Exhibit 10.1
[LETTERHEAD OF TURNER, STONE & COMPANY, L.L.P.]
December 7, 2006
Board of Directors
TBX Resources, Inc.
3030 LBJ Freeway, Suite 1320
Dallas, TX 75234
Gentlemen,
We are providing this letter to confirm our understanding of the terms and
objectives of our engagement to audit the consolidated balance sheet at
November 30, 2006 and the related consolidated statements of operations,
stockholders’ equity and cash flows of TBX Resources, Inc., TBX Acquisition,
Inc. and Grasslands I, L.P. (collectively hereinafter referred to as “the
Company”) for the year then ended for the purpose of expressing an opinion on
them.
The objective of our audit is the expression of an opinion about whether your
consolidated financial statements are fairly presented, in all material
respects, in conformity with U.S. generally accepted accounting principles. Our
audit will be conducted in accordance with the standards of the Public Company
Accounting Oversight Board (PCAOB) (United States) and will include tests of
your accounting records and other procedures we consider necessary to enable us
to express such an opinion. Our ability to express that opinion and the wording
of our opinion will, of course, be dependent on the facts and circumstances at
the date of our report. If, for any reason, we are unable to complete the audit
or are unable to form or have not formed an opinion, we may decline lo express
an opinion or to issue a report as a result of this engagement. If circumstances
preclude us from issuing an unqualified opinion, we will discuss the reasons
with you in advance.
An audit includes examining, on a test basis, evidences supporting the amounts
and disclosures in the consolidated financial statements. Accordingly, the areas
and number of transactions selected for testing will involve our professional
judgment. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. Our procedures will include,
where applicable, tests of documentary evidence supporting the transactions
recorded in the accounts, tests of the physical existence of inventory, and
direct confirmation of receivables and certain other assets and liabilities by
correspondence with selected customers, creditors, legal counsel, and financial
institutions.

 

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Board of Directors
TBX Resources, Inc
December 7, 2006
Page Two
In order to expedite the completion of our audit and to keep audit costs at a
minimum, we understand you will assign Company personnel to assist us by
performing non-professional duties; including locating, removing from, and
returning to the files the checks, invoices, deposits and other documentation
required to be examined by us; completing from Company records the financial
information on audit work papers to be furnished by us; typing confirmation
requests; and searching the Company records for explanation of exceptions or
differences arising from our procedures. We may also request written
representations from your attorneys as part of our audit and they may bill you
for responding to this inquiry. At the conclusion of our audit, we will require
certain written representations from the appropriate level of management about
the consolidated financial statements and related matters.
We are responsible for conducting the audit in accordance with the standards of
the PCAOB (United States). Those standards require that we obtain reasonable
rather than absolute assurance about whether the consolidated financial
statements arc free of material misstatement, whether caused by errors, fraud,
or violations of laws or governmental regulations that are attributable to the
Company or to acts by management or employees acting on behalf of the Company.
However, because of the characteristics of fraud, particularly those involving
collusion, concealment and falsified documentation (including forgery), a
properly planned and performed audit may not detect a material misstatement. Our
procedures will also include gathering information necessary to identify risks
of material misstatement due to fraud, evaluating the Company’s programs and
controls that address the identified risks of material misstatement due to
fraud, and assessing the risks taking into account this evaluation. We are also
required to consider whether identified misstatements may be indicative of fraud
and, if so, we are required to evaluate their implication. Any fraud, whether or
not material, that involves management or other employees who have a significant
role in the Company’s internal controls and procedures for financial reporting
should be disclosed to us.
Because an audit conducted in accordance with the standards of the PCAOB (United
States) is designed to provide reasonable, but not absolute, assurance and
because we will not perform a detailed examination of all transactions, there is
the risk that material misstatements may exist and not be detected by us. In
addition, an audit is not designed to detect immaterial misstatements or
violations of laws or governmental regulations that do not have a material and
direct effect on the financial statements. However, we will inform the
appropriate level of management of any material errors, fraudulent financial
reporting or misappropriation of assets, or violations of laws or governmental
regulations that come to our attention, unless clearly inconsequential. Our
responsibility as auditors is limited to the period covered by our audit and
does not extend to any later periods for which we are not engaged as auditors.

