<PAGE>
 
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 FORM 10-QSB/A
(Mark One)


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

For the quarterly period ended March 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 0-10201

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

             Delaware                                         72-0890264
   (State or other jurisdiction of                          (I.R.S. Employer
    incorporation or organization)                         Identification No.)
      222 Pennbright, Suite 200
           Houston, Texas                                        77090
(Address of principal executive offices)                       (Zip Code)

                                 (281) 872-0500
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for 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 whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  Yes  X    No _____
                          -----          

     As of May 14, 1996 there were 24,956,033 outstanding shares of TGX
Corporation Common Stock, $.01 par value.
<PAGE>
 
                                TGX CORPORATION
         Report on Form 10-QSB/A For The Quarter Ended  March 31, 1996

                                     Index


                                                                            Page
<TABLE>
<CAPTION>
 
 
<S>          <C>                                                             <C>
Part I. Financial Information                                                 1
 
             Item 1.  Financial Statements (Unaudited)
 
                      Consolidated Balance Sheet -
                      March 31, 1996 and December 31, 1995                    2
 
                      Consolidated Statement of Operations -
                      Three Month Periods Ended March 31, 1996 and 1995       3
 
                      Consolidated Statement of Cash Flows -
                      Three Months Ended March 31, 1996 and 1995              4
 
                      Notes to Consolidated Financial Statements (Unaudited)  5
 
             Item 2.  Management's Discussion and Analysis of Financial
                       Condition and Results of Operations                   12
 
</TABLE>

Part II.  Other Information                                                  16

Forward-Looking Statements

     Stockholders are cautioned that all forward-looking statements involve
risks and uncertainties,  including without limitation,  statements about the
costs of exploring and developing new oil and natural gas reserves,  the price
for which such reserves can be sold,  the Company's attempts to reduce overhead
and eliminate non-core assets,  environmental concerns affecting the drilling of
oil and natural gas wells,  pending litigation,  and general market conditions,
competition and pricing.  Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are reasonable,  any
of the assumptions could be inaccurate,  and there can therefore be no assurance
that the forward-looking statements included in this Form 10-QSB/A will prove
accurate.  Because of the significant uncertainties inherent in the forward-
looking statements contained in this Form 10-QSB/A,  the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
<PAGE>
 
                                TGX Corporation
          Report on Form 10-QSB/A For the Quarter Ended March 31, 1996

                        Part I.  Financial Information.


Item 1.  FINANCIAL STATEMENTS.

  The accompanying unaudited consolidated financial statements of TGX
Corporation ("TGX") and its subsidiaries (collectively the "Company") have been
prepared in accordance with Rule 310 of Regulation S-B,  "Interim Financial
Statements", and accordingly do not include all information and notes required
under generally accepted accounting principles for complete financial
statements. The financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Company's Annual Report
on Form 10-KSB/A  for the year ended December 31, 1995. In the opinion of the
Company's management, these interim financial statements contain all adjustments
(which were normal recurring adjustments) necessary for a fair presentation, in
all material respects, of the Company's financial position as of March 31, 1996
and the results of its operations and cash flows for the three month period
ended March 31, 1996.  Results of operations for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.  It is recommended that these
unaudited consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB/A for the year ended December 31, 1995.

PRIOR PERIOD ADJUSTMENTS

     In July 1994,  the Company restructured and converted its Bank of Montreal
("BMO") debt of $4,652,000 to a nonrecourse note secured only by proceeds,  if
any,  which might be received from the National Fuel Gas Distribution
Corporation litigation ("NFG Litigation").  This restructuring and conversion
was accounted for as an exchange transaction presented as an extinguishment of
debt in accordance with Emerging Issues Task Force Consensus No. 86-18 and
resulted in the recognition of an extraordinary gain,  net of transaction costs
of $492,000,  of $4,160,000 in the third quarter of 1994.  In connection with
responding to comments from the Securities and Exchange Commission in connection
with a 1996 filing,  the Company accepted the Securities and Exchange
Commission's determination that generally accepted accounting principles require
the Company to account for the restructuring and conversion of debt as a
troubled debt restructuring in accordance with Statement of Financial Accounting
Standards No. 15.  As a result of this change,  the financial statements for
September 30,  1994 through the current reported period have been restated to
restore the liability for the nonrecourse BMO debt,  including accrued interest,
and to reverse the extraordinary gain recognized in 1994.  This restatement did
not impact cash flow during the period September 30,  1994 through the current
reported period.  The Company did,  however,  upon resolution of the NFG
Litigation in April 1996,  reflect a net gain from litigation settlement of
$7,100,000 and an extraordinary debt extinguishment gain of $1,868,000,  and
made a final debt payment to BMO of $3,600,000.  (See Note 6 of Notes to
Consolidated Financial Statements)

