**UNITEDSTATES****SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

##### **FORM 10-QSB**

##### ** **

**x****        QuarterlyReport under Section 13 or 15(d) of The Securities Exchange Act of1934**

 

###### **For theQuarterly Period Ended March 31, 2008**

######  

**Commission File Number****0-9355**

 

**CUBICENERGY, INC.**

(Exact name of small business issuer as specified in its charter)

 

| **Texas**                                      | ** ** | **87-0352095**                    |
|------------------------------------------------|------------|-----------------------------------|
| (State or other jurisdiction of incorporation) |       | (IRS Employer Identification No.) |

 

###### **9870 PlanoRoad**

**Dallas, TX 75238**

(Address of principal executive offices)

 

**(972) 686-0369**

(Issuer’s telephone number, including area code)

 

Check whether the issuer (1) filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

###### Yesx   No o

######  

Indicateby check mark whether the registrant is a shell company.

 

Yeso   No x

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date:

 

Asof May 9, 2008, the Company had 58,491,100 shares of common stock, $0.05par value, outstanding.

 

TransitionalSmall Business Disclosure Format (Check one): Yes o No x

 

 

----

 

**CUBIC ENERGY, INC.**

 

**TABLE OF CONTENTS**

 
| **PART I – FINANCIAL INFORMATION** |
|----------------------------------------------|
|                                         |   |   |   |
| Item 1.                                      | Financial  Statements |   |   |
|                                         |   |   |   |
|                                         | Independent Accountant’s Report |   | 1 |
|                                         |   |   |   |
|                                         | Condensed  Balance Sheets  As of March 31, 2008 (unaudited) and June 30, 2007 |   | 2 |
|                                         |   |   |   |
|                                         | Condensed  Statements of Operations, (unaudited)  For the three months ended March 31, 2008 and March 31, 2007 |   | 3 |
|                                         |   |   |   |
|                                         | Condensed  Statements of Cash Flows, (unaudited)  For the nine months ended March 31, 2008 and March 31, 2007 |   | 4 |
|                                         |   |   |   |
|                                         | Notes to Condensed Financial Statements |   | 5-10 |
|                                         |   |   |   |
| Item 2.                                      | Management’s  Discussion and Analysis or Plan of Operation |   | 11-14 |
|                                         |   |   |   |
| Item 3.                                      | Controls and  Procedures |   | 14 |
|                                         |   |   |   |
| **PART II  – OTHER INFORMATION**   |
| ** **                                   | ** ** | ** ** | ** ** |
| Item 1.                                      | Legal Proceedings |   | 15 |
|                                         |   |   |   |
| Item 2.                                      | Unregistered  Sales of Equity Securities and Use of Proceeds |   | 15 |
|                                         |   |   |   |
| Item 4.                                      | Submission  of Matters to a Vote of Security Holders |   | 16 |
|                                         |   |   |   |
| Item 6.                                      | Exhibits |   | 16 |
|                                         |   |   |   |
| Signatures                                   |   | 17 |
|                                         |   |   |   |
| Certifications                               |   |   |

 

i

----

 

# **PART I - FINANCIAL INFORMATION**

# ** **

**Item1.  Financial Statements**

** **

**INDEPENDENT ACCOUNTANT’S REPORT**

 

TheStockholders and Board of Directors

CubicEnergy, Inc.

 

Wehave reviewed the accompanying condensed balance sheets as of March 31,2008, and the related condensed statements of operations and of cash flows ofCubic Energy, Inc. for the three-month and nine-month periods ended March 31,2008 and 2007.  These financialstatements are the responsibility of the Company’s management.

 

Weconducted our reviews in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). A review of interim financial information consists principally ofapplying analytical procedures to financial data and making inquiries ofpersons responsible for financial and accounting matters. It is substantiallyless in scope than an audit conducted in accordance with the standards of thePublic Company Accounting Oversight Board, the objective of which is theexpression of an opinion regarding the financial statements taken as awhole.  Accordingly, we do not expresssuch an opinion.

 

Basedon our reviews, we are not aware of any material modifications that should bemade to the accompanying financial statements for them to be in conformity withaccounting principles generally accepted in the United States of America.

 

Wehave previously audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the balance sheet of Cubic Energy, Inc.as of June 30, 2007, and the related statements of operations,stockholders’ equity and cash flows for the year then ended; and in our reportdated September 26, 2007, we expressed an unqualified opinion on thosestatements.

 

 
|       | PHILIP  VOGEL & CO., PC    |
|------------|-------------------------------------|
|       |                                |
|       | /s/ Philip Vogel & Co., PC |
|       |                                |
|       |                                |
| ** ** | **Certified Public Accountants**    |

# ** **

Dallas,Texas

May 12,2008

 

1

----

 

**CUBIC ENERGY, INC.**

 

