without the Well Draw Plant operating at a
successful level of operations, NorthCut and the Company will be in default on
their notes payable, and could be forced to shut down or file for bankruptcy
protection.  Management is actively seeking additional capital and
financing or refinancing
, but no assurances can be given that

such efforts will be successful, particularly in light of current adverse
economic conditions in general.  All of the Companys and NorthCuts assets
are pledged as collateral on debt.   NOTE
3  NORTHCUT REFINING LLC  NorthCut
Refining, LLC (NorthCut) was formed in July 2007 as a Wyoming limited
liability company.  In accordance with the original Operating Agreement
entered into on September 13, 2007, the Company contributed the existing Well
Draw facility, including land, fixtures, equipment and all operating permits
(the Plant), receiving a 75% member interest in NorthCut.  The parties
who arranged the initial $11.5 million of financing for construction of the
project received a 25% interest in NorthCut (PCG Midstream, LLC 5% and NorthCut
Holdings, LLC 20%, Funding Group).  The Company was designated as the
Manager and will oversee and direct all aspects and operations of NorthCut and
the Plant.  PCG Midstream, LLC acts as a Co-Interim Manager until the
construction loan is repaid.  The
$11.5 million Construction Loan Agreement was entered into by Private Capital
Group, Inc., as Lender and NorthCut as Borrower.  NorthCut pledged all of
its assets as collateral for the loan.  The Company executed a Guaranty
Agreement and a Security Agreement, guaranteeing repayment of the loan, and
pledging all of the assets of the Company.  The Promissory Note carries an
interest rate of 24% per year.  The original maturity date was August 1,
2009.   Pursuant to the terms of the original Promissory Note, effective
February 1, 2008, all accrued but unpaid interest as of January 31, 2008 was
payable in 6 equal monthly payments on the first day of February 2008, and on
the first day of the next succeeding 5 months.  Additionally, commencing on
March 1, 2008 and on the first day of each month thereafter, all other accrued
interest was payable 1 month in arrears.  The original Promissory Note
allowed the grant of an extension of time to begin paying the interest from
February 1, 2008 to August 1, 2008 at the option of the Lender upon the
submission of written evidence demonstrating NorthCuts best efforts to obtain
an operating line of credit in the sum of not less than $7,500,000.  

The original Operating Agreement provided that 75% of the Available Cash
each month will be paid to reduce the loan amount.  The Company receives
the remaining 25% of Available Cash, and the funding group receives no
distributions until after the loan has been paid back.  NorthCut
and the Company executed a Management Services Agreement by which the Company
will act as manager of the Plant for a term of fifty years.  Under the
agreement, the Company will provide management, supervisory, and other general
services to NorthCut and the Plant, and supervise and direct all aspects of the
day-to-day operation of the Plant.  During the construction phase of the
Plant, the Company receives a management fee of $87,000 per month for six
months.  Once in operation, the Company receives a $40,000 per month
operating fee.  Pursuant
to the terms of the original Operating Agreement, until the construction loan is
repaid, all profits and losses are allocated 100% to the Company.  In
January 2008, NorthCut applied for and was granted an extension of time from
February 1, 2008 to August 1, 2008 to begin making accrued interest payments on
the Plant construction Promissory Note.  On
April 29, 2008 the $11.5 million Construction Loan Agreement and Promissory Note
were amended and an additional $1,200,000 was borrowed on the same terms of the
original agreements, increasing the total principal balance of the note to
$12,700,000.   7    The
Company required additional construction financing and arranged to borrow an
additional $3.5 million from parties related to the Funding Group (Note 6).
 In connection with the financing, on October 14, 2008, the parties entered
into the First Amendment to the Operating Agreement of NorthCut Refining, LLC
(Amended Operating Agreement) to:  i. Amend
defined terms to encompass additional loans and advances to the Company; ii. Change
the respective Membership Interest and Percentage Interest of the Members; iii. Provide
for amended allocations of Profits and Losses and distributions of the Available
Cash to the Members and to repay the Companys indebtedness; and iv. Make
other changes on which the Managers and Members agree.  The
Amended Operating Agreement provides that 80% of Pre-Debt Service Cash each
month will be paid to reduce the loan amount.  During the Loan Period, the
Managers shall distribute remaining Available Cash 75% to the Company, 13.65% to
NorthCut Holdings, LLC and 11.35% to PCG Midstream, LLC.  Pursuant
to the Amended Operating Agreement, the Membership Interest and Percentage
Interest of the Members were changed to 68% for the Company, 15% for PCG
Midstream, LLC and 17% for NorthCut Holdings, LLC.  The
parties also entered into a First Amendment to Management Services Agreement,
pursuant to which the monthly management fee payable to the Company was changed
to $60,000 per month effective November 1, 2008.  As
part of the negotiations on the additional financing, the Company negotiated the
right to purchase NorthCut Holdings LLCs 17% Membership Interest in NorthCut
for a purchase price of $1,500,000.  The purchase must be completed by
January 31, 2009.  The purchase of the 17% would increase the Companys
Membership Interest in NorthCut to 85%.  Additionally, the Company
negotiated the right to purchase PCG Midstream, LLCs 10% Membership Interest in
NorthCut.  The purchase would be in two parts.  The Company shall have
the right to purchase a 5% Membership Interest in NorthCut from PCG Midstream,
LLC for $100,000 at any time within one year after PCG Midstream, LLC has
received from NorthCut $3,400,000 in distributions of available cash.  The
Company shall have the right to purchase a second 5% Membership Interest in
NorthCut for $100,000 at any time within one year after PCG Midstream, LLC has
received from NorthCut $6,800,000 in distributions of available cash.  If
the Company is able to purchase all the interest under the purchase agreements,
the Companys Membership Interest in NorthCut would increase to 95%.   NOTE
4  NOTES PAYABLE  RELATED PARTIES  The
note payable  related party at March 31, 2008 and December 31, 2007 consisted
of an unsecured note payable to a stockholder, which was repaid in July 2008.   NOTE 5  ACCRUED EXPENSES  Accrued expenses  related parties consisted of accrued interest
payable to related parties of $ 20,488
at March 31, 2008 and December 31,
2007, which was repaid in July 2008.  8     Accrued
expenses consist of the following:  March 31,2008
**(Unaudited)**
December 31,2007Interest
$
   1, 254,935
$
    548,247Bond obligation
25,000
25,000Payroll and related
121,000
31,000$   1,
400,935
$   
604,247   NOTE
6  NOTES PAYABLE AND LONG-TERM DEBT  Notes
payable and long-term debt consisted of the following: March 31,
