10QSB 1 d29463e10qsb.htm FORM 10-QSB e10qsb
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UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
     
þ   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     FOR THE QUARTERLY PERIOD ENDING AUGUST 31, 2005
     
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 by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 3,802,525 on October 14, 2005
Transitional Small Business Disclosure Format (check one) Yes o No þ
 
 
 

 

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PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended November 30, 2004 (including the notes thereto) set forth in Form 10-KSB.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders TBX Resources, Inc.
I have reviewed the accompanying balance sheet of TBX Resources, Inc. as of August 31, 2005, and the statements of operations, stockholders’ equity and cash flows for the three and nine months ended August 31, 2005 and 2004. These interim financial statements are the responsibility of the Company’s management.
I conducted my review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, I do not express such an opinion.
Based on my review, I am not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
James G. Somma, CPA
Euless, Texas
October 17, 2005

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TBX RESOURCES, INC.
BALANCE SHEET
AUGUST 31, 2005
(Unaudited)
         
ASSETS
        
Current Assets
        
Cash and equivalents
   $ 56,013  
Trade accounts receivable
     17,230  
Deferred compensation expense
     1,061,992  
Prepaid consulting fees
     99,885  
 
      
Total current assets
     1,235,120  
 
      
 
        
Equipment and Property
        
Office furniture, fixtures and equipment
     107,164  
Oil and gas properties, using successful efforts accounting
Proved properties and related equipment
     2,254,998  
 
      
 
     2,362,162  
Less accumulated depreciation, depletion and amortization
     1,614,987  
 
      
Total equipment and property
     747,175  
 
      
 
        
Other Assets
        
Deferred compensation expense: long-term portion
     1,327,488  
Prepaid Consulting and Other
     55,777  
 
      
Total other assets
     1,383,265  
 
      
Total Assets
   $ 3,365,560  
 
      
 
        
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
 
        
Current Liabilities
        
Trade accounts payable
   $ 61,955  
Loans from affiliates
     117,593  
Taxes payable
     7,583  
Accrued expenses
     7,056  
 
      
Total current liabilities
     194,187  
 
      
 
        
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;
        
35,075,310 shares outstanding at August 31, 2005
     350,752  
Additional paid-in capital
     12,223,455  
Accumulated deficit
     (9,402,834 )
 
      
Total stockholders’ equity
     3,171,373  
 
      
 
        
Total Liabilities and Stockholders’ Equity
   $ 3,365,560  
 
      
The accompanying notes are an integral part of these financial statements.
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TBX RESOURCES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
                                 
    For The Three Months Ended     For The Nine Months Ended  
    Aug. 31, 2005     Aug. 31, 2004     Aug 31, 2005     Aug. 31, 2004  
     
Revenues:
                                
Oil and gas sales
   $ 17,629     $ 22,567     $ 65,149     $ 89,351  
Joint venture income
     300,000       277,485       750,836       503,988  
     
Total revenues
     317,629       300,052       815,985       593,339  
     
Expenses:
                                
Lease operating and taxes
     22,031       34,879       102,856       88,580  
Joint venture expenses
     94,487       94,456       252,914       277,508  
General and administrative
     890,182       56,848       1,032,005       243,935  
Depreciation, depletion and amortization
     27,597       89,849       79,889       214,097  
     
Total expenses
     1,034,297       276,032       1,467,664       824,120  
     
Operating Income (Loss)
     (716,668 )     24,020       (651,679 )     (230,781 )
Other Income (Expense):
                                
Interest and other
     247       (3,659 )     (3,350 )     (11,131 )
     
Net Income (Loss) Before Provision for Income Taxes
     (716,421 )     20,361       (655,029 )     (241,912 )
Provision for income taxes
     —       —       —       —  
     
Net Income (Loss)
   $ (716,421 )   $ 20,361     $ (655,029 )   $ (241,912 )
     
Net Income (Loss) Per Common Share, Basic and Diluted
   $ (0.02 )   $ 0.00     $ (0.02 )   $ (0.01 )
     
Weighted average common shares used in calculations:
                                
Basic and diluted
     33,948,577       30,772,537       33,948,577       30,772,537  
     
