Correlate Energy Corp. - Quarter Report: 2008 May (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:                                          to                                         

TBX RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Texas		75-2592165
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
3030 LBJ Freeway, Suite 1320		75234
(Address of principal executive offices)		(Zip Code)

(972) 234-2610
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. o Yes þ No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of February 1, 2009, there were 4,027,442 shares of common stock, par value $0.01 per share, outstanding.

 

 

TBX RESOURCES, INC.

Index

		Pg. No.
PART I — Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of November 30, 2007 and May 31, 2008 (Unaudited)			F-1
Condensed Consolidated Statements of Operations for the Three and Six months Ended May 31, 2008 and 2007 (Unaudited)			F-2
Condensed Consolidated Statements of Cash Flows for the Three and Six months Ended May 31, 2008 and 2007 (Unaudited)			F-3
Notes to Condensed Consolidated Financial Statements as of May 31, 2008 (Unaudited)			F-4
Item 2. Management’s Discussion and Analysis			3
Item 3. Quantitative and Qualitative Disclosures about Market Risk			8
Item 4. Controls and Procedures			8
PART II — Other Information
Item 1. Legal Proceedings			9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			9
Item 3. Defaults Upon Senior Securities			9
Item 4. Submission of Matters to a Vote of Security Holders			9
Item 5. Other Information			9
Item 6. Exhibits			9
SIGNATURES			10
EX-31.1
EX-32.1

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TBX RESOURCES. INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

		May 31, 2008				November 30,
		(Unaudited)				2007
ASSETS
Current Assets
Cash		$	922			$	23,821
Oil and gas revenue receivable			54,495				63,379
Inventory			6,749				2,584
Total current assets			62,166				89,784
Oil and gas properties (successful efforts method), net			127,322				223,638
Other			6,211				6,211
Total Assets		$	195,699			$	319,633
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Trade accounts payable and accrued expenses		$	56,783			$	64,543
Accounts payable to and advances from affiliate			32,792				869,192
Asset retirement obligations — current portion			—				29,964
Deferred revenue			6,749				2,584
Total current liabilities			96,324				966,283
Long-term Liabilities
Asset retirement obligations			10,781				153,370
Non-controlling Interest in Consolidated Subsidiary			72,000				72,000
Commitments and Contingencies (Note 8)			—				—
Stockholders’ Equity
Preferred stock- $.01 par value; authorized 10,000,000; no shares outstanding			—				—
Common stock- $.01 par value; authorized 100,000,000 shares; 4,027,442 shares issued and outstanding at May 31, 2008, 4,002,442 shares issued and outstanding at November 30, 2007			40,274				40,024
Additional paid-in capital			10,911,440				10,827,440
Accumulated deficit			(10,935,120	)			(11,739,484	)
Total stockholders’ equity			16,594				(872,020	)
Total Liabilities and Stockholders’ Equity		$	195,699			$	319,633

The accompanying notes are an integral part of these condensed consolidated financial statements.

TBX RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		For the Three Months Ended								For the Six Months Ended
		May 31, 2008				May 31, 2007				May 31, 2008				May 31, 2007
Revenues:
Oil and gas sales		$	66,304			$	75,809			$	157,281			$	143,166
Total revenues			66,304				75,809				157,281				143,166
Expenses:
Lease operating and taxes			45,935				79,376				201,170				122,253
General and administrative			87,797				270,511				222,107				484,424
Depreciation, depletion, amortization and accretion			7,620				19,288				21,680				36,954
Total expenses			141,352				369,175				444,957				643,631
Operating Loss			(75,048	)			(293,366	)			(287,676	)			(500,465	)
Other Income (Expense):
Gain on sale of oil and gas properties			1,092,040				6,250				1,092,040				6,250
Income (Loss) Before Provision for Income Taxes			1,016,992				(287,116	)			804,364				(494,215	)
Provision for income taxes			—				—				—				—
Net Income (Loss)		$	1,016,992			$	287,116	)		$	804,364			$	(494,215	)
Net Income (Loss) per Common Share, Basic		$	0.25			$	(0.07	)		$	0.20			$	(0.13	)
Net Income (Loss) per Common Share, Diluted		$	0.25			$	(0.07	)		$	0.20			$	(0.13	)
Weighted Average Common Shares Outstanding:
Basic			4,027,442				3,924,198				4,018,016				3,924,198
Diluted			4,118,746				3,924,198				4,123,070				3,924,198

The accompanying notes are an integral part of these condensed consolidated financial statements.