2008(Unaudited)
December
31,2007Plant construction promissory note, secured by
plant and  equipment, with interest at 24%, due August
2009
$
  11,300,000
$
    9,400,000Note payable, secured by building and personal
property and  assignment of rents, with interest at 24%,
currently past due,  guaranteed by the President of the
Company
650,000
-Mortgage note payable, secured by office
building,  with interest at 7%, payable in monthly
installments  of $5,820 through January 2025
686,925
692,301Note payable to financing company, secured by
vehicle,  with interest at 4.9%, payable in monthly
installments  of $617 through March 2011
20,621
21,680Note payable to financing company, secured by
vehicle,  with interest at 6.8%, payable in monthly
installments  of $539 through September 2013
29,597
-Note payable to financing company, secured by
vehicle,  with interest at 5.5%, payable in monthly
installments  of $567 through September 2010
-
17,318Note payable to an individual, unsecured,
non-interest  bearing, past due
100,000
100,000Other short-term debt
132,131
30,541Less debt discount
(80,912)
(31,499)Total
12,838,362
10,230,341Less current portion
861,378
165,110Long-term portion
$
   11,976,984
$
  10,065,231  The
original NorthCut Plant construction Promissory Note for $11.5 million was
entered into in September 2007.   The original maturity date was August
1, 2009.  Pursuant to the terms of the original Promissory Note, effective
February 1, 2008, all accrued but unpaid interest as of January 31, 2008 was
payable in 6 equal monthly payments on the first day of February 2008, and on
the first day of the next succeeding 5 months.  Additionally, commencing on
March 1, 2008 and on the first day of each month thereafter, all other accrued
interest was payable 1 month in arrears.  The original Promissory Note
allowed the grant of an extension of time to begin paying the interest from
February 1, 2008 to August 1, 2008 at the option of the Lender upon the
submission of written evidence demonstrating NorthCuts best efforts to obtain
an operating line of credit in the sum of not less than $7,500,000.  

In January 2008, NorthCut applied for and was granted an extension of time
from February 1, 2008 to August 1, 2008 to  9    begin making accrued
interest payments on the Plant construction Promissory Note.  On April 29,
2008 the $11.5 million Plant construction Promissory Note was amended and an
additional $1,200,000 was borrowed on the same terms of the original agreement,
increasing the total principal balance of the note to $12,700,000.  NorthCut
entered into an amended promissory note dated October 27, 2008 in the amount of
$16.2 million (the Amended Note) and related documents.  Under the terms
of the Amended Note, NorthCut borrowed an additional $3.5 million from Private
Capital Group, Inc. (PCG), increasing its indebtedness to $16.2 million to
Private Capital Group, Inc.  The Company is a guarantor on all $16.2
million of this indebtedness.  The
Amended Note bears interest at 24% per annum and is secured by all of NorthCuts
assets, including its oil topping plant and related equipment, and the assets of
the Company.  The Amended Note matures on August 1, 2009.  Interest
payments are required to be made on December 1, 2008 in the amount of $250,000,
and on or before January 1, 2009 an additional interest payment of $250,000 is
due.  On or before February 1, 2009, all unpaid interest, which is
estimated to approximate $4.3 million, must be paid.  Commencing on March
1, 2009 and on the first day of each month thereafter, all other accrued
interest one month in arrears must be paid.  The entire note and all unpaid
interest must be paid by or on August 1, 2009.  A late charge of 4% is
applied to any payments not received within five days of its due date.  In
connection with entering into the Amended Note, NorthCut and the Company have
entered into an amendment to the original deed of trust related to the notes
securing the Amended Note with all of their assets.  The $250,000 interest
payment due December 1, 2008 was made by the Company.  As
part of the additional financing, PCG agreed to enter into a forbearance
agreement to provide more time for NorthCut and the Company to arrange
additional financing to pay the prior note and Amended Note.  The
forbearance agreement delays collection efforts until January 30, 2009, unless
NorthCut is in default prior to such time, which would include failing to make
any interest payment.  As
part of the financing, the Company also agreed to amend two stock options for
50,000 shares each to Westcoast Lending Group, Inc. granted pursuant to a
previous financing arrangement.  Under the terms of the amended options the
exercise price of the options was reduced to $0.50 per share.  The options
have a term of five years.  In addition to the amendments to the stock
options, the Company agreed to a conditional grant of stock to Robert Conte.
 Mr. Conte provided part of the capital loaned by PCG.  Under the
conditional grant of stock to Mr. Conte, if the daily closing price of the
Companys common stock does not equal or exceed $1.60 during any 30 day
consecutive period from October 21, 2008 until April 21, 2010, the Company will
issue shares of its common stock to Mr. Conte valued equivalent to the
difference for 377,000 shares at $1.60 and the average closing price for the 6
month period between October 21, 2009 and April 21, 2010.  The
$650,000 note payable was due on September 16, 2008, and a notice of default was
filed on November 11, 2008.  In accordance with the terms of the note, the
note contains a default interest rate of 36%, and requires late fees equal to
1.5% of the outstanding principal balance on the due date and every 14 days
thereafter that the note remains unpaid.  The note is secured by the
Companys building in Alpine, Utah.  NOTE
7  STOCK-BASED COMPENSATION  The
Board of Directors of the Company, at its discretion, has issued stock options
to employees, officers, directors and others.  The
Company accounts for stock-based compensation in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123(R), Share Based Payments.Under the fair value recognition provisions of this statement,
stock-based compensation cost is measured at the grand date based on the  10    value of the award
granted using the Black-Scholes option pricing model, and recognized over the
period in which the award vests.  Stock
option expense related to amortization of the fair value of these options was
$13,559 and $3,814 for the three months ended March 31, 2008 and 2007,
respectively.  The
following table summarizes the stock option activity during the three months
ended March 31, 2008: Options
Weighted AverageExercise Price
Weighted AverageRemaining Contract Term
AggregateIntrinsic ValueOutstanding at December 31,
2007
1,000,000
$   0.20Granted
-Exercised
-Expired
-Forfeited
-Outstanding at March 31, 2008
1,000,000
0.20
5.76Exercisable at March 31, 2008
400,000
0.13
4.25
$
  550,000  The
aggregate intrinsic value in the preceding table represents the
total pretax intrinsic value, based on the Companys closing stock price of
$1.50 as of March 31, 2008, which would have been received by the holders of
in-the-money options had the option holders exercised their options as of that
