<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 June 30, 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 August 12, 1996 there were 24,955,807 outstanding shares of TGX
Corporation Common Stock, $.01 par value.
<PAGE>
 
                                TGX CORPORATION
          Report on Form 10-QSB/A For The Quarter Ended June 30, 1996

                                     Index

<TABLE> 
<CAPTION> 
                                                                            Page
<S>                                                                         <C> 

     Part I.  Financial Information

          Item 1. Financial Statements (Unaudited)                            1
                 
                  Consolidated Balance Sheet -
                  June 30, 1996 and December 31, 1995                         2
                 
                  Consolidated Statement of Operations -
                  Three and Six Month Periods Ended June 30, 1996 and 1995    3
                 
                  Consolidated Statement of Cash Flows -
                  Six Month Periods Ended June 30, 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                        11

Part II.  Other Information                                                  16
</TABLE> 

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 June 30, 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. These interim financial
statements reflect all adjustments (which were normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position as of June 30, 1996 and the results of its
operations and cash flows for the six month period ended June 30, 1996.  Results
of operations for the six month period ended June 30, 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 5 of Notes to
Consolidated Financial Statements)

                                       1
<PAGE>
 
TGX Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
Note 1
<TABLE> 
<CAPTION> 
-------------------------------------------------------------------------------------------
                                                                       (Restated - Note 5)
                                                                     June 30,   December 31,
(In thousands,  except for share data)                                 1996          1995
-------------------------------------------------------------------------------------------
                                                                   (Unaudited)
<S>                                                                 <C>           <C> 
ASSETS                                                       
                                                             
Current assets:                                              
                                                             
  Cash and cash equivalents                                         $  2,497       $    384
                                                             
  Accounts receivable,  net of allowance for doubtful                  1,023          1,141
   accounts of $320 
                                                             
  Accounts receivable from affiliates                                      -              6
                                                             
  Other current assets                                                   142             51
-------------------------------------------------------------------------------------------
  Total current assets                                                 3,662          1,582
-------------------------------------------------------------------------------------------
                                                             
Property and equipment:                                      
  Oil and natural gas properties                                      11,709         11,340
                                                             
  Other property and equipment                                           254            203
                                                             
  Accumulated depletion,  depreciation and amortization               (4,599)        (4,132)
-------------------------------------------------------------------------------------------
  Property and equipment,  net                                         7,364          7,411
-------------------------------------------------------------------------------------------
Investment in Comite Field Plant Venture                                 705            739
                                                             
Other assets                                                              41             59
-------------------------------------------------------------------------------------------
  Total other assets                                                     746            798
-------------------------------------------------------------------------------------------
TOTAL ASSETS                                                        $ 11,772       $  9,791
===========================================================================================
LIABILITIES AND STOCKHOLDER'S DEFICIT                        
Current liabilities:                                         
 Accounts payable and accrued liabilities - Note 4                  $  2,402       $  3,353
-------------------------------------------------------------------------------------------
  Total current liabilities                                            2,402          3,353
-------------------------------------------------------------------------------------------
Long-term debt - Note 2                                                    -          5,835
-------------------------------------------------------------------------------------------
  Total liabilities                                                    2,402          9,188
-------------------------------------------------------------------------------------------
Commitments and Contingencies - Note 3                       
                                                             
Redeemable Senior Preferred Stock  8,788,571 and 8,851,360 issued, 
 respectively;  redemption value  $87,886 and $88,514,  
 respectively                                                         70,996         61,737
-------------------------------------------------------------------------------------------
Stockholders' deficit:                                       
  9% Cumulative Convertible Preferred Stock,  300,000 shares              
   issued plus 171,000 and 158,000,  respectively,                                          
   shares to be issued for dividends                                     471            458 
                                                             
Common Stock,  28,976,791 shares issued and 24,955,807 and 
 24,956,033, respectively,  outstanding                                  290            290
 
Additional paid-in capital                                             1,543          1,422
                                                             
Accumulated deficit                                                  (63,930)       (63,304)
-------------------------------------------------------------------------------------------
  Total stockholders' deficit                                        (61,626)       (61,134)
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'  DEFICIT                        $ 11,772       $  9,791
===========================================================================================
</TABLE>