TBX RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the Six Months Ended
		May 31, 2008				May 31, 2007
Cash Flows From Operating Activities:
Net income (loss)		$	804,364			$	(494,215	)
Adjustments to reconcile net income (loss) to net cash used for operating activities:
Gain on sale of oil and gas properties			(1,092,040	)			(6,250	)
Lease operating and taxes			174,120				—
Depreciation, depletion, amortization and accretion			21,680				36,954
Stock based compensation			80,500				154,250
Changes in operating assets and liabilities other than accounts payable to and advances from affiliate:
Decrease (increase) in:
Oil and gas revenue receivable			8,884				(30,734	)
Inventory			(4,165	)			2,300
Increase (decrease) in:
Trade accounts payable and accrued expenses			(7,759	)			28,406
Asset retirement obligations — current portion			(29,964	)			—
Deferred revenue			4,165				(2,300	)
Net cash used for operating activities			(40,215	)			(311,589	)
Cash Flows From Investing Activities:
Development of oil and gas properties			(28,461	)			—
Proceeds from sale of oil and gas properties			—				6,250
Net cash provided by (used in) investing activities			(28,461	)			6,250
Cash Flows From Financing Activities:
Advances from affiliate			42,027				317,000
Exercise of common stock options			3,750				3,750
Net cash provided by financing activities			45,777				320,750
Net Increase (Decrease) in Cash			(22,899	)			15,411
Cash at beginning of period			23,821				5,250
Cash at end of period		$	922			$	20,661
Supplemental Non-Cash Activity:
Sale of oil and gas properties		$	106,430			$	—
Payables to and advances from affiliate		$	(1,052,547	)		$	—
Asset retirement obligations settled		$	(145,923	)		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

TBX RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2008
(Unaudited)

1. BASIS OF PRESENTATION:

The condensed consolidated 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, 2007 (including the notes thereto) set forth in Form 10-KSB.

2. BUSINESS ACTIVITIES:

TBX Resources, Inc., a Texas corporation (“TBX” or the “Company”), was organized on March 24, 1995. Currently, the Company’s primary focus is to secure additional capital through business alliances with third parties or other debt/equity financing arrangements to acquire producing oil and gas leases and wells, acquire additional oil and gas prospect leases and to acquire an exploration company that can also act as an operator of our wells.

The Company’s principal historical business activity has been acquiring and developing oil and gas properties. However, during fiscal year 2004, the Company began providing contract services to an affiliate, Gulftex Operating, Inc. The services continued to August 31, 2006 when the agreement was terminated by mutual agreement. In addition, the Company has sponsored and/or managed joint venture development partnerships for the purpose of developing oil and gas properties for profit.

Effective April 1, 2008, the Company sold its East Texas oil and gas properties. The Company currently has an interest in wells in Denton, Parker and Wise Counties, Texas. Also, the Company has a minor interest in wells in Oklahoma.

3. GOING CONCERN:

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the company has negative working capital at May 31, 2008. In addition, the Company sold its primary source of revenue (East Texas properties) effective April 1, 2008. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Revenue Recognition

     For direct oil and gas operations, the revenue is recorded when production is sold. The Company accrues revenue for oil and gas production sold but not paid.

     Principles of Consolidation

     The condensed consolidated financial statements for the quarter ended May 31, 2008 and 2007 include the accounts of TBX Resources, Inc., and the Grasslands I, L.P. a limited partnership for which TBX serves

as the sole general partner. The accounts of Johnson No. A1, Johnson No. A2, Hagansport Unit I and Unit II (through March 31, 2008) joint ventures, in which TBX owns interests, are consolidated on a proportionate basis, in accordance with Emerging Issues Task Force Issue No. 00-1 “Investor Balance Sheet And Income Statement Display Under The Equity Method For Investments In Certain Partnerships And Other Ventures”. All significant intercompany balances and transactions have been eliminated.

