Correlate Energy Corp. - Quarter Report: 2010 August (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

Commission File Number: 0-30746

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o 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.

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 October 14, 2010, 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 Sheets as of August 31, 2010 (Unaudited) and November 30, 2009			F-1
Condensed Consolidated Statements of Operations for the Three and Nine months Ended August 31, 2010 and 2009 (Unaudited)			F-2
Condensed Consolidated Statements of Cash Flows for the Nine months Ended August 31, 2010 and 2009 (Unaudited)			F-3
Notes to Condensed Consolidated Financial Statements as of August 31, 2010 (Unaudited)			F-4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			F-10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.			F-14
Item 4. Controls and Procedures			F-14
PART II — Other Information
Item 1. Legal Proceedings			F-15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			F-15
Item 3. Defaults Upon Senior Securities			F-15
Item 5. Other Information			F-15
Item 6. Exhibits			F-15
SIGNATURES
EX-31.1
EX-32.1

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TBX RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

		August 31,
		2010				November 30,
		(Unaudited)				2009
ASSETS
Current Assets
Cash		$	7,431			$	5,327
Oil and gas revenue receivable			16,314				112,122
Inventory			4,200				4,494
Total current assets			27,945				121,943
Oil and gas properties (successful efforts method), net			39,919				49,591
Other			6,211				6,211
Total Assets		$	74,075			$	177,745
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Trade accounts payable and accrued expenses		$	33,365			$	62,693
Advances from affiliate			415,993				496,602
Deferred revenue			4,200				4,494
Total current liabilities			453,558				563,789
Long-term Liabilities
Asset retirement obligations			21,787				21,021
Commitments and Contingencies (Note 8)			—				—
Stockholders’ Deficit
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 August 31, 2010, 4,027,442 shares issued and outstanding at November 30, 2009			40,274				40,274
Additional paid-in capital			10,929,940				10,929,940
Accumulated deficit			(11,371,484	)			(11,377,279	)
Total stockholders’ deficit			(401,270	)			(407,065	)
Total Liabilities and Stockholders’ Deficit		$	74,075			$	177,745

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 Nine Months Ended
		Aug. 31, 2010				Aug. 31, 2009				Aug. 31, 2010				Aug. 31, 2009
Revenues:
Oil and gas sales		$	22,557			$	15,114			$	58,666			$	39,959
Total revenues			22,557				15,114				58,666				39,959
Expenses:
Lease operating and taxes			8,064				8,268				27,641				28,932
General and administrative			32,841				73,860				113,918				293,461
Depreciation, depletion, amortization and accretion			4,908				2,430				10,438				7,092
Gain on sale of oil and gas properties			—				—				—				(1,687	)
Total expenses			45,813				84,558				151,997				327,798
Operating Loss			(23,256	)			(69,444	)			(93,331	)			(287,839	)
Other Income:
Partial loss recovery (Note 10)			5,062				—				99,126				—
Income (Loss) Before Provision for Income Taxes			(18,194	)			(69,444	)			5,795				(287,839	)
Provision for income taxes			—				—				—				—
Net Income (Loss)		$	(18,194	)		$	(69,444	)		$	5,795			$	(287,839	)
Net Income (Loss) per Common Share:
Basic and Diluted		$	(0.00	)		$	(0.02	)		$	0.00			$	(0.07	)
Weighted Average Common Shares Outstanding:
Basic and Diluted			4,027,442				4,027,442				4,027,442				4,027,442

