Correlate Energy Corp. - Quarter Report: 2011 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

		For the quarterly period ended: August 31, 2011

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.

Large Accelerated Filer o		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company þ
				(Do not check if smaller reporting company)

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 September 30, 2011, 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 Balance Sheets as of August 31, 2011 (Unaudited) and November 30, 2010			F-1
Condensed Statements of Operations for the Three and Nine Months Ended August 31, 2011 and 2010 (Unaudited)			F-2
Condensed Statements of Cash Flows for the Nine Months Ended August 31, 2011 and 2010 (Unaudited)			F-3
Notes to Condensed Financial Statements as of August 31, 2011 (Unaudited)			F-4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3
Item 3. Quantitative and Qualitative Disclosures about Market Risk.			6
Item 4T. Controls and Procedures			6
PART II – Other Information
Item 1. Legal Proceedings			7
Item 1A. Risk Factors			7
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7
Item 3. Defaults Upon Senior Securities			7
Item 5. Other Information			7
Item 6. Exhibits and Reports on Form 8-K			7
SIGNATURES			8
EX-31.1
EX-32.1

PART 1 — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TBX RESOURCES, INC.

CONDENSED BALANCE SHEETS

		August 31,
		2011				November 30,
		(Unaudited)				2010
ASSETS
Current Assets
Cash		$	531			$	665
Oil and gas revenue receivable			3,334				8,271
Inventory			—				8,300
Total current assets			3,865				17,236
Oil and gas properties (successful efforts method), net			—				37,567
Other			6,211				6,211
Total Assets		$	10,076			$	61,014
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Trade accounts payable and accrued expenses		$	25,463			$	33,609
Advances from affiliate			67,532				—
Deferred revenue			—				8,300
Total current liabilities			92,995				41,909
Long-term Liabilities
Asset retirement obligations			—				21,347
Commitments and Contingencies (Note 10)
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, 2011, 4,027,442 shares issued and outstanding at November 30, 2010			40,274				40,274
Additional paid-in capital			11,363,172				11,363,172
Accumulated deficit			(11,486,365	)			(11,405,688	)
Total stockholders’ deficit			(82,919	)			(2,242	)
Total Liabilities and Stockholders’ Deficit		$	10,076			$	61,014

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

TBX RESOURCES, INC.

		For the Three Months Ended								For the Nine Months Ended
		Aug. 31, 2011				Aug. 31, 2010				Aug. 31, 2011				Aug. 31, 2010
Revenues:
Oil and gas sales		$	3,505			$	22,557			$	5,927			$	58,666
Total revenues			3,505				22,557				5,927				58,666
Expenses:
Lease operating and taxes			337				8,064				4,517				27,641
General and administrative			12,091				32,841				68,218				113,918
Depreciation, depletion, amortization and accretion			—				4,908				—				10,438
Loss on forfeiture of oil and gas properties			—				—				16,089				—
Total expenses			12,428				45,813				88,824				151,997
Operating Loss			(8,923	)			(23,256	)			(82,897	)			(93,331	)
Other Income:
Gain on sales of office furniture and fixtures			—				—				2,220
Partial loss recovery (Note 12)			—				5,062				—				99,126
Income (Loss) Before Provision for Income Taxes			(8,923	)			(18,194	)			(80,677	)			5,795
Provision for income taxes			—				—				—				—
Net Income (Loss)		$	(8,923	)		$	(18,194	)		$	(80,677	)		$	5,795
Net Income (Loss) per Common Share:
Basic and Diluted		$	(0.00	)		$	(0.00	)		$	(0.02	)		$	0.00
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 financial statements.

TBX RESOURCES, INC.