     Concentration of Credit Risk

     The Company received advances from Gulftex totaling $42,027 during the six months ended May 31, 2008 and $317,000 during the six months ended May 31, 2007.

     Receivables

     Receivables consist of accrued oil and gas receivables due from either purchasers of oil and gas or operators in oil and natural gas wells for which the Company owns an interest. Oil and natural gas sales are generally unsecured and such amounts are generally due within 30 days after the month of sale.

     Inventory

     Inventory consists of crude oil held in storage tanks. Inventory is stated at market based on anticipated selling prices

     Property and Equipment

     Property and equipment are stated at the Company’s cost and are depreciated on a straight-line basis over five to seven years. Maintenance and repair costs are expensed when incurred, while major improvements are capitalized.

     Oil and Gas Properties

     The Company follows the successful efforts method of accounting for oil and gas exploration and development expenditures. Under this method, costs of successful exploratory wells and all development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves are expensed.

     Significant costs associated with the acquisition of oil and gas properties are capitalized. Upon sale or abandonment of units of property or the disposition of miscellaneous equipment, the cost is removed from the asset account, the related reserves relieved of the accumulated depreciation or depletion and the gain or abandonment loss is credited to or charged against operations. Both proved and unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.

     Oil and gas properties at May 31, 2008 consist of the following:

Proved oil and gas properties		$	809,659
Accumulated depreciation, depletion and amortization			(682,337	)
		$	127,322

     Long-lived Assets

     In accordance with SFAS No., 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company reviews its long-lived assets to be held and used, including proved oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In

this circumstance, the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

     The Company provides for depreciation, depletion and amortization of its investment in producing oil and gas properties on the unit-of-production method, based upon independent reserve engineers’ estimates of recoverable oil and gas reserves from the property.

     Asset Retirement Obligations

     The Company accounts for asset retirement obligations in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 requires that the fair value of a liability for an asset retirement obligation (“ARO”) be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Under the provisions of SFAS 143, asset retirement obligations are capitalized as part of the carrying value of the long-lived asset. SFAS 143 also requires the write down of capitalized ARO assets if they are impaired.

The following table describes changes to the asset retirement liability for the quarter ended May 31, 2008.

ARO at November 30, 2007		$	183,334
Accretion expense			3,334
Liabilities incurred			—
Liabilities settled			(175,887	)
Changes in estimates			—
ARO at May 31, 2008		$	10,781

     Equity Instruments Issued for Goods and Services

     In December, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (R) (revised 2004), “Share-Based Payments” (hereinafter “SFAS No. 123 (R)”). This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Statement Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS No. 123 (R) establishes standards for the accounting of share-based payment transactions in which an entity exchanges its equity instruments for goods or services. The Company adopted SFAS No. 123 (R) for years beginning after November 30, 2006.

     Income Taxes

     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income tax expense is the tax payable for the year plus or minus the change during the period in deferred tax assets and liabilities.

     Earnings Per Share (EPS)

     The Company computes earnings per share using Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings Per Share”. Basic earnings per common share is calculated by dividing net income or loss by the average number of shares outstanding during the year. Diluted earnings per common share is calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an antidilutive effect on earnings per common share. Antidilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations.

     Use of Estimates

     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 contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include: estimates of proved reserves as key components of the Company’s depletion rate for oil properties; accruals of operating costs; estimates of production revenues; and calculating asset retirement obligations. Because there are numerous uncertainties inherent in the estimation process, actual results could differ materially from these estimates.

5. RECENT ACCOUNTING PRONOUNCEMENTS:

In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, which amends Accounting Research Bulletin (ARB) No. 51 and (1) establishes standards of accounting and reporting on noncontrolling interests in consolidated statements, (2) provides guidance on accounting for changes in the parent’s ownership interest in a subsidiary, and (3) establishes standards of accounting of the deconsolidation of a subsidiary due to the loss of control. The amendments to ARB No. 51 made by SFAS No. 160 are effective for fiscal years (and interim period within those years) beginning on or after December 15, 2008. The Company is currently assessing the potential impact of this statement on its financial statements.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which expands the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. We may experience a financial statement impact depending on the nature and extent of any new business combinations entered into after the effective date of SFAS No. 141(R).