date.  As
of March 31, 2008, future compensation cost related to non-vested stock-based
awards not yet recognized in the consolidated statements of operations totaled
$85,828.   NOTE
8  EARNINGS (LOSS) PER SHARE  The
computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the period plus the common stock
equivalents which would arise from the exercise of stock options outstanding
using the treasury stock method and the average market price per share during
the period.  Options to purchase 1,000,000 shares of common stock were
outstanding at March 31, 2008 and December 31, 2007.  No options were
included in the computation of weighted average number of shares because the
effect would have been anti-dilutive.  A
reconciliation of the number of shares used in the computation of the Companys
basic and diluted earnings per common share is as follows:  Three Months EndedMarch 31,2008
2007Weighted average
number of common sharesoutstanding
17,443,058
16,666,045Dilutive effect
of stock options
-
-Weighted average
number of common sharesoutstanding, assuming
dilution
17,443,058
16,666,045   11     NOTE 9 
SUPPLEMENTAL CASH FLOW INFORMATION  During
the three months ended March 31, 2008 and 2007, the Company paid no amounts for
income taxes.  During the three months ended March 31, 2008 and 2007, the
Company paid interest expense of $45,489 and $17,329, respectively.  During
the three months ended March 31, 2008, the Company had the following non-cash
financing and investing activities:  · Acquired
property and equipment with the issuance of accounts payable of $42,631. · Acquired
property and equipment with the issuance of debt of $26,507.  During
the three months ended March 31, 2007, the Company had no non-cash financing and
investing activities.   NOTE 10  RECENT
ACCOUNTING PRONOUNCEMENTS  In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles.  This statement is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements in conformity
with U.S. generally accepted accounting principles (GAAP) for nongovernmental
entities.  The statement establishes that the GAAP hierarchy should be
directed to entities because it is the entity (not its auditor) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP.  This statement is effective 60 days
following the SECs approval of the Public Company Accounting Oversight Board
Auditing amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles.  The Company
does not believe the implementation of this statement will have a material
impact on its financial statements.  In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities.  This statement changes the
disclosure requirements for derivative instruments and hedging activities.
 Entities are required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entitys financial position, financial performance, and cash flows.
 This statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, or the Companys
fiscal year beginning January 1, 2009, with early application encouraged.
 This statement encourages, but does not require, comparative disclosures
for earlier periods at initial adoption.  The Company is currently unable
to determine what impact the future application of this pronouncement may have
on its consolidated financial statements.  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations.  This statement replaces SFAS No. 141, Business
Combinations, and applies to all transactions or other events in which an
entity (the acquirer) obtains control of one or more businesses (the acquiree),
including those sometimes referred to as true mergers or mergers of equals
and combinations achieved without the transfer of consideration.  This
statement establishes principles and requirements for how the acquirer: a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
statement will be effective for fiscal years, and interim periods  12    within those fiscal
years, beginning on or after December 15, 2008, or the Companys fiscal year
beginning January 1, 2009.  Earlier adoption is prohibited.  The
Company is currently unable to determine what impact the future application of
this pronouncement may have on its consolidated financial statements.  In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements.  This statement applies to all
entities that prepare consolidated financial statements, except not-for-profit
organizations, and amends Accounting Research Bulletin (ARB) 51 to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary.  It also amends
certain of ARB 51s consolidation procedures for consistency with the
requirements of SFAS No. 141 (revised 2007).  This statement will be
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, or the Companys fiscal year beginning
January 1, 2009.  Earlier adoption is prohibited.  The Company is
currently unable to determine what impact the future application of this
pronouncement may have on its consolidated financial statements.  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115.  This statement permits entities to choose to
measure many financial instruments and certain other items at fair value.
 Most of the provisions of SFAS No. 159 apply only to entities that elect
the fair value option.  However, the amendment to SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, applies
to all entities with available-for-sale and trading securities.  SFAS No.
159 is effective as of the beginning of an entitys first fiscal year that
begins after November 15, 2007, or the Companys fiscal year beginning January
1, 2008.  Early adoption is permitted as of the beginning of a fiscal year
that begins on or before November 15, 2007, provided the entity also elects to
apply the provision of SFAS No. 157, Fair Value Measurements.  The
Company adopted SFAS No. 159 on January 1, 2008, with no material impact on its
consolidated financial statements.  In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
 SFAS No. 157 defines fair value, establishes a framework for measuring
fair value, and requires enhanced disclosures about fair value measurements.
 SFAS No. 157 requires companies to disclose the fair value of their
financial instruments according to a fair value hierarchy as defined in the
standard.  Additionally, companies are required to provide enhanced
disclosure regarding financial instruments in one of the categories, including a
reconciliation of the beginning and ending balances separately for each major
category of assets and liabilities.  In February 2008, the FASB issued FASB
Staff Position (FSP) No. FAS 157-2, which delays by one year the effective date
of SFAS No. 157 for certain types of non-financial assets and non-financial
liabilities.  As a result, SFAS No. 157 will be effective for financial
statements issued for fiscal years beginning after November 15, 2007, or the
Companys fiscal year beginning January 1, 2008, for financial assets and
liabilities carried at fair value on a recurring basis, and on January 1, 2009,
for non-recurring non-financial assets and liabilities that are recognized or
disclosed at fair value.  The Company adopted SFAS No. 157 on January 1,
2008 for financial assets and liabilities carried at fair value on a recurring
basis, with no material impact on its consolidated financial statements.