     See accompanying notes to unaudited consolidated financial statements

                                       2
<PAGE>
 
TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited) Note 1
<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------------
                                                                  (Restated - Note 5)
                                                         Three Months                  Six Months
                                                         Ended June 30,              Ended June 30,
(In thousands, except per share data)                   1996       1995             1996       1995
---------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>              <C>        <C> 
REVENUES
Oil and natural gas sales                            $ 1,139    $   695          $ 2,327    $ 1,662
Natural gas gathering                                     50         64              108        125
Equity earnings in Comite Field Plant Venture            112        108              309        216
Litigation settlement gain,  net - Note 2              7,100          -            7,100          -
Gain on property sales                                   137          -              145          -
Other                                                     42         92               57         96
---------------------------------------------------------------------------------------------------
                                                       8,580        959           10,046      2,099
---------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Operating expenses                                       519        551            1,083        989
Depletion, depreciation and amortization                 233        189              461        371
General and administrative expenses                      593        168            1,253        582
Exploration costs                                          -         38                -         38
Interest                                                  34        142              187        292
---------------------------------------------------------------------------------------------------
                                                       1,379      1,088            2,984      2,272
---------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
  EXTRAORDINARY GAIN (LOSS)                            7,201       (129)           7,062       (173)
Income tax expense                                       127          -              127          -
---------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN (LOSS)         7,074       (129)           6,935       (173)
Extraordinary gain (loss), net of                      1,831        (25)           1,831         93
 income taxes of $37 (1996)-Note 2 2
---------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                                      8,905       (154)           8,766        (80)
Preferred stock dividends                             (3,255)    (3,394)          (6,527)    (6,750)
Accretion of Senior Preferred redemption value        (1,449)    (1,193)          (2,865)    (2,326)
---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK         $ 4,201    $(4,741)         $  (626)   $(9,156)
===================================================================================================
NET INCOME (LOSS) PER SHARE OF COMMON STOCK:
  Before extraordinary gain (loss)                     $0.10     $(0.19)          $(0.10)    $(0.36)
  Extraordinary gain (loss)                             0.07          -             0.07          -
---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE OF COMMON STOCK            $0.17     $(0.19)        $(  0.03)    $(0.36)
===================================================================================================
AVERAGE COMMON SHARES OUTSTANDING                     24,956     25,254           24,956     25,254
===================================================================================================
</TABLE>

     See accompanying notes to unaudited consolidated financial statements

                                       3
<PAGE>
 
TGX Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) Note 1
 
<TABLE> 
<CAPTION> 
----------------------------------------------------------------------------
                                                       (Restated - Note 5)

                                                          Six Months Ended
                                                              June 30,
(In thousands)                                         1996             1995
----------------------------------------------------------------------------
<S>                                                 <C>              <C> 
Cash flows from operating activities:
 Net income (loss)                                  $ 8,766          $   (80)
 Adjustments to reconcile net income (loss) to 
  cash provided by operating activities:
    Depletion, depreciation and amortization            461              371
    Amortization of debt transaction costs and                               
     stock compensation                                  31               50 
    Distribution in excess of equity earnings            34               54
    Gain on property sales                             (145)               -
    Interest to be paid through issuance of                                  
     additional notes                                   133              231 
    Extraordinary gain                               (1,868)             (93)
    Changes in operating assets and liabilities:
      Decrease in accounts receivable                   118              364
      Decrease in accounts receivable from                                   
       affiliates                                         6              141 
      Increase in other current assets                  (91)             (54)
      Decrease in accounts payable and                                        
       accrued liabilities                             (951)            (183) 
---------------------------------------------------------------------------- 
Net cash provided by operating activities             6,494              801
----------------------------------------------------------------------------
Cash flows from investing activities:
   Capital expenditures                                (420)            (178)
   Proceeds from disposal of assets                     145                -
   Decrease (increase) in other assets                   (6)               5
----------------------------------------------------------------------------
   Net cash used by investing activities               (281)            (173)
----------------------------------------------------------------------------
Cash flows from financing activities:
    Principal payments on long-term debt and                                  
     notes payable                                   (4,500)          (1,228) 
    Advances pursuant to revolving credit                                    
     facility                                           400              200 
----------------------------------------------------------------------------
    Net cash used in financing activities            (4,100)          (1,028)
----------------------------------------------------------------------------
Net increase (decrease) in cash and                                           
 cash equivalents                                     2,113             (400) 
Cash and cash equivalents at beginning of period        384              676
----------------------------------------------------------------------------
Cash and cash equivalents at end of period          $ 2,497          $   276
============================================================================
Supplemental Disclosure of Non-Cash
 Financing Activities:
  Forgiveness of long term debt and notes                                    
   payable,  net of taxes of $37 (1996)             $ 1,831          $    93 
  Interest to be paid through the                                            
   issuance of additional notes                         133              231 

