**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 FEBRUARY 29, 2004**                                                                                                                                      |
|                                                                                                                                                                                        |
| **o**                                                                                                                                                                                       | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE  ACT**                   |
|                                                                                                                                                                                        |
| **For the  transition period from               to              .** |
|                                                                                                                                                                                        |
| **Commission  File Number 0-30746**                                                                                                                                                         |

 

**TBX RESOURCES, INC.**

(Exact name of small business issuer as specified 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 April 14, 2004

 

Transitional Small 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

Item1. Financial Statements

 

**TBX RESOURCES, INC.**

**BALANCESHEET**

**FEBRUARY 29, 2004**

(Unaudited)

 
| **ASSETS**                                                                                                       |   |       |      |
|------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|
| **Current Assets**                                                                                               |   |       |      |
| Cash and equivalents                                                                                             |   | $          | 2,527     |   |
| Trade accounts receivable                                                                                        |   | 12,978     |      |
| Prepaid consulting fees                                                                                          |   | 100,000    |      |
| Total current assets                                                                                             |   | 115,505    |      |
|                                                                                                             |   |       |      |
| **Equipment and Property**                                                                                       |   |       |      |
| Office furniture, fixtures and equipment                                                                         |   | 118,449    |      |
| Oil and gas properties, using successful  efforts accounting Proved properties and related equipment             |   | 1,576,502  |      |
|                                                                                                             |   | 1,694,951  |      |
| Less accumulated depreciation, depletion  and amortization                                                       |   | 607,448    |      |
| Total equipment and property                                                                                     |   | 1,087,503  |      |
|                                                                                                             |   |       |      |
| **Prepaid Consulting and Other**                                                                                 |   | 206,211    |      |
| **Total Assets**                                                                                                 |   | $          | 1,409,219 |   |
|                                                                                                             |   |       |      |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                    |   |       |      |
| **Current Liabilities**                                                                                          |   |       |      |
| Trade accounts payable and accrued expenses                                                                      |   | $          | 104,940   |   |
| Loan from affiliate                                                                                              |   | 351,289    |      |
| Taxes payable                                                                                                    |   | 11,069     |      |
| Deferred income                                                                                                  |   | 192,778    |      |
| Total current liabilities                                                                                        |   | 660,076    |      |
|                                                                                                             |   |       |      |
| **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 February 28, 2004 |   | 307,725    |      |
| Additional paid-in capital                                                                                       |   | 8,558,897  |      |
| Accumulated deficit                                                                                              |   | (8,117,479 | )         |
| Total stockholders’ equity                                                                                  |   | 749,143    |      |
| **Total Liabilities and Stockholders’ Equity**                                                              |   | $          | 1,409,219 |   |

 

The accompanying notes are an integral part ofthese financial statements.

 

F-1

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**TBX RESOURCES, INC.**

**STATEMENTSOF OPERATIONS**

(Unaudited)

 
|                                                            |   | **For The  Three Months Ended** |     |
|-----------------------------------------------------------------|--------|---------------------------------|----------|
|                                                            |   | **Feb. 29,  2004**              |     | **Feb. 28,  2003** |   |
|                                                            |   |                            |     |   |   |
| **Revenues:**                                                   |   |                            |     |   |   |
| Oil and gas sales                                               |   | $                               | 31,154   |   | $ | 77,389 |   |
| Joint venture management fees                                   |   | 24,493                          |     | — |   |
| Total revenues                                                  |   | 55,647                          |     | 77,389 |   |
|                                                            |   |                            |     |   |   |
| **Expenses:**                                                   |   |                            |     |   |   |
| Lease operating and taxes                                       |   | 25,363                          |     | 38,277 |   |
| Joint venture expenses                                          |   | 24,502                          |     | — |   |
| General and administrative                                      |   | 162,580                         |     | 185,646 |   |
| Depreciation, depletion and amortization                        |   | 41,073                          |     | 79,590 |   |
| Total expenses                                                  |   | 253,518                         |     | 303,513 |   |
| **Operating Loss**                                              |   | (197,871                        | )        | (226,124 | ) |
| **Other Income (Expense):**                                     |   |                            |     |   |   |
| Interest and other                                              |   | (3,758                          | )        | 240 |   |
| **Loss Before Provision for Income Taxes**                      |   | (201,629                        | )        | (225,884 | ) |
| Provision for income taxes                                      |   | —                          |     | — |   |
| **Net Loss**                                                    |   | $                               | (201,629 | ) | $ | (225,884 | ) |
|                                                            |   |                            |     |   |   |
| **Net Loss Per Common Share, Basic and  Diluted**               |   | $                               | (0.01    | ) | $ | (0.01 | ) |
| Weighted average common shares used in per  share calculations: |   |                            |     |   |   |
| Basic and Diluted                                               |   | 30,772,537                      |     | 30,017,206 |   |

