**UNITED STATES**

**SECURITIES EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

**FORM 10-QSB**

 
| **ý** |                                              | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|---------------------------------------------------|----------------------------------------------------------------------------------------|
|       |                                              |                                                                                   |
|       | **FOR THE QUARTERLY PERIOD ENDING MAY 31,  2004** |
|       |                                              |                                                                                   |
| **o**      |                                              | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                   |

 

**For the transitionperiod from               to               .**

 

**Commission FileNumber 0-30746**

 

**TBX RESOURCES, INC.**

(Exact name of small business issuer asspecified in its charter)

 
| **Texas**                                                       |   | **75-2592165**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |

 

**3030 LBJ Freeway,Suite 1320**

**Dallas, TX 75234**

(Address of principal executive offices)

 

Issuer’s telephone number **(972) 243-2610**

 

Check whether the issuer: (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter 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     ý | No     o |
|------------------------------------|------------------------------|

 

State thenumber of shares outstanding of each of the issuer’s classes of common equity,as of the latest practicable date: 30,772,537 on July 14, 2004

 

TransitionalSmall Business Disclosure Format (check one) Yes o No ý

 

 

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**TBX Resources, Inc.**

 

**Index**

** **
| PART I –  Financial Information |    |
|--------------------------------------|---------|
|                                 |    |   |   |
|                                 | Item 1. | Financial  Statements |   |
|                                 |    |   |   |
|                                 |    | Balance  Sheet |   |
|                                 |    |   |   |
|                                 |    | Statements of Operations |   |
|                                 |    |   |   |
|                                 |    | Statements of Cash Flows |   |
|                                 |    |   |   |
|                                 |    | Statement of Changes In Stockholders’ Equity |   |
|                                 |    |   |   |
|                                 |    | Notes  to Financial Statements |   |
|                                 |    |   |   |
|                                 | Item 2. | Management’s  Discussion and Analysis of Plan of Operations |   |
|                                 |    |   |   |
| PART II  – Other Information    |    |
|                                 |    |
| SIGNATURES                           |    |

 

i

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PART I- FINANCIAL INFORMATION

Item 1. Financial Statements

 

**TBX RESOURCES, INC.**

**BALANCESHEET**

**MAY 31, 2004**

(Unaudited)

 
| **ASSETS**                                                                                                  |   |       |      |
|-------------------------------------------------------------------------------------------------------------|--------|------------|-----------|
| **Current Assets**                                                                                          |   |       |      |
| Cash and equivalents                                                                                        |   | $          | 1,924     |   |
| Trade accounts receivable                                                                                   |   | 25,688     |      |
| Prepaid consulting fees                                                                                     |   | 100,000    |      |
| Total current assets                                                                                        |   | 127,612    |      |
|                                                                                                        |   |       |      |
| **Equipment and Property**                                                                                  |   |       |      |
| Office furniture, fixtures and equipment                                                                    |   | 118,449    |      |
| Oil and gas properties, using successful  efforts accounting Proved properties and related equipment        |   | 1,751,667  |      |
|                                                                                                        |   | 1,870,116  |      |
| Less accumulated depreciation, depletion  and amortization                                                  |   | 690,623    |      |
| Total equipment and property                                                                                |   | 1,179,493  |      |
|                                                                                                        |   |       |      |
| **Prepaid Consulting and Other**                                                                            |   | 181,211    |      |
| **Total Assets**                                                                                            |   | $          | 1,488,316 |   |
|                                                                                                        |   |       |      |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                               |   |       |      |
| **Current Liabilities**                                                                                     |   |       |      |
| Trade accounts payable                                                                                      |   | $          | 214,844   |   |
| Loans from affiliates                                                                                       |   | 364,907    |      |
| Taxes payable                                                                                               |   | 10,415     |      |
| Accrued expenses                                                                                            |   | 16,933     |      |
| Deferred income from joint ventures                                                                         |   | 192,647    |      |
| Total current liabilities                                                                                   |   | 799,746    |      |
|                                                                                                        |   |       |      |
| **Commitments and Contingencies**                                                                           |   | —     |      |
|                                                                                                        |   |       |      |
| **Stockholders’ Equity**                                                                               |   |       |      |
| Preferred stock- $.01 par value; authorized  10,000,000 shares; no shares outstanding                       |   | —     |      |
| Common stock- $.01 par value; authorized  100,000,000 shares; 30,772,537 shares outstanding at May 31, 2004 |   | 307,725    |      |
| Additional paid-in capital                                                                                  |   | 8,558,897  |      |
|                                                                                                        |   |       |      |
| Accumulated deficit                                                                                         |   | (8,178,052 | )         |
| Total stockholders’ equity                                                                             |   | 688,570    |      |
| **Total Liabilities and Stockholders’ Equity**                                                         |   | $          | 1,488,316 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