The accompanying notes are an integral part of these financial statements.
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TBX RESOURCES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    For The Nine Months Ended  
    Aug. 31, 2005     Aug. 31, 2004  
 
    
Cash Flows From Operating Activities:
                
Net Loss
   $ (655,029 )   $ (241,912 )
Adjustments to reconcile net loss to net cash flow from operating activities:
                
Depreciation, depletion and amortization
     79,889       214,097  
Compensation cost- common stock options
     796,495       —  
Non-cash consulting services and other
     75,434       71,544  
Changes in operating assets and liabilities:
                
Decrease (increase) in:
                
Trade receivables
     349       (7,716 )
Other current assets
     115       (4,352 )
Increase (decrease) in:
                
Accounts payable
     (104,650 )     13,933  
Taxes payable
     —       105  
Accrued expenses
     (12,700 )     30,445  
Deferred income
     —       114,508  
 
    
Net cash provided by for operating activities
     179,903       190,652  
 
    
Cash Flows From Investing Activities:
                
Cash used in the acquisition and development of properties
     —       (208,980 )
 
    
 
     —       (208,980 )
 
    
Cash Flows From Financing Activities:
                
Loans from affiliates
     (132,733 )     12,362  
 
    
 
     (132,733 )     12,362  
 
    
Net Increase (Decrease) In Cash
     47,170       (5,966 )
Cash at beginning of period
     8,843       7,438  
 
    
Cash at end of period
   $ 56,013     $ 1,472  
 
    
Supplemental Schedule of Non Cash Transactions:
                
Common stock issued for partnership interests
   $ 396,610     $ —  
 
    
Interest paid
   $ 23,714     $ —  
 
    
The accompanying notes are an integral part of these financial statements.

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TBX RESOURCES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
                                         
                    Additional     Accum-     Total  
    Common Stock     Paid-In     ulated     Stockholders'  
    Shares     Par Value     Capital     Deficit     Equity  
     
Balance November 30, 2004
     33,272,537       332,725       8,658,897       (8,747,805 )     243,817  
Common stock issued for oil and gas interests
     1,802,773       18,027       378,583       —       396,610  
Common stock options granted in period
     —       —       3,185,975       —       3,185,975  
Net loss for period
     —       —       —       (655,029 )     (655,029 )
     
Balance August 31, 2005
     35,075,310     $ 350,752     $ 12,223,455     $ (9,402,834 )   $ 3,171,373  
     
The accompanying notes are an integral part of these financial statements.

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TBX RESOURCES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AUGUST 31, 2005
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 oil and gas properties. The Company owns 23 wells and operates another 7 wells located in East Texas. Of the 23 wells located in East Texas, 5 wells are currently producing oil and 2 wells have been designated as injection wells. The remaining 16 wells are either currently shut-in, scheduled to be brought back into production or are designated as injection wells. Also, the Company has an interest in 6 proven wells in Oklahoma. The Company’s philosophy is to acquire properties with the purpose of reworking existing wells and/or drilling development wells to make a profit. In addition, the Company has sponsored and/or managed joint venture development partnerships for the purpose of developing oil and gas properties for profit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Stock-Based Compensation — Effective December 1. 2004 the Company recognizes compensation expense for options granted to employees using the fair value method under Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”. Under the fair value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period.
Net Loss Per Common Share- Stock options are excluded from the calculation of net loss per common share because they are antidilutive.
Recent Accounting Pronouncement — In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4.” (“SFAS 151”). SFAS 151 amends ARB 43, Chapter 4 to clarify that “abnormal” amounts of idle freight, handling costs and spoilage should be recognized as current period charges. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not anticipate that the adoption of this standard will not have a material impact on our financial statements, as we do not have any inventory costs.
In December 2004 the FASB issued a revised Statement 123 (SFAS 123R), “Accounting for Stock-Based Compensation” requiring public entities to measure the cost of employee services received in exchange for an award of equity instruments based on grant date fair value. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award — usually the vesting period. The effective date for this statement is as of the first interim period that begins after December 15, 2005. We do not anticipate that the adoption of this standard will have a material impact on our financial statements, as we currently do not expect to have additional stock based compensation in the foreseeable future.
In December 2004, the FASB issued SFAS No. 152 “Accounting for Real Estate Time-Sharing Transactions—an amendment of FASB statements No. 66 and 67” (“SFAS 152”). SFAS 152 amends SFAS 66 and 67 to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. SFAS 152 is effective for financial statement for fiscal years beginning after June 15, 2005. We do not anticipate that the adoption of this standard will have a material impact on our financial statements, as we do not have any real estate time sharing transactions.
In December 2004, FASB issued Statement No. 153, “Exchange of Nonmonetary Assets”. This statement addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have