 The Company is currently unable to determine what impact the application
of SFAS No. 157 on January 1, 2009 for non-recurring non-financial assets and
liabilities that are recognized or disclosed at fair value will have on its
consolidated financial statements.   NOTE 11 -
SUBSEQUENT EVENTS  In
July 2008, the Company issued 92,861 shares of its restricted common stock in
repayment of a note payable  related party of $15,000, accrued interest payable
 related party of $20,488, and interest expense of $1,656,   13    In
July 2008, the Company issued 300,000 shares of its restricted common stock for
the exercise of stock options, for which a note payable  related party of
$50,000 was repaid.  On
November 6, 2008, the Company issued 120,000 shares of its restricted common
stock valued at $90,000 as compensation to an employee.  Subsequent
to March 31, 2008, NorthCut and the Company entered into various amendments and
extensions of the NorthCut Plant construction Promissory Note and related
agreements.  In connection with these amendments, the operating agreement
of NorthCut Refining, LLC was also amended and the Companys Membership Interest
and Percentage Interest in NorthCut were reduced from 75% to 68%.  See
Notes 3 and 6 for a more detailed discussion of these subsequent events.  14     ITEM 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS  Overview  Since a fire at the
Companys Well Draw Gas Plant in June 2002, the Company has essentially been
insolvent, with minimal operations and revenues.  NorthCut
Refining, LLC (NorthCut) was formed as a Wyoming limited liability company in
July 2007 to rebuild the Well Draw Gas Plant into a 5,000 barrel a day crude oil
topping plant.  In accordance with the original Operating Agreement entered
into on September 13, 2007, the Company contributed the existing Well Draw
facility, including land, fixtures, equipment and all operating permits (the
Plant), receiving a 75% member interest in NorthCut.  The parties who
arranged the initial $11.5 million of financing for construction of the project
received a 25% interest in NorthCut (PCG Midstream, LLC 5% and NorthCut
Holdings, LLC 20% Funding Group).  The Company was designated as the
Manager and will oversee and direct all aspects and operations of NorthCut and
the Plant.  PCG Midstream, LLC acts as a Co-Interim Manager until the
construction loan is repaid.  The
$11.5 million Construction Loan Agreement was entered into by Private Capital
Group, Inc., as Lender and NorthCut as Borrower.  NorthCut pledged all of
its assets as collateral for the loan.  The Company executed a Guaranty
Agreement and a Security Agreement, guaranteeing repayment of the loan, and
pledging all of the assets of the Company.  The Promissory Note carries an
interest rate of 24% per year.  The original maturity date was August 1,
2009.  The original Operating Agreement provided that 75% of the Available
Cash each month will be paid to reduce the loan amount.  The Company
receives the remaining 25% of Available Cash, and the funding group receives no
distributions until after the loan has been paid back.  NorthCut
and the Company executed a Management Services Agreement by which the Company
will act as manager of the Plant for a term of fifty years.  Under the
agreement, the Company will provide management, supervisory, and other general
services to NorthCut and the Plant, and supervise and direct all aspects of the
day-to-day operation of the Plant.  During the construction phase of the
Plant, the Company receives a management fee of $87,000 per month for six
months.  Once in operation, the Company receives a $40,000 per month
operating fee.  Pursuant
to the terms of the original Operating Agreement, until the construction loan is
repaid, all profits and losses are allocated 100% to the Company.  In
January 2008, NorthCut applied for and was granted an extension of time from
February 1, 2008 to August 1, 2008 to begin making accrued interest payments on
the Plant construction Promissory Note.  On
April 29, 2008 the $11.5 million Construction Loan Agreement and Promissory Note
were amended and an additional $1,200,000 was borrowed on the same terms of the
original agreements, increasing the total principal balance of the note to
$12,700,000.  The
Company required additional construction financing and arranged to borrow an
additional $3.5 million from parties related to the Funding Group.  In
connection with the financing, on October 14, 2008, the parties entered into the
First Amendment to the Operating Agreement of NorthCut Refining, LLC (Amended
Operating Agreement) to:  i. Amend
defined terms to encompass additional loans and advances to the Company; ii. Change
the respective Membership Interest and Percentage Interest of the Members; iii. Provide
for amended allocations of Profits and Losses and distributions of the Available
Cash to the Members and to repay the Companys indebtedness; and  15    iv. Make
other changes on which the Managers and Members agree.  The
Amended Operating Agreement provides that 80% of Pre-Debt Service Cash each
month will be paid to reduce the loan amount.  During the Loan Period, the
Managers shall distribute remaining Available Cash 75% to the Company, 13.65% to
NorthCut Holdings, LLC and 11.35% to PCG Midstream, LLC.  Pursuant
to the Amended Operating Agreement, the Membership Interest and Percentage
Interest of the Members were changed to 68% for the Company, 15% for PCG
Midstream, LLC and 17% for NorthCut Holdings, LLC.  The
parties also entered into a First Amendment to Management Services Agreement,
pursuant to which the monthly management fee payable to the Company was changed
to $60,000 per month effective November 1, 2008.  As
part of the negotiations on the additional financing, the Company negotiated the
right to purchase NorthCut Holdings LLCs 17% Membership Interest in NorthCut
for a purchase price of $1,500,000.  The purchase must be completed by
January 31, 2009.  The purchase of the 17% would increase the Companys
Membership Interest in NorthCut to 85%.  Additionally, the Company
negotiated the right to purchase from PCG Midstream, LLC a 10% Membership
Interest in NorthCut.  The purchase would be in two parts.  The
Company shall have the right to purchase a 5% Membership Interest in NorthCut
from PCG Midstream, LLC for $100,000 at any time within one year after PCG
Midstream, LLC has received from NorthCut $3,400,000 in distributions of
available cash.  The Company shall have the right to purchase a second 5%
Membership Interest in NorthCut for $100,000 at any time within one year after
PCG Midstream, LLC has received from NorthCut $6,800,000 in distributions of
available cash.  If the Company is able to purchase all the interest under
the purchase agreements, the Companys Membership Interest in NorthCut would
increase to 95%.  NorthCut
has recently undergone production testing of the Well Draw Plant at
approximately two-thirds of the rated capacity.  This has allowed the
engineering and refinery operations staff to evaluate the efficiency of the
equipment and each process in the refinery.  The facility has produced
diesel and gasoline (naphtha) that meet required specifications and now has
product in on-site storage ready for sale.  This production testing has
been valuable in identifying the need for minor modifications and equipment
adjustments that will be made concurrently with production over the next few
weeks to allow the refinery to meet or exceed rated capacity.  As
further discussed elsewhere in this report, additional financing will be
required to complete these plant modifications and equipment adjustments.  Going Concern  The
Companys consolidated condensed financial statements are prepared using
accounting principles generally accepted in the United States of America
applicable to a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.  However, the
Company suspended a substantial portion of its operations in 2002 and
subsequently has not generated revenues sufficient to cover its operating costs.