 

The accompanying notes are an integral part ofthese financial statements.

 

F-2

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**TBX RESOURCES, INC.**

**STATEMENTSOF CASH FLOWS**

(Unaudited)

 
|                                                                           |   | **For The  Three Months Ended** |     |
|--------------------------------------------------------------------------------|--------|---------------------------------|----------|
|                                                                           |   | **Feb. 29,  2004**              |     | **Feb. 28,  2003** |   |
|                                                                           |   |                            |     |   |   |
| **Cash Flows From Operating Activities:**                                      |   |                            |     |   |   |
| Operating loss                                                                 |   | $                               | (197,871 | ) | $ | (226,124 | ) |
| Adjustments to reconcile net loss to net  cash flow from operating activities: |   |                            |     |   |   |
| Interest income (expense)                                                      |   | (3,758                          | )        | 240 |   |
| Depreciation, depletion and amortization                                       |   | 41,074                          |     | 79,590 |   |
| Non-cash consulting services and other                                         |   | 21,543                          |     | 31,000 |   |
| Changes in operating assets and  liabilities:                                  |   |                            |     |   |   |
| Decrease (increase) in:                                                        |   |                            |     |   |   |
| Trade receivables                                                              |   | (94                             | )        | (12,251 | ) |
| Affiliate receivables                                                          |   | —                          |     | (38,897 | ) |
| Other current assets                                                           |   | —                          |     | 667 |   |
| Increase (decrease) in:                                                        |   |                            |     |   |   |
| Accounts payable                                                               |   | (14,070                         | )        | 9,975 |   |
| Loan from affiliate                                                            |   | 3,379                           |     | (15,000 | ) |
| Taxes payable                                                                  |   | 818                             |     | — |   |
| Deferred income                                                                |   | 144,824                         |     | 35,000 |   |
| Net cash provided by (used) for operating  activities                          |   | (4,155                          | )        | (135,800 | ) |
|                                                                           |   |                            |     |   |   |
| **Cash Flows From Investing Activities:**                                      |   |                            |     |   |   |
| Cash used in the acquisition and  development of properties                    |   | (756                            | )        | (10,118 | ) |
|                                                                           |   | (756                            | )        | (10,118 | ) |
| **Cash Flows From Financing Activities:**                                      |   |                            |     |   |   |
| Cash provided by the issuance of common  stock                                 |   | —                          |     | 113,568 |   |
|                                                                           |   | —                          |     | 113,568 |   |
| **Net Increase (Decrease) In Cash**                                            |   | (4,911                          | )        | (32,350 | ) |
| Cash at beginning of period                                                    |   | 7,438                           |     | 34,317 |   |
| Cash at end of period                                                          |   | $                               | 2,527    |   | $ | 1,967 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

F-3

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**TBX RESOURCES, INC.**

**STATEMENT OF CHANGES 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           |   | —           |   | —        |    | —                           |   | (201,629                    | )      | (201,629                              | )          |
| **Balance February 29, 2004** |   | 30,772,537       |   | $             | 307,725 |                             | $      | 8,558,897                   |   | $                                     | (8,117,479 | ) | $ | 749,143 |   |

 

The accompanying notes are an integral part ofthese financial statements.