**CONDENSED BALANCE SHEETS**

** **
| ** **                                                                                                                                                  | ** ** | **March 31, 2008** | ** ** | **June 30, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                  | ** ** | **(unaudited)**              | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                  |       |                         |       |                        |       |
| Current assets:                                                                                                                                             |       |                         |       |                        |       |
| Cash and cash equivalents                                                                                                                                   |       | $                            | 654,605    |                        | $          | 3,122,273 |   |
| Accounts receivable - trade                                                                                                                                 |       | 272,921                      |       | 218,874                     |       |
| Prepaid drilling costs                                                                                                                                      |       | —                       |       | 721,136                     |       |
| Other prepaid expenses                                                                                                                                      |       | 778,714                      |       | 231,232                     |       |
| Total current assets                                                                                                                                        |       | 1,706,240                    |       | 4,293,515                   |       |
| Property and equipment:                                                                                                                                     |       |                         |       |                        |       |
| Oil and gas properties, full cost method:                                                                                                                   |       |                         |       |                        |       |
| Proved properties (including wells and  related equipment and facilities)                                                                                   |       | 19,263,723                   |       | 8,836,790                   |       |
| Unproven properties                                                                                                                                         |       | 9,225,923                    |       | 6,827,341                   |       |
| Office and other equipment                                                                                                                                  |       | 14,672                       |       | 12,886                      |       |
| Property and equipment, at cost                                                                                                                             |       | 28,504,318                   |       | 15,677,017                  |       |
| Less accumulated depreciation, depletion  and amortization                                                                                                  |       | 2,828,449                    |       | 2,011,015                   |       |
| Property and equipment, net                                                                                                                                 |       | 25,675,869                   |       | 13,666,002                  |       |
| Other assets:                                                                                                                                               |       |                         |       |                        |       |
| Deferred loan costs, net                                                                                                                                    |       | 106,733                      |       | 148,724                     |       |
| Total other assets                                                                                                                                          |       | 106,733                      |       | 148,724                     |       |
|                                                                                                                                                        |       | $                            | 27,488,842 |                        | $          | 18,108,241 |   |
| **Liabilities and stockholders’ equity**                                                                                                               |       |                         |       |                        |       |
| Current liabilities:                                                                                                                                        |       |                         |       |                        |       |
| Accounts payable and accrued expenses                                                                                                                       |       | $                            | 255,358    |                        | $          | 51,664 |   |
| Due to affiliates                                                                                                                                           |       | 1,212,010                    |       | 1,635,055                   |       |
| Total current liabilities                                                                                                                                   |       | 1,467,368                    |       | 1,686,719                   |       |
| Long-term liabilities:                                                                                                                                      |       |                         |       |                        |       |
| Long-term debt, net of discounts                                                                                                                            |       | 18,514,467                   |       | 7,626,739                   |       |
| Total long-term liabilities                                                                                                                                 |       | 18,514,467                   |       | 7,626,739                   |       |
| Commitments and contingencies                                                                                                                               |       | —                       |       | —                      |       |
| Stockholders’ equity:                                                                                                                                  |       |                         |       |                        |       |
| Preferred stock - $.01 par value,  authorized 10,000,000 shares, issued none                                                                                |       | —                       |       | —                      |       |
| Common stock - $.05 par value, authorized  100,000,000 shares, issued 57,679,371 shares at March 31, 2008 and  55,840,896 shares at June 30, 2007 |       | 2,883,970                    |       | 2,792,046                   |       |
| Additional paid-in capital                                                                                                                                  |       | 26,818,080                   |       | 25,325,429                  |       |
| Accumulated deficit                                                                                                                                         |       | (22,195,043                  | )          | (19,322,692                 | )          |
| Stockholders’ equity                                                                                                                                   |       | 7,507,007                    |       | 8,794,783                   |       |
|                                                                                                                                                        |       | $                            | 27,488,842 |                        | $          | 18,108,241 |   |

 

*The accompanying notes are anintegral part of these statements.*

 

2

----

 

**CUBICENERGY, INC.**

 

**CONDENSED STATEMENTS OF OPERATIONS**

**(unaudited)**

** **
| ** **                                                 | ** ** | **Three months ended** | ** ** | **Nine months ended** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                 | ** ** | **March 31,**               | ** ** | **March 31,**              | ** ** |
| ** **                                                 | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues:                                                  |       |                             |       |                            |       |   |   |   |   |
| Oil and gas sales                                          |       | $                                | 778,360    |                            | $          | 77,601 |   | $ | 1,602,173 |   | $ | 295,970 |   |
| Total revenues                                             |       | $                                | 778,360    |                            | $          | 77,601 |   | $ | 1,602,173 |   | $ | 295,970 |   |
| Costs and expenses:                                        |       |                             |       |                            |       |   |   |   |   |
| Oil and gas production, operating and  development costs   |       | 390,361                          |       | 176,427                         |       | 811,973 |   | 365,002 |   |
| General and administrative expenses                        |       | 607,423                          |       | 315,794                         |       | 1,434,727 |   | 928,647 |   |
| Depreciation, depletion and  non-loan-related amortization |       | 331,181                          |       | 27,649                          |       | 817,434 |   | 116,135 |   |
| Total costs and expenses                                   |       | 1,328,965                        |       | 519,870                         |       | 3,064,134 |   | 1,409,784 |   |
| Operating income (loss)                                    |       | (550,605                         | )          | (442,269                        | )          | (1,461,961 | ) | (1,113,814 | ) |
|                                                       |       |                             |       |                            |       |   |   |   |   |
| Non-operating income (expense):                            |       |                             |       |                            |       |   |   |   |   |
| Other income                                               |       | 6,906                            |       | 21,064                          |       | 36,062 |   | 25,595 |   |
| Interest expense, including amortization of  loan discount |       | (526,739                         | )          | (339,710                        | )          | (1,404,461 | ) | (986,854 | ) |
| Amortization of loan costs                                 |       | (13,895                          | )          | (25,416                         | )          | (41,991 | ) | (87,071 | ) |
| Total non-operating income (expense)                       |       | (533,728                         | )          | (344,062                        | )          | (1,410,390 | ) | (1,048,330 | ) |
| Loss on debt extinguishment                                |       | —                           |       | (1,082,887                      | )          | — |   | (1,082,887 | ) |
| Loss from operations before income taxes                   |       | (1,084,333                       | )          | (1,869,218                      | )          | (2,872,351 | ) | (3,245,031 | ) |
| Provision for income taxes                                 |       | —                           |       | —                          |       | — |   | — |   |
| Net loss                                                   |       | $                                | (1,084,333 | )                               | $          | (1,869,218 | ) | $ | (2,872,351 | ) | $ | (3,245,031 | ) |
| Net loss per common share - basic and  diluted             |       | $                                | (0.02      | )                               | $          | (0.03 | ) | $ | (0.05 | ) | $ | (0.07 | ) |
| Weighted average common shares outstanding                 |       | 57,095,686                       |       | 54,474,168                      |       | 56,469,645 |   | 48,658,491 |   |

 

*Theaccompanying notes are an integral part of these statements.*

 

3

----

 

**CUBIC ENERGY, INC.**

 