 In addition, the Company has experienced delays in the completion of the
rebuild of NorthCuts Well Draw facility and commencement of its operations,
requiring additional debt financing and significant interest expense.  As a
result, the Company, on a consolidated basis, has a working capital deficit of
$1,998,468, an accumulated deficit of $13,827,557 and a total stockholders
deficit of $3,749,626 at March 31, 2008, which together raises substantial doubt
about the Companys ability to continue as a going concern.  The
accompanying consolidated condensed financial statements do not include any
adjustments that might result from the outcome of this uncertainty.  16     Management
has obtained working capital primarily from debt financing and from the sale of
idle property and equipment.  The Company is in the process of arranging
other debt and equity financing from other sources.  In addition, the
Company has formed NorthCut and arranged financing to rebuild and operate its
Well Draw Plant.  As of March 31, 2008, the Well Draw Plant was not yet in
operation.  Financing is needed to complete modifications to the Well Draw
Plant in order for it to operate at full capacity and to purchase crude oil
inventories to commence operations.  The Company is currently in default on
a $650,000 loan and has significant interest payment obligations in January and
February of 2009, which it currently does not have funds to pay.  Without
additional financing and without the Well Draw Plant operating at a successful
level of operations, NorthCut and the Company will be in default on their notes
payable, and could be forced to shut down or file for bankruptcy protection.
 Management is actively seeking additional capital and financing or
refinancing, but no assurances can be given that such efforts will be
successful, particularly in light of current adverse economic conditions in
general.  All of the Companys and NorthCuts assets are pledged as
collateral on debt.  Critical Accounting
Policies  Managements
discussion and analysis of the Companys financial condition and results of
operations are based upon financial statements which have been prepared in
accordance with U. S. generally accepted accounting principles.  The
following accounting policies significantly affect the way the financial
statements are prepared.  Property and
Equipment  Property and equipment are stated at cost less accumulated
depreciation.  Depreciation expense is computed using the straight-line
method over the estimated useful lives of the assets, which range from 5 to 30
years.  Maintenance and repairs are charged to costs and expenses as
incurred.  The cost and accumulated depreciation of property and equipment
sold or otherwise retired are removed from the accounts and any related gain or
loss on disposition is reflected in net income or loss for the period.  Oil and Gas
Accounting  Operation of oil and gas properties currently does not generate
a significant portion of the Companys consolidated revenues.  The Company
has not engaged in or acquired any new oil or gas producing properties. Because
the net book value of capitalized oil and gas equipment on the Companys one
producing well is not significant to the consolidated financial statements taken
as a whole, those assets are being depreciated over their estimated useful
lives.  Impairment of
Long-Lived Assets  The Company periodically reviews its long-lived assets
for impairment when events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.  The Company evaluates,
at each balance sheet date, whether events and circumstances have occurred which
indicate possible impairment. The carrying value of a long-lived asset is
considered impaired when the anticipated cumulative undiscounted cash flows of
the related asset or group of assets is less than the carrying value.  In
that event, a loss is recognized based on the amount by which the carrying value
exceeds the estimated fair market value of the long-lived asset.  No
impairment loss was recognized during the three months ended March 31, 2008 and
2007.  Asset Retirement
Obligations  The Company is subject to certain regulations implemented to
protect the environment.  These regulations require that when oil and gas
wells are abandoned, the owners or operators must perform certain reclamation
activities related to the oil and gas wells, including plugging the well,
removing surface equipment and providing restoration of the well sites surface.
 Accordingly, a liability has been established in accordance with SFAS No.
143, Accounting for Asset Retirement Obligations, equal to the present value of
the Companys estimated future asset retirement obligations.  Over time,
accretion of the liability is recognized as an operating expense and included in
cost of revenues.  In the event an interest in an oil and gas well is
transferred and the related asset retirement obligation eliminated, the
liability is reversed with the income recorded as an offset to cost of  17    revenues.  No related capitalized
cost has been recorded by the Company for the asset retirement obligations since
it has only one operating well and does not have proven oil and gas
reserves.  Revenue
Recognition  Revenue for sale of product is recognized when a valid
purchase order has been received, product has been shipped, the selling price is
fixed or determinable, and collectibility is reasonably assured.  Stock-Based
Compensation and Equity Transactions  The Company has issued stock options
to its employees and consultants.  On January 1, 2006, the Company adopted
SFAS No. 123R, Share-Based Payment, an amendment of Financial Accounting
Standards Board (FASB) Statements 123 and 95, which requires the Company to
measure the compensation cost of stock options and other stock-based awards to
employees and directors at fair value at the grant date and recognize
compensation expense over the requisite service period for awards expected to
vest.  Except for
transactions with employees and directors that are within the scope of SFAS 123R
or APB Opinion 25, all transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable.
 Additionally, in accordance with Emerging Issues Task Force (EITF) 96-18,
the Company has determined that the dates used to value the transaction are
either: (1) the date at which a commitment for performance by the counter party
to earn the equity instruments is established; or (2) the date at which the
counter partys performance is complete.  Plant Start Up
Costs  Start up, testing and other operating costs of the Well-Draw Plant
incurred in advance of production are expensed as incurred.  Income Taxes 
As part of the process of preparing consolidated financial statements, the
Company is required to estimate income taxes in each of the jurisdictions in
which it operates.  This process involves estimating the Companys actual
current income tax exposure together with assessing temporary differences
resulting from differing treatment of items for income tax and financial
accounting purposes.  These temporary differences result in deferred tax
assets and liabilities, the net amount of which is included in the Companys
consolidated balance sheet.  When appropriate, the Company records a
valuation allowance to reduce its deferred tax assets to the amount that the
Company believes is more likely than not to be realized.  Key assumptions
used in estimating a valuation allowance include potential future taxable
income, projected income tax rates, expiration dates of net operating loss and
tax credit carry forwards, and ongoing prudent and feasible tax planning
strategies.  At March 31, 2008 and December 31, 2007, the Company had fully
reduced its net deferred tax assets by recording a valuation allowance.  If
the Company were to determine that it would be able to realize its deferred tax
assets in the future in excess of the net recorded amount, an adjustment to
reduce the valuation allowance would increase income in the period such
determination was made.  On January 1, 2007,
the Company adopted FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109 (FIN 48).