F-1

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**TBX RESOURCES, INC.**

**STATEMENTS OF OPERATIONS**

(Unaudited)

 
|                                                      |   | **For The  Three Months Ended** |    | **For The  Six Months Ended** |   |
|-----------------------------------------------------------|--------|---------------------------------|---------|-------------------------------|--------|
|                                                      |   | **May 31,  2004**               |    | **May 31,  2003**             |   | **May 31,  2004** |   | **May 31,  2003** |   |
|                                                      |   |                            |    |                          |   |   |   |   |   |
| **Revenues:**                                             |   |                            |    |                          |   |   |   |   |   |
| Oil and gas sales                                         |   | $                               | 35,631  |                          | $      | 33,625 |   | $ | 66,783 |   | $ | 112,162 |   |
| Joint venture income                                      |   | 202,010                         |    | —                        |   | 226,503 |   | — |   |
| Total revenues                                            |   | 237,641                         |    | 33,625                        |   | 293,286 |   | 112,162 |   |
|                                                      |   |                            |    |                          |   |   |   |   |   |
| **Expenses:**                                             |   |                            |    |                          |   |   |   |   |   |
| Lease operating and taxes                                 |   | 28,338                          |    | 16,891                        |   | 53,702 |   | 45,307 |   |
| Joint venture expenses                                    |   | 194,148                         |    | —                        |   | 218,652 |   | — |   |
| General and administrative                                |   | (11,164                         | )       | 134,046                       |   | 151,414 |   | 318,450 |   |
| Loss on sale and abandonment of oil &  gas properties |   | —                          |    | 675,934                       |   | — |   | 671,197 |   |
| Depreciation, depletion and amortization                  |   | 83,175                          |    | 84,153                        |   | 124,248 |   | 163,743 |   |
| Total expenses                                            |   | 294,497                         |    | 911,024                       |   | 548,016 |   | 1,198,697 |   |
|                                                      |   |                            |    |                          |   |   |   |   |   |
| **Operating Loss**                                        |   | (56,856                         | )       | (877,399                      | )      | (254,730 | ) | (1,086,535 | ) |
|                                                      |   |                            |    |                          |   |   |   |   |   |
| **Other Income (Expense):**                               |   |                            |    |                          |   |   |   |   |   |
| Interest and other                                        |   | (3,716                          | )       | 153                           |   | (7,472 | ) | 393 |   |
|                                                      |   |                            |    |                          |   |   |   |   |   |
| **Net Loss Before Provision for Income Taxes**            |   | (60,572                         | )       | (877,246                      | )      | (262,202 | ) | (1,086,142 | ) |
| Provision for income taxes                                |   | —                          |    | —                        |   | — |   | — |   |
| **Net Loss**                                              |   | $                               | (60,572 | )                             | $      | (877,246 | ) | $ | (262,202 | ) | $ | (1,086,142 | ) |
|                                                      |   |                            |    |                          |   |   |   |   |   |
| **Net Loss Per Common Share, Basic and  Diluted**         |   | $                               | (0.00   | )                             | $      | (0.03 | ) | $ | (0.01 | ) | $ | (0.04 | ) |
| Weighted average common shares used in  calculations:     |   |                            |    |                          |   |   |   |   |   |
| **Basic and diluted**                                     |   | 30,772,537                      |    | 30,017,206                    |   | 30,772,537 |   | 30,017,206 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-2

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**TBX RESOURCES, INC.**

**STATEMENTSOF CASH FLOWS**

(Unaudited)