                                       1
<PAGE>
 
TGX Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
Note 1
 
-----------------------------------------------------------------------
                                                 (Restated - Note 6)
                                               March 31,   December 31,
(In thousands, except for share data)            1996          1995
-----------------------------------------------------------------------
                                                  (Unaudited)
ASSETS
Current assets:
 Cash and cash equivalents                          $    137   $    384
 Accounts receivable, net of allowance                 1,227      1,141
  for doubtful accounts of $320
 Accounts receivable from affiliates, net                  -          6
 Other current assets                                     19         51
-----------------------------------------------------------------------
  Total current assets                                 1,383      1,582
-----------------------------------------------------------------------
Property and equipment:
 Oil and natural gas properties                       11,552     11,340
 Other property and equipment                            204        203
 Accumulated depletion, depreciation and                                 
  amortization                                        (4,362)    (4,132) 
-----------------------------------------------------------------------
  Property and equipment, net                          7,394      7,411
-----------------------------------------------------------------------
Investment in Comite Field Plant Venture                 678        739
Other assets                                              49         59
-----------------------------------------------------------------------
  Total other assets                                     727        798
-----------------------------------------------------------------------
TOTAL ASSETS                                        $  9,504   $  9,791
=======================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
 Accounts payable and accrued liabilities - Note 4  $  2,880   $  3,353
-----------------------------------------------------------------------
  Total current liabilities                            2,880      3,353
-----------------------------------------------------------------------
 Long-term  debt - Note 2                              6,152      5,835
-----------------------------------------------------------------------
  Total liabilities                                    9,032      9,188
-----------------------------------------------------------------------
Commitments and contingencies - Note 3
Redeemable Senior Preferred Stock,
 8,851,360 issued; redemption value $88,514           66,365     61,737
-----------------------------------------------------------------------
Stockholders' deficit:
 9% Cumulative Convertible Preferred stock,  300,000 
  shares issued plus 165,000 and 158,000, respectively,                 
  shares to be issued for dividends                      465        458 
 Common stock, 28,976,791 shares issued; 24,956,033                     
  outstanding                                            290        290 
 Additional paid-in capital                            1,483      1,422
 Accumulated deficit                                 (68,131)   (63,304)
-----------------------------------------------------------------------
  Total stockholders' deficit                        (65,893)   (61,134)
-----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT         $  9,504   $  9,791
======================================================================= 


    See accompanying notes to unaudited consolidated financial statements.

                                       2
<PAGE>
 
TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) Note 1

 
 
----------------------------------------------------------------------
                                               (Restated - Note 6)
                                          Three Months ended March 31,
---------------------------------------------------------------------- 
(In thousands except per share data)                  1996      1995
 
REVENUES
Oil and natural gas sales                           $ 1,188    $   967 
Natural gas gathering                                    58         61 
Equity earnings in Comite Field Plant Venture           197        108 
Other, net                                               23          4 
---------------------------------------------------------------------- 
                                                      1,466      1,140 
---------------------------------------------------------------------- 
COSTS AND EXPENSES                                                     
Operating expenses                                      564        438 
Depletion, depreciation and amortization                228        182 
General and administrative expenses                     660        414 
Interest                                                153        150 
----------------------------------------------------------------------
                                                      1,605      1,184 
---------------------------------------------------------------------- 
LOSS BEFORE EXTRAORDINARY GAIN                         (139)       (44)
Extraordinary gain - Note 3                               -        118 
---------------------------------------------------------------------- 
NET INCOME (LOSS)                                      (139)        74 
Accretion of Senior Preferred                        (1,416)    (1,133)
 redemption value                                                      
Preferred stock dividends                            (3,272)    (3,356)
---------------------------------------------------------------------- 
NET LOSS APPLICABLE TO COMMON STOCK                 $(4,827)   $(4,415)
====================================================================== 
NET LOSS PER SHARE OF COMMON STOCK                   $(0.19)    $(0.17)
====================================================================== 
AVERAGE COMMON SHARES OUTSTANDING                    24,956     25,314 
====================================================================== 
 


     See accompanying notes to unaudited consolidated financial statements

                                       3
<PAGE>
 
                        TGX Corporation and Subsidiaries
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                               (Unaudited) Note 1
 
------------------------------------------------------------------------------
                                                      (Restated - Note 6)
                                                  Three Months Ended March 31,
(In Thousands)                                           1996     1995 
------------------------------------------------------------------------------
Cash flows from operating activities:       
 Net income (loss)                                      $  (139)  $  74
 Adjustments to reconcile net income (loss) to cash 
  provided by operating activities:  
   Depletion, depreciation and amortization                 228     182
   Amortization of debt transaction costs and stock                     
    compensation                                              5      34 
   Distributions in excess of equity earnings                61      45
   Interest to be paid through issuance of additional                   
    notes                                                   117     115 
   Extraordinary gain                                         -    (118)
   Changes in operating assets and liabilities:           
    Decrease (increase) in accounts receivable              (86)      1
    Decrease in accounts receivable from affiliates           6     213
    Decrease in other current assets                         32      20
    Decrease in accounts payable and accrued expenses      (473)   (509)
------------------------------------------------------------------------------
    Net cash provided (used) by operating activities       (249)     57
------------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures,  net                              (214)    (21)
   (Increase) decrease in other assets                       16      (4)
------------------------------------------------------------------------------
    Net cash used by investing activities                  (198)    (25)
------------------------------------------------------------------------------
Cash flows from financing activities:
   Borrowing pursuant to revolving credit facility          200     100
   Principal payments on long-term debt and notes payable     -    (489)
    Net cash provided (used) by financing activities        200    (389)
------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                  (247)   (357)
Cash and cash equivalents at beginning of period            384     676
------------------------------------------------------------------------------
Cash and cash equivalents at end of period              $   137   $ 319
==============================================================================
Supplemental Disclosure of Non-Cash Financing 
 Activities:    
                       
    Interest to be paid through issuance of                             
     additional notes                                   $   117   $ 115 
 



     See accompanying notes to unaudited consolidated financial statements.

                                       4
<PAGE>
 
TGX Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

    TGX Corporation ("TGX") and subsidiaries (collectively, the "Company"), is a
domestic independent energy company engaged in the production of oil and natural
gas and in oil and natural gas exploration for its direct account and,
previously, beneficially through general and limited partnerships which were
sold to public and private investors. The Company is also engaged in intrastate
natural gas gathering and treating.