 

F-4

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**TBXRESOURCES, INC.**

**NOTESTO UNAUDITED FINANCIAL STATEMENTS**

**FEBRUARY29, 2004**

 

**1.             BUSINESS ACTIVITIES:**

 

TBX Resources, Inc., a Texas Corporation, was organized on March 24,1995. The Company’s principal business activity is acquiring and developing oiland gas properties. The Company owns 23 wells and operates another 7 wellslocated in East Texas. Of the 23 wells located in East Texas, 4 wells arecurrently producing oil and 2 wells have been designated as injectionwells.  The remaining 17 wells areeither currently shut-in, scheduled to be brought back into production or aredesignated as injection wells. Also, the Company has an interest in 6 provenwells in Oklahoma. The Company’s philosophy is to acquire properties with thepurpose of reworking existing wells and/or drilling development wells to make aprofit. In addition, the Company has sponsored joint venture developmentpartnerships for the purpose of developing oil and gas properties for profit.

 

**2.             SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES:**

 

**Basis of Presentation**– The accompanying unaudited financial statements have been prepared in accordancewith generally accepted accounting principles in the United States for interimfinancial information and with instructions to Form 10-QSB of Regulation S-B.They do not include all information and notes required by generally acceptedaccounting principles for complete financial statements. However, the Companybelieves that the disclosures are adequate to make the information presentednot misleading. The Company’s quarterly financial statements should be read inconjunction with the financial statements of the Company for the year endedNovember 30, 2003 (including the notes thereto) set forth in Form 10-KSB.

 

In the opinion of Management, all adjustments (which include normalrecurring adjustments except as disclosed herein) necessary to present a fairstatement of financial position as of February 29, 2004, results of operations,cash flows and stockholders’ equity for the three months ended February 29,2004 and 2003 have been made. Operating results for the three months endedFebruary 29, 2004 are not necessarily indicative of the operating results forthe full fiscal year or any future period.

 

**Net Loss Per CommonShare**- Stock options are excluded from the calculationof net loss per common share because they are antidilutive.

## ** **

**RecentAccounting Pronouncement –** In January 2003, the FASB issued Interpretation No. 46, “Consolidationof Variable Interest Entities, an Interpretation of Accounting ResearchBulletin No. 51”.  Under the provisionsof Interpretation No. 46, certain variable interest entities, often referred toas “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 sufficient equityat risk for the entity to finance its activities without additionalsubordinated financial support from other parties. Interpretation No. 46 iseffective for all entities created or acquired prior to February 1, 2003. Theprovisions of Interpretation No. 46 must be applied for the first interim orannual period beginning after June 15, 2003. The Company believes the adoption of SFAS Interpretation No. 46 willnot have any impact on its financial position or results of operations.

 

InApril 2003, the FASB issued Statement No. 149, “Amendment of Statement 133 onDerivative Instruments and Hedging Activities.” SFAS No. 149 amends SFAS No.133 to provide clarification on the financial accounting and reporting ofderivative instruments and hedging activities and requires that contracts withsimilar characteristics be accounted for on a comparable basis. The standard iseffective for contracts entered into or modified after June 30, 2003.

 

F-5

----

 

TheCompany does not have any derivative instruments as defined by SFAS No. 149.The Company’s adoption of SFAS No. 149 will not have any impact on itsfinancial position or results of operations.

 

InMay 2003, the FASB issued SFAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity.” SFAS No. 150is effective for financial instruments entered into or modified after May 31,2003, and otherwise is effective at the beginning of the first interim periodbeginning after June 15, 2003. SFAS No. 150 requires the classification as aliability of any financial instruments with a mandatory redemption feature, anobligation to repurchase equityshares, or a conditional obligation based on the issuance of a variable numberof its equity shares. The Company does not have any financial instruments asdefined by SFAS No. 150. The Company believes the adoption of SFAS No. 150 willnot have any impact on its financial position or results of operations.