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commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for periods beginning after June 15, 2005. The Company does not expect the application of Statement No. 153 to have a material impact on out financial statements, as we do not have any exchanges of nonmonetary assets.
In May 2005, FASB issued Statement No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3”. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. We do not anticipate that the adoption of this standard will have a material impact on our financial statements, as we do not have any accounting change transactions
3. SIGNIFICANT TRANSACTIONS:
  a.   The Company has a management contract with a company in which Mr. Burroughs is the sole shareholder. Under the agreement, the Company performs project generation, administrative and drilling supervision services on a well-by-well basis for an agreed upon fee. During the nine months ended August 31, 2005, the Company generated $750,836 in revenues from joint venture management fees and incurred expenses of $252,914. For the nine months ended August 31, 2004, the Company generated 503,988 in revenues from joint venture management fees and incurred expenses of $277,508.
 
  b.   The Company’s operating loan (previously included in loans from affiliates) from its president, Mr. Tim Burroughs was paid in the current quarter. The principal paid was $104,802 plus accrued interest of $23,714 for a total of $128,516.
 
  c.   In October of 2002, the Company formed and is acting as the general partner for the “Grasslands I, Limited Partnership”. The purpose of the partnership is to acquire leases for oil and gas development in the Barnett Shale play in the Fort Worth Basin of Texas. As of August 31, 2005 the Partnership is due approximately $114,296 in advances that the Company used to fund operations and is included in loans from affiliates. The Company is required to repay the advance by the end of this fiscal year.
 
  d.   During the current quarter, the Company purchased a total of 22.5 partnership units in the Johnson No. 1-H., Johnson No, 2-H and Hagansport Unit Joint Ventures from third parties. The Company issued 1,802,773 Common Stock shares with a value of $396,610. In September of his year the Company purchased a total of 33.5 units and issued 2,749,702 common stock shares valued at approximately $461,174. The units were valued at the Company’s share price on the date of the Company’s acceptance of the purchase/sales agreement.
 
  e.   The Company executed an amended Employment Agreement effective August 4, 2005 with Mr. Tim Burroughs, President, for three years. Under the terms of the agreement, Mr. Burroughs is entitled to receive an annual compensation of $150,000, and other items enumerated in the agreement, plus bonuses of up to 10% for material changes to the Company; for example, when the Company completes a major acquisition, funding or financing. Under the terms of the employment agreement, Mr. Burroughs received stock options good for five years beginning with the current 2005 year, at an option price no greater than 50% of the closing price for the shares as of the date of the amendment. As determined by the OTCBB, the closing price on August 4, 2005, is $0.14 per share. 500,000 shares are vested on December 1st of each year (beginning December 1st 2005) for a total of 2,500,000 shares of the Company’s common stock over five years. The options are cumulative and allow Mr. Burroughs to exercise his options at any time after vesting. The Company recorded the value of the options granted Mr. Burroughs under FASB Statement No. 123

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      “Accounting For Stock-Based Compensation”. The Company calculated the fair value of the options using the Black-Scholes option pricing model that resulted in an option value of $1.2744 per share. Total deferred compensation cost was calculated to be $3.186 million (with an offsetting credit to Additional Paid-In Capital) that will be recognized over Mr. Burroughs’ service period of three years. The total compensation cost reported in the Statement of Operations for the three and nine months ended August 31, 2005 is $796,495.The deferred tax asset for these options is $1,083,231. However, future realization of this asset is uncertain; accordingly, the Company has established a valuation allowance of $1,083,231.
 
  f.   The Company amended its Articles of Incorporation in September 2005 after receiving shareholder approval at the Company’s annual shareholder meeting on August 31, 2005. Article II of the Articles of Incorporation was amended to affect a 1-for-10 reverse split of the Company’s Common Stock. The effective date of the split is September 29, 2005.