 

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Board of Directors
TBX Resources, Inc.
December 7, 2006
Page Three
An audit includes obtaining an understanding of internal control sufficient to
plan the audit and to determine the nature, timing, and extent of audit
procedures to be performed. An audit is not designed to provide assurance on
internal control or to identify reportable conditions, that is, significant
deficiencies in the design or operation of internal control. However, we are
responsible for communicating to the appropriate level of management any
reportable conditions which come to our attention.
While our audit will be conducted with due regard to the rules and regulations
of the Securities and Exchange Commission (SEC) relative to matters of
accounting, it should be understood that our report and the consolidated
financial statements and schedules, if any, are subject to review by the SEC and
to their interpretation of the applicable rules and regulations.
The Private Securities Litigation Reform Act of 1995 (the Act) imposes
additional responsibilities on SEC registrants, their management, audit
committees and boards of directors, as well as independent auditors regarding
the reporting of illegal acts that have or may have occurred. During the course
of our audit, we will ask you specific representations about this. To fulfill
our responsibilities under the Act, we may need to consult with your attorney or
an attorney of our choosing about any such illegal acts that we become aware of.
Additional fees, including legal fees if any, are your responsibility and will
be billed to you. In this regard, you agree to cooperate with any procedures
that we may deem necessary to perform.
Management’s Responsibility
The consolidated financial statements are the responsibility of the Company’s
management. Encompassed within that responsibility is the establishment and
maintenance of effective internal controls over financial reporting, the
establishment and maintenance of proper records, the selection of appropriate
accounting principles, the safeguarding of assets, and compliance with relevant
laws and regulations. In addition, management is responsible for adjusting the
consolidated financial statements to correct material misstatements and for
affirming to us in the representation letter that the effects of any uncorrected
misstatements aggregated by us during the audit and pertaining to the latest
period presented are immaterial, both individually and in the aggregate, to the
consolidated financial statements taken as a whole.

 

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Board of Directors
TBX Resources, Inc.
December 7, 2006
Page Four
Management is also responsible for making all financial records and related
information available to us and for the accuracy and completeness of that
information. We will advise you about appropriate accounting principles and
their application and will assist in the preparation of your consolidated
financial statements, but the responsibility for the consolidated financial
statements remains with you, including the overall accuracy of the consolidated
financial statements and their conformity with U.S. generally accepted
accounting principles. This responsibility includes the establishment and
maintenance of adequate records and effective internal controls over financial
reporting, the selection and application of accounting principles, properly
recording transactions in the accounting records, making appropriate estimates,
the safeguarding of assets and identifying and ensuring the Company complies
with the laws and regulations applicable to its business activities.
As part of our engagement we may propose standard, adjusting, or correcting
journal entries to your consolidated financial statements. You arc responsible
for reviewing the entries and understanding the nature of any proposed entries
and the impact they have on the financial statements. Further, you are
responsible for designating a qualified management-level individual to be
responsible and accountable for overseeing these services.
Management is responsible for ensuring and management represents to us that
before audit fieldwork begins, the Company will appropriately reconcile its
general ledger accounts to their related supporting information. All related
reconciling items considered to be material, individually and in the aggregate,
will be identified and included on the reconciliations and will be appropriately
adjusted in the financial statements. Or if not adjusted in the financial
statements, which may not be feasible in all cases, management will, at the very
least, identify and report to us at or before the beginning of fieldwork any
adjustments yet to be made.
Establishing and maintaining a sound system of internal control is the best
means of preventing or detecting errors, fraudulent financial reporting and
misappropriation of assets. Therefore, you are responsible for the design and
implementation of programs and controls to prevent and detect fraud, and
informing us about all known or suspected fraud affecting the Company involving
(a) management, (b) employees who have significant roles in internal control,
and (c) others where the fraud could have a material effect on the consolidated
financial statements. All significant deficiencies and material weaknesses in
the design or operations of internal controls and procedures for financial
reporting, including any corrective actions, which could affect the Company’s
ability to record, process, summarize and report financial information are
required to be disclosed to us. You are also responsible for informing us of
your knowledge of any allegations of fraud or suspected fraud affecting the
Company received in communications from employees, former employees, regulators,
or others.