		For the Nine Months Ended
		Aug. 31, 2011				Aug. 31, 2010
Cash Flows From Operating Activities:
Net income (loss)		$	(80,677	)		$	5,795
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation, depletion, amortization and accretion			—				10,438
Loss on forfeiture of oil and gas properties			16,089				—
Gain on sale of office furniture and fixtures			(2,220	)			—
Allocated general and administrative expenses			22,476				—
Changes in operating assets and liabilities other than advances from affiliate:
Decrease (increase) in operating assets:
Oil and gas revenue receivable			(1,288	)			95,808
Inventory			8,300				294
Increase (decrease) in operating liabilities:
Trade accounts payable and accrued expenses			(1,790	)			(29,328	)
Deferred revenue			(8,300	)			(294	)
Net cash provided by (used for) operating activities			(47,410	)			82,713
Cash Flows From Investing Activities:
Proceeds from sale of office furniture and fixtures			2,220				—
Net cash provided by investing activities			2,220				—
Cash Flows From Financing Activities:
Advances from affiliate			45,056				135,580
Payments to affiliate			—				(216,189	)
Net cash provided by (used for) financing activities			45,056				(80,609	)
Net Increase (Decrease) in Cash			(134	)			2,104
Cash at beginning of period			665				5,327
Cash at end of period		$	531			$	7,431

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

TBX RESOURCES, INC.

1. BASIS OF PRESENTATION:

The condensed 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, 2010 (including the notes thereto) set forth in Form 10-K.

2. BUSINESS ACTIVITIES:

TBX Resources, Inc. was incorporated in the state of Texas in March 1995. In the past we have primarily focused our business efforts on acquiring oil and gas production properties and leases. We did this because we believed that the major oil companies were leaving the US domestic oil and gas market due to domestic oil and gas exploration properties being significantly depleted. However this trend has changed and major oil companies are again acquiring domestic properties primarily in fields where natural gas is prevalent. This has increased the competition and prices for oil properties and management believes, due to our current financial condition, that we will not be able to compete for and purchase oil and gas properties as effectively as we have in the past. In response to this trend management has recently initiated changes to the Company’s business plan. Currently, our primary focus is to secure additional capital through business alliances with third parties or other debt/equity financing arrangements to acquire companies and assets which will allow the Company to operate in the oil field services industry with an emphasis on acquiring companies involved in salt water and drilling fluid disposal. Secondarily we will continue to seek out and acquire producing oil and gas leases and wells. See Note 14.

3. GOING CONCERN:

The accompanying condensed 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. In addition, the Company sold its primary source of revenue (East Texas properties) effective April 1, 2008 and forfeited its interest in the Johnson #1 and Johnson #2 Joint Ventures effective September 7, 2010 (see Note 8). These factors raise substantial doubt about the ability of the Company to continue as a going concern. See Note 14.

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.

     Concentration of Credit Risk

     During the nine months ended August 31, 2011 the Company had a net increase in advances from Gulftex totaling $67,532. The Company had a net decrease in advances from Gulftex totaling $80,609 during the nine months ended August 31, 2011. The balance due Gulftex as of August 31, 2011 is $67,532. The cash portion of this balance is $45,056. See Note 14.

     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.

     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, 2011.

ARO at November 30, 2010		$	21,347
Accretion expense			—
Liabilities settled (see Note 8)			(21,347	)
Changes in estimates			—
ARO at August 31, 2011		$	—

     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.

     Equity Instruments Issued for Goods and Services

     The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized in the financial statements over the period during which the employee is required to provide services in exchange for the award with a corresponding increase in additional paid-in capital.

     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 Company has the ability to access.
Level 2		Inputs to the valuation methodology include:

	•		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 of liability;
	•		inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has specified (contractual) term, the Level 2 impute 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.

5. RECENT ACCOUNTING PRONOUNCEMENTS:

During the nine months ended August 31, 2011 and the year ended November 30, 2010, 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 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, 2011, the Company received advances from Gulftex totaling $67,532 and the balance due Gulftex as of August 31, 2011 is also $67,532.
b.		Gulftex is billing the Company for rent paid on behalf of the Company. Gulftex is also charging the Company administrative expenses as it relates to TBX operations. For the nine months ended August 31, 2011, Gulftex billed the Company $24,695 for rent and administrative services. In the previous fiscal year the Company charged 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.

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. The Employment Agreement was again amended on December 1, 2010 wherein options were continued for an additional five years at an option price no greater than 50% of the closing price on December 1, 2010 or $0.015 per share (one-

half of the $0.03 closing bid price on December 1, 2010). Mr. Burroughs did not call any of his potential stock options as of August 31, 2011. In accordance with the terms of the Amended Employment Agreement, no compensation expense is recognized as of August 31, 2011 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.