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
| ** **                                                                            | ** ** | **Nine months ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                            | ** ** | **March 31,**              | ** ** |
| ** **                                                                            | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| **Cash flows from operating activities:**                                             |       |                            |       |   |   |
| Net (loss)                                                                            |       | $                               | (2,872,351 | ) | $ | (3,245,031 | ) |
| Adjustments to reconcile net (loss) to cash  provided (used) by operating activities: |       |                            |       |   |   |
| Depreciation, depletion and amortization                                              |       | 1,247,152                       |       | 156,764 |   |
| Stock issued for compensation                                                         |       | 496,006                         |       | 351,500 |   |
| Write-off of deferred loan costs                                                      |       | —                          |       | 318,999 |   |
| Write-off of note payable discount                                                    |       | —                          |       | 1,145,359 |   |
| Change in assets and liabilities:                                                     |       |                            |       |   |   |
| (Increase) decrease in accounts receivable  - trade                                   |       | (54,047                         | )          | (6,689 | ) |
| (Increase) decrease in other prepaid  expenses                                        |       | 38,088                          |       | — |   |
| Increase (decrease) in accounts payable and  accrued expenses                         |       | 203,694                         |       | (79,881 | ) |
| Increase (decrease) in due to affiliates                                              |       | (326,572                        | )          | 45,153 |   |
| Net cash provided (used) by operating  activities                                     |       | (1,268,030                      | )          | (1,313,826 | ) |
| ** **                                                                            |       |                            |       |   |   |
| **Cash flows from investing activities:**                                             |       |                            |       |   |   |
| Acquisition and development of oil and gas  properties                                |       | (12,825,515                     | )          | (372,515 | ) |
| Increase (decrease) in capital portion of  due to affiliates                          |       | (96,473                         | )          | (964,106 | ) |
| Purchase of office equipment                                                          |       | (1,786                          | )          | (1,029 | ) |
| (Increase) decrease in advances on  development costs                                 |       | 721,136                         |       | (1,147,580 | ) |
| Decrease (increase) in restricted cash                                                |       | —                          |       | 401,723 |   |
| Net cash provided (used) by investing  activities                                     |       | (12,202,638                     | )          | (2,083,507 | ) |
|                                                                                  |       |                            |       |   |   |
| **Cash flows from financing activities:**                                             |       |                            |       |   |   |
| Issuance of common stock, net                                                         |       | 503,000                         |       | 6,465,000 |   |
| Proceeds from credit facility                                                         |       | 10,500,000                      |       | — |   |
| Issuance of convertible debt and warrants                                             |       | —                          |       | 5,000,000 |   |
| Repayment of debt                                                                     |       | —                          |       | (5,500,000 | ) |
| Payment of note payable to affiliate                                                  |       | —                          |       | (1,300,000 | ) |
| Loan costs incurred and other                                                         |       | —                          |       | (340,613 | ) |
| Net cash provided (used) by financing activities                                      |       | 11,003,000                      |       | 4,324,387 |   |
|                                                                                  |       |                            |       |   |   |
| **Net increase (decrease) in cash and cash  equivalents**                             |       | $                               | (2,467,668 | ) | $ | 927,054 |   |
| Cash and cash equivalents:                                                            |       |                            |       |   |   |
| Beginning of period                                                                   |       | 3,122,273                       |       | 259,157 |   |
| End of period                                                                         |       | $                               | 654,605    |   | $ | 1,186,211 |   |
| Other information:                                                                    |       |                            |       |   |   |
| Cash interest paid                                                                    |       | $                               | 1,016,712  |   | $ | 651,673 |   |

 

*Theaccompanying notes are an integral part of these statements.*

 

4

----

 

**CUBIC ENERGY, INC.**

 

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**AS OF MARCH 31, 2008**

**(Unaudited)**

 

**SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

**Basis of presentation:**

 

The accounting policies followed by Cubic Energy, Inc.,a Texas corporation (the “Company” or “Cubic”), are set forth in the Company’sfinancial statements that are a part of its June 30, 2007 Form 10-KSBand should be read in conjunction with the financial statements containedherein.

 

The financial information included herein asof March 31, 2008, and for the three-month and nine-month periods ended March 31,2008, and 2007, have been presented without an audit, pursuant to accountingprinciples for interim financial information generally accepted in the UnitedStates of America, and the rules of the Securities and ExchangeCommission.

 

The Company believes that the disclosures areadequate to make the information presented not misleading. The informationpresented reflects all adjustments (consisting solely of normal recurringadjustments), which are, in the opinion of management, necessary for a fairstatement of results for the periods.

 

**Earnings per share:**

 

The Company has adopted the provisions ofStatement of Financial Accounting Standards (SFAS) No. 128, *Earnings per Share*. SFAS No. 128 reportingrequirements replace primary and fully-diluted earnings per share (EPS) withbasic and diluted EPS. Basic EPS is calculated by dividing net income(available to common stockholders) by the weighted average number of commonshares outstanding for the period. Diluted EPS reflects the potential dilutionthat could occur if securities or other contracts to issue common stock wereexercised or converted into common stock.

 

**Stock issuance:**

 

On August 27, 2007, twowarrant holders of the Company exercised warrants for an aggregate of 200,000shares of Company common stock, through the payment of an aggregate of $100,000to the Company.

 

On September 17, 2007,a warrant holder of the Company exercised warrants for 25,000 shares of Companycommon stock, through the payment of $17,500 to the Company.

 

OnOctober 22, 2007, two warrant holders of the Company exercised warrantsfor an aggregate of 250,000 shares of Company common stock, through the paymentof an aggregate of $125,000 to the Company.

 

OnDecember 21, 2007, four warrant holders of the Company exercised warrantsfor an aggregate of 115,000 shares of Company common stock, through the paymentof an aggregate of $110,500 to the Company.

 

OnJanuary 17, 2008, a warrant holder of the Company exercised warrants for100,000 shares of Company common stock, through the payment of $50,000 to theCompany.

 

5

----

 

**CUBIC ENERGY, INC.**

 

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**AS OF MARCH 31, 2008**

**(Unaudited)**

 

On February 1, 2008, 50,000 warrants were exercised by a warrantholder of the Company and 18,252 shares of Company common stock were issuedutilizing a cashless exercise price of $1.55 per share, the closing price of the Company’scommon stock on the prior trading day.

 

On March 7, 2008, 300,000 warrants were exercised by a warrantholder of the Company and 132,720 shares of Company common stock were issuedutilizing a cashless exercise price of $1.75 per share, the closing price of the Company’scommon stock on the prior trading day.

 

OnMarch 13, 2008, a warrant holder of the Company exercised warrants for200,000 shares of Company common stock, through the payment of $100,000 to theCompany. On March 28, 2008 the same warrant holder exercised warrants foran additional 100,000 shares of Company common stock, through the payment of$50,000 to the Company.

 

**Stock grants:**

 

On December 29, 2005, the stockholders of the Company approved the2005 Stock Option Plan (the “Plan”) and 3,750,000 shares of common stock werereserved, of which 2,408,500 shares have been issued through March 31,2008.

 

On January 5, 2006, the Company issued572,000 unregistered shares to the officers and directors of the Companypursuant to the Plan. As of such date, the aggregate market value of the commonstock granted was $486,200 based on the last sale price on the OTC BulletinBoard of the Company’s common stock. Such amount was amortized to compensation expense on a quarterly basisduring calendar year 2006.  Accordingly,$121,550 was recorded as compensation expense and included in general andadministrative expenses for each of the quarters ended September 30, 2006and March 31, 2007.