 
|                                                                           |   | **For The  Six Months Ended** |     |
|--------------------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                           |   | **May 31,  2004**             |     | **May 31,  2003** |   |
|                                                                           |   |                          |     |   |   |
| **Cash Flows From Operating Activities:**                                      |   |                          |     |   |   |
| Net loss                                                                       |   | $                             | (262,202 | ) | $ | (1,056,106 | ) |
| Adjustments to reconcile net loss to net  cash flow from operating activities: |   |                          |     |   |   |
| Loss (gain) on the disposal of oil and gas  interests                          |   | —                        |     | 641,161 |   |
| Depreciation, depletion and amortization                                       |   | 124,248                       |     | 163,743 |   |
| Non-cash consulting services and other                                         |   | 46,544                        |     | 50,000 |   |
| Changes in operating assets and  liabilities:                                  |   |                          |     |   |   |
| Decrease (increase) in:                                                        |   |                          |     |   |   |
| Trade receivables                                                              |   | (12,804                       | )        | (13,255 | ) |
| Affiliate receivables                                                          |   | —                        |     | (1,089 | ) |
| Other current assets                                                           |   | —                        |     | 5,662 |   |
| Increase (decrease) in:                                                        |   |                          |     |   |   |
| Accounts payable                                                               |   | 95,833                        |     | (3,633 | ) |
| Loan from affiliates                                                           |   | 16,997                        |     | (15,000 | ) |
| Taxes payable                                                                  |   | 164                           |     | 373 |   |
| Accrued expenses                                                               |   | 16,933                        |     | — |   |
| Deferred income                                                                |   | 144,693                       |     | 86,772 |   |
| Net cash provided by (used) for operating  activities                          |   | 170,406                       |     | (141,372 | ) |
|                                                                           |   |                          |     |   |   |
| **Cash Flows From Investing Activities:**                                      |   |                          |     |   |   |
| Cash used in the acquisition and  development of properties                    |   | (175,920                      | )        | (3,556 | ) |
|                                                                           |   | (175,920                      | )        | (3,556 | ) |
| **Cash Flows From Financing Activities:**                                      |   |                          |     |   |   |
| Cash provided by the issuance of common  stock                                 |   | —                        |     | 113,568 |   |
|                                                                           |   | —                        |     | 113,568 |   |
| **Net Increase (Decrease) In Cash**                                            |   | (5,514                        | )        | (31,360 | ) |
| Cash at beginning of period                                                    |   | 7,438                         |     | 34,317 |   |
| Cash at end of period                                                          |   | $                             | 1,924    |   | $ | 2,957 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

F-3

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**TBX RESOURCES, INC.**

**STATEMENT OFCHANGES****IN STOCKHOLDERS’ EQUITY**

(Unaudited)

 
|                          |   |          |   | **Additional  Paid-In  Capital** |    | **Accum-  ulated  Deficit** |   | **Total  Stockholders’  Equity** |   |
|-------------------------------|--------|---------------|--------|----------------------------------|---------|-----------------------------|--------|---------------------------------------|--------|
| **Common  Stock**             |
| **Shares**                    |   | **Par Value** |
| **Balance November 30, 2003** |   | 30,772,537    |   | $                                | 307,725 |                        | $      | 8,558,897                             |   | $ | (7,915,850 | ) | $ | 950,772 |   |
| Net loss for period           |   | —        |   | —                           |    | —                      |   | (262,202                              | )      | (262,202 | ) |
| **Balance May 31, 2004**      |   | 30,772,537    |   | $                                | 307,725 |                        | $      | 8,558,897                             |   | $ | (8,178,052 | ) | $ | 688,570 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

F-4

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**TBX RESOURCES, INC.**

**NOTESTO****UNAUDITED FINANCIAL STATEMENTS**

**MAY 31, 2004**

 

**1.****             BUSINESSACTIVITIES:**

 

TBX Resources, Inc., a TexasCorporation, was organized on March 24, 1995. The Company’s principal businessactivity is acquiring and developing oil and gas properties. The Company owns23 wells and operates another 7 wells located in East Texas. Of the 23 wellslocated in East Texas, 4 wells are currently producing oil and 2 wells havebeen designated as injection wells.  Theremaining 17 wells are either currently shut-in, scheduled to be brought backinto production or are designated as injection wells. Also, the Company has aninterest in 6 proven wells in Oklahoma. The Company’s philosophy is to acquireproperties with the purpose of reworking existing wells and/or drillingdevelopment wells to make a profit. In addition, the Company has sponsoredjoint venture development partnerships for the purpose of developing oil andgas properties for profit.

 

**2.****             SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES:**

 

**Basis of Presentation**– The accompanying unaudited financial statements have been prepared inaccordance with generally accepted accounting principles in the United Statesfor interim financial information and with instructions to Form 10-QSB ofRegulation S-B. They do not include all information and notes required bygenerally accepted accounting principles for complete financial statements.However, the Company believes that the disclosures are adequate to make theinformation presented not misleading. The Company’s quarterly financialstatements should be read in conjunction with the financial statements of theCompany for the year ended November 30, 2003 (including the notes thereto) setforth in Form 10-KSB.

 

In the opinion of Management,all adjustments (which include normal recurring adjustments except as disclosedherein) necessary to present a fair statement of financial position as of May31, 2004, results of operations, cash flows and stockholders’ equity for thesix months ended May 31, 2004 and 2003 have been made. Operating results forthe six months ended May 31, 2004 are not necessarily indicative of theoperating results for the full fiscal year or any future period.

 

**Net Loss Per Common Share**-Stock options are excluded from the calculation of net loss per common sharebecause they are antidilutive.