Since February 2010 certain officers have agreed to forebear their salary until the Company’s cash flow improves. However, the Company may grant stock awards from time to time in recognition of the officer’s or employee’s forbearance.

8. FORFEITURE OF OIL AND GAS INTERESTS:

During the first quarter of this fiscal year, the Company was notified it had forfeited its interest in the Johnson #1-H and Johnson #2-H Joint Ventures effective September 7, 2010 for not paying a Special Assessment of $43,008 for estimated workover expenses. If the Company had known of the Special Assessment cash call it would have declined to participate because there was no assurance that the rework would be successful in increasing production to recoup the Special Assessment amount and extend the life of the wells. In addition, the Company no longer is obligated to pay the plug and abandonment costs for these wells.

As a result of the forfeiture the Company wrote-off the book value of the wells, asset retirement obligations, receivables and payables which resulted in a loss of $16,089.

9. SALE OF OFFICE FURNITURE AND FIXTURES:

The Company sold its furniture and fixtures to a third-party in the previous quarter for $2,220 and wrote-off the fully depreciated value of the related assets. The Company is currently utilizing furniture and fixtures supplied by its President, Tim Burroughs, at no cost to the Company.

10. COMMITMENTS AND CONTINGENCIES:

The Company’s operating lease agreement for rent of its office space in Dallas, Texas was extended for thirty-nine months through May 31, 2014. Rent expense for the nine months ended August 31, 2011 and August 31, 2010 is $31,809 and $51,826, respectively.

Trio Consulting & Management and Merritt Operating are the bonded operators for the Company’s former 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.

11. 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.

12. 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 $0 during the nine months ended August 31, 2011 and $99,126 during the same period last year. The balance outstanding as of August 31, 2011 is approximately $51,062.

13. 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, 2011 and 2010 due to either the Company’s net operating losses or the available tax loss carryforward.

14. SUBSEQUENT EVENTS

The Company has recently entered into three material contracts. On September 2, 2011 TBX Resources, Inc. (“TBX”) entered into an Investment Agreement with LoneStar Income and Growth, LLC, a Texas limited liability company, an unrelated third party. The Investment Agreement provides that LoneStar will acquire up to 2,750,000 shares of TBX’s 2011 Series A 8% Preferred Stock (the“Stock”) for the sum of $5,500,000 contingent upon TBX using the proceeds of the Stock to acquire a majority 51% membership interest in Frontier Income and Growth, LLC (“Frontier”), a salt water transportation and disposal company. The Stock has the following attributes in its designation filed with the Texas Secretary of State:

	a.		TBX will pay an annual dividend of eight percent (8%) on the principal value ($2.00) of each share.
	b.		Beginning twelve (12) months from the date of issuance, each share of preferred stock is convertible at the request of either the stockholder or TBX into two (2) shares of common stock of TBX and two (2) warrants that will allow the holder to acquire one additional share of TBX common stock for each warrant at the purchase price of $3.50 per share. The warrants may be exercised in whole or in part at any time within three (3) years from the issue date of the warrant.

As of the date hereof LoneStar has tendered the sum of $250,000 to purchase 125,000 shares of the Stock. As of the date hereof, the preferred shares have not been issued.

On September 1, 2011 TBX entered into a Subscription Agreement with Frontier to acquire a majority 51% membership interest in Frontier for the sum of $5,046,000.

TBX president, Tim Burroughs has currently an interest in 25% of the profits of Frontier through his one half ownership of Frontier Asset Management, LLC (“FAM”) which has a contractual agreement with Frontier for its management services. Once the investors in Frontier have been repaid 125% of their initial investment by Frontier, FAM’S share of the profit will increase to 50%. TBX, in a letter agreement executed on September 2, 2011, has agreed to acquire FAM’s contractual interest in the profits of Frontier for the issuance of 4,070,000 common shares to FAM. Given TBX’s current share price of $0.07 per share, as of August 31, 2011, the transaction is valued at an estimated $284,900.

Upon complete performance of each of the three contracts, TBX will own 51% of the voting interests and be entitled to receive 63.25% of the profits of Frontier.