</TABLE>

     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 was a matter then 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 and the pre-consummation stockholders' deficit was
     adjusted to reflect the par value of pre-consummation equity interests.

                                       5
<PAGE>
 
     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 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 June 30, 1996, the
redemption value and accrued dividends related to the Senior Preferred were
$87,886,000 and $46,831,000 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 June 30, 1996 and December 31, 1995, the components of long-term debt
were:

<TABLE>
<CAPTION>
------------------------------------------------------
                                June 30,  December 31,
(Thousands of dollars)            1996        1995
------------------------------------------------------
<S>                             <C>       <C>
Bank borrowings:
  Revolving credit (secured)    $   -       $  500
  Non-recourse note                          5,335
------------------------------------------------------
  Less current maturities           -            -
------------------------------------------------------
  Long-term debt                $   -       $5,835
======================================================
</TABLE>

   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 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 June 30,  1996 had a
borrowing base of $2,200,000.  The borrowing base is redetermined every six
months or at Bank One's discretion and is reduced monthly by $50,000.  The loan
matures on July 13,  1997.  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.

                                       6
<PAGE>
 
  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 then pending litigation with NFG ("NFG Litigation").

  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. As set forth above, in July 1994, in
connection with a series of agreements entered into between the Company and Bank
One, the Company  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 subsequently
assigned its rights to the loan,  security and the Company's note to BMO's
wholly owned subsidiary, BMO Financial, Inc. ("BMOF"). The BMOF note was to
mature on December 31,  1997,  subject to each party having the right to extend
the maturity date and bore interest at the rate of 10% per annum. However,
until December 31,  1997,  and for such further time as BMOF elected to extend
the maturity date of such loan,  no cash payment for such interest was required;
instead,  the Company was to pay interest in kind through the issuance of
additional notes to BMOF. As of December 31,  1995,  total accrued interest
pursuant to the BMOF note was $683,000,  resulting in a total year-end BMOF debt
of $5,335,000.

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

  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 $7.2 million from NFG and all 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.  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 $7.1 million as a net litigation settlement gain.

  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 

                                       7
<PAGE>
 
("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. In early
1995, the Company negotiated settlement with all of the remaining Administrative
Note holders. As a result of negotiated settlements and forfeitures, the Company
reflected an extraordinary net gain in 1995 of $93,000.

   Cash paid for interest during the first six months of 1996 and 1995 totaled
approximately $36,000 and $40,000, respectively.

3. COMMITMENTS AND CONTINGENCIES

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

   On April 12,  1996,  TGX entered into a Settlement Agreement with NFG and the
Public Service Commission of the State of New York.  See Note 2 above.

Other
-----

   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.

   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 separate legal action alleging that
TGX and other working interest owners improperly profited under the terms of a
Gas Gathering and Transportation Agreement dated 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.

   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.

                                       8
<PAGE>
 
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   As of June 30, 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                           $  209   $  555
 
Undistributed net oil and natural gas  
 revenue                                    1,182    1,152 
 
Accrued pre-petition liabilities              403      518
 
Accrued operating and tax expenses            248      312
 
Operation advances                             17      159
 
Miscellaneous accruals                        343      657
----------------------------------------------------------
                                           $2,402   $3,353
==========================================================
</TABLE>