    On February 22, 1990, TGX filed a voluntary petition in the United States
Bankruptcy Court for the Western District of Louisiana, Shreveport Division (the
"Bankruptcy Court") for reorganization pursuant to Chapter 11, Title 11 of the
United States Code (the "Reorganization Proceeding"). On January 7, 1992, the
Bankruptcy Court confirmed an Amended Plan of Reorganization ("Plan") for TGX,
and the confirmation order became effective on January 21, 1992 (the "Effective
Date"). On September 21, 1992, the Bankruptcy Court determined that the Plan had
been substantially consummated, and the Bankruptcy Court's order of substantial
consummation became final and nonappealable on October 2, 1992.

    As a result of the substantial consummation of the Plan and due to (I) the
reallocation of the voting rights among the equity interests owners and (ii) the
reorganization value, of TGX's assets being less than the total of all post-
petition liabilities and allowed claims, the effects of the Reorganization
Proceeding were accounted for in accordance with the fresh start reporting
standards promulgated under the American Institute of Certified Public
Accountants Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" .

    In conjunction with implementing fresh start reporting, a reorganization
value ("RV") of the Company's assets and liabilities as of October 2, 1992 was
determined by management in the following manner:

      The RV of proved oil and natural gas properties and other related assets
      was determined based on future net revenues discounted to present value
      utilizing a rate of 20%. For proved undeveloped properties, the RV was
      determined to be 50% of discounted future net revenues. For the purpose of
      calculating future net revenues of oil and natural gas properties, then
      current oil and natural gas prices were escalated at five percent per
      annum to certain maximum amounts and then current operating costs and
      expenses were escalated at four percent per annum for the economic life of
      the properties. The initial price for natural gas dedicated under the
      contract (the "Contract") with National Fuel Gas Distribution Corporation
      ("NFG"), which is currently a matter being litigated, was equal to 90% of
      the rolling twelve month average price for No.6 fuel oil in the Buffalo,
      New York area (the "90% of No. 6 Fuel Oil Price"). The RV of oil and
      natural gas properties also included $2,905,000 attributable to the
      difference, plus interest, between the price that NFG paid since September
      1984 and the 90% of No. 6 Fuel Oil Price.

      Current assets and liabilities were recorded at book value which
      approximates RV. Long-term liabilities were recorded at the present values
      of amounts to be paid 

                                       5
<PAGE>
 
      and the pre-consummation stockholders' deficit was adjusted to reflect the
      par value of pre-consummation equity interests.

      The recorded value of the Series A Senior Preferred Stock (the "Senior
      Preferred") to be issued pursuant to the Plan was determined based on the
      difference between the RV of the Company's assets less the sum of (I) the
      present value of liabilities plus (ii) the par value of the pre-
      consummation equity interests. The accretion of the difference between the
      recorded value and the $10 per share redemption amount of the Senior
      Preferred will be recorded as a reduction of income applicable to common
      stockholders over a period of approximately 10 years.

   The RV was determined by management on the basis of its best judgment of what
it considered to be the fair market value ("FMV") of the Company's assets and
liabilities at the time of the valuation, after reviewing relevant facts
concerning the price at which similar assets were being sold between willing
buyers and sellers. However, there can be no assurances that the RV and the FMV
are comparable and the difference between the Company's calculated RV and the
FMV may, in fact, be material.

   The consolidated financial statements have been prepared on a going concern
basis which contemplates continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business.

   The Senior Preferred has a $10 per share redemption value and has a provision
for a 10% annual compounded cash dividend, payable quarterly, provided however,
that the payment of such dividend does not violate Delaware law or certain loan
covenants. The Company has not paid any dividends since the Effective Date of
the Plan and based on the current financial position of the Company and bank
covenants restricting dividend payments, it does not expect to make any such
dividend payments in the near future. Subject to Delaware law, the Senior
Preferred must be redeemed no later than January 21, 2002. Holders of Senior
Preferred have 95% of the voting rights of TGX. As of March 31, 1996, the
redemption value and accrued dividends related to the Senior Preferred were
$88,514,000 and $43,693,000 respectively. The Senior Preferred dividends must be
paid in full prior to paying any other dividends.

2. LONG-TERM DEBT AND NOTES PAYABLE

   As of March 31, 1996 and December 31, 1995, the components of long-term debt
   were:


          -------------------------------------------------------      
                                          March 31,  December 31,      
          (Thousands of dollars)            1996         1995          
          -------------------------------------------------------      
          Bank borrowings:                                             
            Revolving credit (secured)       $  700        $  500      
            Non-recourse note                 5,452         5,335      
            Less current maturities               -             -      
          -------------------------------------------------------      
            Long-term debt                   $6,152        $5,835      
          =======================================================      

   On July 13, 1994, the Company entered into a series of agreements with Bank
One, Texas N.A. ("Bank One") whereby the Company's then outstanding secured debt
with the Bank of Montreal ("BMO") was restructured and all existing BMO events
of default were resolved. The Bank One 

                                       6
<PAGE>
 
facility bears interest at Bank One's stated rate plus two percent and is
secured by substantially all of the Company's oil and gas properties. The Bank
One facility at March 31, 1996 had a borrowing base of $2,350,000 and is
redetermined every six months or at Bank One's discretion. Under the current
facility, the borrowing base is reduced through monthly reductions of $50,000
and the loan matures on July 13, 1997. Due to the excess of borrowing base over
year end borrowings outstanding and the current monthly facility reduction rate,
no current maturities for debt are reflected. The Bank One facility requires the
maintenance of certain financial ratios including a working capital ratio, after
excluding certain liabilities and other adjustments as allowed under the
facility, of 1 to 1 and a tangible net worth, including Senior Preferred stock,
of a minimum of $5,000,000, and other financial ratios.

   Simultaneously with the securance of the Bank One facility, BMO released all
of its liens on the Company's properties with the exception of its lien on the
Company's currently pending litigation with NFG ("NFG Litigation"). See Note 3
below.