 

**Recent AccountingPronouncement –** InJanuary 2003, the FASB issued Interpretation No. 46, “Consolidation of VariableInterest Entities, an Interpretation of Accounting Research Bulletin No.51”.  Under the provisions ofInterpretation No. 46, certain variable interest entities, often referred to as“Special Purpose Entities”, are required to be consolidated by the primarybeneficiary of the entity if the equity investors in the entity do no have thecharacteristics of a controlling financial interest or do not have sufficientequity at risk for the entity to finance its activities without additional subordinatedfinancial support from other parties. Interpretation No. 46 is effective forall entities created or acquired prior to February 1, 2003. The provisions ofInterpretation No. 46 must be applied for the first interim or annual periodbeginning after June 15, 2003. TheCompany believes the adoption of SFAS Interpretation No. 46 will not have anyimpact on its financial position or results of operations.

 

In April 2003, the FASB issued Statement No.149, “Amendment of Statement 133 on Derivative Instruments and HedgingActivities.” SFAS No. 149 amends SFAS No. 133 to provide clarification on thefinancial accounting and reporting of derivative instruments and hedgingactivities and requires that contracts with similar characteristics beaccounted for on a comparable basis. The standard is effective for contractsentered into or modified after June 30, 2003. The Company does not have anyderivative instruments as defined by SFAS No. 149. The Company’s adoption ofSFAS No. 149 will not have any impact on its financial position or results ofoperations.

 

F-5

----

 

In May 2003, the FASB issued SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.” SFAS No. 150 is effective for financial instrumentsentered into or modified after May 31, 2003, and otherwise is effective at thebeginning of the first interim period beginning after June 15, 2003. SFAS No.150 requires the classification as a liability of any financial instrumentswith a mandatory redemption feature, an obligation to repurchase equity shares,or a conditional obligation based on the issuance of a variable number of itsequity shares. The Company does not have any financial instruments as defined bySFAS No. 150. The Company believes the adoption of SFAS No. 150 will not haveany impact on its financial position or results of operations.

 

**3.****             SIGNIFICANTTRANSACTIONS:**

 

a.               During the fourth quarter of the previous fiscal year, the Companyentered into a management contract with a company in which Mr. Burroughs is thesole shareholder. Under the agreement, the Company performs administrative anddrilling supervision services on a well-by-well basis for an agreed upon fee.During the six months ended May 31, 2004, the Company generated approximately$226,500 in revenues from joint venture management fees and incurred expensesof approximately $218,652.  Inaddition, for the first six months of this fiscal year, the Company recordeddeferred income associated with this activity in the amount of $144,693.

 

b.              During the current quarter, the Companycompleted reworking two East Texas wells at a cost of approximately $175,000.Initial monthly gross production from these wells is projected to be 500barrels of oil.

 

c.               During theprevious fiscal year, the Company obtained operating loans from its president,Mr. Tim Burroughs. The loan balance as of May 31, 2004 is approximately$158,000 (included in loans from affiliates) and is payable on demand at aninterest rate of 10% per annum. Interest accrued on the loan for the first sixmonths is $7,706. The loan is secured by the Company’s oil and gas properties.The Company expects to pay back this loan from operating revenue by the end ofthis fiscal year.

 

d.              In October of 2002, the Company formedand is acting as the general partner for the “Grasslands I, LimitedPartnership”. The purpose of the partnership is to acquire ackerage for oil andgas development in the Barnett Shale play in the Fort Worth Basin of Wise County,Texas. The Company is to be reimbursed on a turnkey basis for organization andoffering cost, lease acquisition costs and administrative expenses. Revenueearned to date is $88,477 offset by expenses of $49,233. As of May 31, 2004 thePartnership advanced the Company approximately $195,000 which it used to fundoperations and is included in loans from affiliates. The Company expects torepay the advance from operating revenue by the end of this fiscalyear.

 

e.               During the second quarter of the previousfiscal year, the Company wrote-off most of its investment in the Talco Fieldproperty in East Texas. The Company wrote-off 75% of the costs of the acreage,wells and related depreciation, depletion and amortization and recorded a losson the property of approximately $484,424. This was a non-producing property;accordingly there were no income or expense items associated with this propertyduring the previous fiscal year. In addition, the Company abandoned its UnionCity prospect in Oklahoma. In this regard the Company wrote-off the costs ofthe acreage, wells and related depreciation, depletion and amortization andrecorded a loss on abandonment of approximately $191,511. Union City was anon-producing property; accordingly there were no income or expense itemsassociated with this property during the previous fiscal year.