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 Nine Months Ended
		Aug. 31, 2010				Aug. 31, 2009
Cash Flows From Operating Activities:
Net income (loss)		$	5,795			$	(287,839	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation, depletion, amortization and accretion			10,438				7,092
Gain on sale of oil and gas properties			—				(1,687	)
Stock based compensation			—				500
Changes in operating assets and liabilities other than advances from affiliate:
Decrease (increase) in:
Oil and gas revenue receivable			95,808				(39,878	)
Inventory			294				(6,226	)
Accounts receivable from affiliate			—				21,824
Increase (decrease) in:
Trade accounts payable and accrued expenses			(29,328	)			43,405
Deferred revenue			(294	)			6,226
Net cash provided by (used for) operating activities			82,713				(256,583	)
Cash Flows From Investing Activities:
Proceeds from sale of oil and gas properties			—				1,687
Net cash provided by investing activities			—				1,687
Cash Flows From Financing Activities:
Advances from affiliate			135,580				258,314
Payments to affiliate			(216,189	)			—
Net cash provided by (used for) financing activities			(80,609	)			258,314
Net Increase in Cash			2,104				3,418
Cash at beginning of period			5,327				2,506
Cash at end of period		$	7,431			$	5,924
Supplemental Non-Cash Activity:
Write-off of fully depreciated property and equipment		$	—			$	229,074

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

TBX RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2010
(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, 2009 (including the notes thereto) set forth in Form 10-K.

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 producing 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.

The Company currently has an interest in wells located in Denton and Wise Counties, Texas. Effective March 31, 2009, the Company sold its minor interest in three Oklahoma wells.

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 stockholders’ equity and minimal working capital. 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 nine months ended August 31, 2010 and 2009 include the accounts of TBX Resources, Inc. The accounts of Grasslands I, a limited partnership, the Johnson No. A1 and Johnson No. A2, joint ventures, in which TBX owns interests, are consolidated on a proportionate basis. All significant intercompany balances and transactions have been eliminated.

     Concentration of Credit Risk

During the nine months ended August 31, 2010 the Company had a net reduction in advances from Gulftex totaling $80,609. The Company received advances from Gulftex totaling $258,314 during the nine months ended August 31, 2009. The balance due Gulftex as of August 31, 2010 is $415,993.

     Oil and Gas Revenue Receivable

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 August 31, 2010 consist of the following:

Proved oil and gas properties		$	518,538
Accumulated depreciation, depletion and amortization			(478,619	)
		$	39,919

     Long-lived Assets

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 units-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 by recording the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred when a reasonable estimate of fair value can be

made. Asset retirement obligations are capitalized as part of the carrying value of the long-lived asset. The Company writes down capitalized ARO assets if they are impaired.

The following table describes changes to the asset retirement liability for the nine months ended August 31, 2010.

ARO at November 30, 2009		$	21,021
Accretion expense			766
Liabilities incurred			—
Liabilities settled			—
Changes in estimates			—
ARO at August 31, 2010		$	21,787

     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)

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.

     Fair Value Measurements

The Company adopted fair value accounting for certain financial assets and liabilities that have been evaluated at least annually. The standard defines fair value as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Impairment analyses will be made of all assets using fair value measurements.

Assets and liabilities measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by generally accepted accounting principles and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1		Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2		Inputs to the valuation methodology include:
		•   we quoted prices for similar assets or liabilities in active markets;
		•   quoted prices for identical or similar assets or liabilities in inactive markets;
		•   inputs other than quoted prices that are observable for the asset or liability;
		•   inputs that are derived principally from or corroborated by observable market data by correlation or other means.
		If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3		Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Cash, receivable and payable amounts, accrued expenses and other current liabilities are carried at book value amounts which approximate fair value due to the short-term maturity of these instruments.

     Subsequent Events

In preparing the consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after August 31, 2010, up until the issuance of the financial statements, which occurred on or about October 15, 2010.

5. RECENT ACCOUNTING PRONOUNCEMENTS:

During the nine months ended August 31, 2010 and the year ended November 30, 2009, there were several new accounting pronouncements issued by FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial position or operating results. The Company will monitor these emerging issues to assess any potential future impact on its consolidated financial statements.

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.		During the nine months ended August 31, 2010 the Company had a net reduction in advances from Gulftex totaling $80,609. During the nine months ended August 31, 2009, the Company received advances from Gulftex totaling $258,314. The balance due Gulftex as of August 31, 2010 is $415,993.
	b.		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 $50,138 for the nine months ended August 31, 2010 and $63,412 for the nine months ended August 31, 2009.

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 August 31, 2010. In accordance with the terms of April l, 2007 Amended Employment Agreement, no compensation expense is recognized as of August 31, 2010 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. Mr. O’Donnell’s options to acquire common stock expired on January 1, 2009.