   Prior to restructuring its debt through establishment of the Bank One
facility, the Company had been subject to the terms of an Amended and Restated
Credit Agreement (the "Amended Credit Agreement") with BMO which was entered
into in February 1992 and amended thereafter and which essentially continued and
preserved the prior revolving credit agreement. Effective December 31, 1992, the
Company had been notified by BMO that an event of default had occurred under the
Amended Credit Agreement, and as a result, BMO had the right to take certain
actions under such Amended Credit Agreement including, but not limited to, the
acceleration of all of the then outstanding BMO obligations.

   In January 1994, in conjunction with the Company's sale of certain assets to
Belden & Blake Corporation ("BBC"), the Company made a debt service payment of
approximately $14.3 million to BMO. On July 13, 1994, in connection with the
series of agreements entered into between the Company and Bank One, the Company
immediately borrowed funds under the Bank One facility and paid approximately
$1,452,000 to BMO and simultaneously therewith, BMO released all of its liens on
the Company's properties with the exception of its lien on the Company's NFG
Litigation. As part of the loan restructuring, BMO converted $4,652,000 (the
"BMOF Principal") of its outstanding indebtedness to a non-recourse note secured
only by the NFG Litigation and any proceeds that might be received therefrom.
BMO has assigned its rights to the loan, security, and the Company's note to
BMO's wholly owned subsidiary, BMO Financial, Inc. ("BMOF"). If NFG Litigation
proceeds are insufficient to repay the BMOF Principal, plus applicable interest,
the Company will have no further obligation for such repayment. The BMOF note
matures on December 31, 1997, subject to each party having the right to extend
the maturity date and bears interest at the rate of 10% per annum. However,
until December 31, 1997, and for such further time as BMOF elects to extend the
maturity date of such loan, no cash payment for such interest is required;
instead, the Company will pay interest in kind through the issuance of
additional notes to BMOF.

   On December 31, 1995, the Company and BMOF executed the first amendment to
the credit agreement. Pursuant to the amended agreement, TGX and BMOF will share
equally any NFG Litigation proceeds up to $8 million. BMOF shall receive 100% of
any proceeds in excess of $8 million until the total received by BMOF equals the
BMOF Principal plus any accrued interest. Thereafter, TGX will receive all funds
until the proceeds it has recovered equals the proceeds received by BMOF. Any
additional NFG Litigation proceeds available shall be shared equally by TGX and
BMOF.

                                       7
<PAGE>
 
   As of March 31, 1996 and December 31, 1995, total accrued interest pursuant
to the BMOF note was $800,000 and $683,000, respectively, payable through the
issuance of additional notes, resulting in total BMOF debt of $5,452,000 and
$5,335,000, respectively. Due to the complexities of the NFG Litigation and the
significant uncertainties therewith, the ultimate amount of NFG Litigation
proceeds cannot be reasonably estimated. (See Note 5)

   During the Reorganization Proceeding, the Company incurred and claimants
filed applications for approximately $7,131,000 in administrative fees and
expenses relating to the reorganization ("Administrative Claims"). The Company
objected to certain of the Administrative Claims and negotiated settlement
amounts and terms of payment with certain holders of Administrative Claims. As a
result, administrative claimants, other than the Opposing Administrative
Claimants, upon execution of certain releases in favor of the Company and
others, were entitled to receive promissory notes (the "Administrative Notes")
due December 31, 1994, in satisfaction of each of their unpaid administrative
claim. Substantially all administrative claimants entitled to receive
Administrative Notes perfected their claims by executing such releases. The
Administrative Notes bore interest at a rate not to exceed 8% and were secured
with certain collateral (the "Consummation Collateral"). If the proceeds related
to the Consummation Collateral were not sufficient to satisfy the Company's
obligations under the Administrative Notes the Company's excess operating funds,
if any, were to be applied toward the balances due. During the first quarter of
1995, the Company paid all remaining perfected Administrative Notes at book
value except for one claimant whose Administrative Note of $40,000 was settled
for a payment of $26,000. Those claimants who had not timely executed the
required releases and perfected their claim, were deemed to have forfeited their
claim rights pursuant to the Plan. As a result of the discount settlement and
claim forfeitures, the Company recorded an extraordinary gain of $118,000 in
1995.

3. COMMITMENTS AND CONTINGENCIES

NFG Litigation
--------------

   In 1974, predecessors of TGX as seller and NFG as buyer entered into a gas
purchase and sale contract (the "NFG Contract") which, in 1983, the New York
State Public Service Commission (the "PSC") determined, in its Opinion No. 83-26
("Opinion 83-26"), that the pricing provision was unacceptable.

   A dispute arose between NFG and TGX as to whether the NFG Contract remained
in force after Opinion 83-26, and, if it did, what price the NFG Contract
prescribed starting in December, 1983. In November, 1984, NFG commenced an
action in the United States District Court for the Western District of New York
(Civ. No. 84-1372E) (the "District Court") seeking a declaration of the rights
and obligations of the parties under the NFG Contract after Opinion 83-26. TGX
counterclaimed for damages claiming that NFG had breached the terms of the NFG
Contract. The PSC intervened as a plaintiff in the District Court action. In
January, 1991, the District Court declared that because Opinion 83-26 had
abrogated an essential term of the NFG Contract, it had voided the entire NFG
Contract.

   In December, 1991, the Federal Court of Appeals for the Second Circuit (the
"Second Circuit") reversed the judgment of the District Court and held that the
NFG Contract had not been voided. The Second Circuit permitted TGX to continue
to deliver gas under the NFG Contract, but left open the issue of the
appropriate price under the NFG Contract.

                                       8
<PAGE>
 
   The Second Circuit remanded the case to the District Court for further
proceedings consistent with its decision, TGX took the position that it was
entitled to recover Natural Gas Policy Act ("NGPA") prices. NFG has taken the
position that the PSC imposed a ceiling on all future gas purchases under the
NFG Contract based on the price of No.6 fuel oil.