 

On January 10 and January 18, 2007,the Company issued 489,500 and 52,500 unregistered shares, respectively, to theofficers, directors, and key employees of the Company pursuant to thePlan.  As of such dates, the aggregatemarket value of the common stock granted was $391,600 and $42,000,respectively, based on the last sale price on the OTC Bulletin Board of theCompany’s common stock.  Such amountswere amortized to compensation expense on a quarterly basis during calendaryear 2007. An additional $30,000 was recorded when our former Chief FinancialOfficer resigned during fiscal 2007, with such amount representing theremaining unamortized portion of his January 10, 2007 stock grant.Accordingly, $93,400 was recorded as compensation expense and included ingeneral and administrative expenses for the quarters ended September 30,2007 and December 31, 2007.

 

On August 20, 2007, the Company issued90,000 unregistered shares to an officer of the Company pursuant to the Plan,with such grant subject to vesting in quarterly installments over the following12 months.  As of such date, theaggregate market value of the common stock granted was $103,500 based on thethen market price on the OTC Bulletin Board of the Company’s common stock.  Such amount is being amortized tocompensation expense on a quarterly basis during fiscal year 2008.  Accordingly, $12,937, $25,875 and $25,875 wasrecorded as compensation expense and included in general and administrativeexpenses for the quarters ended September 30, 2007, December 31, 2007and March 31, 2008, respectively.

 

6

----

 

**CUBIC ENERGY, INC.**

 

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**AS OF MARCH 31, 2008**

**(Unaudited)**

 

On January 31 and February 4, 2008,the Company issued 555,000 and 52,500 unregistered shares, respectively, to theofficers, directors, and key employees of the Company pursuant to thePlan.  As of such dates, the aggregatemarket value of the common stock granted was $893,550 and $84,525,respectively, based on the then-market price on the OTC Bulletin Board of theCompany’s common stock.  Such amounts arebeing amortized to compensation expense on a quarterly basis during calendaryear 2008. Accordingly, $244,519 was recorded as compensation expense andincluded in general and administrative expenses for the quarter ended March 31,2008.

 

**Long-termdebt:**

 

February 2006debt issue

 

On February 6, 2006,Cubic entered into a Credit Agreement with Petro Capital V, L.P. (“PetroCapital”) pursuant to which Petro Capital advanced to the Company $5,500,000.The indebtedness bore interest at a rate of 12.5% per annum, was scheduled tomature on February 6, 2009, and was secured by substantially all of theassets of the Company. $1,800,000 of the funded amount was used to retire thethen outstanding 7% Senior Secured Convertible Debentures that were due December 31,2009. In connection with the funding under the Credit Agreement, the Companyissued to Petro Capital and Petro Capital Securities, LLC, warrants, withfive-year expirations, for the purchase of up to 1,833,334 and 250,000 shares,respectively, of Company common stock at an exercise price of $1.00 per share.

 

The Company allocated theproceeds from the issuance of the senior debt to the warrants and the seniordebt based on their relative fair market values at the date of issuance. Thevalue assigned to the warrants of $1,203,752 was recorded as an increase inadditional paid in capital. The assignment of a value to the warrants resultedin a loan discount being recorded. The discount was being amortized over theoriginal three-year term of the senior debt as additional interest expense.Amortization for the quarter and nine months ended March 31, 2007 was$110,686 and $221,372, respectively.

 

Cubic incurred loan costs of$483,643 on the issuance of the senior debt and warrants. The amount allocableto the senior debt of $367,586 was capitalized and was being amortized over theterm of the senior debt. Amortization of loan costs for the senior debt was$30,827 and $61,655 for the quarter and nine months ended March 31, 2007,respectively.

 

The senior debt was retiredon March 5, 2007, with proceeds from a new senior debt issue, as set forthbelow.

 

March 2007 debt issue

 

On March 5, 2007, Cubicentered into a Credit Agreement with Wells Fargo Energy Capital, Inc.(“Wells Fargo”) providing for a revolving credit facility of $20,000,000 (the“Revolving Note”) and a convertible term loan of $5,000,000 (the “Term Loan”;and together with the Revolving Note, the “Credit Facility”).  The indebtedness bears interest at afluctuating rate equal to the sum of the Wells Fargo Bank prime rate plus twopercent (2%) per annum, matures on March 1, 2010, and is secured bysubstantially all of the assets of the Company. Approximately $5,000,000 of the funded amount was used, together withcash on hand, to retire the Company’s previously outstanding senior debt thatwas due February 6, 2009, described above.

 

7

----

 

**CUBIC ENERGY, INC.**

 

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**AS OF MARCH 31, 2008**

**(Unaudited)**

 

TheTerm Loan of $5,000,000 is convertible into 5,000,000 shares of Cubic commonstock at a conversion price of $1.00 per share. The Revolving Note is subject to a borrowing base (the “BorrowingBase”), initially set at $4,000,000, and is subject to periodic review. On September 7,2007, Wells Fargo increased the Company’s Borrowing Base to $8,600,000 in orderto fund the remaining drilling and casing costs of five wells drilled since thebeginning of fiscal 2008, the drilling and casing costs of two new wells andthe costs of installing a gathering/sales line and associated equipment in theCompany’s Johnson Branch acreage in Caddo Parish, Louisiana. On November 19,2007, Wells Fargo increased the Company’s Borrowing Base to $14,500,000 inorder to fund the completion costs and casing of eight wells alreadysuccessfully drilled and the drilling of four additional wells located in theCompany’s Johnson Branch acreage. On May 8, 2008, Wells Fargo increasedthe Company’s Borrowing Base to $20,000,000 in order to fund the completioncosts and casing of the four recently-drilled wells located in the Company’sJohnson Branch acreage (including two vertical wells drilled into theBossier/Haynesville shales, at least one of which will be completed in theHaynesville shale formation) and the drilling of two additional wells locatedin the Company’s Bethany Longstreet acreage.

 

Inconnection with entering into the Credit Facility, the Company issued to WellsFargo warrants, with five-year expirations, for the purchase of up to 2,500,000shares of Company common stock at an exercise price of $1.00 per share.

 

The terms of the CreditFacility, among other things, prohibit the Company from merging with anothercompany or paying dividends, and limit additional indebtedness, sales ofcertain assets and investments. Additionally, upon the repayment in full of theRevolving Note, the repayment in full or conversion of the Term Loan and uponconfirmation of the title of Wells Fargo to such interest upon conveyance bythe Company, the Company agreed to convey a net profits interest to Wells Fargoequal to 5% of Cubic’s net interest in its Louisiana properties.