6. RELATED PARTY TRANSACTIONS:

     The Company conducts substantial transactions with Gulftex. These related party transactions have a significant impact on the financial condition and operations of the Company. If these transactions were conducted with third parties, the financial condition and operations of the Company could be materially different from reported results.

	a.		The operator of the East Texas oil and gas leases, Gulftex is an affiliate of TBX. Mr. Burroughs is a 50% stockholder and president of the Company. TBX paid Gulftex $3,200 during the six months ended May 31, 2008 and $4,800 for the six months ended May 31, 2007 for activities associated with operating certain wells.
	b.		Gulftex operates certain oil and gas properties on behalf of the Company. At May 31, 2008 the Company has no liability to Gulftex related to the operation of these wells.
	c.		During the six months ended May 31, 2008, the Company received advances from Gulftex totaling $42,027. The balance due Gulftex as of May 31, 2008 is $32,792.
	d.		Effective June 1, 2007, the Company is charging Gulftex rent for a portion of the Company’s office space plus administrative expenses paid by the Company that relates to Gulftex’s operations. The Company billed Gulftex $48,098 for the six months ended May 31, 2008.

e.

On June 4, 2008, the Company executed a sales agreement (effective April 1, 2008) with Gulftex. Under the agreement, the Company transferred all of its East Texas oil and gas properties with a net book value of $106,431 to Gulftex. In consideration for the transfer of the properties, Gulftex is forgiving the Company’s trade payables and advances totaling $1,052,547. In addition, Gulftex is assuming the Company’s asset retirement obligations with a book value of $145,923. The Company recorded a gain of $1,092,040 on the sale. Gulftex did not charge interest for its advances to the Company. The amount of interest that could have been charged is immaterial.

7. STOCK BASED COMPENSATION:

The Company executed an amended Employment Agreement effective August 4, 2005 with our president Mr. Tim Burroughs for three years. Among other items, the agreement provides that Mr. Burroughs has the contractual right to require TBX to issue, upon his request, up to 250,000 common share options subject to certain conditions. The conditions are that the options will not be issued unless Mr. Burroughs makes a demand for their issuance and the number of shares so demanded have vested (the agreement provides that 50,000 potential options vest at the beginning of each employment year for the five year term of the agreement and are cumulative.) The amendment also changed how the options are to be priced. The options are to be priced at a maximum exercise price of one-half the bid price for TBX common stock as of August 4, 2005 or $0.70 per share (one-half $1.40 the closing bid price on August 4, 2005.) In the event the closing bid price of TBX’s common stock is below $0.70 on the date of a call by Mr. Burroughs, the exercise price would be reduced to the lower actual bid price. Mr. Burroughs’ Employment Agreement was further amended in April 2007. In exchange for TBX dropping the three year service requirement, Mr. Burroughs agreed to forgo his eligibility to call for stock options for fiscal years 2005 and 2006. Mr. Burroughs did not call any of his potential stock options as of May 31, 2008. In accordance with the terms of April l, 2007 Amended Employment Agreement, no compensation expense is recognized as of May 31, 2008 related to Mr. Burroughs’ potential common stock options.

The Company executed an amended Employment Agreement effective April 1, 2006 with our Vice President of Investor Relations, Dick O’Donnell, having a term of one year, which automatically renews unless otherwise terminated as provided in said agreement. Under the terms of the agreement the Company agreed to issue Mr. O’Donnell options to acquire 25,000 shares of common stock per quarter beginning April 1, 2006 for a period of up to three years at an exercise price of $0.15 per share. The option exercise period is one year from its date. The Company recorded stock based compensation expense in the current quarter totaling $34,000 with a corresponding credit to paid-in capital.