   On remand from the Second Circuit, in January 1993, the District Court
granted TGX's motion for partial summary judgment regarding the price to be paid
under the NFG Contract. In response to NFG's request for clarification, the
District Court stated in July 1993 that its January ruling "did not determine
the just and reasonable price for the gas pursuant to [New York Public Service
Law] (S)110(4), set a contract price for the duration of the contract, resolve
any defenses presented by NFG, determine whether such obligation continues until
the present time, or rule on any deregulation issues."

   In December 1992, NFG filed a motion with the PSC requesting a hearing to
determine pricing issues related to the NFG Contract. Pursuant to this request,
the PSC ordered that a proceeding take place. Despite the fact that the PSC had
ordered the proceeding at NFG's request, in Opinion No. 95-5, issued in May,
1995 (the "PSC's 1995 Decision"], the PSC decided that the matter was not ripe
for its review because, in its view, there was currently no contract price in
the NFG Contract for the PSC to review.

   In September, 1994, TGX amended and supplemented its counterclaims in the
District Court action to assert additional claims against NFG for breach and
repudiation of the NFG Contract and for punitive damages based upon NFG's bad
faith course of conduct towards TGX. NFG has raised various defenses against
TGX's counterclaim, including claims that TGX itself repudiated and breached the
NFG Contract by its conduct; a claim that the assignment of the NFG Contract to
TGX was not valid; procedural and jurisdictional defenses; defenses based upon
the Public Service Law; a claim that TGX failed to fix a price in good faith
after the issuance of Opinion 83-26; and a claim for setoffs for unspecified
damages to NFG's facilities.

   During its Reorganization Proceeding, TGX filed an adversary proceeding (the
"Turnover Proceeding") in Bankruptcy Court to compel NFG to pay the amount due
to TGX pursuant to the provisions of the NFG Contract. Effective June 19, 1992,
TGX and NFG entered into a partial settlement agreement, and, in consideration
of a payment of $2,940,000 (the "Payment) from NFG, TGX (i) dismissed the
Turnover Proceeding without prejudice (ii) released NFG (subject to certain
limitations) from any and all liability and affirmative claims for relief
alleged to arise from or based upon certain evidence presented by TGX in the
Turnover Proceeding, and (iii) reserved its rights regarding the assumption or
rejection of certain other relatively minor gas purchase agreements with NFG. As
set forth in Note 5 below, in April 1996, all matters pertaining to the TGX and
NFG Litigation were settled.
                                        
Other
-----

    In August 1992, certain unleased mineral interest owners commenced a legal
action against TGX, as operator of certain wells, in the 19th Judicial District
Court for East Baton Rouge Parish, Louisiana (Case Number 383844, Division "A").
The complaint alleges that revenues in excess of the reasonable costs of
drilling, completing, and operating certain wells have not been credited to the
interests of the unleased mineral interest owners. In July 1995, certain royalty
owners in the same wells commenced a seperate legal action alleging that TGX and
other working interest owners improperly profited under the terms of a Gas
Gathering and Transportation Agreement dated 

                                       9
<PAGE>
 
December 12, 1983. Both cases are in the discovery stage and if settlement
negotiations are not successful, TGX will vigorously defend itself in the
litigation.

   In March, 1994, a hearing was conducted in the Bankruptcy Court regarding the
final allowance of prepetition and administrative claims related to an
overriding royalty interest previously conveyed by TGX. During that hearing, the
parties stipulated that the finally allowed amount of the claimant's prepetition
claim would be $600,000. That prepetition claim has been fully satisfied by the
issuance of Senior Preferred. The Company had previously estimated that
prepetition claim in that amount, and therefore it had been reflected in prior
years' financial statements. Subsequent to the March, 1994 hearing, and after
post-hearing motions from both TGX and the Claimant, the Bankruptcy Court
entered an order on September 7, 1994 which determined that the claimant would
be granted an allowed administrative expense claim for unpaid overriding
royalties arising post-petition but prior to October 4, 1992 in the amount of
$244,000. That administrative claim, when finally allowed, is to be treated by
the issuance of an Administrative Note under the terms of the Plan, and is to be
payable under the terms of the Plan. The Bankruptcy Court further ruled that it
would not exercise any jurisdiction over claims for alleged unpaid overriding
royalties arising subsequent to October 4, 1992. TGX believes that the
Bankruptcy Court erred in its determination of unpaid overriding royalties, and
has appealed the Bankruptcy Court's ruling to the United States District Court
for the Western District of Louisiana. That appeal has been fully briefed, but
no decision has been rendered. As set forth in Note 5 below, in May 1996, the
Company settled this litigation matter and all actions were dismissed.

   From time to time, in the normal course of business, the Company is a party
to various other litigation matters the outcome of which, to the extent not
otherwise provided for, should not have a material adverse effect on the
Company.