 FIN 48 requires a company to determine whether it is more likely than not
that a tax position will be sustained upon examination based upon the technical
merits of the position.  If the more-likely-than-not threshold is met, a
company must measure the tax position to determine the amount to recognize in
the financial statements.  At March 31, 2008, the Company has not
identified any material uncertain tax positions requiring recognition in its
consolidated financial statements.  The Company classifies interest and
penalties arising from the underpayment of income taxes in its consolidated
statements of operations under general and administrative expenses.  As of
March 31, 2008, the Company had no accrued interest or penalties related to
uncertain tax positions.  18    Results of Operations  Revenues  Historically, the
Companys operations involved natural gas gathering and processing, crude oil
gathering, fractionation, marketing of natural gas liquids, and oil and gas
production.  The gas is processed and fractionated into its constituent
natural gas liquid products and remaining residue gas.  Residue gas is sold
into a major interstate pipeline and the natural gas liquid products are sold to
both end users and other major refineries for further refinement.  The Company owns and
has had limited operations in several oil wells, a natural gas pipeline system
and a crude oil pipeline, none of which is currently operating or are only
marginally operating.  Since a fire at the Companys Well Draw Gas Plant in
June 2002, the Company has essentially been insolvent, with minimal, decreasing
revenues from these sources.  During the three
months ended March 31, 2008, revenues were $1,546 compared to revenues of $8,286
for the three months ended March 31, 2007.  Until the Well Draw Plant is
operating, we expect to receive only nominal revenues, which will not cover
ongoing operating and debt servicing costs.  Cost of Revenues  The Company's cost of
revenues as a percentage of total revenues will vary depending on the mix of
revenues during the period.  In addition, cost of revenues as a percentage
of revenues has been unusually high due to the minimal level of operations,
since a portion of these costs are fixed costs.  During the three
months ended March 31, 2008, cost of revenues was $37,857 compared to $28,157
for the three months ended March 31, 2007.  Cost of revenues also includes
accretion expense of $4,448 and $4,191 for the three months ended March 31, 2008
and 2007, respectively.  Plant Start Up Costs  The Company has not
yet recognized revenues from NorthCuts Well Draw facility; however, significant
start-up, testing and other operating costs have been incurred in the current
year in advance of production.  These costs have been expensed as incurred
and totaled $218,663 for the three months ended March 31, 2008.  General and Administrative  General and
administrative expenses increased $182,723, or 145%, to $309,140 in the three
months ended March 31, 2008, from $126,417 in the three months ended March 31,
2007.  General and administrative expenses include all direct costs for
administrative personnel, stock-based compensation, and all rents, property
taxes and utilities for maintaining the Company office.  The increased
level of general and administrative expenses in the current fiscal year resulted
from additional stock option expense and from additional administrative expenses
related to the start up operations of NorthCut.  Depreciation  Depreciation expense
for the three months ended March 31, 2008 and 2007 was $21,354 and $18,863,
respectively.  The increase in depreciation expense in the current year was
due to the acquisition of a new vehicle.  Depreciation expense for
NorthCuts Well Draw facility will be recorded when the facility is placed into
production.  19    Interest Expense  Interest expense
increased to $731,688 for the three months ended March 31, 2008, compared to
$34,843 for the three months ended March 31, 2007.  The interest expense
increased in the current year primarily due to the NorthCut plant construction
financing.  Loss on Disposal of Assets  During the three
months ended March 31, 2008, the Company realized a non-cash loss on disposal of
a vehicle of $4,758.  Liquidity and Capital
Resources  At March 31, 2008,
the Company had current assets of $420,525, including cash of $385,647, and
current liabilities of $2,418,993, resulting in a working capital deficit of
$1,998,468.  A significant portion of the current liabilities relate to
NorthCut plant construction costs payable, short-term debt and accrued interest
payable on the NorthCut plant construction financing.  At March 31, 2008,
the Company had total notes payable and long-term debt of $12,838,362, of which
$861,378 was reported as a current liability and of which $650,000 is currently
past due and in default.  Of this indebtedness, $11,950,000 represented
construction financing received by NorthCut and guaranteed by the Company.
 The $650,000 note is secured by the Companys building in Alpine,
Utah.  NorthCut
entered into an amended promissory note dated October 27, 2008 in the amount of
 $16.2 million (the Amended Note) and related documents.  Under the
terms of the Amended Note, NorthCut borrowed an additional $3.5 million from
Private Capital Group, Inc. (PCG), increasing its indebtedness to $16.2
million to Private Capital Group, Inc.  The Company is a guarantor on all
$16.2 million of this indebtedness.  The
Amended Note bears interest at 24% per annum and is secured by all of NorthCuts
assets, including its oil topping plant and related equipment, and the assets of
the Company.  The Amended Note matures on August 1, 2009.  Interest
payments are required to be made on December 1, 2008 in the amount of $250,000,
and on or before January 1, 2009 an additional interest payment of $250,000) is
due.  On or before February 1, 2009, all unpaid interest, which is
estimated to approximate $4.3 million, must be paid.  Commencing on March
1, 2009 and on the first day of each month thereafter, all other accrued
interest one month in arrears must be paid.  The entire note and all unpaid
interest must be paid by or on August 1, 2009.  A late charge of 4% is
applied to any payments not received within five days of its due date.  In
connection with entering into the Amended Note, NorthCut and the Company have
entered into an amendment to the original deed of trust related to the notes
securing the Amended Note with all of their assets.  As
part of the additional financing, PCG agreed to enter into a forbearance
agreement to provide more time for NorthCut and the Company to arrange
additional financing to pay the prior note and Amended Note.  The
forbearance agreement delays collection efforts until January 30, 2009, unless
NorthCut is in default prior to such time, which would include failing to make
any interest payment.  As
part of the financing, the Company also agreed to amend two stock options for
50,000 shares each to Westcoast Lending Group, Inc. granted pursuant to a
previous financing arrangement.  Under the terms of the amended options the
exercise price of the options was reduced to $0.50 per share.  The options
have a term of five years.  In addition to the amendments to the stock
options, the Company agreed to a conditional grant of stock to Robert Conte.