 

**3.             SIGNIFICANT TRANSACTIONS:**

 

a.               During the last quarter of the previousfiscal year, the Company entered into a management contract with a company inwhich Mr. Burroughs is the sole shareholder. Under the agreement, the Companyperforms administrative and drilling supervision services on a well-by-wellbasis for a fixed fee. During the three months ended February 29, 2004, theCompany generated approximately $24,500 in revenues from joint venturemanagement fees and incurred expenses for approximately the same amount.

 

b.              During the previousfiscal year, the Company obtained loans from its president, Mr. Tim Burroughs.The loan balance as of February 29, 2004 is approximately $157,952 and ispayable on demand at an interest rate of 10% per annum. Interest accrued on theloan for the first quarter is $3,853. The loan is secured by the Company’s oiland gas properties. The Company expects to pay back this loan from operatingrevenue by the end of the next fiscal year.

 

c.               During the last quarter of the previousfiscal year, the Company completed reworking two East Texas wells at a cost ofapproximately $15,000. Monthly gross production from these wells is projectedto be 450 barrels of oil.

 

d.              The Company executed an Employment Agreement for threeyears effective December 1, 1999 with Mr. Tim Burroughs, President. Under theterms of the agreement, Mr. Burroughs received stock options good for fiveyears from the date of issuance to purchase up to 500,000 shares of theCompany’s common stock a year for five years at a price which shall not begreater than 50% of the average bid price for the shares during the previousquarter in which the options are exercised. The options are cumulative thusallowing Mr. Burroughs to exercise the options through November 30, 2004 for atotal of 2,500,000 shares. As of November 30, 2003, Mr. Burroughs has theoption to purchase 2,000,000 shares of the Company’s common stock. The fairvalue of the options will be recorded as compensation expense when a reasonableestimate of such costs are available or the amount Mr. Burroughs has to pay isknown. Based on the formula for calculating the purchase price, materialcharges to compensation expense may be recorded in future years.  The current management contract has beenextended until a new contract can be arranged.

 

e.               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 2,800 acres for oiland gas development in the Barnett Shale play in the Fort Worth Basin of WiseCounty, Texas. The Company is to be reimbursed on a turnkey basis fororganization and offering cost, lease acquisition costs and administrativeexpenses. Revenue earned to date is $88,477 offset by expenses of $49,233. Asof February 29, 2004 the Partnership advanced the Company approximately$193,809 which it used to fund operations. The Company expects to repay theadvance within the next twelve months.

 

F-6

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

 

CAUTIONARY STATEMENT

 

Statements in this report which are notpurely historical facts, including statements regarding the Company’santicipations, beliefs, expectations, hopes, intentions or strategies for thefuture, may be forward-looking statements within the meaning of Section 21E ofthe Securities Act of 1934, as amended. All forward-looking statements in thisreport are based upon information available to us on the date of the report.Any forward-looking statements involve risks and uncertainties that could causeactual results or events to differ materially from events or results describedin the forward-looking statements. Readers are cautioned not to place unduereliance on these forward-looking statements.

 

RECENT DEVELOPMENTS

 

During the last quarter of the previous fiscal year,the Company entered into a management contract with a company in which Mr.Burroughs is the sole shareholder. Under the agreement, the Company performsadministrative and drilling supervision services on a well-by-well basis for afixed fee. The Company has earned approximately $24,500 and incurred costs ofapproximately the same amount in the first quarter. In addition, the Companyadded approximately $144,800 to the deferred income account in the currentquarter. The Company expects to earn the income primarily in the second quarterof this year.

 

In October 2002, the Companyformed the “Grasslands I, Limited Partnership” in which we are acting as theGeneral Partner for the purpose of acquiring the Wise County acreage fordevelopment drilling. The Company has a 20% interest in the Partnership and isreimbursed on a turnkey basis for 100% of the organization and offering costs,lease acquisition costs and administrative expenses. Our cumulative revenuefrom the Partnership is $88,477 offset by our expenses of $49,233.