4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   As of March 31, 1996 and December 31, 1995, the primary components of
accounts payable and accrued liabilities were:

<TABLE>
<CAPTION>
 
(In thousands)                             1996     1995
----------------------------------------------------------
<S>                                       <C>      <C>
Accounts payable                           $  442   $  555
Undistributed net oil and natural gas       1,045    1,152
 revenue
Accrued pre-petition liabilities              452      518
Accrued operating and tax expenses            348      312
Operation advances                             10      159
Miscellaneous accruals                        583      657
----------------------------------------------------------
                                           $2,880   $3,353
==========================================================
 
</TABLE>

5.  SUBSEQUENT EVENT

   On April 12, 1996, TGX entered into a Settlement Agreement with NFG and the
Public Service Commission of the State of New York. Pursuant to the Settlement
Agreement, TGX received on April 19, 1996, $7,200,000 from NFG and all of the
parties to the Settlement Agreement have dismissed all claims and counterclaims
against each other. Pursuant to the amended credit agreements with BMOF, 50% of
the gross settlement proceeds received by TGX were paid to BMOF in cancellation
and full payment of the non-recourse note totaling $5,468,000, including
interest of $816,000. In the second quarter of 1996, 

                                       10
<PAGE>
 
TGX recorded an extraordinary gain for debt forgiveness of $1,831,000, net of
income taxes of $37,000, in conjunction with the $3.6 million BMOF final
payment. Pursuant to a BMOF agreement, BMOF is to reimburse TGX for 50% of all
taxes and royalties, if any, which may be due from such proceeds. As a result of
the NFG litigation settlement proceeds and $100,000 payment to another third
party entitled to participate in the proceeds, the Company recorded in the
second quarter of 1996, $7.1 million as a net litigation settlement gain. As a
result of the NFG settlement, TGX retired all of its then outstanding bank debt
of $900,000 on April 22, 1996.

   On May 9, 1996, TGX entered into a settlement agreement regarding the final
allowance of pre-petition and administration claims related to an overriding
royalty interest. Under the agreement, TGX paid $400,000 as full settlement of
all claims and received 60,000 Senior Preferred Shares previously owned by the
settling party. This settlement was fully accrued for as of March 31, 1996.

6.  PRIOR PERIOD ADJUSTMENTS

   In July 1994, the Company restructured and converted its BMO debt of
$4,652,000 to a nonrecourse note secured only by proceeds, if any, which might
be received from the NFG Litigation. This restructuring and conversion was
accounted for as an exchange transaction presented as an extinguishment of debt
in accordance with Emerging Issues Task Force Consensus No. 86-18 and resulted
in the recognition of an extraordinary gain, net of transaction costs of
$492,000, of $4,160,000 in the third quarter of 1994. In connection with
responding to comments from the Securities and Exchange Commission in connection
with a 1996 filing, the Company accepted the Securities and Exchange
Commission's determination that generally accepted accounting principles require
the Company to account for the restructuring and conversion of debt as a
troubled debt restructuring in accordance with Statement of Financial Accounting
Standards No. 15. As a result of this change, the financial statements for
September 30, 1994 through the current reported period have been restated to
restore the liability for the nonrecourse BMO debt, including accrued interest,
and to reverse the extraordinary gain recognized in 1994. This restatement did
not impact cash flow during the period September 30, 1994 through the current
reported period. The Company did, however, upon resolution of the NFG Litigation
in April 1996, reflect a net gain from litigation settlement of $7,100,000 and
an extraordinary debt extinguishment gain of $1,868,000, and made a final debt
payment to BMO of $3,600,000. A summary of the impact for the periods presented
is shown below (in thousands, except per share data).

<TABLE>
<CAPTION>
 
Balance Sheet
------------- 
                                                                  March 31,             December 31,
                                                                    1996                    1995
                                                            -------------------       ------------------- 
                                                                (Unaudited)
                                                            Reported   Restated       Reported   Restated
                                                            --------   --------       --------   --------
<S>                                                         <C>        <C>            <C>        <C> 
Long-term debt                                              $    700   $  6,152       $    500   $  5,835
Accumulated deficit                                          (62,679    (68,131)       (57,969)   (63,304)
Total stockholders' deficit                                  (60,441)   (65,893)       (55,799)   (61,134)
 
Statement of Operations  (Unaudited)
--------------------------------------

                                                                    Three Months Ended March 31,
                                                                   1996                      1995
                                                                   ----                      ----
                                                            Reported   Restated       Reported   Restated
                                                            --------   --------       --------   --------
Interest expense                                            $     36   $    153       $     35   $    150
Net loss applicable to common stock                           (4,710)    (4,827)        (4,300)    (4,415)
Net loss per share of common stock                             (0.19)     (0.19)         (0.17)     (0.17)
 
</TABLE>

                                       11
<PAGE>
 
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNAUDITED FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.

   The following discussion provides information which management believes is
relevant to an understanding and assessment of the Company's results of
operations, financial condition, and those presently known events, trends or
uncertainties that are reasonably likely to have a material impact on the
Company's future results of operations or financial condition or that are
reasonably likely to cause the historical financial statements not to be
necessarily indicative of future operating results or financial condition. It
should be read in conjunction with the unaudited consolidated financial
statements and related notes appearing elsewhere herein.

   Amounts in this discussion and analysis have been restated as disclosed in
Note 6 of the Notes to Consolidated Financial Statements.

                             RESULTS OF OPERATIONS

Quarter Ended March 31, 1996 ("1996") Compared to March 31, 1995 ("1995")
-------------------------------------------------------------------------

Following is a comparison of operating income (amounts in thousands):

<TABLE>
<CAPTION>

                                            1996      1995       Change
                                            ----      ----       ------
<S>                                       <C>          <C>        <C>
Oil and natural gas revenues                $1,188     $ 967        23%
Natural gas gathering and treating             255       169        51%
Operating and workover expenses               (564)     (438)       29%
Depletion,depreciation and amortization       (228)     (182)       25%
General and administrative expenses           (660)     (414)       59%
                                            ------     -----      ----
Operating income (loss)                     $   (9)    $ 102      (109%)
                                            ======     =====      ====
</TABLE>

   Consolidated revenues for 1996 increased $326,000 or 28% to $1,466,000 as
compared to $1,140,000 for 1995.  Though revenues for 1996 were higher,  the
current quarter yielded a marginal operating loss due primarily to higher 1996
operating and general and administrative expenses and an increase in non-cash
depletion,  depreciation and amortization.