 Mr. Conte provided part of the capital loaned by PCG.  Under the
conditional grant of stock to Mr. Conte, if the daily closing price of the
Companys common stock does not equal or exceed $1.60 during any 30 day
consecutive period from October 21, 2008 until April 21, 2010, the Company will
issue shares of its common stock to Mr. Conte valued  20    equivalent to the
difference for 377,000 shares at $1.60 and the average closing price for the 6
month period between October 21, 2009 and April 21, 2010.  Because of increased
Plant construction costs, on March 20, 2008, the Company borrowed an additional
$650,000 from Private Capital Group at 24% interest for a six month term
pursuant to a separate, supplemental loan agreement.  The proceeds were
then loaned by the Company to NorthCut on the same terms.  The $650,000
note payable was due on September 16, 2008, and a notice of default was filed on
November 11, 2008..  In accordance with the terms of the note, the note
contains a default interest rate of 36%, and requires late fees equal to 1.5% of
the outstanding principal balance on the due date and every 14 days thereafter
that the note remains unpaid.  The note is secured by the Companys
building in Alpine, Utah.  Since a fire at the
Companys Well Draw Gas Plant in June 2002, the Company has experienced
decreasing revenues and incurred net losses and negative cash flows from
operations.  In addition, the Company has experienced delays in the
completion and operation of NorthCuts Well Draw facility, requiring additional
debt financing and significant interest expense.  As a result, at March 31,
2008, the Company had an accumulated operating deficit of $13,827,557 and a
stockholders deficit of $3,749,626. During the three
months ended March 31, 2008, the Company incurred a net loss of $1,321,914 and
used $819,106 cash in operating activities.  During the three months ended
March 31, 2007, the Company incurred a net loss of $199,994 and used $84,128
cash in operating activities.  The increase in cash used in operating
activities during the current year was due primarily to the decrease in revenues
compared to last year, the increase in plant operating costs, the increase in
general and administrative expenses, and the reduction in accounts payable in
the current year.  During the three
months ended March 31, 2008, net cash used in investing activities was
$1,628,597, comprised primarily of cash additions to the NorthCut plant.
 No net cash was provided by or used in investing activities for the three
months ended March 31, 2007.  Due to decreasing
revenues, and prior to the NorthCut financing, the Company has financed its
operations primarily from the proceeds of short-term debt and the sale of idle
property and equipment.  Net cash provided by
financing activities for the three months ended March 31, 2008 was $2,581,051,
comprised of $1,900,000 from the NorthCut financing and $690,643 short-term
financing from other sources, partially offset by repayment of debt of $9,592.
 Net cash provided by financing activities for the three months ended March
31, 2007 was $46,879, comprised of additional loans from officers and employees
of the Company of $19,000 and loans from non-related parties of $50,000,
partially offset by repayment of related party loans of $12,000 and repayment of
non-related party debt of $10,121.  NorthCut and the
Company executed a Management Services Agreement by which the Company will act
as manager of the Plant for a term of fifty years.  Under the original
agreement, the Company will provide management, supervisory, and other general
services to NorthCut and the Well Draw Plant, and supervise and direct all
aspects of the day-to-day operation of the Plant.  During the construction
phase of the plant, the Company receives a management fee of $87,000 per month
for six months.  Once in operation, the Company receives a $40,000 per
month operating fee.  These NorthCut management fees are eliminated in
consolidation in the Companys consolidated financial statements.  The
parties also entered into a First Amendment to Management Services Agreement,
pursuant to which the monthly management fee payable to the Company was changed
to $60,000 per month effective November 1, 2008.  The Company believes
that once the Well Draw Plant has been constructed and reaches a successful
level of operations, funds provided by the management fee and from the Companys
share of  21    distributions of available cash will be
sufficient to meet its operating needs.  The Company intends on refinancing
the NorthCut construction financing, which currently bears interest at an annual
rate of 24% and matures in August 2009, with long-term, more favorable
financing.  However, there is no assurance that the Company and NorthCut
will be successful in these endeavors.   In addition, interest
payments are required to be made on December 1, 2008 in the amount of $250,000,
and on or before January 1, 2009 an additional interest payment of $250,000 is
due.  The December interest payment of $250,000 was made by the Company.
 On or before February 1, 2009, all unpaid interest, which is estimated to
approximate $4.3 million, must be paid.  The $650,000 note payable due on
September 16, 2008 is currently in default.  The note is secured by the
Companys building in Alpine, Utah.  In accordance with the terms of the
note, the note contains a default interest rate of 36%, and requires late fees
equal to 1.5% of the outstanding principal balance on the due date and every 14
days thereafter that the note remains unpaid.  The Company will be
dependent on obtaining equity or more favorable debt financing to make these
interest payments and retire the past due obligations.  If the interest
payments on the construction financing are not made, the Company will be in
default of its loan obligations and its assets will be subject to foreclosure
under the terms of the loan agreements.  If our assets are foreclosed upon,
we would be forced to shut down all operations and seek bankruptcy
protection.  Until the Well Draw
Plant is operating, we expect to receive only nominal revenues, which will not
cover ongoing operating and debt servicing costs.  Financing is needed to
complete modifications to the Well Draw Plant in order for it to operate at full
capacity and to purchase crude oil inventories to commence operations.
 Without additional financing and without the Well Draw Plant operating at
a successful level of operations, NorthCut and the Company will be in default on
their notes payable, and could be forced to shut down or file for bankruptcy
protection.  Management is actively seeking additional capital and
financing, but no assurances can be given such efforts will be successful,
particularly in light of current adverse economic conditions in general.
 All of the Companys and NorthCuts assets are pledged as collateral on
debt.  Off Balance Sheet
Arrangements.  We had no off balance
sheet arrangements during the three months ended March 31, 2008.   ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  At
times, a portion of the Companys cash equivalents and short-term investments
may bear variable interest rates that are adjusted to market conditions.
 Changes in market rates will affect interest earned and potentially the
market value of the principal of these instruments.  The Company does not
utilize derivative instruments to offset the exposure to interest rate
fluctuations.  Significant changes in interest rates may have a material
impact on the Companys investment income, but likely will not have a material
impact on the Companys consolidated results of operations, given current levels
of cash and cash equivalents.   ITEM 4T.