A summary of the status of the Company’s equity awards as of May 31, 2008 the changes during the six month period then ended is presented below:

						Weighted-Average
		Shares				Exercise Price
Outstanding December 1, 2007			100,000			$	0.15
Granted			50,000			$	0.15
Exercised			(25,000	)		$	0.15
Forfeited			(25,000	)		$	0.15
Outstanding May 31, 2008			100,000			$	0.15
Options exercisable at May 31, 2008			100,000			$	0.15
Weighted-average fair value of options granted during this quarter		$	34,000
Weighted-average fair value of options granted during this year to date		$	80,500

The weighted average fair value at date of grant for options during the six months ended May 31, 2008 was estimated using the Black-Scholes option valuation model with the following assumptions:

Average expected life in years			1
Average interest rate			4.50	%
Average volatility			71	%
Dividend yield			0	%

A summary of the status of the Company’s vested and nonvested shares at May 31, 2008 and the weighted average grant date fair value is presented below:

						Weighted Average				Weighted Average
						Grant Date				Grant Date
		Shares				Fair Value per Share				Fair Value
Vested			100,000			$	1.74			$	174,000
Nonvested			—				—				—
Total			100,000			$	1.74			$	174,000

As of May 31, 2008, the Company has no unrecognized compensation expense.

8. COMMITMENTS AND CONTINGENCIES:

The Company is currently obligated for $194,988 under an operating lease agreement for rent of its office space in Dallas, Texas. The term of the lease is from February 1, 2004 through February 28, 2011. The average monthly base lease payment over the remaining term of the lease is approximately $5,909.Rent expense for the six months ended May 31, 2008 and 2007 is $35,489 and $40,135, respectively.

Gulftex is the bonded operator for TBX Resources and is responsible for compliance with the laws and regulations relating to the protection of the environment. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly any future remediation and other compliance efforts, in the opinion of management, compliance with the present environmental protection laws will not have a material adverse affect on the financial condition, competitive position or capital expenditures of TBX Resources. However, the Company’s cost to comply

with increasingly stringent environmental regulations may have an adverse effect on the Company’s future earnings.

9. INCOME TAXES:

The Company computes income taxes using the asset and liability approach as defined in SFAS No. 109. The Company currently has no issue that creates timing differences that would mandate deferred tax expense. Due to the uncertainty as to the utilization of net operating loss carryforwards, an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate. No provision for income taxes has been recorded for the three and six months ended May 31, 2008 due to the Company’s net operating loss carryforward of approximately $10.5 million at November 30, 2007.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS

     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.

     DESCRIPTION OF PROPERTIES

     GENERAL: The following is information concerning our oil and gas wells, our productive wells and acreage and undeveloped acreage. We have wells in Denton, Parker and Wise Counties in Texas. We also have several wells and acreage in Oklahoma.

     Effective April 1, 2008, we sold our East Texas oil and gas properties to Gulftex Operating, Inc. (a company in which Mr. Burroughs is a 50% shareholder) in exchange for our payables and advances owed to Gulftex. As additional consideration, Gulftex assumed our asset retirement obligations.

     PROPERTIES

     The following is a breakdown of our properties by field as of May 31, 2008:

		Gross				Net
		Producing				Producing
Name of Field or Well		Well Count				Well Count
Newark East, Working Interest			2				0.65
Newark East, Override Interest			8				0.03
Camargo NW Field			2				0.03
Harmon SE Field			1				0.01

     PRODUCTIVE WELLS AND ACREAGE:

     The following is a breakdown of our productive wells and acreage as of May 31, 2008:

						Net								Net				Total Gross
		Total Gross				Productive				Total Gross				Productive				Developed				Total Net Developed
Geographic Area		Oil Wells				Oil Wells				Gas Wells				Gas Wells				Acres				Acres
Wise County			—				—				2				.65				224				73.18
Denton County			—				—				6				.02				566				2.49
Anadarko Basin			3				.05				—				—				480				7.70

     Notes:

     ANADARKO BASIN- WESTERN OKLAHOMA

     We currently hold a minor interest in three producing natural gas wells. 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 Company also has a 3% interest in 640 acres in Beckham County, Oklahoma.

     OIL AND GAS PARTNERSHIP INTERESTS

     We own partnership interests in the Johnson No. 1-H, Johnson No. 2-H Joint Ventures of 57.55% and 58.66%, respectively. We did not acquire any additional partnership interests in the current fiscal year. Effective April 1, 2008, the Company sold its partnership interests in the Hagansport No. 1 (32.89%) and No. 2 (66.67%) units to Gulftex.

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, 2007 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 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.