Revenues
--------

   Oil and natural gas sales for 1996 increased 23% due to higher oil and gas
product prices.  A summary of oil and natural gas sales volumes and revenues for
the respective periods follows:

                      Summary of Oil Volumes and Revenues

<TABLE>
<CAPTION>
--------------------------------------------------------
                                 1996     1995    Change
<S>                             <C>      <C>      <C>
--------------------------------------------------------
Oil revenues (in thousands)     $   319  $   315     1%
Oil sales volume (barrels)       16,700   18,400    (9%)
Oil average price per barrel    $ 19.10  $ 17.12    12%
--------------------------------------------------------
</TABLE>

                                       12
<PAGE>
 
                 Summary of Natural Gas Production and Revenue

<TABLE>
<CAPTION>
----------------------------------------------------------------
                                           1996    1995   Change
----------------------------------------------------------------
<S>                                       <C>     <C>     <C>
Natural gas revenues (in thousands)        $ 869   $ 652    33%
Natural gas production (BCF)                .423    .445    (5%)
Natural gas average sales price per MCF    $2.05   $1.46    40%
----------------------------------------------------------------
</TABLE>

  On an equivalent unit basis (one barrel of oil equals six MCF of natural gas
on a heating value basis), natural gas represents 81% of TGX's 1996 oil and
natural gas production volumes and 73% of oil and natural gas revenues.   Due to
the Company's production being heavily weighted toward gas, its revenues and
cash flow is significantly  influenced by changes in gas prices.  During the
first quarter of 1996, average gas prices increased by approximately $0.59 per
Mcf from the March 31, 1995 average price of $1.46.  Current quarter oil prices
were also higher than the previous period by $1.98 per barrel.  Higher oil and
gas product prices resulted in an increase in such revenues for 1996 of
$282,000.

   Natural gas sales volumes for 1996, including gas balancing, declined by
22,000 Mcf while oil volumes, including one time adjustments, decreased 1,700
barrels.  Included in 1995 gas revenues is approximately 89,000 Mcf or $138,000
related to gas balancing revenues. The Company records gas revenues on the net
sales method and thus revenues are recorded when received or operations merit
accrual.  Excluding gas balancing revenues, gas sales volumes for 1996 increased
by 67,000 Mcf or 19% to the comparable quarter.  Oil volumes for 1995 also
benefited by approximately 7,200 barrels or $116,000 related to a one-time
payout adjustment.  Excluding the payout adjustment barrels, 1996 oil sales
volumes increased by 49% as compared to 1995.

   Natural gas gathering and treating revenues increased by 51% to $255,000 in
1996 as compared to $169,000 in 1995.  This increase in primarily attributable
to recoupment of previously deferred treating fees and higher per Mcf contract
treating costs.

Costs and Expenses
------------------

   Consolidated costs and expenses for 1996 increased by $421,000 or 36% to
$1,605,000 as compared to $1,184,000 for 1995.  The increase in expenses was due
primarily to higher 1996 operating and general and administrative expenses.

   For 1996, total operating expenses increased $126,000 or 29% to $564,000 as
compared to $438,000 for 1995.  Included in 1996 and 1995 operating expenses are
workover costs totaling $86,000 and $119,000, respectively.  Severance taxes,
which are also included in operating expenses, included a one-time benefit
related to a pre-petition tax settlement of $42,000 in 1995.  Excluding workover
costs and severance taxes, 1996 and 1995 operating expenses totaled $417,000 and
$317,000, respectively, and represented 35% and 33% of oil and gas sales,
respectively.

   Depletion, depreciation, and amortization ("DD&A") expense increased $46,000
or 25% to $228,000 in 1996 from $182,000 in 1995 due primarily to a higher
weighted average DD&A rate per equivalent Mcf.  The weighted average DD&A rate
for 1996 on an equivalent Mcf basis is $0.41 as compared to 1995's rate of
$0.30.

   General and administrative expenses in 1996 increased by $246,000 or 59% to
$660,000 from $414,000 in 1995 due to additional 1996 legal costs and 1995
including reimbursements from previously managed partnerships.  Legal costs for
1996 exceeded 1995 costs by $67,000 primarily due to increased activity
regarding the NFG Litigation.  This litigation was settled subsequent to quarter
end (See Note 5).  During late 1995, the Company as part of its plan of
divesting non-strategic assets, liquidated the 

                                       13
<PAGE>
 
remaining eight managed partnerships. As a result, 1995 general and
administrative costs benefited from partnership reimbursements of approximately
$40,000 per month.

   Interest expense for 1996 and 1995 was relatively unchanged. Interest on the
BMOF note, which is paid through the issuance of additional notes, for 1996 and
1995 was $117,000 and $115,000, respectively. Included in both periods is $9,000
of amortization of credit facility establishment costs which are being amortized
over the initial term of the facility.

   The accretion of the Senior Preferred redemption value, a non-cash item, is
calculated based on the interest method. Accordingly, the amount of accretion
increased by 25% to $1,416,000 for 1996 as compared to $1,133,000 in 1995.

   Pursuant to the terms of the Plan, dividends for the Senior Preferred are
calculated at 10%, compounded annually and resulted in dividends for 1996 of
$3,205,000 as compared to $3,289,000 for 1995. Dividends on the Old Preferred
stock were $67,000 for 1996 and 1995.

 
                              FINANCIAL CONDITION
                                        
   During the first quarter of 1996, the Company's total capital expenditures
were $214,000 and were primarily related to development drilling activity.  The
Company also incurred workover costs of $86,000.
 
   At March 31, 1996, the Company had a working capital deficit of $1,497,000
which included $452,000 related to various pre-petition obligations.  The
current deficit represents a decrease of $274,000 from the prior year end
deficit.  Based on current borrowing availability and projected 1996 activity,
capital resources are deemed sufficient for current operating needs.