A summary of the status of the Company’s equity awards as of August 31, 2010 and the changes during the nine month period then ended is presented below:

						Weighted-Average
		Shares				Exercise Price
Outstanding December 1, 2009			25,000			$	0.15
Granted			—				—
Exercised			—				—
Forfeited			(25,000	)		$	0.15
Outstanding August 31, 2010			—				—
Options exercisable at August 31, 2010			—				—

8. COMMITMENTS AND CONTINGENCIES:

The Company is currently obligated for $37,971 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 $6,329. Rent expense for the nine months ended August 31, 2010 and 2009 is $51,826 and $52,945, respectively.

Trio Consulting & Management and Merrit Operating are the bonded operators for the Company’s Denton and Wise County, Texas wells 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. LAW SUIT SETTLEMENT:

On May 28, 2009 the Company, along with Grasslands I, L.P., intervened as third party plaintiffs in a lawsuit originally captioned as Clay Bain, et. al. v. Earthwise Energy, Inc. (EEI) which was filed in April 2009 in the 14^th Judicial District, Dallas County Texas, Cause No. 095253. Our petition requested that we be given certain injunctive relief and be awarded unspecified damages for certain alleged causes of action including, but not limited to, fraud, conversion and violation of fiduciary duty against defendant Earthwise Energy, Inc. but also as against two individuals, Jeffery C. Reynolds and Steven C. Howard who were added to the lawsuit as third party defendants. Mr. Reynolds is a former member of our Board of Directors who resigned in July 2008. The lawsuit was settled on February 11, 2010 wherein it is acknowledged that the Company is the rightful owner of certain interests in the Wise and Denton County, Texas. Gulftex Operating received $97,909 (net of expenses) on behalf of the Company for the

Johnson Nos. 1 and 2 gas wells in Wise County, Texas covering the period March 1, 2008 through October 31, 2009. The $97,909 received by Gulftex Operating was used to pay down a portion of its loans to the Company. The Company’s also received $13,973 (net of expenses) for its overrides in nine gas wells in Denton County, Texas covering the period March 1, 2008 through October 31, 2009. It is intended that these payments fully resolve all claims by the Company against the defendants.

10. COURT ORDERED RESTITUTION:

On May 26, 2000 a former employee was sentenced to three years probation for forging Company checks. As part of the sentencing the former employee is required to make restitution to the Company in the amount of $152,915. Because of the uncertainty of collecting the amount owed, the Company has not recorded a receivable but instead is recording income as payments are received from the U.S. District Court of Dallas, Texas. The Company received $99,126 during the nine months ended August 31, 2010 and the balance outstanding as of August 31, 2010 is approximately $51,062.

11. SALE OF OIL AND GAS PROPERTIES:

The Company sold its working interest in oil and gas leases located in Ellis County, Oklahoma effective March 31, 2009 for $1,687 and wrote off the fully depleted property values totaling $229,074.

12. INCOME TAXES:

The Company computes income taxes using the asset and liability. 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 nine months ended August 31, 2010 and 2009 due to the Company’s net operating loss in 2009 and the available tax loss carryforward in 2010.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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 and Wise Counties in Texas. We also had several wells and acreage in the Camargo NW and Harmon SE fields located in Oklahoma which were sold effective March 31, 2009.

      PROPERTIES

     The following is a breakdown of our properties by field as of August 31, 2010:

		Gross				Net
		Producing				Producing
Name of Field or Well		Well Count				Well Count
Newark East, Working Interest			2				0.74
Newark East, Override Interest			9				0.04

     PRODUCTIVE WELLS AND ACREAGE:

     The following is a breakdown of our productive wells and acreage as of August 31, 2010:

Proved

Proved

Proved

Proved

Developed

Developed

Reserves:

Reserves:

Reserves:

Reserves:

Name of

Oil

Gas

Oil

Gas

Field or Well

(bbls)

(mcf)

(bbls)

(mcf)

Newark East

1,861

78,121

1,861

78,121

     Notes:

1.		Total Gross Wells are those wells in which the Company holds a working or overriding interest in as of August 31, 2010.
2.		Net Productive Wells was calculated by multiplying the working or overriding interest held by the Company in each of the 11 Gross Wells and adding the resulting products.
3.		Total Gross Developed Acres is equal to the total surface acres of the properties in which the Company holds a working interest.
4.		Net Developed Acres is equal to the Total Gross Developed Acres multiplied by the percentage of the total working interest held by the Company in the respective properties.
5.		All acreage in which we hold a working interest as of August 31, 2010 have or had existing wells located thereon; thus all acreage leased by the Company may be accurately classified as developed.
6.		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 developmental potential.

     OIL AND GAS PARTNERSHIP INTERESTS

We currently own a 59.16% partnership interest in the Johnson No. 1-H, a 65.60% partnership interest in the Johnson No. 2-H, and a 0.4% overriding interest in the Grasslands L. P. We did not acquire any additional partnership interests in the current quarter.

CRITICAL ACCOUNTING POLICIES

A summary of significant accounting policies is included in Note 2 to the audited financial statements included on Form 10-K for the year ended November 30, 2009 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, 2009. 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

The Company sold its working interest in oil and gas leases located in Oklahoma effective March 31, 2009 for $1,687 and wrote off the fully depleted property values totaling $229,074.

RESULTS OF OPERATIONS

For the third quarter ended August 31, 2010 we reported a net loss of $18,194 as compared to a net loss of $69,444 for the same quarter last year. For the nine months ended August 31, 2010, we reported net income of $5,795 as compared to a net loss of $287,839 for the same period last year. The components of these results are explained below.

Revenues- The components of our revenues for the three and nine months ended August 31, 2010 and 2009 are as follows:

Oil and gas revenue for the three months ended August 31, 2010 was $22,557, an increase of 49.3%, as compared to $15,114 for the three months ended August 31, 2009. The increase is attributable to higher oil and gas prices and higher oil production offset by lower gas production. Oil and gas revenue for the nine months ended August 31, 2010 was $58,666, an increased of 46.8%, as compared to $39,959 for the nine

months ended August 31, 2009. The increase is attributable to higher oil and gas prices and higher oil production offset by lower gas production.

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 $2.27 and the MBTU sold decreased 467 from the quarter ended August 31, 2009. The average price per barrel increased $5.23 and the quantity sold increased by 43 barrels from the quarter ended August 31, 2009.

		Gas				MBTU				Price/				Oil				Bbls				Price/
		Sales				Sold				MBTU				Sales				Sold				Bbl
August 31, 2010		$	16,507				2,684			$	6.15			$	6,050				86			$	70.35
August 31, 2009		$	12,233				3,151			$	3.88			$	2,800				43			$	65.12
3 Month Change
2010 vs 2009
Amount		$	4,274				(467	)		$	2.27			$	3,250				43			$	5.23
Percentage			34.94	%			-14.82	%			58.51	%			116.07	%			100.00	%			8.04	%

As the above table shows, gas revenue increased 34.94% and oil revenue increased 116.07% from fiscal year 2009.

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 $1.98 and the MBTU sold decreased 1,477 from the nine months ended August 31, 2009. The average price per barrel increased $25.05 and the quantity sold increased by 98 barrels from the nine months ended August 31, 2009.

		Gas				MBTU				Price/				Oil				Bbls				Price/
		Sales				Sold				MBTU				Sales				Sold				Bbl
August 31, 2010		$	42,049				7,151			$	5.88			$	16,617				230			$	72.25
August 31, 2009		$	33,648				8,628			$	3.90			$	6,231				132			$	47.20
9 Month Change
2010 vs 2009
Amount		$	8,401				(1,477	)		$	1.98			$	10,386				98			$	25.05
Percentage			24.97	%			-17.12	%			50.77	%			166.68	%			74.24	%			53.07	%

As the above table shows, gas revenue increased 24.97% while oil revenue increased 166.68% from fiscal year 2009.