OVERVIEW

Going Concern and Liquidity Problems

     Our auditors have included an explanatory paragraph in their audit opinion with respect to our consolidated financial statements at November 30, 2007. The paragraph states that our recurring losses from operations and resulting continued dependence on access to external financing raise substantial doubts about our ability to continue as a going concern. Furthermore, the factors leading to and the existence of the explanatory paragraph may adversely affect our relationship with customers and suppliers and have an adverse effect on our ability to obtain financing.

     Our company has experienced operating losses over the past several years. We do not have sufficient working capital to sustain our operations. We have been unable to generate sufficient revenues to sustain our operations. If no additional funds are received, we will be forced to rely on existing oil and gas revenue and upon additional funds which may or may not be loaned by an affiliate to preserve the integrity of the corporate entity. No formal commitments or arrangements currently exist with the affiliate to advance or loan funds to the Company. In the event we are unable to acquire sufficient funds, the Company’s ongoing operations will be negatively impacted and we may not be able to continue as a going concern and we may have to curtail or terminate our operations and liquidate our business.

Sale of Assets to Related Party

On June 4, 2008, we executed a sales agreement (effective April 1, 2008) with Gulftex. Under the agreement, we transferred all of our East Texas oil and gas properties with a net book value of $106,431 to Gulftex. In consideration for the transfer of the properties, Gulftex is forgiving our trade payables and advances totaling $1,052,547. In addition, Gulftex is assuming our asset retirement obligations with a book value of $145,924. We recorded a gain of $1,092,040 on the sale.

RESULTS OF OPERATIONS

     For the second quarter ended May 31, 2008 we reported net income of $1,016,992 as compared to a net loss of $287,116 for the same quarter last year. For the six months ended May 31, 2007 we reported net income of $804,364 as compared to a net loss of $494,215 for the same period last year. The components of these results are explained below.

Revenues- The components of our revenues for the three and six months ended May 31, 2008 and 2007 are as follows:

     Oil and gas revenue for the three months ended May 31, 2008 was $66,304, a decrease of 0.5%, as compared to $69,809 for the three months ended May 31, 2007. The decrease is attributable to the reduction in production resulting from the April 1, 2008 sale of our East Texas properties to Gulftex offset by higher production and prices for our Johnson No. 1-H and No. 2-H wells. Oil and gas revenue for the six months ended May 31, 2008 was $159,126, an increased of 12.0%, as compared to $142,082 for the six months ended May 31, 2007. The increase is attributable to higher production and prices on the Johnson #1 and #2 wells offset by the decrease in production on our East Texas properties.

Following are the changes in oil and gas sales, barrels and volumes of natural gas sold and the price received for those sales for the quarter.

     The average price per MBTU increased $1.87 and the MBTU sold increased 1,202 from the quarter ended May 31, 2007. The average price per barrel increased $36.02 while the quantity sold decreased by 732 barrels from the quarter ended May 31, 2007.

		Gas				MBTU				Price/				Oil				Bbls				Price/
		Sales				Sold				MBTU				Sales				Sold				Bbl
May 31, 2008		$	42,199				5,345			$	7.90			$	24,105				304			$	79.29
May 31, 2007		$	24,983				4,143			$	6.03			$	44,826				1,036			$	43.27
3 Month Change
2008 vs 2007
Amount		$	17,216				1,202			$	1.87			$	(20,721	)			(732	)		$	36.02
Percentage			68.91	%			29.01	%			31.01	%			-46.23	%			-70.66	%			83.24	%

     As the above table shows, gas revenue increased 68.9% while oil revenue decreased 46.2% from fiscal year 2007.

Following are the changes in oil and gas sales, barrels and volumes of natural gas sold and the price received for those sales for the fiscal year to date.

     The average price per MBTU increased $2.31 and the MBTU sold increased 2,200 from the six months ended May 31, 2007. The average price per barrel increased $33.99 while the quantity sold decreased by 1,196 barrels from the six months ended May 31, 2007.