 

F-6

----

 

f.                 The Company executed an EmploymentAgreement for three years effective December 1, 1999 with Mr. Tim Burroughs,President. Under the terms of the agreement, Mr. Burroughs received stockoptions good for five years from the date of issuance to purchase up to 500,000shares of the Company’s common stock a year for five years at a price whichshall not be greater than 50% of the average bid price for the shares duringthe previous quarter in which the options are exercised. The options arecumulative thus allowing Mr. Burroughs to exercise the options through November30, 2004 for a total of 2,500,000 shares. As of November 30, 2003, Mr.Burroughs has the option to purchase 2,000,000 shares of the Company’s commonstock. The fair value of the options will be recorded as compensation expensewhen a reasonable estimate of such costs are available or the amount Mr.Burroughs has to pay is known. Based on the formula for calculating thepurchase price, material charges to compensation expense may be recorded infuture years.  The current managementcontract has been extended until a new contract can be arranged.

 

F-7

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Item 2. Management’s Discussion and Analysis and Results of Operation

 

CAUTIONARYSTATEMENT

 

Statements in this report which are not purely historical facts,including statements regarding the Company’s anticipations, beliefs, expectations,hopes, intentions or strategies for the future, may be forward-lookingstatements within the meaning of Section 21E of the Securities Act of 1934, asamended. All forward-looking statements in this report are based uponinformation available to us on the date of the report. Any forward-lookingstatements involve risks and uncertainties that could cause actual results orevents to differ materially from events or results described in theforward-looking statements. Readers are cautioned not to place undue relianceon these forward-looking statements.

 

RECENTDEVELOPMENTS

 

Duringthe fourth quarter of the previous fiscal year, the Company abandoned its TalcoField property in East Texas. The Company wrote-off the costs of the acreage,wells and related deprecation, depletion and amortization and recorded a losson abandonment of approximately $0.6 million. Management is of the opinion thatthe estimated cost of $1 million to re-work and develop the property would notyield an adequate return on its investment given its limited resources. Byabandoning the property, the Company was able to avoid a remedial liabilityestimated to be approximately $0.2 million. The property was shut-in;accordingly there were no income or expense items associated with this propertyduring the previous fiscal year. The property is currently being leased by acompany in which our president, Tim Burroughs is the sole shareholder. TheCompany will own a 25% working interest in the property after it is developed.Thus, the Company will participate in the potential increased production fromthis property without incurring any development costs. Management is of theopinion the 25% interest in the developed property may yield net after expenseincome of approximately $0.4 million in the first full year of production anddeclining thereafter.

 

DESCRIPTIONOF PROPERTIES

 

GENERAL: The following is information concerning production from ouroil and gas wells, and our productive wells and acreage and undevelopedacreage. Our oil and gas properties are located within the northern part of theeast Texas salt basin. The earliest exploration in this area dates back to theearly 1920s and 1930s, when frontier oil producers were exploring areasadjacent to the famous “East Texas field” located near the town of Kilgore,Texas. We have leasehold rights in three oil and gas fields located in Gregg,Hopkins, Franklin, Panola, and Wood Counties, Texas. We also acquired severalwells and acreages in Oklahoma, which are described below after the Texasproperties.

 

RESERVES REPORTED TO OTHER AGENCIES. We are not required and do notfile any estimates of total, proved net oil or gas reserves with reports to anyfederal authority or agency.

 

PROPERTIES. The following is a breakdown of our properties:

 
| **Name of Field**                     |   | **Gross Producing Well Count** |   | **Net Producing Well Count** |   |
|---------------------------------------|--------|--------------------------------|--------|------------------------------|--------|
|                                  |   |                           |   |                         |   |
| East Texas Field                      |   | 0                              |   | 0                            |   |
| Mitchell Creek & Talco  Field (1) |   | 1                              |   | 1                            |   |
| Manziel & Quitman Field (1)       |   | 3                              |   | 3                            |   |

 

The following information pertains to our properties as of May 31, 2004:

 

1

----

 
| **NAME OF  FIELD**                |   | **PROVED  RESERVES:  OIL** |       | **PROVED****RESERVES:  GAS** |       | **PROVED  DEVELOPED  RESERVES:  OIL** |       | **PROVED  DEVELOPED  RESERVES:  GAS** |       | **CURRENT  PRODUCTION  OIL:** |       | **PERCENTAGE OF  RESERVES IN FIELD  TO TOTAL RESERVES  HELD BY THE  COMPANY** |       |
|-----------------------------------|--------|----------------------------|------------|------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|-------------------------------|------------|-------------------------------------------------------------------------------|------------|
|                              |   | **(bbls)**                 | ** ** | **(mcf)**                    | ** ** | **(bbls)**                            | ** ** | **(mcf)**                             | ** ** | **(bbls) (1)**                | ** ** |                                                                          | ** ** |   | ** ** |
| East Texas Field                  |   | 6,407                      |       | 0                            |       | 6,407                                 |       | 0                                     |       | 0                             |       | oil                                                                           |       | 6.2 |   |
|                              |   |                       |       |                         |       |                                  |       |                                  |       |                          |       | gas                                                                           |       | 0 |   |
| Mitchell Creek & Talco  Field |   | 33,681                     |       | 0                            |       | 33,681                                |       | 0                                     |       | 236                           |       | oil                                                                           |       | 32.7 |   |
|                              |   |                       |       |                         |       |                                  |       |                                  |       |                          |       | gas                                                                           |       | 0 |   |
| Manziel &  Quitman Field      |   | 62,874                     |       | 0                            |       | 62,874                                |       | 0                                     |       | 494                           |       | oil                                                                           |       | 61.1 |   |
|                              |   |                       |       |                         |       |                                  |       |                                  |       |                          |       | gas                                                                           |       | 0 |   |