Expenses- The components of our expenses for the three and nine months ended August 31, 2010 and 2009 are as follows:

										%												%
		Three Months Ended								Increase				Nine Months Ended								Increase
		Aug. 31, 2010				Aug. 31, 2009				(Decrease)				Aug. 31, 2010				Aug. 31, 2009				(Decrease)
Expenses :
Lease operating and taxes		$	8,064			$	8,268				-2.47	%		$	27,641			$	28,932				-4.46	%
General and administrative			32,841				73,860				-55.54	%			113,918				293,461				-61.18	%
Depreciation, depl, amort., & accretion			4,908				2,430				101.98	%			10,438				7,092				47.18	%
Gain on sale of prop			—				—				—				—				(1,687	)			-100.00	%
Total expenses		$	45,813			$	84,558				-45.82	%		$	151,997			$	327,798				53.63	%

Lease operating expenses decreased $204 for the quarter ended August 31, 2010 and decreased $1,291 for the nine months ended August 31, 2010 over the same periods last year. The decrease in quarterly and year-to-date operating expenses is primarily attributable to lower marketing and compression charges.

General and administrative expenses decreased $41,019 for the three months ended August 31, 2010 as compared to the same period last year. The decrease in general and administrative expenses is attributable to lower salaries and wages of $50,549, lower contract labor costs of $6,496 and expenses in all other categories totaling $779, offset by higher professional fees of $16,805 . For the nine months ended August 31, 2010, general and administrative expenses decreased $179,543 as compared to the same period last year. The decrease in general and administrative expenses is attributable to lower professional fees of $55,551, salaries and wages of $123,080, insurance expense of $7,580, contract labor of $6,914 and expenses in all other categories totaling $593, offset by lower G&A cost allocations of $14,175.

Depreciation and depletion expense totaled $4,653 for the three months ended August 31, 2010 and $2,174 for the three months ended August 31, 2009. Depreciation and depletion expense totaled $9,672 for the nine months ended August 31, 2010 and $6,325 for the nine months ended August 31, 2009. The increase in depreciation, depletion, and amortization expense is attributable to lower oil and gas property values from the same period last year. Accretion expense totaled $255 for the three months ended August 31, 2010 and $256 for the three months ended August 31, 2009. Accretion expense totaled $766 for the nine months ended August 31, 2010 and $767 for the nine months ended August 31, 2009.

The Company sold its working interest in oil and gas leases located in Oklahoma effective March 31, 2009 for $1,687 and wrote off the fully depleted property values totaling $229,074.

Other income for the three and nine months ended August 31, 2010 consists of a partial recovery of losses sustained when a former employee forged Company checks for personal use. On May 26, 2000 the former employee was sentenced to three years probation. As part of the sentencing the former employee is required to make restitution to the Company.

We have not recorded any income taxes for the nine months ended August 31, 2009 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 $7,431 as of August 31, 2010. Our current ratio at August 31, 2010 was .06:1, and we had no long-term debt other than our asset retirement obligations of $21,787. As of August 31, 2010, our stockholders’ deficit was $401,270. Net cash provided by operations totaled $82,713 for the nine months ended August 31, 2010 and cash used for operations totaled $256,583 for the nine months ended August 31, 2009. This represents a decrease of $339,296 in cash used for operating activities.

For the nine months ended August 31, 2010 net cash provided by investing activities was $0. For the nine months ended August 31, 2009 net cash provided by investing activities was $1,687 as the result of the sale of our Oklahoma properties.

Net cash used for financing activities totaled $80,609 for the nine months ended August 31, 2010 while net cash provided by financing activities totaled $258,314 for the nine months ended August 31, 2009. Financing activities relate to advances from and payments to Gulftex Operating.

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 an exploration company that can also act as an operator of 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 QUALITATIVE 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 August 31, 2010 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

     None.

Item 5. OTHER INFORMATION

          Due to the current financial condition of the Company, two of our officers, Tim Burroughs and Sherri Cecotti have agreed, effective February 16, 2010, to draw no salary until such time as the revenues of the Company are sufficient to sustain the operations of the Company including the payment of their salaries. The forbearance of the above officer’s salary is a complete forbearance and not a deferral.

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: October 15, 2010

SIGNATURE: /s/ Tim Burroughs