		Gas				MBTU				Price/				Oil				Bbls				Price/
		Sales				Sold				MBTU				Sales				Sold				Bbl
May 31, 2008		$	88,934				11,325			$	7.85			$	70,192				905			$	77.55
May 31, 2007		$	50,582				9,125			$	5.54			$	91,500				2,101			$	43.56
6 Month Change
2008 vs 2007
Amount		$	38,352				2,200			$	2.31			$	(21,308	)			(1,196	)		$	33.99
Percentage			75.82	%			24.11	%			41.70	%			-23.29	%			-56.93	%			78.03	%

     As the above table shows, gas revenue increased 75.8% while oil revenue decreased 23.3% from fiscal year 2007.

     There was no joint venture income as component of revenue for the three months ended May 31, 2008. Joint venture income as a component of revenue for the three months ended May 31, 2007 was $6,000. Joint venture income as a component of revenue decreased $2,928, 270.0%, from income of $1,084 for the six months ended May 31, 2007 to a loss of $1,845 for the six months ended May 31, 2008.

Expenses- The components of our expenses for the three and six months ended May 31, 2008 and 2007 are as follows:

										%												%
		Three Months Ended								Increase				Six Months Ended								Increase
		May 31, 2008				May 31, 2007				(Decrease)				May 31, 2008				May 31, 2007				(Decrease)
Expenses:
Lease operating and taxes		$	45,935			$	79,376				-42.13	%		$	201,170			$	122,253				64.55	%
General and administrative			87,797				270,511				-67.54	%			222,107				484,424				-54.15	%
Depreciation, depl, amort., & accretion			7,620				19,288				-60.49	%			21,680				36,954				-41.33	%
Total expenses		$	141,352			$	369,175				-61.71	%		$	444,957			$	643,631				-30.87	%

     Lease operating expenses decreased $33,441 for the quarter ended May 31, 2008 and increased $78,917 for the six months ended May 31, 2008 over the same periods last year. The decrease in quarterly operating expenses is primarily attributable to the sale of our East Texas properties effective April 1, 2008. The increase in operating expenses for the six months ended May 31, 2008 is primarily attributable increased workover and gas marketing fees totaling $118,127 offset by a decrease in other components of operating expenses of $39,210 due to the sale of our East Texas properties. TBX paid Gulftex $800 for contract operating services for the three months ended May 31, 2008 and $2,400 the three months ended May 31, 2007. TBX paid Gulftex $3,200 for contract operating services for the six months ended May 31, 2008 and $4,800 for the six months ended May 31, 2007.

     General and administrative expenses decreased $182,714 for the three months ended May 31, 2008 as compared to the same period last year. The decrease in general and administrative expenses is attributable to lower compensation cost related to stock options based compensation of $47,500, lower professional fees of $103,034, costs allocated to Gulftex Operating of $24,049 and lower expenses in all other categories totaling $8,131. For the six months ended May 31, 2008, General and administrative expenses decreased $262,317 as compared to the same period last year. The decrease in general and administrative expenses is attributable to lower compensation cost related to stock options based compensation of $73,750, lower professional fees of $126,264, costs allocated to Gulftex Operating of $48,097 and lower expenses in all other categories totaling $14,206.

     Depreciation and depletion expense totaled $6,708 for the three months ended May 31, 2008 and $14,388 for the three months ended May 31, 2007. Depreciation and depletion expense totaled $18,346 for the six months ended May 31, 2008 and $27,154 for the six months ended May 31, 2007. The decrease in

depreciation, depletion, and amortization expense is attributable to lower oil and gas property values from the same period last year and the sale of our East Texas properties. Accretion expense totaled $912 for the three months ended May 31, 2008 and $4,900 for the three months ended May 31, 2007. Accretion expense totaled $3,334 for the six months ended May 31, 2008 and $9,800 for the six months ended May 31, 2007.
The decrease in accretion expense is primarily attributable to the transfer of our East Texas asset retirement obligations to Gulftex and the change in our estimated liability from last fiscal year.

     Other income increased $1,085,790 for the three and six months ended March 31, 2008 over the same periods last year. Effective April 1, 2008 we sold our East Texas properties to Gulftex for the cancellation of payables and advances due them as well as their assumption of our East Texas asset retirement obligations. We recorded a gain on the sale of $1,092,040. The Company sold its working interest in a well located in Caddo County, Oklahoma on March 1, 2007 for $6,250.00 and wrote off the fully depleted property value of $49,147.