 

----

(1) Thecurrent production figure specified above is for the production for the monthof May 2004.

 

PRODUCTIVEWELLS AND ACREAGE 

 
| **Geographic Area** |   | **Total Gross  Oil Wells** |   | **Net  Productive  Oil Wells** |   | **Total Gross  Gas Wells** |   | **Net Productive  Gas Wells** |   | **Total Gross  Developed****Acres** |   | **Net  Developed  Acres** |   |
|---------------------|--------|----------------------------|--------|--------------------------------|--------|----------------------------|--------|-------------------------------|--------|-------------------------------------|--------|---------------------------|--------|
|                |   |                       |   |                           |   |                       |   |                          |   |                                |   |                      |   |
| East Texas Region   |   | 21                         |   | 21                             |   | 0                          |   | 0                             |   | 843.2                               |   | 838.34                    |   |

 

Notes:

 

1. TotalGross Oil Wells were calculated by subtracting 2 wells designated as InjectionWells from the 23 wells owned and/or operated by TBX Resources, Inc as of May31, 2004.

 

2. NetProductive Oil Wells were calculated by multiplying the working interest heldby TBX Resources, Inc. in each of the 21 Gross Oil Wells and adding theresulting products.

 

3. TotalGross Developed Acres is equal to the total surface acres of the properties inwhich TBX Resources, Inc. holds an Interest.

 

4. NetDeveloped Acres is equal to the Total Gross Developed Acres multiplied by thepercentage of the total working interest held by TBX Resources, Inc. in therespective properties.

 

5. Allacreage in which we hold a working interest as of May 31, 2004 had existingwells located thereon; thus all acreage leased by TBX Resources, Inc. may beclassified as developed.

 

| **Geographic Area** |   | **Gross Acres** |   | **Net Acres** |   |
|---------------------|--------|-----------------|--------|---------------|--------|
|                |   |            |   |          |   |
| East Texas Region   |   | 843.2           |   | 838.34        |   |

 

Note:

 

1.Acreage that has existing wells and may be classified as developed may alsohave additional development potential 

 

2

----

 

based onthe number of producible zones beneath the surface acreage. A morecomprehensive study of all properties currently leased by us would be requiredto determine precise development potential.

 

ANADARKOBASIN- WESTERN OKLAHOMA

 

Noadditional working interests were purchased in the current fiscal year. Four ofthe six wells we currently hold an interest in are producing gas. Although thewells are currently producing natural gas there can be no assurance that theywill continue to do so.

 

Inaddition to the above described wells we own working interests in two leasetracts; one located in Ellis County, Oklahoma with a gross acreage interest of27.5% in 1,505 acres and the second located in Canadian County, Oklahoma,constituting a gross acreage interest of 20% in 240 acres. The leases werepurchased for the sum of $83,700 and $19,200, respectively. The Company alsohas a 3% interest in 640 acres in Beckham County, Oklahoma.

 

CRITICALACCOUNTING POLICIES

 

A summary of significant accounting policiesis included in Note 2 to the audited financial statements included on Form10-KSB for the year ended November 30, 2003 as filed with the United StatesSecurities and Exchange Commission. Management believes that the application ofthese policies on a consistent basis enables the Company to provide useful andreliable financial information about our operating results and financialcondition.

 

The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results may differ from those estimates.

 

RESULTSOF OPERATIONS

The Company incurred anoperating loss of $254,730 for the six months ended May 31, 2004 as compared toan operating loss of. $1,086,535 for the six months ended May 31, 2003. Thedecrease in the operating loss of $831,805, 76.6%, is discussed below.

 

**Revenues**– Revenues generated from oil and gas sales and the joint venture managementfees increased $181,124, 161.5%, from $112,162 for the six months ended May 31,2003 to $293,286 for the six months ended May 31, 2004.