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     Item 2. Management’s Discussion and Analysis and Results of Operation
CAUTIONARY STATEMENT
     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-looking statements within the meaning of Section 21E of the Securities Act of 1934, as amended. All forward-looking statements in this report are based upon information available to us on the date of the report. Any forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from events or results described in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
RECENT DEVELOPMENTS
     The Company amended its Articles of Incorporation in September 2005 after receiving shareholder approval at the Company’s annual shareholder meeting on August 31, 2005. Article II of the Articles of Incorporation was amended to affect a 1-for-10 reverse split of the Company’s Common Stock. The effective date of the split is September 29, 2005.
     The Company executed an amended Employment Agreement effective August 4, 2005 with Mr. Tim Burroughs, President, for three years. Under the terms of the agreement, Mr. Burroughs is entitled to receive an annual compensation of $150,000, and other items enumerated in the agreement, plus bonuses of up to 10% for material changes to the Company; for example, when the Company completes a major acquisition, funding or financing. Under the terms of the employment agreement, Mr. Burroughs received stock options good for five years beginning with the current 2005 year, at an option price no greater than 50% of the closing price for the shares as of the date of the amendment. As determined by the OTCBB, the closing price on August 4, 2005, is $0.14 per share. 500,000 shares are vested on December 1st of each year (beginning December 1st 2005) for a total of 2,500,000 shares of the Company’s common stock over five years. The options are cumulative and allow Mr. Burroughs to exercise his options at any time after vesting. The Company calculated the fair value of the options using the Black-Scholes option pricing model that resulted in an option value of $1.2744 per share. Total deferred compensation cost was calculated to be $3.186 million (with an offsetting credit to Additional Paid-In Capital) that will be recognized over Mr. Burroughs’ service period of three years. The total compensation cost reported in the Statement of Operations for the three and nine months ended August 31, 2005 is $796,495.The deferred tax assets for these options is $1,083,231. However, future realization of this asset is uncertain; accordingly, the Company has established a valuation allowance of $1,083,231.
     The Company has a management contract with a company in which Mr. Burroughs is the sole shareholder. Under the agreement, the Company performs project generation, administrative and drilling supervision services on a well-by-well basis for an agreed upon fee. During the nine months ended August 31, 2005, the Company generated $750,836 in revenues from joint venture management fees and incurred expenses of $252,914. As manager of these programs, we should receive sufficient fees to earn a profit on our work. We expect that fees from this activity will be our primary source of funds in the near future. Also, the Company reworked three East Texas wells. However, the wells are not producing as expected and the Company is continuing to make attempts to correct the problems. We estimate that these wells are capable of generating net income of approximately $20,000 per month; however, there can be no assurance that such level of production will continue now or in the future, as the well is a new well and current data may prove to be unreliable. During the current quarter, the Company purchased a total of 22.5 partnership units in the Johnson No. 1-H., Johnson No, 2-H and Hagansport Unit Joint Ventures from third parties. The Company’s common stock was used to purchase the interests that were valued at the Company’s share price on the date of the Company’s acceptance of the purchase/sales agreement. The Company issued 1,802,773 Common Stock shares with a value of $396,610. The Company recorded the purchase as an addition to oil and gas properties. In September of his year the Company purchased a total of 33.5 units and issued 2,749,702 common stock shares valued at approximately $461,174. The purchase was made with the expectation of increased net operating revenue for the Company. We estimate that these partnership units are capable of generating net income of approximately $30,000 per month; however, there can be no assurance that such level of production will continue now or in the future, as the well is a new well and current data may prove to be unreliable.