 

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Board of Directors
TBX Resources, Inc.
December 7, 2006
Page Five
As stated above, we will require various written representations from management
including, but not limited to, management’s responsibility for the design and
implementation of programs and controls to prevent and detect fraud, including
management’s knowledge of fraud, suspected fraud or allegations of fraud
affecting the Company. Furthermore, additional representations will be required
regarding management’s responsibility to establish and maintain adequate
internal controls and procedures for financial reporting as well us management’s
conclusions about the effectiveness of the Company’s internal controls and
procedures, including any significant changes in the Company’s internal controls
and procedures for financial reporting or in other factors that could
significantly affect internal controls and procedures relating to financial
reporting. We will also request various other representations determined by the
nature of our audit and the unique characteristics of the Company’s business
operations and financial activities. These written representations, which are
required by the PCAOB (United States), are part of the audit evidence that we
will rely on in forming our opinion on the Company’s consolidated financial
statements.
Management is also responsible for the preparation of Management’s Discussion
and Analysis (MD&A) prepared pursuant to the rules and regulations of the SEC,
which is presented in annual reports to stockholders, quarterly interim filings
and in other documents. These rules require management to interpret the
criteria, accurately derive the historical amounts from the Company’s accounting
records, make determinations as to the relevancy of information to be included,
and make estimates and assumptions that affect reported information.
If the Company intends to publish or otherwise reproduce in any document our
report on the Company’s consolidated financial statements, or otherwise make
reference to our firm in a document that contains other information in addition
to the audited financial statements (e.g. in a debt or equity offering circular
or in a private placement memorandum), the Company agrees that, prior to making
any such use of our report or reference to our firm, the Company’s management
will provide us with a draft of the document to read and obtain our approval for
the inclusion or incorporation by reference of our report, or the reference to
our firm, in such document before the document is printed and distributed.
Accordingly, to avoid unnecessary delay or misunderstanding, it is important
that you give us timely notice of your intention to issue any such document.
When applicable, with respect to the electronic dissemination of audited
consolidated financial statements, including consolidated financial statements
published electronically on the Company’s internet website, the Company
understands that electronic sites are a means to distribute information and,
therefore, we are not required to read the information contained in these sites
or to consider the consistency of other information in the electronic site with
the original document.

 

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Board of Directors
TBX Resources, Inc.
December 7, 2006
Page Six
Our reports should not be included in the SEC’s EDGAR electronic filing system
until you have received a manually signed report from us. The inclusion or
incorporation by reference of our report in any such document would constitute
the reissuance of our report and any request by the Company to reissue our
report or to consent to its inclusion or incorporation by reference in any such
document will be considered based on the facts and circumstances existing at the
time of such request.
Additionally, when applicable, the Company agrees to inform us of its intent to
use our report in a registration statement filed under the Securities Act of
1933 or the Securities Exchange Act of 1934. In this regard, the Company agrees
to provide us a complete copy of every deficiency (comment) letter received from
the SEC. The complete letter should be sent to us immediately so that we may
determine the extent to which the SEC’s comments concern, directly or
indirectly, the consolidated financial statements. This requirement not only
pertains to comments related to filings under the Securities Act of 1933 but
also to filings under the Securities Exchange Act of 1934 such as proxy
statements, Form 10-K(SB), Form 10-Q(SB), Form 8-K and Form 10 filings. To
facilitate this process, please coordinate with Company counsel to forward all
copies of such letters to us.
Furthermore, the Company should not make any public filing of information in the
SEC’s EDGAR electronic filing system or through press releases until we have had
the opportunity to review and approve such filing or press release.
Other Communications Arising from the Audit
As required by the PCAOB (United States), we will report directly to the Audit
Committee/Board of Directors any fraud of which we become aware that involves
senior management and any fraud that causes a material misstatement of the
consolidated financial statements. We will also report to senior management any
fraud perpetrated by lower level employees of which we become aware that does
not cause a material misstatement of the consolidated financial statements. In
addition, we will communicate certain other matters required by professional
standards related to the conduct of our audit and your financial reporting
process.
We will inform the appropriate level of management and the Audit Committee/Board
of Directors of illegal acts that have been detected or have otherwise come to
our attention in the course of our audit, unless the illegal act is clearly
inconsequential.