 

During the six months ended May31, 2004, the Company earned management fees of $226,503 for work performed onthe drilling and completion of wells in North Texas. The work is generated froma company in which our president. Mr. Burroughs is the sole shareholder. TheCompany has no joint venture management fees for the six months ended May 31,2003.

 

During the six months ended May31, 2003, the Company generated approximately $112,162 in revenue from oil andgas sales as compared to $66,783 for the six months ended May 31, 2004. The$45,379, 40.5%, decrease is primarily due to the payment of prior years oilruns for the correction of an error by one of the Company’s oil purchasers.During the past six months, oil sales on the Texas properties wereapproximately the same as last year. The Company completed re-working two EastTexas wells and anticipates that these wells will be brought on-line during thethird quarter of current fiscal year. The Company anticipates that monthlyproduction from these wells will approximate 500 barrels of oil. The majorityof the Texas wells remain shut-in awaiting re-work or the designation asinjection wells. Revenue from the Company’s Oklahoma properties is minimal as aresult of previous sales of the Company’s interest in the properties andproduction declines.

 

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**Expenses**– Total expenses decreased $650,681, 54.3%, from$1,198,697 for the six months ended May 31, 2003 to $548,016 for the six monthsended May 31, 2004.

 

Lease operating and taxesincreased $8,395, 18.5%, from $45,307 for the six months ended May 31, 2003 to$53,702 for the six months ended May 31, 2004. The increase is primarily theresult of recurring expenses for the Texas oil wells.

 

During the six months ended May31, 2004, the Company incurred expenses of $218,652 for management of workperformed on the organization, drilling and completion of wells in North Texas.The work is generated from a company in which our president. Mr. Burroughsis the sole shareholder. The Company has no joint venture expenses for the sixmonths ended May 31, 2003.

 

General andadministrative expenses decreased approximately $167,036, 52.5%, from $318,450for the six months ended May 31, 2003 to $151,414 for the six months ended May31, 2004. The decrease is primarily due to the allocation of $124,680 ofgeneral and administrative expenses to joint venture expenses and highercompensation and employee related costs, and general expenses offset by lowerconsulting fees, professional fees, public relations and contract laborexpenses.

 

Loss onabandonment of oil and gas properties was $671,197 for the sixmonths ended May 31, 2003. The Company abandoned its Talco Field property inEast Texas. The Company wrote-off the costs of the acreage, wells and relateddepreciation, depletion and amortization and recorded a loss on abandonment ofapproximately $479,686. Management is of the opinion that the estimated cost of$1 million to re-work and develop the property will not yield an adequatereturn on its investment given its limited resources. In addition, the Companyplugged and abandoned its Union City prospect that was located in Oklahoma. Inthis regard the Company wrote-off the costs of the acreage, wells and relateddepreciation, depletion and amortization and recorded a loss on abandonment ofapproximately $191,511. There were no comparable losses for the same periodthis year.

 

Depreciation, depletionand amortization decreased $39,495, 24.1%, from $163,743 for the six monthsended May 31, 2003 to $124,248 for the six months ended May 31, 2004. Thedecrease is due to the decrease in Company owned oil and gas properties and achange in the estimate of future lives of our properties. Future charges todepreciation, depletion, and amortization may be substantially higher as aresult of increased production or changes in reserve prices and/or quantities.

 

**OtherIncome (Expense)** - Other income and (expense)decreased from $393 for the six months ended May 31, 2003 to ($7,472) for thesix months ended May 31, 2004. The $7,865 decrease is primarily attributable tointerest charged on the Company’s approximately $157,000 operating loan fromour president, Mr. Tim Burroughs.

 

## **Provision for Income Taxes –**There are no recordedtax benefits for the six months ended May 31, 2004 and for the same period lastfiscal year.

## ** **

## **Net loss –**The Company’s net loss decreasedapproximately $823,940, 75.9%, from $1,086,142 for the six months ended May 31,2003 to $262,202 for the six months ended May 31, 2004. The decrease in theloss is primarily attributable to the abandonment of the Company’s Talco andUnion City properties and to a lesser extent in consultingfees, professional fees, public relations and contract labor offset by highercompensation and employee related costs, and general expenses.

## ** **

LIQUIDITYAND CAPITAL RESOURCES

 

As of May 31, 2004, we have total assets of $1,488,316 of which net oiland gas properties amount to $1,150,756 or 81.3% of the total assets. TheCompany’s accumulated losses through May 31, 2004 totaled $8,178,052. At May31, 2004, we have $1,924 in cash and money market accounts. Our ratio ofcurrent assets to current liabilities is 0.2:1; we have no long-term debt. Asof May 31, 2004, our shareholders equity was a positive $688,570.