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DESCRIPTION OF PROPERTIES
     GENERAL: The following is information concerning production from our oil and gas wells, and our productive wells and acreage and undeveloped acreage. Our oil and gas properties are located within the northern part of the east Texas salt basin. The earliest exploration in this area dates back to the early 1920s and 1930s, when frontier oil producers were exploring areas adjacent 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 several wells and acreages in Oklahoma, which are described below after the Texas properties.
     RESERVES REPORTED TO OTHER AGENCIES. We are not required and do not file any estimates of total, proved net oil or gas reserves with reports to any federal 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)
   4   4
The following information pertains to our properties as of August 31, 2005:
                                                         
                    PROVED     PROVED             PERCENTAGE OF  
    PROVED     PROVED     DEVELOPED     DEVELOPED     CURRENT     RESERVES IN FIELD  
    RESERVES:     RESERVES:     RESERVES:     RESERVES:     PRODUCTION     TO TOTAL RESERVES  
NAME OF FIELD   OIL     GAS     OIL     GAS     OIL:     HELD BY THE  
  (bbls)     (mcf)     (bbls)     (mcf)     (bbls) (1)     COMPANY  
                                                         
East Texas Field
     0       0       0       0       0     oil     0  
 
                                           gas     0  
Mitchell Creek & Talco Field
     494       0       494       0       0     oil     2.0  
 
                                           gas     0  
Manziel & Quitman Field
     23,185       0       23,185       0       156     oil     98.0  
 
                                           gas     0  
(1) The current production figure specified above is for the production for the month of August 2005.
PRODUCTIVE WELLS AND ACREAGE
                                                 
            Net                   Total Gross   Net
    Total Gross   Productive   Total Gross   Net Productive   Developed   Developed
Geographic Area   Oil Wells   Oil Wells   Gas Wells   Gas Wells   Acres   Acres
                                               
East Texas Region
    21       21       0       0       843.2       838.34  

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Notes:
1. Total Gross Oil Wells were calculated by subtracting 2 wells designated as Injection Wells from the 23 wells owned and/or operated by TBX Resources, Inc as of August 31, 2005.
2. Net Productive Oil Wells were calculated by multiplying the working interest held by TBX Resources, Inc. in each of the 21 Gross Oil Wells and adding the resulting products.
3. Total Gross Developed Acres is equal to the total surface acres of the properties in which TBX Resources, Inc. holds an Interest.
4. Net Developed Acres is equal to the Total Gross Developed Acres multiplied by the percentage of the total working interest held by TBX Resources, Inc. in the respective properties.
5. All acreage in which we hold a working interest as of August 31, 2005 had existing wells located thereon; thus all acreage 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 be classified as developed may also have additional development potential based on the number of producible zones beneath the surface acreage. A more comprehensive study of all properties currently leased by us would be required to determine precise development potential.
ANADARKO BASIN- WESTERN OKLAHOMA
     No additional working interests were purchased in the current fiscal year. Four of the six wells we currently hold an interest in are producing gas. Although the wells are currently producing natural gas there can be no assurance that they will continue to do so. In addition to the above described wells we own 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 second located in Canadian County, Oklahoma, constituting a gross acreage interest of 20% 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 Beckham County, Oklahoma.
OIL AND GAS PARTNERSHIP INTERESTS
     During the current quarter, the Company purchased a total of 22.5 partnership units in the Johnson No. 1-H., Johnson No, 2-H and Hagansport Unit Joint Ventures from third parties. In September of his year the Company purchased an additional total of 33.5 units in these ventures from third parties.
CRITICAL ACCOUNTING POLICIES
     A summary of significant accounting policies is included in Note 2 to the audited financial statements included on Form 10-KSB for the year ended November 30, 2004 as filed with the United States Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about our operating results and financial condition.
     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of