 

DESCRIPTION OF PROPERTIES

 

GENERAL: The following is informationconcerning production from our oil and gas wells, and our productive wells andacreage and undeveloped acreage. Our oil and gas properties are located withinthe northern part of the east Texas salt basin. The earliest exploration inthis area dates back to the early 1920s and 1930s, when frontier oil producerswere exploring areas adjacent to the famous “East Texas field” located near thetown of Kilgore, Texas. We have leasehold rights in three oil and gas fieldslocated in Gregg, Hopkins, Franklin, Panola, and Wood Counties, Texas. We alsoacquired several wells and acreages in Oklahoma, which are described belowafter the Texas properties.

 

RESERVES REPORTED TO OTHER AGENCIES. We arenot required and do not file any estimates of total, proved net oil or gasreserves with reports to any federal authority or agency.

 

PROPERTIES. The following is a breakdown of ourproperties:

 
| **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 ourproperties as of February 29, 2004:

 

1

----

 
| **NAME OF  FIELD** |   | **PROVED****RESERVES:  OIL  (bbls)** |       | **PROVED****RESERVES:  GAS  (mcf)** |       | **PROVED****DEVELOPED  RESERVES:  OIL  (bbls)** |       | **PROVED****DEVELOPED  RESERVES:  GAS  (mcf)** |       | **CURRENT****PRODUCTION  OIL:  (bbls) (1)** |       | **PERCENTAGE OF****RESERVES IN FIELD  TO TOTAL RESERVES  HELD BY THE  COMPANY** |       |
|--------------------|--------|--------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
|               |   |                                 | ** ** |                                | ** ** |                                            | ** ** |                                           | ** ** |                                        | ** ** |                                                                            | ** ** |   | ** ** |
| East Texas  Field  |   | 6,407                                |       | 0                                   |       | 6,407                                           |       | 0                                              |       | 0                                           |       | oil                                                                             |       | 6.2 |   |
|               |   |                                 |       |                                |       |                                            |       |                                           |       |                                        |       | gas                                                                             |       | 0 |   |
| Mitchell Creek     |   | 33,681                               |       | 0                                   |       | 32,681                                          |       | 0                                              |       | 295                                         |       | oil                                                                             |       | 32.7 |   |
| & Talco  Field |   |                                 |       |                                |       |                                            |       |                                           |       |                                        |       | gas                                                                             |       | 0 |   |
| Manziel &      |   | 62,874                               |       | 0                                   |       | 62,874                                          |       | 0                                              |       | 67                                          |       | oil                                                                             |       | 61.1 |   |
| Quitman Field      |   |                                 |       |                                |       |                                            |       |                                           |       |                                        |       | gas                                                                             |       | 0 |   |

 

----

(1) The current production figure specifiedabove is for the production for the month of February 2004.

 

PRODUCTIVE WELLS 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. Total Gross Oil Wells were calculated bysubtracting 2 wells designated as Injection Wells from the 23 wells ownedand/or operated by TBX Resources, Inc as of February 29, 2004.

 

2. Net Productive Oil Wells were calculatedby multiplying the working interest held by TBX Resources, Inc. in each of the21 Gross Oil Wells and adding the resulting products.

 

3. Total Gross Developed Acres is equal tothe total surface acres of the properties in which TBX Resources, Inc. holds anInterest.

 

4. Net Developed Acres is equal to the TotalGross Developed Acres multiplied by the percentage of the total workinginterest held by TBX Resources, Inc. in the respective properties.

 

5. All acreage in which we hold a workinginterest as of February 29, 2004 had existing wells located thereon; thus allacreage leased by TBX Resources, Inc. may be classified as developed.

 

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

 

Note:

 

1. Acreage that has existing wells and may beclassified as developed may also have additional development potential

 

2

----

 

based on the number of producible zonesbeneath the surface acreage. A more comprehensive study of all propertiescurrently leased by us would be required to determine precise developmentpotential.

 

ANADARKO BASIN- WESTERN OKLAHOMA

 

No additional working interests werepurchased in the current fiscal year. Four of the six wells we currently holdan interest in are producing gas. Although the wells are currently producingnatural gas there can be no assurance that they will continue to do so.