                                       9
<PAGE>
 
5. 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
-------------
                                                        June 30,                                    December 31,
                                                          1996                                          1995
                                                ------------------------                     --------------------------
                                                      (Unaudited)                  
                                               Reported              Restated             Reported                 Restated
                                              ---------              --------             --------                 --------       
<S>                                           <C>                     <C>                 <C>                      <C>
Long-term debt                                $      -                $      -            $    500               $  5,835
Accumulated deficit                            (63,930)                (63,930)            (57,969)               (63,304)
Total stockholders' deficit                    (61,626)                (61,626)            (55,799)               (61,134)

Statement of Operations (Unaudited)
-----------------------------------
                                                                           Three Months Ended
                                                                                 June 30, 
                                                          1996                                          1995
                                                ------------------------                     --------------------------
                                               Reported              Restated             Reported                 Restated
                                              ---------              --------             --------                 --------       
Litigation settlement gain, net               $  3,500                $  7,100            $      -               $      -
Interest expense                                    18                      34                  26                    142 
Income tax expense                                 164                     127                   -                      - 
Extraordinary loss, net of taxes of $37              -                   1,831                 (25)                   (25)
Net income (loss) applicable to common stock    (1,251)                  4,201              (4,625)                (4,741)
Net income (loss) per share of common stock      (0.05)                   0.17               (0.18)                 (0.19)

                                                                             Six Months Ended
                                                                                 June 30, 
                                                          1996                                          1995
                                                ------------------------                     --------------------------
                                               Reported              Restated             Reported                 Restated
                                              ---------              --------             --------                 --------       
Litigation settlement gain, net               $  3,500                $  7,100            $      -               $      -
Interest expense                                    54                     187                  61                    292 
Income tax expense                                 164                     127                   -                      - 
Extraordinary loss, net of taxes of $37 (1996)       -                   1,831                  93                     93 
Net loss applicable to common stock             (5,961)                    626              (8,925)                (9,156)
Net loss per share of common stock               (0.24)                  (0.03)              (0.35)                 (0.36)
</TABLE> 

                                       10
<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 5 of the Notes to Consolidated Financial Statements.

                             RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 ("1996") Compared to June 30, 1995 ("1995")
--------------------------------------------------------------------------

   Consolidated revenues for the first half of 1996 totaled $10,046,000, up
$7,947,000 from 1995 consolidated revenues of $2,099,000.  The substantial
increase for 1996 is due to the  recognition of a net litigation settlement gain
of $7,100,000 related to the NFG Litigation and a $145,000 gain on property
sales, both non-recurring items, combined with improved results in other areas
as discussed below.

   Total costs and expenses for 1996 were $2,984,000, up $712,000 or 31% over
total costs and expenses reported for the same period in 1995.  Over half of the
1996 expense increase is related to second quarter recognition in 1995 of a
$425,000 receivable allowance recoupment which decreased general and
administrative expense for both the three month and six month periods of 1995.

   Net income before income taxes and extraordinary gain in the first half of
1996 was $7,062,000, compared to a loss of $173,000 for 1995.

Revenues
--------

   Revenues from oil and natural gas sales for the 1996 period were $2,327,000,
up 40% or $665,000 over 1995 on improved volumes and prices.  A summary of oil
and natural gas sales volumes and revenues for the respective periods follows:

<TABLE>
<CAPTION>
 
         Summary of Oil Volumes and Revenues
 
                                       1996     1995    Change
--------------------------------------------------------------
<S>                                   <C>      <C>      <C>
 
Oil revenues (in thousands)           $   726  $   561      29%
 
Oil sales volume (barrels)             36,300   31,600      15%
 
Oil average sales price per barrel    $ 20.00  $ 17.75      13%
--------------------------------------------------------------
</TABLE>

                   Summary of Natural Gas Volumes and Revenue
<TABLE>
<CAPTION>
 
                                           1996     1995    Change
------------------------------------------------------------------
<S>                                       <C>      <C>      <C>
 
Natural gas revenues (in thousands)        $1,601   $1,101      45%
 
Natural gas sales volume (Mmcf)               776      748       4%
 
Natural gas average sales price per Mcf    $ 2.06   $ 1.47      40%
------------------------------------------------------------------
</TABLE>