 

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Board of Directors TBX
Resources, Inc.
December 7, 2006
Page Seven
We will also report directly to Company management and the Audit Committee/Board
of Directors matters coming to our attention during the course of our audit that
we believe are reportable conditions. Reportable conditions are significant
deficiencies in the design or operation of internal control that could adversely
affect the Company’s ability to record, process, summarize and report financial
information consistent with the assertions of management in the consolidated
financial statements.
We may also have other comments for management relating to matters that we
observe, possible ways to improve the efficiency of the Company’s operations or
other recommendations concerning internal controls. These matters will be
discussed with the level of management responsible for the matters and, if
significant, we will also communicate them to senior management and/or the Audit
Committee/Board of Directors.
Fees and Payments
Our fee for this audit will be at our standard rates for the level of work and
professional staff involved, for the time required to complete the engagement in
the highest professional manner, plus out-of-pocket costs. Our statements will
be rendered monthly as work progresses and at the completion of the audit and
are payable upon presentation. They are considered past due after 30 days and a
finance charge not to exceed the maximum lawful rate will be added to all past
due balances. In accordance with our firm policies, work may be suspended if
your account balance becomes forty-five (45) days or more overdue and will not
be resumed until your account is brought current. If we elect to terminate our
services for nonpayment, our engagement will be deemed completed at the time you
are notified, even if we have not issued our report, and you agree to be
obligated to compensate us for the time expended and any out of pocket costs
incurred through the date of termination.
Based upon our preliminary planning and discussions, we estimate our fee for
this audit will range between $35,000 and $39,000, plus out of pocket costs. An
initial retainer of $10,000 is required for us to begin our field work. This
estimate assumes we will receive the aforementioned assistance and cooperation
from your personnel and that we will not encounter unexpected circumstances. We
will notify you immediately if changing circumstances or other unforeseen
factors require us to change our estimate by more than 10%.

 

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Mr. Tim Burroughs, President
TBX Resources, Inc.
December 7, 2006
Page Eight
The Company is also required to have interim financial reports filed on Form
10-Q or Form 10-QSB reviewed by us prior to filing. The SEC does not require an
audit of the interim financials, but it does require independent auditors to
follow the Statement of Auditing Standards No. 100, “Interim Financial
Information,” procedures for conducting the interim quarterly review. The SEC
considers it a clear violation of the securities laws for a company to file a
quarterly report without having its auditor perform the review of the interim
information in advance of the filing. A review report generally is not and will
not be issued in conjunction with our quarterly review procedures because it is
not required by the SEC to be included in your quarterly filings. However, if
you request such a report, we will be happy to provide one to you. We estimate
our fee for each quarterly review will approximate $3,000, which is not included
in the above estimated audit fee.
We understand that the Company may acquire a privately-held entity in the near
future and, in connection with that acquisition, may request us to perform an
audit of that entity. We will consider that an additional engagement for which
we will issue a separate engagement agreement.
Timing and Completion of Audit Work
We plan to conduct certain tests of transactions and other audit procedures
during December 2006 and January 2007 and complete our audit by January 31,
2007. We plan to present our audit report within three business days following
completion of the audit. Delays in the performance of our audit, which would
cause us to be unable to meet this schedule, will be brought to your attention
immediately.
To insure our orderly and efficient progress through the audit, it is important
that you have the information we have requested assembled and available by the
beginning of our field work (or earlier for audit planning purposes if
specifically arranged with you). It is also important that your personnel
assigned to assisting us promptly devote attention of our inquiries and requests
for documentation to insure we do not encounter any undue delays. Should this
not be the case, then our work in connection with the audit of the Company’s
financial statements may be delayed due to scheduling conflicts with other
engagements. In such cases, we cannot be held responsible for missed filing
deadlines.
Document Retention Policy
It is not our practice or policy to retain work papers, emails, notes or data
files that have been updated or superseded, unless shared with you or a third
party working with you. However, if you wish us to follow a retention practice
that differs from the above, please indicate your specific request(s) in writing
when returning a copy of this engagement letter. A complete copy of our document
retention policy is available upon request.

 

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Mr. Tim Burroughs, President
TBX Resources, Inc.
December 7, 2006
Page Nine
If the terms of the engagement set forth above are acceptable to you and in
accordance with your understanding, please sign and return one copy of this
letter to us. We appreciate the opportunity to be of service to you and we look
forward to working wilh you.
Very truly yours,
/s/ Turner, Stone & Company, LLP
Certified Public Accountants
Approved:

         
By:
  /s/ Tim Burroughs    
 
       
 
       
Date:
  Dec. 7, 06