 

On May 8, 2008, the Credit Facility withWells Fargo was amended by the First Amendment to the Credit Agreement (the“First Amendment”). Material provisions of the First Amendment include thefollowing: i) the Company may not prepay all or any part of the principalbalance outstanding on the Term Loan prior to its maturity on March 1,2010; and ii) until the next scheduled redetermination of the Borrowing Base(scheduled to be September 1, 2008), the amount of the Borrowing Baseshall be $20,000,000.

 

TheCompany allocated the proceeds from the issuance of the debt to the warrants,the debt and net profits interest (see above) based on their relative fairmarket values at the date of issuance. The value assigned to the warrants of $1,314,289 was recorded as anincrease in additional paid in capital and the value assigned to the netprofits interest of $213,148 was recorded as a credit to the full cost pool foroil and gas properties.  The assignmentof a value to the warrants and net profit interest resulted in a loan discountbeing recorded.  The discount is beingamortized over the original three-year term of the debt as additional interestexpense.  Amortization for the quarterand nine months ended March 31, 2008 was $128,303 and $387,728,respectively. Amortization for the fiscal years ending June 30, 2008, 2009and 2010 is expected to be $516,030, $514,620 and $342,610, respectively.

 

8

----

** **

**CUBIC ENERGY, INC.**

 

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**AS OF MARCH 31, 2008**

**(Unaudited)**

 

Cubic incurred loan costsof $240,613 on the issuance of the debt and warrants.  The amount allocable to the debt of $166,590has been capitalized and is being amortized over the term of the debt.  Amortization for the quarter and nine monthsended March 31, 2008 was $13,895 and $41,991, respectively; and for thefiscal years ending June 30, 2008, 2009 and 2010 is expected to be $55,886, $55,733 and$37,105, respectively.

 

**Related-partytransactions:**

 

An affiliated company,Tauren Exploration, Inc. (“Tauren”), which is owned 100% by the Company’sPresident and Chief Executive Officer, Calvin Wallen III, owns a workinginterest in the wells in which the Company owns a working interest.  As of March 31, 2008 the Company wasowed by Tauren $10,989 for miscellaneous capital expenditures and general andadministrative expenses paid by the Company on Tauren’s behalf.  At June 30, 2007, the Company had owedTauren $3,715 for miscellaneous capital expenditures and general andadministrative expenses paid by Tauren on the Company’s behalf.

 

Inaddition, the wells in which the Company owns a working interest are operatedby an affiliated company, Fossil Operating, Inc. (“Fossil”), which isowned 100% by the Company’s President and Chief Executive Officer, CalvinWallen III.  As of March 31, 2008and June 30, 2007, the Company owed Fossil $1,677,538 and $1,659,786,respectively, for drilling costs and lease and operating expenses, and was owedby Fossil $465,528 and $28,446, respectively, for oil and gas sales.

 

On May 6, 2008,the Company issued a subordinated promissory note in the amount of $2,000,000to Diversified Dynamics Corporation, an entity controlled by William Bruggemanwho, at the time of such transaction, was the beneficial owner of approximately28.9% of the common stock of the Company. See “Subsequent Events” in “Item 2.Management’s Discussion and Analysis or Plan of Operation” elsewhere herein.

 

**Subsequentevents:**

 

On April 1, 2008, 300,000 warrants were exercised by a warrantholder of the Company and 203,704 shares of Company common stock were issuedutilizing a cashless exercise price of $3.04 per share, the closing price ofthe Company’s common stock on the prior trading day.

 

On April 1, 2008, a warrant holder of the Company exercisedwarrants for 100,000 shares of Company common stock, through the payment of$70,000 to the Company.

 

On April 2, 2008, 100,000 warrants were exercised by a warrantholder of the Company and 65,150 shares of Company common stock were issuedutilizing a cashless exercise price of $2.80 per share, the closing price ofthe Company’s common stock on the trading day prior to receipt of the warrantholder’s subscription notice, which was March 31, 2008.

 

9

----

 

**CUBIC ENERGY, INC.**

 

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**AS OF MARCH 31, 2008**

**(Unaudited)**

 

On April 2, 2008, 100,000 warrants were exercised by a warrantholder of the Company and 33,291 shares of Company common stock were issuedutilizing a cashless exercise price of $2.92 per share, the closing price ofthe Company’s common stock on the trading day prior to receipt of the warrantholder’s subscription notice, which was April 1, 2008.

 

On April 8, 2008, 5,000 warrants were exercised by a warrantholder of the Company and 3,017 shares of Company common stock were issuedutilizing a cashless exercise price of $2.46 per share, the closing price of the Company’scommon stock on the prior trading day.

 

On April 10, 2008, 5,000 warrants were exercised by a warrantholder of the Company and 3,193 shares of Company common stock were issuedutilizing a cashless exercise price of $2.70 per share, the closing price of the Company’scommon stock on the prior trading day.

 

On April 16, 2008, 5,000 warrants were exercised by a warrantholder of the Company and 3,374 shares of Company common stock were issuedutilizing a cashless exercise price of $3.00 per share, the closing price of the Company’scommon stock on the prior trading day.

 

On April 18, 2008, a warrant holder of the Company exercisedwarrants for 325,000 shares of Company common stock, through the payment of$317,135 to the Company.

 

On April 21, 2008, a warrant holder of the Company exercisedwarrants for 75,000 shares of Company common stock, through the payment of$73,185 to the Company.

 

**SAFE HARBOR STATEMENTS UNDERTHE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:**

 

This report contains “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. Such forward-looking statements are based on current expectations thatinvolve a number of risks and uncertainties that could cause actual results todiffer materially from the results discussed in the forward-looking statements.Generally, forward-looking statements include words or phrases such as“management anticipates,” “the Company believes,” “the Company anticipates,”and words and phrases of similar impact. The forward-looking statements aremade pursuant to safe harbor provisions of the Private Securities Litigation’sReform Act of 1995.

 

The factors that could cause actual results todiffer materially from the forward-looking statements include, but are notlimited to: (i) industry conditions and competition, (ii) thecyclical nature of the industry, (iii) domestic and worldwide supplies anddemand for oil and gas, (iv) operational risks and insurance, (v) environmentalliabilities which may arise in the future which**are not covered by insurance or indemnity, (vi) the impact ofcurrent and future laws and government regulations, as well as repeal ormodification of same, affecting the oil and gas industry and the Company’soperations in particular, (vii) production levels and other activities ofOPEC and other oil and gas producers, and the impact that the above factors andother events have on the current and expected future pricing of oil and naturalgas, and (viii) the risks described from time to time in the Company’sreports filed with the Securities and Exchange Commission, including theCompany’s Annual Report on Form 10-KSB for the fiscal year ended June 30,2007.