 

In addition to the above described wells weown working interests in two lease tracts; one located in Ellis County,Oklahoma with a gross acreage interest of 27.5% in 1,505 acres and the secondlocated in Canadian County, Oklahoma, constituting a gross acreage interest of20% in 240 acres. The leases were purchased for the sum of $83,700 and $19,200,respectively. The Company also has a 3% interest in 640 acres in BeckhamCounty, Oklahoma.

 

CRITICAL ACCOUNTING 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 financial condition.

 

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.

 

RESULTS OF OPERATIONS

 

The Company incurred an operating loss of $197,871 for the three monthsended February 29, 2004 as compared to an operating loss of $226,124 for thethree months ended February 28, 2003. The decrease in the operating loss of$28,253, 12.5%, is discussed below.

 

**Revenue** – Totalrevenue decreased $21,742, 28.1%, from $55,647 for the three months endedFebruary 29, 2004 to $77,389 for the three months ended February 28, 2003.

 

During the three months ended February 29, 2004, the Company generatedapproximately $31,154 in revenue from oil and gas sales as compared to $77,389for the three months ended February 28, 2003. The $46,235 decrease is primarilydue to and adjustment of previous year’s sales from the Company’s East Texasproperties offset by increased oil prices.

 

During the threemonths ended February 29, 2004, the Company generated approximately $24,493 inrevenues from joint venture management fees. The Company entered into amanagement contract with a company in which Mr. Burroughs is the soleshareholder. Under the agreement, the Company performs administrative anddrilling supervision services on a well-by-well basis for a fee. The Companyincurred costs of approximately $24,502 in the first quarter of the currentfiscal year. There were no revenues from joint venture management fees duringthe same period this year.

 

**Expenses –** Totalexpenses decreased $49,995, 16.5%, from $235,518 for the three months endedFebruary 29, 2004 to $303,513 for the three months ended February 28, 2003.

 

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Lease operating and taxes decreased $12,904, 33.7%, from $38,277 for the three months ended February 28,2003 to $25,363 for the three months ended February 29, 2004. The decrease isprimarily the result of a reduction in work over expenses for two of our EastTexas properties.

 

General and administrative expenses decreasedapproximately $23,502, 12.4%, from $185,646 for the three months ended February28, 2003 to $162,580 for the three months ended February 29, 2004. The decreaseis primarily attributable to a decrease in various professional and consultingfees of approximately $26,095, offset by an increase of $2,593 in other generalexpenses.

 

Depreciation,depletion and amortization decreased $38,517, 48.4%, from $79,590 for the threemonths ended February 28, 2003 to $41,073 for the three months ended February29, 2004. The decrease is due to a reduction in properties owned by the Companyand a change in 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.

 

**Other Income (Expense)**- Other income (expense) decreased from $240 in income for the three monthsended February 28, 2003 to a net expense of $3,758 for the three months endedFebruary 29, 2004. The $3,998 change is primarily attributable to the Company’saccrual of interest on a $158,000 loan from our President, Tim Burroughs.

 

## **Provisionfor Income Taxes –**The Company has not provided for tax benefits associatedwith its losses for the three months ended February 29, 2004 and February 28,2003.

 

## **Netloss –**The Company’s net loss decreased approximately $24,256, 10.7%, from$225,884 for the three months ended February 28, 2003 to $201,629 for the threemonths ended February 29, 2004. The increase in the loss is attributable to adecrease in revenue totaling $21,742 anda reduction in lease operating expenses of $12,904,general and administrative expenses of $23,066 and an decrease in depreciation,depletion and amortization of $38,517 offset by an increase in joint venturecosts and expenses of $24,502.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of February 29, 2004, we have total assetsof $1,409,219 of which net oil and gas properties amount to $1,058,766 or 75.1%of the total assets. The Company’s accumulated losses through February 29, 2004totaled $8,117,479. At February 29, 2004, we have $2,527 in cash and moneymarket accounts. Our ratio of current assets to current liabilities is 0.2:1;we have no long-term debt. As of February 29, 2004, our shareholders equity wasa positive $749,143.