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contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
RESULTS OF OPERATIONS
     The Company generated an operating loss of $651,679 for the nine months ended August 31, 2005 as compared to an operating loss of. $230,781 for the nine months ended August 31, 2004. The increase in the operating loss amounted to $430,898, 182.4%, is discussed below.
Revenues — Revenues generated from oil and gas sales and the joint venture management fees increased $222,646, 37.5%, from $593,339 for the nine months ended August 31, 2004 to $815,985 for the nine months ended August 31, 2005.
Revenues generated from joint venture management fees increased $246,848, 49.0% from $503,988 for the nine months ended August 31, 2004 to $750,836 for the nine months ended August 31, 2005. The work is generated from a company in which our president. Mr. Burroughs is the sole shareholder. The Company’s joint venture activities accelerated in the fourth quarter of the previous fiscal year and continued into the current fiscal year.
During the nine months ended August 31, 2004, the Company generated approximately $89,351 in revenue from oil and gas sales as compared to $65,149 for the nine months ended August 31, 2005. The $24,202, 27.1%, decrease is primarily due to lower production for repairs on the Hendrick lease. The Company completed re-working two East Texas wells in the fourth quarter of the previous fiscal year. However, the wells are not producing as expected and the Company is continuing to make attempts to correct the problems. We estimate that these wells are capable of generating net income of approximately $20,000 per month; however, there can be no assurance that such level of production will continue now or in the future, as the well is a new well and current data may prove to be unreliable. Revenue from the Company’s Oklahoma properties is minimal as a result of previous sales of the Company’s interest in the properties and production declines.
Expenses — Total expenses increased $643,544, 78.1%, from $824,120 for the nine months ended August 31, 2004 to $1,467,664 for the nine months ended August 31, 2005.
Lease operating and taxes increased $14,276, 16.1%, from $88,580 for the nine months ended August 31, 2004 to $102,856 for the nine months ended August 31, 2005. The increase is primarily the result of repair expenses for the East Texas oil wells.
Joint venture expenses decreased $24,594, 8.9%, from $277,508 for the nine months ended August 31, 2004 to $252,914 for the nine months ended August 31, 2005. The work is generated from a company in which our president. Mr. Burroughs is the sole shareholder. Joint venture expenses decreased from the previous year due to efficiencies associated with on-going operations.
General and administrative expenses increased approximately $788,070, 323.1%, from $243,935 for the nine months ended August 31, 2004 to $1,032,005 for the nine months ended August 31, 2005. The increase is primarily due to higher compensation costs of $796,495 associated with the stock options granted to Mr. Burroughs plus higher insurance and legal and professional costs offset by lower general expenses.
Depreciation, depletion and amortization decreased $134,208, 62.7%, from $214,097 for the nine months ended August 31, 2004 to $79,889 for the nine months ended August 31, 2005. The decrease is due a change in reserve quantities and the estimate of future lives of our properties.
Other Income (Expense) — Other expense decreased from $11,131 for the nine months ended August 31, 2004 to $3,350 for the nine months ended August 31, 2005. The $7,781 decrease is primarily attributable to lower interest charged as a

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result of the reduced loan balance on the Company’s operating loan from our president, Mr. Tim Burroughs. The balance of the loan totaling $104,802 plus accrued interest of $23,714 was paid-off in the current quarter.
Provision for Income Taxes —There are no recorded tax benefits for the nine months ended August 31, 2005 and for the same period last fiscal year.
Net Income (loss) — The Company’s net loss increased approximately $413,117, 170.8%, from $241,912 for the nine months ended August 31, 2004 to $655,029 for the nine months ended August 31, 2005. The reduction in the loss is primarily attributable to increased joint venture revenue, lower depreciation, joint venture and interest expense offset by and higher, lease operating, stock option compensation costs and lower oil and gas revenue.
LIQUIDITY AND CAPITAL RESOURCES
     As of August 31, 2005, we have total assets of $3,365,560 of which net oil and gas properties amount to $731,597 or 21.7% of the total assets. The Company’s accumulated losses through August 31, 2005 totaled $9,402,834. At August 31, 2005, we have $56,013 in cash. Our ratio of current assets to current liabilities is 6.4:1; we have no long-term debt. As of August 31, 2005, our shareholders equity was a positive $3,171,373.
     We have funded operations from cash generated from joint venture management fees, oil and gas revenue and loans from affiliates. The Company’s cash provided by operating activities totaled $179,903 for the nine months ended August 31, 2005 while cash provided by operating activities totaled $190,652 during the nine months ended August 31, 2004. The Company’s capital investments totaled $0 and $208,980 for the nine months ended August 31, 2005 and August 31, 2004, respectively. Cash used to pay loans and advances form affiliates totaled $132,733 for the nine months ended August 31, 2005 while cash provided from loans and advances from affiliates totaled $12,362 for the nine months ended and August 31, 2004.
PLAN OF OPERATION FOR THE FUTURE.
     We want to manage more joint venture limited partnerships. As manager of these programs, we should receive sufficient fees to provide positive cash flow for operating activities. We expect that fees from this activity will be our primary source of funds in the near future. Also, the Company reworked six East Texas wells. We estimate that these wells may generate net income of approximately $20,000 per month; however, there can be no assurance that such level of production will continue now or in the future, as the well is a new well and current data may prove to be unreliable. In addition, we plan to re-work additional East Texas wells in the coming year which may increase revenue by approximately $100,000 to $150,000 a year. However, there can be no assurance that our planned and projected level of production will materialize in the future. We purchased a total of 56 partnership units in the Johnson No. 1-H., Johnson No, 2-H and Hagansport Unit Joint Ventures from third parties. The purchase was made with the expectation of increased net operating revenue for the Company. We estimate that these partnership units are capable of generating net income of approximately $30,000 per month; however, there can be no assurance that such level of production will continue now or in the future, as the well is a new well and current data may prove to be unreliable. With the above mentioned sources of revenue, we estimate that the company can make a profit in the coming year.
     We expect that the principal source of funds in the near future will be from joint venture management fees and oil and gas revenues and developing our oil and gas properties and/or the acquisition of new properties. We are also actively pursuing raising capital through private placement offerings and joint venture drilling programs. Based on the aforementioned plans management expects to reduce its losses and generate positive cash flows from operations. However, there can be no assurance that such plans will materialize. In addition, actual results may vary from management’s plans and the amount may be material.
     We may purchase new oil and gas properties or additional equipment to operate 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 such additional