                                       11
<PAGE>
 
    On an equivalent unit basis (one barrel of oil equals six Mcf of natural gas
on a heating value basis), natural gas represents 78% of TGX's 1996 oil and
natural gas sales volumes and 69% of oil and natural gas revenues.   Due to the
Company's production being heavily weighted toward gas, its revenues and cash
flow are significantly  influenced by changes in gas prices.  During the first
half of 1996, average gas prices increased to $2.06 or $0.59 per Mcf from the
1995 average price of $1.47.  Current period oil prices were also higher than
the previous period by $2.25 per barrel.  Higher oil and gas product prices
contributed to an increase in revenues for 1996 of $540,000.  Oil and gas
product prices continue to be very volatile with gas futures prices for
September delivery down from current quarter end prices, but still up
considerably from the same period last year.  Oil futures prices for September
delivery, on the other hand, are up both from current quarter end and the same
period last year.

   Natural gas sales volumes for 1996 were 776 Mmcf, up 4% from sales reported
in 1995 of 748 Mmcf which included non-recurring volumes related to imbalance
settlements and well payout adjustments of 101 Mmcf.  Excluding 1995 gas
balancing and payout adjustment volumes, gas sales volumes for 1996 increased by
129 Mmcf or 20%.  The Company records gas revenues on the net sales method and
thus revenues are recorded when received or operations merit accrual.

   Oil volumes for 1996 were 36,300 barrels, up 15% over 1995 volumes of 31,600
barrels which included non-recurring payout volume adjustments of 7,600 barrels.
Excluding the non-recurring volumes recognized in 1995,  oil  volumes for 1996
were up 12,300 barrels or 51% as compared to the same period in 1995.

   The increase in 1996 oil and gas sales volumes resulted in additional 1996
revenues of $125,000 compared to those reported in 1995.

   For the three month period ended June 30, 1996, oil and gas revenues were
$1,139,000, representing an increase of  $444,000 or 64% from the comparable
three month period in 1995.  Of the current quarter revenue increase, $251,000
is attributed to product price increases and $193,000 to sales volume increases.
Oil and gas prices for the current three month period were $20.77 and $2.07,
respectively, for 1996, as compared to same period 1995 prices of $18.56 and
$1.49, respectively.  During the current quarter of 1996 oil and gas sales
volumes were 19,600 barrels and 353,000 Mcf as compared to 1995's reported sales
volumes of 13,200 barrels and 303,000 Mcf, representing an increase of 48% and
16%, respectively.  The sales volume increases for the quarter and the first
half of 1996 reflect the successful results of the Company=s acquisition,
drilling and workover activity.

   Natural gas gathering and equity earnings in Comite Field Plant Venture
revenues increased by 22% to a combined total of $417,000 in 1996 as compared to
$341,000 in 1995.  This increase is primarily attributable to recoupment of
previously deferred treating fees and higher per Mcf contract treating fees.

   As previously mentioned, on April 12, 1996 the Company entered into a
Settlement  Agreement with NFG and the Public Service Commission of the State of
New York.  Pursuant to the agreement, TGX received on April 19, 1996 $7.2
million from NFG and all parties to the Settlement Agreement dismissed all
claims and counterclaims against each other.  Pursuant to amended credit
agreements with BMOF (See Note 2), 50% of the gross settlement proceeds were
paid to BMOF in cancellation and full payment of the non-recourse note,  which
as of date of settlement totaled $5,468,000,  including interest of $816,000.
In conjunction with the final payment to BMOF of $3.6 million,  the Company
recognized an extraordinary gain from debt forgiveness of $1,831,000,  net of
income taxes of $37,000.  As a result of the NFG proceeds and $100,000 payment
to another third party entitled to participate in the proceeds, the Company
recorded a $7.1 million net litigation settlement gain in 1996.

   For 1996 the Company recorded property sales and other revenues of $202,000
as compared to 1995 revenues of $96,000.  The increase in 1996 revenues is
primarily the result of the Company selling approximately 54 marginal wells for
net proceeds of $145,000.  Included in 1995 revenues is 

                                       12
<PAGE>
 
approximately $50,000 of gain recognized in the liquidation of various Company
managed limited partnerships. The limited partnership liquidation was completed
in late 1995.

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

   Consolidated costs and expenses for 1996 increased by $712,000 or 31% to
$2,984,000 as compared to $2,272,000 for 1995.  The increase in expenses was
primarily due to higher 1996 operating and general and administrative expenses
and an increase in non-cash depletion, depreciation and amortization expense.