 

10

----

 

**Item 2. Management’sDiscussion and Analysis or Plan of Operation.**

 

**RESULTS OF OPERATIONS**

 

**ThreeMonths Ended March 31, 2008 Compared To Three Months Ended March 31,2007:**

 

**Revenues**

 

OIL AND GAS SALES increased 903% to $778,360 forthe quarter ended March 31, 2008 from $77,601 for the quarter ended March 31,2007 primarily due to higher gas volumes resulting from 16 wells being on-linein Louisiana in the 2008 quarter versus three in the 2007 quarter.

 

**Costs and Expenses**

 

OIL AND GAS PRODUCTION, OPERATING ANDDEVELOPMENT COSTS (also referred to as “LEASE OPERATING EXPENSES” elsewhereherein) increased 121% to $390,361 (50% of oil and gas sales) for the 2008quarter from $176,427 (227% of oil and gas sales) for the 2007 quarterprimarily due to more wells being on-line in Louisiana, which resulted in: a$120,271 increase in salt water hauling and disposal costs; $78,070 in commonfacility expenses for production from the Company’s Johnson Branch wells, whichdid not occur in the prior year period; and a $36,506 increase in costspassed-through to the Company by the purchaser of the Company’s gas.  Such costs are deducted from the Company’sgross revenue by the purchaser and include, but are not limited to: costs tomarket the Company’s gas, compression fees, and the cost of fuel used by thepurchaser to convey the Company’s gas.

 

GENERAL AND ADMINISTRATIVE EXPENSES (“G&A”)increased 92% to $607,423 for the 2008 quarter from $315,794 in the 2007quarter as a result of: a $161,993 increase in non-cash stock compensationexpense related primarily to appreciation of the Company’s common stock priceand a 12% increase in the number of common shares granted versus the prior yearperiod; a $29,587 increase in cash compensation expense resulting from an increasein the number of employees; and the following expenses, which occurred in the2008 quarter but did not occur in the prior year quarter: $40,203 in marketingexpenses; $30,000 in contracted professional services expenses related tomanagement’s assessment of the Company’s internal controls over financialreporting required by Section 404(a) of the Sarbanes-Oxley Act of2002; $21,131 in corporate fees related to the Company’s annual shareholders’meeting; and $12,696 in expense for directors’ and officers’ insurance. Theseamounts were partially offset by a $15,998 decrease in legal fees compared tothe 2007 quarter during which the Company incurred legal fees related to thetransacting of the March 2007 debt issue.

 

DEPRECIATION,DEPLETION AND AMORTIZATION (“DD&A”) increased 1098% to $331,181 in the 2008quarter from $27,649 in the 2007 quarter due to a $13,911,681, or 95%, increasein “Property and equipment, at cost” at March 31, 2008 as compared to March 31,2007, which was a result of capital expenditures for the acquisition anddevelopment of additional oil and gas properties.

 

INTEREST EXPENSE increased 55% to $526,739 inthe 2008 quarter from $339,710 in the 2007 quarter primarily due to an increasein debt (before discounts) to $19,500,000 at March 31, 2008 from$5,000,000 at March 31, 2007.  Thisincrease resulted from the repayment of a $1,300,000 note held by Tauren on February 2,2007 from the proceeds of a December 2006 equity offering, and theretirement of $5,500,000 of indebtedness held by Petro Capital V. L.P. on March 5,2007 via the borrowing of $5,000,000 pursuant to the aforementioned Wells FargoCredit Facility’s senior convertible term loan and subsequent draws ofapproximately $14,500,000 on a related revolving line of credit. The CreditFacility with Wells Fargo also resulted in a loan discount being recorded.  The discount is being amortized over theoriginal three-year term of the debt as additional interest expense with$128,303 being recorded in the quarter ended March 31, 2008.

 

11

----

 

**NineMonths Ended March 31, 2008 Compared To Nine Months Ended March 31,2007:**

 

**Revenues**

 

OIL AND GAS SALES increased 441% to $1,602,173for the fiscal 2008 period from $295,970 for the fiscal 2007 period primarilydue to higher gas volumes resulting from an average of approximately 11 wellsbeing on-line in Louisiana in the fiscal 2008 period versus three in the fiscal2007 period.

 

**Costs and Expenses**

 

OIL AND GAS PRODUCTION, OPERATING ANDDEVELOPMENT COSTS (also referred to as “LEASE OPERATING EXPENSES” elsewhereherein) increased 122% to $811,973 (51% of oil and gas sales) for the fiscal2008 period from $365,002 (123% of oil and gas sales) for the fiscal 2007period primarily due to more wells being on-line in Louisiana, which resultedin: a $220,036 increase in salt water hauling and disposal costs; $78,841 incommon facility expenses for production from the Company’s Johnson Branchwells, which did not occur in the prior year period; and a $147,718 increase incosts passed-through to the Company by the purchaser of the Company’s gas.  Such costs are deducted from the Company’sgross revenue by the purchaser and include, but are not limited to: costs tomarket the Company’s gas, compression fees, and the cost of fuel used by thepurchaser to convey the Company’s gas.

 

GENERAL AND ADMINISTRATIVE EXPENSES (“G&A”)increased 54% to $1,434,727 for the fiscal 2008 period from $928,647 in thefiscal 2007 period as a result of: a $144,505 increase in non-cash stockcompensation expense related primarily to appreciation of the Company’s commonstock price and a 29% increase in the number of common shares granted versusthe prior year period; a $105,900 increase in cash compensation expenseresulting from an increase in the number of employees; a $46,231 increase inreserve report expenses; and the following expenses, which occurred in thefiscal 2008 period but did not occur in the prior year period: $112,500 incommitment fees related to borrowings on the Company’s Credit Facility’sRevolving Note; $30,000 in contracted professional services fees related tomanagement’s assessment of the Company’s internal controls over financialreporting required by Section 404(a) of the Sarbanes-Oxley Act of2002; $38,504 in marketing expenses; $38,088 in expense for directors’ andofficers’ insurance; and, $21,131 in corporate fees related to the Company’sannual shareholders’ meeting. These increases were partially offset by a$45,543 decrease in legal fees due to non-recurrence of: the preparation ofdocuments and filings related to a private placement of shares of the Company’scommon stock in December 2006; and the transacting of the March 2007debt issue.