 

We have funded operations from cash generatedfrom the sale of common stock, the sale of oil and gas properties, jointventure management fees and loans from affiliates. The Company’s cash used foroperating activities totaled $4,155 and $135,800 for the three months endedFebruary 29, 2004 and February 28, 2003, respectively. The Company’s capitalinvestments totaled $756 and $10,118 for the three months ended February 29, 2004and February 28, 2003, respectively. Cash provided by the change in otherassets totaled $113,568 during the three months ended February 28, 2003 whilethere were no changes for the same period this year.

 

PLAN OF OPERATION FOR THE FUTURE.

 

We want to manage more joint venture limitedpartnerships. As manager of these programs, we should receive sufficient feesto earn a profit on our work. We expect that fees from this activity will beour primary source of funds in the near future. Also, the Company completed oneEllis County, Oklahoma well and reworked two East Texas wells. We estimate thatthese wells may generate net income of approximately $10,000 per month;however, there can be no assurance that such level of production will continuenow or in the future, as the well is a new well and current data may prove tobe unreliable.

 

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InOctober of 2002 we formed “The Grasslands I, Texas Limited Partnership” inwhich we are acting as the General Partner for the purpose of acquiring theWise County acreage for development drilling. The Company has a 20% interest in the Partnershipand is reimbursed on a turnkey basis for 100% of the organization and offeringcosts, 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.

 

We expect that the principal use of funds in the nearfuture will be from joint venture management fees and oil and gas revenues anddeveloping our oil and gas properties and/or the acquisition of new properties.Based on the aforementioned plans management expects to reduce its losses andgenerate positive cash flows from operations. However, there can be noassurance that such plans will materialize. In addition, actual results mayvary from management’s plans and the amount may be material.

 

We may purchase new oil and gas properties oradditional equipment to operate same. Any such additional purchases will bedone on an “as needed” basis and will only be done in those instances in whichwe believe such additional expenditures will increase our profitability. Ourability to acquire additional properties or equipment is strictly contingentupon our ability to locate adequate financing to pay for these additionalproperties or equipment. There can be no assurance that we will be able toobtain the opportunity to buy properties or equipment that are suitable for ourinvestment or that we may be able to obtain financing to pay for the costs ofthese additional properties or equipment at terms that are acceptable to us.Additionally, if economic conditions justify the same, we may hire additionalemployees although we do not currently have any definite plans to makeadditional hires.

 

The oil and gas industry is subject tovarious trends. In particular, at times crude oil prices increase in thesummer, during the heavy travel months, and are relatively less expensive inthe winter. Of course, the prices obtained for crude oil are dependent uponnumerous other factors, including the availability of other sources of crudeoil, interest rates, and the overall health of the economy. We are not aware ofany specific trends that are unusual to our company, as compared to the rest ofthe oil and gas industry.

 

PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

None.

 

Item 2. CHANGES IN SECURITIES

 

None

 

Item 3. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls andProcedures

 

Our President/Chief Financial Officer conducted an evaluation of our“disclosure controls and procedures” (as defined in the Securities Exchange Actof 1934 (the “Exchange Act”) Rules 13a-14(c)) within 90 days of the filing dateof this Quarterly 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.

 

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Changes in Internal Controls

 

There have been no significant changes (including corrective actionswith regard to significant deficiencies or material weaknesses) in our internalcontrols or in other factors that could significantly affect these controlssubsequent to the evaluation date set forth above.

 

Item 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITIES 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 theperiod covered by this Form 10-QSB.

 

EXHIBITS:

 

31.1 Certification of Chief ExecutiveOfficer/Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1 Certification of Chief ExecutiveOfficer/Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

SIGNATURES

 

In accordance with the requirements of theExchange Act, the registrant caused this report to be signed by theundersigned, hereunto duly authorized.

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

 

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