   For 1996, total operating expenses increased $94,000 or 10% to $1,083,000 as
compared to $989,000 for 1995.  Included in operating expenses are workover
costs, severance taxes and expenses for both pre and post wellhead production
costs.

   Workover costs for 1996 and 1995 totaled $133,000 and $193,000, respectively,
and represent discretionary well production activities that are implemented to
enhance or increase production.  A significant portion of the workover costs
incurred are related to the Company's major field in Arkansas and resulted in
increases in production.  Additional workovers are scheduled for 1996.

   Severance taxes for 1996 and 1995 were $121,000 and $37,000, respectively.
Severance taxes for 1995 reflect a favorable one-time adjustment related to a
first quarter pre-petition tax settlement of $42,000.  The remaining increase in
severance taxes is related to increased sales volumes and prices.

   Excluding workover costs and severance taxes, 1996 and 1995 operating
expenses totaled $829,000 and $759,000, respectively, for production costs
through the wellhead, as well as post production costs incurred beyond the
wellhead such as treating, marketing and transportation.  Operating expenses
related directly to production for 1996 were $401,000 as compared to $417,000
for 1995.  Production costs for 1996 increased, after excluding a 1995 one-time
well payout adjustment of $56,000, primarily due to additional wells acquired in
December 1995.

   Post-production costs of $428,000 in 1996 increased approximately $99,000
compared to 1995 primarily as a result of the recognition in 1996 of additional
treating fees previously deferred pursuant to an agreement.

   Depletion, depreciation, and amortization ("DD&A") expense in 1996 increased
$90,000 or 24% to $461,000 from $371,000 in 1995 due to increases in sales
volume and weighted average DD&A rate per equivalent Mcf.  Equivalent Mcf sales
volumes for 1996 increased approximately 6% while the weighted average DD&A rate
for the current six months increased 10% to $0.45 per equivalent Mcf as compared
to 1995's rate of $0.41.

   General and administrative expenses in 1996 increased by $671,000 or 115% to
$1,253,000 from $582,000 in 1995 due primarily to 1995 including benefits from a
litigation receivable recoupment and reimbursements from previously managed
limited partnerships.  In the second quarter of 1995, the Company recognized a
receivable allowance recoupment of $425,000 in conjunction with litigation
settlement regarding affiliated receivables.  During late 1995, the Company, as
part of its plan of divesting non-strategic assets, liquidated the remaining
eight managed limited partnerships.  Thus, 1995 general and administrative
expense benefited from partnership expense reimbursements of approximately
$224,000. Excluding the 1995 receivable allowance recoupment and partnership
reimbursement benefits,  1996 general and administrative expenses were
relatively unchanged as compared to 1995.

   During 1995 the Company recognized $38,000 of costs related to unsuccessful
exploration activity.  Thus far for 1996, the Company has not incurred such
costs.

                                       13
<PAGE>
 
   Interest expense for 1996 decreased $105,000 due to lower bank borrowings and
BMOF final payment in April 1996.  Interest on the BMOF  non-recourse note for
1996 and 1995 was $133,000 and $231,000,  respectively.  Included in both
periods is $18,000 of amortization of credit facility establishment costs which
are being amortized over the initial term of the facility.

   Due to tax loss carryforwards,  the Company currently pays federal
alternative minimum income taxes only.  In conjunction with the recognition of
the litigation settlement and related tax gain resulting from the final BMO debt
settlement,  the Company has estimated and accrued alternative minimum income
taxes in 1996 of $164,000,  which includes $37,000 of income tax related to the
extraordinary gain.  The tax expense recognized represents an effective tax rate
of approximately 2% on income before income taxes.

   Debt forgiveness for 1996 and 1995 resulted in the recognition of an
extraordinary gain of $1,831,000,  net of income taxes of $37,000,  and $93,000,
respectively.  The 1996 gain is the result of payment of 50% of the NFG
Litigation proceeds or $3.6 million,  pursuant to the amended credit agreement,
in full settlement of the BMOF note of $4,652,000 and related accrued interest
of $816,000.  The BMOF debt forgiveness extraordinary gain of $1,868,000 was
reduced by related income taxes of $37,000.  The 1995 gain of $93,000 was
derived from Administrative Note settlements and claim forfeitures.