 

DEPRECIATION,DEPLETION AND AMORTIZATION (“DD&A”) increased 604% to $817,434 in thefiscal 2008 period from $116,135 in the fiscal 2007 period due to a$13,911,681, or 95%, increase in “Property and equipment, at cost” at March 31,2008 as compared to March 31, 2007, which was a result of capitalexpenditures for the acquisition and development of additional oil and gasproperties.

 

INTEREST EXPENSE increased 42% to $1,404,461 inthe fiscal 2008 period from $986,854 in the fiscal 2007 period primarily due toan increase in debt (before discounts) to $19,500,000 at March 31, 2008from $5,000,000 at March 31, 2007. This increase resulted from the repayment of a $1,300,000 note held byTauren on February 2, 2007 from the proceeds of a December 2006equity offering, and the retirement of $5,500,000 of indebtedness held by PetroCapital V. L.P. on March 5, 2007 via the borrowing of $5,000,000 pursuantto the aforementioned Wells Fargo Credit Facility’s senior convertible termloan and subsequent draws of approximately $14,500,000 on a related revolvingline of credit. The Credit Facility with Wells Fargo also resulted in a loandiscount being recorded. The discount is being amortized over the originalthree-year term of the debt as additional interest expense with $387,728 beingrecorded in the nine months ended March 31, 2008.

 

12

----

 

**Liquidity and CapitalResources:**

 

During the ninemonths ended March 31, 2008, the Company used cash flows from operatingactivities of $1,268,030.  Cash flow fromoperations is dependent on our ability to increase production through ourdevelopment and exploratory activities and the price received for oil andnatural gas.

 

TheCompany’s working capital decreased to $238,872 at March 31, 2008 from$2,606,796 at June 30, 2007, primarily due to capital expenditures of$12,825,515 related to the drilling of new wells and the aforementioned$1,268,030 use of cash from operating activities in the nine months ended March 31,2008. These uses of cash were somewhat offset by the borrowing of $10,500,000on the aforementioned revolving line of credit with Wells Fargo and $503,000 inproceeds from the issuance of stock, resulting from the exercise of warrants,during the nine months ended March 31, 2008.

 

TheCompany plans to fund its development and exploratory activities through cashprovided from operations and utilization of its Credit Facility (see “Notes toCondensed Financial Statements – Long-Term Debt” elsewhere herein).

 

TheCompany cannot be certain that adequate funds will be available from operatingcash flow and the Credit Facility to fully fund the projected capitalexpenditures for fiscal 2008. Additionally, because future cash flows and the availability ofborrowings are subject to a number of variables, such as prevailing prices ofoil and gas, actual production from existing and newly-completed wells, theCompany’s success in developing and producing new reserves, and the uncertaintywith respect to the amount of funds which may ultimately be required to financethe Company’s development and exploration program, there can be no assurancethat the Company’s capital resources will be sufficient to sustain theCompany’s development and exploratory activities.

 

Althoughthe Company believes it will be able to obtain funds pursuant to theabove-mentioned alternatives, management cannot be assured that such capitalresources will be available to the Company. If we are unable to obtain such capital resources on a timely basis, theCompany may curtail its planned development and exploratory activities.

 

During the month of January 2008, the Companycompleted and brought online for production six previously drilled wells andreached total drilling depth on two new wells in the Company’s Johnson Branchacreage in Caddo Parish, Louisiana.  On January 30,2008, the Company announced that one of these two new wells, the Hudson 10 No. 1,was control flow drilled through the Bossier/Haynesville shales to a totaldepth of 11,650 feet, and that third-party mud logs showed a 1,100 footinterval of shale gas in the Hudson 10 No. 1 well. During the month of February 2008,the Company completed and brought online for production the two new wellsdrilled in the Company’s Johnson Branch acreage during the month of January 2008.

 

On March 28, 2008, the Company announcedreceipt of a report, prepared by an independent, petroleum engineering firm, delineating 2.5 trillion cubic feet of original gas in place (“OGIP”)in the Cotton Valley sandstones and Bossier/Haynesville shales in Cubic’sJohnson Branch acreage (comprising the majority of each of twelve 640-acresections). The estimates received indicate OGIP for the Bossier/Haynesvilleshales ranges from 217 to 245 billion cubic feet (“BCF”) per section and OGIPof 20 BCF per section for the Cotton Valley sandstones. Cubic has a 49% workinginterest in its Johnson Branch acreage. The Company has not independentlyverified these estimates; therefore, no assurances can be made that theseestimates are accurate or that the Company will be successful in achievingproduction consistent with these estimates.

 

13

----

 

As of May 9, 2008, the Company has successfullydrilled 20 wells in its northwest Louisiana properties (eight in its BethanyLongstreet acreage in Caddo and DeSoto Parishes, and 12 in its Johnson Branchacreage in Caddo Parish). In its Johnson Branch acreage, Cubic has drilledtwelve wells through the Cotton Valley, with three of these wells penetratingdeeper through the Bossier/Haynesville shales. To date, eight Johnson Branch wells have been completed as hydro-carbonproducers in the Cotton Valley sandstones. Additionally, Cubic has eightproducing wells in the Cotton Valley and Hosston formations of its BethanyLongstreet acreage.

 

**SubsequentEvents:**

 

OnMay 6, 2008, the Company issued a subordinated promissory note in theamount of $2,000,000 (the “Subordinated Note”) to Diversified DynamicsCorporation (the “Lender”), an entity controlled by William Bruggeman whobeneficially owns more than 5% of the common stock of the Company. Asconsideration for the loan made by Lender pursuant to the Subordinated Note,the Company agreed to convey to Lender, upon the repayment in full of theindebtedness evidenced by the Subordinated Note and the repayment in full ofthe senior indebtedness evidenced by the Credit Facility with Wells Fargo, anundivided 0.375% (0.375 of one percent) net profits interest in the futureproduction of hydrocarbons from or attributable to Cubic’s net interest in itsLouisiana properties. The proceeds of the Subordinated Note will be used forgeneral corporate and working capital purposes.

 

Issuingthe Subordinated Note required the consent of the holder of the Company’ssenior indebtedness, Wells Fargo, which consent it granted on May 5, 2008.Subsequently, on May 8, 2008, the Credit Facility with Wells Fargo wasamended by the First Amendment to the Credit Agreement (the “First Amendment”).Material provisions of the First Amendment include the following: i) theCompany may not prepay all or any part of the principal balance outstanding onthe Term Loan prior to its maturity on March 1, 2010; and ii) until thenext scheduled redetermination of the Borrowing Base (scheduled to be September 1,2008), the amount of the Borrowing Base shall be $20,000,000.