TBX issued the following unregistered common stock shares effective September 1, 2011 for the purposes listed beside each issuance.

	a.		Gulftex Oil & Gas, LLC: 355,846 common shares in return for cancellation of a portion of the debt owed in the sum of $53,377.
	b.		Sherri Cecotti: 100,000 common stock shares as compensation for services rendered as Ms. Cecotti has not received compensation from TBX during the last two fiscal years. Ms. Cecotti is an officer of TBX and serves as Secretary.
	c.		James Somma: 100,000 common stock shares as compensation for services rendered as an accounting consultant for two years.
	d.		Bernard O’Connell: 200,000 common stock shares as compensation for services rendered as Mr. O’Donnell has not received compensation for his services as an officer of the Company, Vice President, for two or more years.

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: We currently have royalty interests in Denton and Wise Counties, Texas.

     PROPERTIES

     The following is a breakdown of our properties by field as of August 31, 2011:

		Gross				Net
		Producing				Producing
Name of Field or Well		Well Count				Well Count
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, 2011:

Total

Net

Net

Gross

Total Net

Total Gross

Productive

Total Gross

Productive

Developed

Developed

Geographic Area

Oil Wells

Oil Wells

Gas Wells

Gas Wells

Acres

Acres

Wise County

—

—

2

0.0360

224

8.06

Denton County

—

—

7

0.0360

566

20.38

     Notes:

1.

Total Gross Wells are those wells in which the Company holds an overriding interest in as of August 31, 2011.

2.

Net Productive Wells was calculated by multiplying the overriding interest held by the Company in each of the 9 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 royalty interest.

4.

Net Developed Acres is equal to the Total Gross Developed Acres multiplied by the percentage of the total royalty interest held by the Company in the respective properties.

5.

All acreage in which we hold a royalty interest as of August 31, 2011 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 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, 2010 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 financial statements at November 30, 2010. 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 Office Furniture and Fixtures

The Company sold its furniture and fixtures in the second quarter of 2011 for $2,220 and wrote-off the fully depreciated value of the related assets.

RESULTS OF OPERATIONS

For the third quarter ended August 31, 2011 we reported a net loss of $8,923 as compared to a net loss of $18,194 for the same quarter last year. For the nine months ended August 31, 2011, we reported a net loss of $80,677 as compared to net income of $5,795 for the same period last year. The components of these results are explained below.

Revenues- Oil and gas revenue for the three months ended August 31, 2011 was $3,505, a decrease of 84.5%, as compared to $22,557 for the three months ended August 31, 2010. Oil and gas revenue for the nine months ended August 31, 2011 was $5,927, a decrease of 89.9%, as compared to $58,666 for the nine months ended August 31, 2010. The decrease in revenue for the quarter and year-to-date is primarily attributable to the forfeiture of the Johnson #1-H and Johnson a#2-H Joint Ventures.

Expenses- The components of our expenses for the three and nine months ended August 31, 2011 and 2010 are as follows:

										%												%
		Three Months Ended								Increase				Nine Months Ended								Increase
		Aug. 31, 2011				Aug. 31, 2010				(Decrease)				Aug. 31, 2011				Aug. 31, 2010				(Decrease)
Expenses :
Lease operating and taxes		$	337			$	8,064				- 95.82	%		$	4,517			$	27,641				-83.66	%
General and administrative			12,091				32,841				-63.18	%			68,218				113,918				-40.12	%
Depreciation, depl, amort., & accretio			—				4,908				0.00	%			—				10,438				0.00	%
Loss on forfeiture of properties			—				—				—				16,089				—				0.00	%
Total expenses		$	12,428			$	45,813				-72.87	%		$	88,824			$	151,997				41.56	%

Lease operating expenses decreased $7,727 for the quarter ended August 31, 2011 and $23,124 for the nine months ended August 31, 2011 over the same periods last year. The decrease in quarterly and year-to-date operating expenses is primarily attributable to the forfeiture of the Johnson #1-H and Johnson a#2-H Joint Ventures.