 

We have funded operations from cash generated from the sale of commonstock, the sale of oil and gas properties, joint 

 

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venturemanagement fees and loans from affiliates. The Company’s cash provided fromoperating activities totaled $170,406 for the six months ended May 31, 2004while cash used for operating activities totaled $141,372 during the six monthsended May 31, 2003. The Company’s capital investments totaled $175,920 and$3,556 for the six months ended May 31, 2004 and 2003, respectively.

 

PLAN OF OPERATION FOR THE FUTURE.

 

 Wewant to manage more joint venture limited partnerships. As manager of thesedrilling programs, we should receive sufficient fees to earn a profit on ourwork. We expect that fees from this activity will be our primary source offunds in the near future. Also, the Company reworked two East Texas wells. Weestimate that these wells may generate net income of approximately $10,000 permonth; however, there can be no assurance that such level of production willcontinue now or in the future, as the well is a new well and current data mayprove to be unreliable.

 

In October of 2002 we formed “The GrasslandsI, Texas Limited Partnership” in which we are acting as the General Partner forthe purpose of acquiring the Wise County acreage for development drilling. TheCompany has a 20% interest in thePartnership and is reimbursed on a turnkey basis for 100% of the organizationand offering costs, lease acquisition costs and administrative expenses. In addition, we plan to re-work 8 of our EastTexas wells in the coming year which may increase revenue by approximately$300,000 to $360,000 a year. However, there can be no assurance that ourplanned and projected level of production will materialize in the future.

 

Weexpect that the principal use of funds in the near future will be from jointventure management fees and oil and gas revenues and developing our oil and gasproperties and/or the acquisition of new properties. Based on theaforementioned plans management expects to reduce its losses and generatepositive cash flows from operations. However, there can be no assurance thatsuch plans will materialize. In addition, actual results may vary frommanagement’s plans and the amount may be material.

 

We may purchase new oil and gas properties or additional equipment tooperate same. Any such additional purchases will be done on an “as needed”basis and will only be done in those instances in which we believe suchadditional expenditures will increase our profitability. Our ability to acquireadditional properties or equipment is strictly contingent upon our ability tolocate adequate financing to pay for these additional properties or equipment.There can be no assurance that we will be able to obtain the opportunity to buyproperties or equipment that are suitable for our investment or that we may beable to obtain financing to pay for the costs of these additional properties orequipment at terms that are acceptable to us. Additionally, if economicconditions justify the same, we may hire additional employees although we donot currently have any definite plans to make additional hires.

 

The oil and gas industry is subject to various trends. In particular,at times crude oil prices increase in the summer, during the heavy travelmonths, and are relatively less expensive in the winter. Of course, the pricesobtained for crude oil are dependent upon numerous other factors, including theavailability of other sources of crude oil, interest rates, and the overallhealth of the economy. We are not aware of any specific trends that are unusualto our company, as compared to the rest of the oil and gas industry.

 

PART II. OTHER INFORMATION

 

Item 1.LEGAL PROCEEDINGS

 

None.

 

Item 2.CHANGES IN SECURITIES

 

None

 

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Item 3.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls andProcedures

 

OurPresident/Chief Financial Officer conducted an evaluation of our “disclosurecontrols and procedures” (as defined in the Securities Exchange Act of 1934(the “Exchange Act”) Rules 13a-14(c)) within 90 days of the filing date of thisQuarterly Report on Form 10-QSB (the “Evaluation Date”). Based on theevaluation, our President/Chief Financial Officer has concluded that as of theEvaluation Date, our disclosure controls and procedures are effective to ensurethat all material information required to be filed in this Quarterly Report onForm 10-QSB has been made known to them in a timely fashion.

 

Changes in Internal Controls

 

There havebeen no significant changes (including corrective actions with regard tosignificant deficiencies or material weaknesses) in our internal controls or inother factors that could significantly affect these controls subsequent to theevaluation date set forth above.

 

Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:

 

None.

 

Item 5.OTHER INFORMATION

 

None.

 

Item 6.EXHIBITS AND REPORTS ON FORM 8-K

 

No reports on Form 8-K were filed during the period covered by thisForm 10-QSB.

 

EXHIBITS:

 

31.1 Certification of Chief Executive Officer/Chief Financial Officerpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

32.1 Certification of Chief Executive Officer/Chief Financial Officerpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed by the undersigned, hereunto duly authorized.

 
| TBX RESOURCES, INC.                              |              |
|--------------------------------------------------|-------------------|
|                                             |              |
| DATE:   July 15, 2004             |              |
|                                             |              |
| SIGNATURE:                                       | /s/ Tim Burroughs |   |
| TIM BURROUGHS, PRESIDENT/CHIEF FINANCIAL OFFICER |
|                                                  |                   |  |

 

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