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expenditures will increase our profitability. Our ability to acquire additional properties or equipment is strictly contingent upon our ability to locate 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 buy properties or equipment that are suitable for our investment or that we may be able to obtain financing to pay for the costs of these additional properties or equipment at terms that are acceptable to us. Additionally, if economic conditions justify the same, we may hire additional employees although we do not 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 travel months, and are relatively less expensive in the winter. Of course, the prices obtained for crude oil are dependent upon numerous other factors, including the availability of other sources of crude oil, interest rates, and the overall health of the economy. We are not aware of any specific trends that are unusual to our company, as compared to the rest of the oil and gas industry.
Item 3. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
     Under the supervision and with the participation of management, including our President/Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Company’s President/Chief Financial Officer concluded that as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
Internal Control Over Financial Reporting
     There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
             None.
Item 2. CHANGES IN SECURITIES
     During the current quarter, the Company purchased a total of 22.5 partnership units in the Johnson No. 1-H., Johnson No, 2-H and Hagansport Unit Joint Ventures from third parties. The Company’s common stock was used to purchase the interests that were valued at the Company’s share price on the date of the Company’s acceptance of the purchase/sales agreement. The Company issued 1,802,773 Common Stock shares with a value of $396,610. The Company recorded the purchase as an addition to oil and gas properties. In September of his year the Company purchased an additional 33.5 units in the above described ventures and issued 2,749,702 common stock shares valued at approximately $461,174. The purchases were made by us from individual members of the joint venture partnerships and were accomplished utilizing the exemption from registration available for private placement offerings under Section 4(2) of the Securities Act of 1933 and Rule 506 Regulation D.

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Item 3. DEFAULTS UPON SENIOR SECURITIES
             None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
The following matters were submitted to the stockholders of the Company at a special meeting held on August 31, 2005:
1.To amend the Articles of Incorporation to effect a one-for-ten reverse stock split of all outstanding (but not all authorized) shares of Common Stock;
2. To amend the Articles of Incorporation to reduce the required percentage vote to Amend the Articles of Incorporation from 66 2/3 to a simple majority; and
3. The election of two new independent directors to our Board Of Directors.
Each of the above matters were approved by at least 86.0% of the stockholders of the company.
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 this Form 10-QSB.
EXHIBITS:
             31.1 Certification of Chief Executive Officer/Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
             32.1 Certification of Chief Executive Officer/Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
             99.1 Definitive 14A Proxy filed with the Commission on August 4, 2005 and incorporated by reference herein.*
             * Denotes document not filed herewith.
SIGNATURES
     In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed by the undersigned, hereunto duly authorized.
TBX RESOURCES, INC.
DATE: October 18, 2005
SIGNATURE: /s/ Tim Burroughs
TIM BURROUGHS, PRESIDENT/CHIEF FINANCIAL OFFICER

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