   The Bank One credit facility borrowings outstanding as of March 31, 1996
totaled $700,00 with a borrowing base of $2,350,000.  The borrowing base is
reduced monthly by $50,000.  Due to the excess borrowing base over quarter end
borrowings outstanding and the current monthly facility reduction rate, no
current maturities for debt are reflected.  The borrowing base is redetermined
on a semi-annual basis or at any time at Bank One's election.  The facility is
secured by substantially all of the Company's assets and includes financial and
default covenants standard to the industry.  Pursuant to the terms of the
borrowing base facility,  the Company must maintain certain financial ratios
including a current ratio of 1 to 1, after excluding certain liabilities and
making other adjustments as allowed under the facility.  After making such
current ratio adjustments, the Company has to date been in compliance with the
current ratio test and other financial ratios.  The Bank One credit facility was
initially repayable in 36 month period and matures on July 13, 1997. As of
March 31, 1996, the Company had $5,452,000, including interest of $800,000, of
non-recourse BMOF outstanding debt. The BMOF debt is secured only by the NFG
Litigation and proceeds, if any, that might be received therefrom. (See Note 5)

   The Company has certain dividend and redemption obligations related to the
Senior Preferred shares.  For financial reporting purposes, the Senior Preferred
shares have both debt and equity characteristics.  Accordingly, it is not
classified as a component of stockholders' equity.  At March 31, 1996, the
Senior Preferred redemption value and accrued dividends,  were $88,514,000 and
$43,487,000,  respectively. These amounts, plus any additional accrued
dividends, must be satisfied before any value can be attributed to the holders
of Old Preferred and Common Stock.

   At March 31, 1996, the Stockholders' deficit was $65,893,000.  Due to the
dividend requirements for the Senior, Junior, and Old Preferred Stock and
accretion of the redemption value of Senior Preferred, under the current capital
structure, it is probable that the Company's Stockholders' equity will remain a
deficit for the foreseeable future.

                                       14
<PAGE>
 
                        LIQUIDITY AND CAPITAL RESOURCES

   For 1996 to date, the Company's cash provided by operating activities was a
deficit of $249,000.  The deficit was primarily the result of changes in working
capital.  Included in cash provided by operating activities is cash received of
approximately $258,000 from the Company's 35% equity investment in the Comite
Field Plant Venture.

   The Bank One credit facility has a current borrowing base of approximately
$2.35 million of which borrowings outstanding totaled $700,000 and letter of
credit commitments totaled $25,000.  Based on the borrowing base and borrowings
and commitments, the Company at  quarter end had availability under the credit
facility of $1,625,000. Though the borrowing base is reduced monthly by $50,000
and all amounts borrowed are due July 13, 1997, availability under the facility
is deemed sufficient for current operating activities.

   As detailed in Note 5, subsequent to quarter end the Company settled its NFG
Litigation resulting in the Company receiving $7,200,000.  The Company paid
$3,600,000 to BMOF as full and final payment of the $5,468,000,  including
interest of $816,000,  of BMOF debt then outstanding.  The Company retained
$3,500,000 of the litigation settlement proceeds after BMOF and other third
party payments.  A portion of the litigation proceeds were utilized to repay the
$900,000 of then existing bank debt and the $400,000 litigation settlement of
the pre-petition and administrative claim related to an overriding royalty.

   Subject to the availability of cash flow for 1996, the Company's capital
expenditure budget will be substantially related to the development of proved
developed non-producing and undeveloped reserves or similar risk type projects.
The Company shall also continue to review its investment opportunities,
consistent with its available capital, to determine if asset enhancement can be
best obtained through either development of existing Company reserves, drilling
and/or acquisition.
 
    The Company anticipates that continued development drilling and workovers
will maintain or increase current production volumes.  In addition,  the company
is continually evaluating opportunities for acquisition of producing properties
and currently intends to pursue future production volume and reserve base growth
through acquisitions.  The current cash balance,  projected cash flows from
existing properties and borrowings available under the Company's current line of
credit and expected future credit facility increases are considered adequate to
fund future capital growth plans.  Effective implementation of the Company's
development and acquisition plans is expected to meet the company's long-term
operation and liquidity requirements.

                                       15
<PAGE>
 
                           Part II.  Other Information

Item 1.    LEGAL PROCEEDINGS

   Except as set forth in Note 5 of the Notes to Consolidated Financial
Statements Unaudited included in Part I hereof, since the filing date of the
Annual Report on Form 10-KSB/A, there have been no substantial developments
related to the legal proceedings described therein.

Item 3. DEFAULTS UPON SENIOR SECURITIES

 (a)  Dividends for the Senior Preferred Stock began accruing on the Effective
      Date, however, as of March 31, 1996, no dividends had been declared.  The
      Senior Preferred Stock will receive a 10% annual compounded cash dividend,
      payable quarterly, provided however, that the payment of such dividends
      does not violate (i) Delaware Law which prohibits the payment of dividends
      when such payment would impair the capital of the Company or (ii) certain
      covenants in the Company's Credit Agreement with Bank One, Texas N.A.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K.

 (a)  Exhibits: - Exhibit 27 - Financial Data Schedule

 (b)  Reports on Form 8-K

      Settlement Agreement among the Company,  National Fuel Gas Distribution
      Company,  and the New York Public Service Commission dated as of April 12,
      1996. (Incorporated by reference to Exhibit 1 of Form 8-K dated April 30,
      1996).

                                       16
<PAGE>
 
                                  Signatures

   Pursuant to the requirements 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.


                                   TGX CORPORATION
                                   (Registrant)



Date: February 25, 1997            By:   /S/  Michael A. Gerlich
                                        ----------------------------------
                                        Vice President and
                                        Chief Financial Officer
 

                                       17