General and administrative expenses decreased $20,750 for the three months ended August 31, 2011 as compared to the same period last year. The decrease in general and administrative expenses is attributable to lower professional fees of $26,854, lower rent of $14,649 and expenses in all other categories totaling $99 offset by lower G&A cost allocations of $20,852 . For the nine months ended August 31, 2011, general and administrative expenses decreased $45,700 as compared to the same period last year. The decrease in general and administrative expenses is attributable to lower professional fees of $21,042, salaries and wages of $44,815, rent of $20,017 and expenses in all other categories totaling $2,252, offset by lower G&A cost allocations of $42,426.

Depreciation and depletion expense totaled $0 for the three months ended August 31, 2011 and $4,853 for the three months ended August 31, 2010. Depreciation and depletion expense totaled $0 for the nine months ended August 31, 2011 and $9,672 for the nine months ended August 31, 2010. Accretion expense totaled $0 for the three months ended August 31, 2011 and $255 for the three months ended August 31, 2010. Accretion expense totaled $0 for the nine months ended August 31, 2011 and $766 for the six months ended August 31, 2010. The decrease in depreciation, depletion, amortization and accretion expense is attributable to the write-off of the Johnson #1-H and Johnson and #2-H Joint Ventures.

The Company forfeited its interest in Johnson #1-H and Johnson and #2-H Joint Ventures and wrote-off the book value of the wells, asset retirement obligations, receivables and payables which resulted in a loss of $16,089 in the current fiscal year.

Other income in the current fiscal year consists of the Company’s sale of all furniture and fixtures for $2,220 with the resulting write-off of the fully depreciated values of the related assets. Other income in the previous fiscal year 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, 2011 and 2010 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 $531 as of August 31, 2011. Our current ratio at August 31, 2011 was .04:1, and we had no long-term debt. As of August 31, 2011, our stockholders’ deficit was $82,919. Net cash used for operations totaled $47,410 for the nine months ended August 31, 2011 and cash provided by operations totaled $82,713 for the nine months ended August 31, 2010. This represents an increase of $130,123 in cash used for operating activities.

For the nine months ended August 31, 2011, net cash provided by investing activities was $2,220 as a result of our sale of office furniture and fixtures. For the nine months ended August 31, 2010, net cash provided by investing activities was $0.

Net cash provided by financing activities totaled $45,056 for the nine months ended August 31, 2011 while net cash used for financing activities totaled $80,609 for the nine months ended August 31, 2010. Financing activities relate to advances from and payments to Gulftex.

PLAN OF OPERATION FOR THE FUTURE

TBX Resources, Inc. was incorporated in the state of Texas in March 1995. In the past we have primarily focused our business efforts on acquiring oil and gas production properties and leases. We did this because we believed that the major oil companies were leaving the US domestic oil and gas market due to domestic oil and gas exploration properties being significantly depleted. However this trend has changed and major oil companies are again acquiring domestic properties primarily in fields where natural gas is prevalent. This has increased the competition and prices for oil properties and management believes, due to our current financial condition, that we will not be able to compete for and purchase oil and gas properties as effectively as we have in the past. In response to this trend management has recently initiated changes to the Company’s business plan. Currently, our primary focus is to secure additional capital through business alliances with third parties or other debt/equity financing arrangements to acquire companies and assets which will allow the company to operate in the oil field services industry with an emphasis on acquiring companies involved in salt water and drilling fluid disposal. Secondarily we will continue to seek out and acquire producing oil and gas leases and wells. At this time we have no specific acquisition targets identified but we are actively engaged generally in such a search.

We have explored and will continue to explore all avenues possible to raise the funds required. However, there is no assurance that we will be able to raise sufficient funds to execute our plans or that if successful in securing the funds our actual financial results will improve.

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. However, in the event, we are successful in making any acquisitions, it is likely that existing employees currently employed will remain with the acquisition(s) .

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4T. 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, 2011 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 1A. RISK FACTORS.

     Not required for smaller reporting companies.

Item 2. UNREGISTERED SALES OFEQUITY 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. However, the Company may grant stock awards from time to time in recognition of the officer’s or employee’s forbearance.

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

     1. Form 8-K, current report, items 1.01, 3.02, 5.02, 7.01, and 9.01 filed on September 6, 2011

SIGNATURES

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