 CONTROLS AND PROCEDURES  (a) Evaluation of disclosure controls and
procedures  Since
a fire at the Companys Well Draw Gas Plant in June 2002, the Company has
essentially been insolvent, with minimal operations and revenues.  We have
not yet obtained long-term financing for the rebuilt facility and have
experienced delays in completing and operating the facility.  As a result,
we have not had the financial resources to employ a full accounting staff and to
timely file our periodic reports with the SEC.   22    The
Company's Chief Executive Officer (acting also as the principal financial and
accounting officer) has not evaluated the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
period covered by this Report based upon the framework in Internal Control 
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on discussions with our auditors and other
advisors, management believes that, during the period covered by this Report,
such internal controls and procedures were not effective to timely and
accurately close our financial records and prepare our consolidated financial
statements, including related footnote disclosures.  This was due to
deficiencies that existed in the design or operation of our internal control
over financial reporting that adversely affected our internal controls and that
may be considered material weaknesses.  A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
combination of control deficiencies, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected.  The matters involving internal controls and
procedures that the Company's management considered to be material weaknesses
under the standards of the Public Company Accounting Oversight Board were: (1)
lack of accounting personnel resources to provide reasonable assurance that
transactions are recorded as necessary to permit the timely and accurately
preparation of financial statements in accordance with generally accepted
accounting principles; (2) inadequate segregation of duties consistent with
control objectives due to our small size and limited resources and (3) absence
of a quarterly or annual financial closing checklist to ensure that all items
had been considered for inclusion in our quarterly and annual financial
statements.  The aforementioned material weaknesses were identified by the
Company's Chief Executive Officer in connection with the audit of our financial
statements for the years ended December 31, 2007 and 2006.  In light of the
material weaknesses described above, we performed additional analyses and other
post-closing procedures and engaged a consultant to ensure our financial
statements were prepared in accordance with generally accepted accounting
principles. Accordingly, we believe that the consolidated financial statements
included in this report fairly present, in all material respects, our financial
condition, results of operations and cash flows for the periods presented.  Management
is committed to remediate these material weaknesses during 2009 and to improving
our financial organization.  Our management, audit committee, and directors
will continue to work with our auditors and outside advisors to ensure that our
controls and procedures are adequate and effective.  As part of this
commitment, we recently hired a controller, and we will address the segregation
of duties issue by increasing our personnel resources and technical accounting
expertise within the accounting function as funds are available to the Company.
 We will continue to monitor and evaluate the effectiveness of our internal
controls and procedures and our internal controls over financial reporting on an
ongoing basis, and are committed to taking further action and implementing
additional enhancements or improvements as necessary and as funds allow.  (b) Changes in internal controls  Other
than described above, during the most recent fiscal quarter covered by this
report, and since that date there has been no change in the Companys internal
controls over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act)  that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.   PART II - OTHER INFORMATION   ITEM 1.  LEGAL PROCEEDINGS  The Company is not currently involved with any litigation.  23     The
Company has received a letter from the Securities and Exchange Commission
informing the Company that it is late in making its periodic filings with the
SEC.  The Company is currently trying to bring its filings with the SEC
current.  ITEM 1A.  RISK FACTORS    The
Company has disclosed risk factors in its Annual Report on Form 10-KSB for the
year ended December 31, 2007 which could materially affect its business,
financial condition or future results of operations.  Those risks are still
applicable, and with current adverse economic and capital markets conditions in
general, combined with a decline in oil prices, it will be even more difficult
for the Company to obtain financing.  If financing is obtained, the terms
of the financing may not be favorable to the Company and to its shareholders.
 With current debt obligations coming due or already past due, there is no
assurance that the Company will be able to continue in business and maintain
control of the Well Draw Plant.  ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS  During
three months ended March 31, 2008, the Company had no sales of its equity
securities.   ITEM 3.  DEFAULTS UPON SENIOR SECURITIES  The
Company is currently in default on a $650,000 note payable that was due on
September 16, 2008.  In accordance with the terms of the note, the note
contains a default interest rate of 36%, and requires late fees equal to 1.5% of
the outstanding principal balance on the due date and every 14 days thereafter
that the note remains unpaid.  The note is secured by the Companys
building in Alpine, Utah.   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS  No
matters were submitted to a vote of security holders during the quarter ended
March 31, 2008.   ITEM 5.  OTHER INFORMATION  None.   ITEM 6.  EXHIBITS **** **Exhibit
No.**       
**Description**                                              
**Location**  3.1                    
Articles of
Incorporation                   
            Incorporated
by Reference from the Companys Registration Statement No. 33-25011
on Form S-18  3.2                    
Amendment to Articles of
Incorporation         Incorporated by
Reference to the Companys
Form 8-A filed January 18, 1991  3.3                    
Bylaws                                                        
Incorporated by Reference to Exhibit 3.2 of
the Companys Registration Statement 33-25011-D on Form S-18 10.1                   
Amended Promissory
Note                           Incorporated
by Reference to Exhibit10.1 of the Companys Current Report on Form 8-K filed November 4, 2008  10.2                   
Second Amendment to Deed of
Trust,           Incorporated
by Reference to Exhibit 10.2 Assignment of Rents and
Leases,                 
of the Companys Current Report on SecurityAgreement and
Financing                 
Form 8-K filed November 4, 2008 Statement    24   10.3                   
First Amendment to
Operating                     
Incorporated by Reference to Exhibit Agreement of NorthCut Refining,
LLC          10.3 of the Companys
Current Report
                                                                                            
on Form 8-K filed November 4, 2008 10.4                  
First Amendment to
Management                 
Incorporated by Reference to Exhibit 10.4 Services
Agreement                                     
of the Companys Current Report on Form 8-K filed November 4, 2008  10.5                  
Limited Liability Company
Membership          Incorporated by
Reference to Exhibit 10.5 Interest Purchase Agreement -
PCG             
of the Companys Current Report on Form 8-K filed November 4, 2008  10.6                  
Limited Liability Company
Membership          Incorporated by
Reference to Exhibit 10.6 Interest Purchase Agreement
                    
of the Companys Current Report on NorthCut
Holdings                                       
Form 8-K filed November 4, 2008  10.7                  
Forbearance
Agreement                              
Incorporated by Reference to Exhibit 10.7 of the Companys Current Report on Form 8-K filed November 4, 2008  10.8Amended Stock Option
Grant                              
Incorporated by Reference to Exhibit 10.8 of the Companys Current Report on Form 8-K filed November 4, 2008  10.9                  
Amended Stock Option
Grant                      
Incorporated by Reference to Exhibit 10.9 of the Companys Current Report on Form 8-K filed November 4, 2008  10.10                
Conditional Grant of
Stock                           
Incorporated by Reference to Exhibit 10.10 of the Companys Current Report on Form 8-K filed November 4, 2008  31.1                  
302 Certification of CEO 
                           
This Filing  31.2                  
302 Certification of
CFO                             
This Filing  32.1                  
906 Certification of
CEO                             
This Filing  32.2                  
906 Certification of
CEO                             
This Filing     25     SIGNATURES  In accordance with Section 13 or 15(d) of the Securities Exchange
Act, the Company caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.   INTERLINE RESOURCES CORPORATION  Date:
December 17, 2008  By:/s/ Michael R. Williams  Michael R. Williams CEO, President and Chairman of the Board of Directors  Date:
December 17, 2008  By:/s/ Michael R. Williams  Michael R. Williams Principal Accounting Officer    26