     We have not recorded any income taxes for the six months ended May 31, 2008 because of our accumulated losses. Also, since there is continued uncertainty as to the realization of a tax asset, we have not recorded any tax benefit.

LIQUIDITY AND CAPITAL RESOURCES

The Company had a cash balance of $922 as of May 31, 2008. Our current ratio at May 31, 2008 was .06:1, and we had no long-term debt other than our asset retirement obligations of $10,781. As of May 31, 2008, our stockholders’ equity was positive $16,954. Net cash used for operations totaled $40,215 for the six months ended May 31, 2008 and $311,589 for the six months ended May 31, 2007. This represents a decrease of $271,374 in cash used for operating activities.

For the six months ended May 31, 2008 net cash used in investing activities totaled $28,461 as a result of our rework of a salt water disposal well. For the six months ended May 31, 2007 net cash used in investing activities was $0. For the six months ended May 31, 2008 net cash provided by investing activities was $0. For the six months ended May 31, 2007 net cash provided by investing activities totaled $6,250. On March 1, 2007 we sold our working interest in a well located in Caddo County, Oklahoma for $6,250. Non-cash investing activity for the six months ended May 31, 2008 was $106,431. Effective April 1, 2008, we sold our East Texas oil and gas properties with a net book value of $106,431 to Gulftex. Non-cash investing activity for the six months ended May 31, 2007 was $0.

Net cash provided by financing activities totaled $45,777 for the six months ended May 31, 2008 and $320,750 for the same period last year. For the six months ended May 31, 2008 and 2007 we received advances from Gulftex totaling $42,027 and $317,000, respectively. Cash received from the exercise of stock options totaled $3,750 for the six months ended May 31, 2008 and 2007. Non-cash financing activities for the six months ended May 31, 2008 was $1,195,137. As a result of the sale of our East Texas properties to Gulftex we wrote-off payables to and advances form affiliate totaling $1,052,547 and reduced our asset retirement obligations by $145,924. We also increased our asset retirement obligations by $3,334 during the same period. Non-cash financing activity for the six months ended May 31, 2007 was $0.

PLAN OF OPERATION FOR THE FUTURE

In the past we have primarily acquired producing oil and gas properties with opportunities for future development and contracted well operations to contractors. Currently, our primary focus is to secure additional capital through business alliances with third parties or other debt/equity financing arrangements to acquire producing oil and gas leases and wells, acquire additional oil and gas prospect leases and to acquire oil field service companies including a company with experienced personnel that can assist with operating our wells. However, we cannot assure you that we will be able to raise sufficient funds to execute our plans or that if successful in securing the funds our actual results will improve.

We expect that the principal source of funds in the near future will be from oil and gas revenues and advances from an affiliate. We have not yet established an ongoing source of revenue sufficient to cover our operating costs and continue as a going concern. Management’s plan is to obtain operating loans from

an affiliate to meet its minimal operating expenses (no formal commitments or arrangements currently exist with the affiliate to advance or loan funds to the Company) and seek equity and/or debt financing. Any such additional funding will be done on an “as needed” basis and will only be done in those instances in which we believe such additional expenditures will increase our profitability. However, actual results may differ from management’s plan and the amount may be material.

Our ability to acquire additional properties or equipment is strictly contingent upon our ability to locate adequate financing or equity 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 or equity 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. QUANTITATIVE AND QUALATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management evaluated, with the participation of Tim Burroughs our Chief Executive Officer (CEO)/Chief Financial Officer (CFO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the quarter covered by this quarterly report on Form 10-Q. Based on this evaluation, management has concluded that, as of May 31, 2008 our disclosure controls and procedures were effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported. Management is currently looking for a professional accounting person to become part of its management team in an effort to provide not only complete but timely reports to the Securities and Exchange Commission as required by its rules and forms.

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. As a result, no corrective actions were required or undertaken.

Limitations on the Effectiveness of Controls. The Company’s management, including the CEO/CFO, does not expect that it’s Disclosure Controls or its Internal Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become

inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     None.

Item 2. CHANGES IN SECURITIES

     None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

Item 5. OTHER INFORMATION

     None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) 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.

     (b) REPORTS ON FORM 8-K

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: February 13, 2009