 

OnMay 8, 2008, Wells Fargo increased the Company’s Borrowing Base under theRevolving Note to $20,000,000 in order to fund the completion costs and casingof the four recently-drilled wells located in the Company’s Johnson Branchacreage (including two vertical wells drilled into the Bossier/Haynesvilleshales, at least one of which will be completed in the Haynesville shaleformation) and the drilling of two additional wells located in the Company’sBethany Longstreet acreage.

 

**Item 3.  Controls and Procedures**

 

Our principal executiveand financial officers have concluded, based on their evaluation as of the endof the period covered by this report, that our disclosure controls andprocedures under Exchange Act Rules 13a -15(e) and15d-15(e) are effective to ensure thatinformation we are required to disclose in the reports we file or submit underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms, and include controlsand procedures designed to ensure that information we are required to disclosein such reports is accumulated and communicated to management, including ourprinciple executive and financial officers, as appropriate to allow timelydecisions regarding required disclosure. There were no changes in internal controls or other factors that couldmaterially affect, or are reasonably likely to materially affect, theseinternal controls.

 

14

----

 

**PART ****II – OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

There are no legal proceedings to which the Company is a party or towhich its properties are subject, which are, in the opinion of management,likely to have a material adverse effect on the Company’s results of operationsor financial condition.

 

**Item 2. ****Unregistered Sales of Equity Securities and Use of Proceeds**

 

On August 27, 2007, twowarrant holders of the Company exercised warrants for an aggregate of 200,000shares of Company common stock, through the payment of $100,000 to the Company.

 

On September 17, 2007,one warrant holder of the Company exercised warrants for 25,000 shares ofCompany common stock, through the payment of $17,500 to the Company.

 

OnOctober 22, 2007, two warrant holders of the Company exercised warrantsfor an aggregate of 250,000 shares of Company common stock, through the paymentof $125,000 to the Company.

 

OnDecember 21, 2007, one warrant holder of the Company exercised warrantsfor 100,000 shares of Company common stock, through the payment of $100,000 tothe Company; and an additional three warrant holders of the Company exercisedwarrants for an aggregate of 15,000 shares of Company common stock, through thepayment of $10,500 to the Company.

 

OnJanuary 17, 2008, a warrant holder of the Company exercised warrants for100,000 shares of Company common stock, through the payment of $50,000 to theCompany.

 

On February 1, 2008,50,000 warrants were exercised by a warrant holder of the Company and 18,252shares of Company common stock were issued utilizing a cashless exercise priceof $1.55 per share, theclosing price of the Company’s common stock on the prior trading day.

 

On March 7, 2008, 300,000 warrants were exercised by a warrantholder of the Company and 132,720 shares of Company common stock were issuedutilizing a cashless exercise price of $1.75 per share,the closing price of the Company’s common stock on the prior trading day.

 

OnMarch 13, 2008, a warrant holder of the Company exercised warrants for200,000 shares of Company common stock, through the payment of $100,000 to theCompany. On March 28, 2008 the same warrant holder exercised warrants foran additional 100,000 shares of Company common stock, through the payment of$50,000 to the Company.

 

Aggregateproceeds to the Company of the aforementioned warrant exercises were $503,000,all of which have been or will be used for working capital purposes.  The aforementioned issuances were made inreliance upon an exemption from registration set forth in Regulation D and/or Section 4(2) ofthe Securities Act of 1993, as amended, which exempts transactions by an issuernot involving a public offering.

 

15

----

 

**Item 4. Submission of Matters toa Vote of Security Holders**

 

TheCompany held its Annual Meeting of Shareholders on March 28, 2008. As of February 13,2008, the record date for the meeting, 57,246,651 shares of common stock wereissued and outstanding. A quorum of 45,283,161 shares of common stock waspresent or represented at the meeting.

 

Thefollowing individuals were nominated and elected to serve as directors:

 

CalvinA. Wallen, III (Chairman), Jon S. Ross, Gene C. Howard, Herbert A. Bayer,and Bob L. Clements.

 

TheShareholders voted as follows on the following matters:

 

1)     Election of Directors. Thevoting results for each of the nominees were as follows:

 

| ** **                 | ** ** | **For**    | ** ** | ** ** | ** ** | **Withheld** | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|------------|------------|--------------|------------|------------|------------|
| Calvin A. Wallen, III |       | 42,686,898 |       | 94.3       | %          | 2,596,303    |       | 5.7        | %          |
| Gene C. Howard             |       | 45,095,220 |       | 99.6       | %          | 187,941      |       | 0.4        | %          |
| Herbert A. Bayer           |       | 45,095,220 |       | 99.6       | %          | 187,941      |       | 0.4        | %          |
| Bob L. Clements            |       | 45,095,220 |       | 99.6       | %          | 187,941      |       | 0.4        | %          |
| Jon S. Ross                |       | 44,936,858 |       | 99.2       | %          | 346,303      |       | 0.8        | %          |

 

2)     Ratification of the Boardof Directors’ selection of Philip Vogel as the Company’s independent registeredpublic accountants for the fiscal year ending June 30, 2008. The votingresults were as follows:

 

| For                |   | 45,095,980 |   | 99.6  | % |
|--------------------|--------|------------|--------|-------|---|
| Against            |   | 1,496      |   | 0.0   | % |
| Abstain            |   | 185,685    |   | 0.4   | % |
| Total Shares Voted |   | 45,283,161 |   | 100.0 | % |

 

**Item 6.  Exhibits**

 

10.1                           Subordinated Promissory Note dated May 6,2008

 

10.2                           First Amendment to Credit Agreement withWells Fargo Energy Capital dated May 8, 2008

 

31.1         Rule 13a-14(a)/15d-14(a) Certification

 

31.2         Rule 13a-14(a)/15d-14(a) Certification

 

32.1         Section 1350Certification

 

32.2         Section 1350Certification

 

16

----

 

**SIGNATURES**

 

In accordance with the requirements of theSecurities Exchange Act of 1934, the registrant caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 

 
| ** **              | **CUBIC ENERGY, INC.** |
|-------------------------|------------------------|
|                    | (Registrant)           |
|                    |                   |
|                    |                   |
| Date: May 13, 2008 | By:                    | /s/ Calvin A. Wallen, III |
|                    |                   | Calvin A. Wallen, III, President and  Chief Executive  Officer |
|                    |                   |   |
|                    |                   |   |
| Date: May 13, 2008 | By:                    | /s/ Scott D. Guffey |
|                    |                   | Scott  D. Guffey, Chief Financial Officer (Principal  Financial and Accounting Officer) |

 

17

----