   Pursuant to the terms of the Plan, dividends for the Senior Preferred Stock
are calculated at 10%, compounded annually and resulted in dividends for 1996 of
$6,393,000 as compared to $6,616,000 for 1995.  Dividends on the Old Preferred
Stock were $134,000 for 1996 and 1995.

   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 23% to $2,865,000 for 1996 as compared to $2,326,000 in 1995.


                              FINANCIAL CONDITION

   During the first half of 1996, the Company's capital expenditures totaled
$420,000 and were primarily related to development drilling activity.  The
Company also incurred workover costs of $133,000.  The positive results of these
expenditures are reflected in the increased sales volumes reported in 1996 and
such activity should continue to benefit future operating results.

   At June 30, 1996, the Company had positive working capital of $1,260,000
which represents an increase of $3,031,000 from the prior year end deficit.  The
significant improvement in working capital is attributable to the $3.5 million
of net litigation settlement proceeds retained by the Company after BMOF debt
and other third party participation payments.

   As a result of the litigation settlement proceeds,  in April 1996,  the
Company paid $3,600,000 in full settlement of the $5,468,000 of BMOF debt,
including interest of $816,000. The Company also retired $900,000 of Bank One
credit facility borrowings then outstanding and had no borrowings outstanding as
of June 30, 1996.  The borrowing base under the Bank One credit facility at 
June 30, 1996 was $2,200,000 and is reduced monthly by $50,000. The borrowing
base is redetermined on a semi-annual basis or at any time at Bank One=s
election. The credit facility is secured by substantially all of the Company=s
assets and includes financial and default covenants standard to the industry.
The Bank One credit facility is repayable over a 36 month period and any
borrowings outstanding are due on July 13, 1997.

   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 and, accordingly, are not
classified as a component of stockholders' equity.  At June 30, 1996, the Senior
Preferred redemption value and accrued dividends were $87,886,000 and
$46,831,000, 

                                       14
<PAGE>
 
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 June 30, 1996, the Stockholders' deficit was $61,626,000.  Due to the
dividend requirements for the Senior Preferred Stock 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.


                        LIQUIDITY AND CAPITAL RESOURCES

   For 1996 to date, the Company's cash provided by operating activities was
$6,494,000 and included net litigation settlement proceeds of $7.1 million of
which $3.6 million was paid to BMOF.(See Note 2).  Also, included in cash
provided by operating activities is approximately $343,000 of proceeds received
from the Company's 35% equity investment in the Comite Field Plant Venture.  The
decrease in accounts payable and accrued liabilities of $951,000  includes the
payment of $400,000 in regards to litigation settlement of a pre-petition
administrative claim which had been previously accrued.  Primarily as a result
of the litigation settlement,  the Company had a positive working capital of
$1,260,000 at the end of the current quarter.

   The Bank One credit facility has a current borrowing base of approximately
$2.2 million with no borrowings outstanding.  The Company has letter of credit
commitments totaling $60,000 outstanding under the credit facility resulting in
a quarter-end facility availability of $2.14 million. Though the borrowing base
is reduced monthly by $50,000 and all amounts borrowed are due July 13, 1997,
the Company is currently negotiating an extension of the facility to July 1999
and anticipates receiving final approval in the near future.  As a result of the
Company's working capital position, improving operating results and availability
under the facility, capital resources are deemed sufficient for current
operating activities.

   Pursuant to the terms of various agreements, the Company, as a working
interest owner, is responsible for marketing its share of natural gas production
from certain properties.  If the Company is unable or unwilling to market its
share of natural gas production from a property, its under-produced status is
subject to balancing with other working interest owners who have sold more than
their proportionate share of natural gas production.  On an aggregate net basis
for certain natural gas properties, it appears that the Company is in an under-
produced status and is currently recouping or attempting to settle its net
under-produced status.  Any balancing recoupments or settlements, which will
typically be over a period of time, are not anticipated to be material to
operating results.

   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 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 3 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 June 30, 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 referenced 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
                                     ----------------------------------
                                     Michael A. Gerlich
                                     Vice President and
                                     Chief Financial Officer

                                       17