Attached files
| file | filename |
|---|---|
| EX-32.1 - EX-32.1 - TRICCAR INC. | d76882exv32w1.htm |
| EX-31.1 - EX-31.1 - TRICCAR INC. | d76882exv31w1.htm |
Table of Contents
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: May 31, 2010
Or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: to
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. (Check one):
| o Large accelerated filer | o Accelerated filer | o Non-accelerated filer | þ Smaller reporting company | |||
| (Do not check if a 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 October 12, 2010, there were 4,027,442 shares of common stock, par value $0.01 per share, outstanding.
Table of Contents
PART 1 — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| May 31, 2010 | November 30, | |||||||
| (Unaudited) | 2009 | |||||||
| ASSETS |
||||||||
Current Assets |
||||||||
Cash |
$ | 2,293 | $ | 5,327 | ||||
Oil and gas revenue receivable |
6,824 | 112,122 | ||||||
Inventory |
4,650 | 4,494 | ||||||
Total current assets |
13,767 | 121,943 | ||||||
Oil and gas properties (successful efforts method), net |
44,572 | 49,591 | ||||||
Other |
6,211 | 6,211 | ||||||
Total Assets |
$ | 64,550 | $ | 177,745 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
||||||||
Current Liabilities |
||||||||
Trade accounts payable and accrued expenses |
$ | 32,670 | $ | 62,693 | ||||
Advances from affiliate |
388,774 | 496,602 | ||||||
Deferred revenue |
4,650 | 4,494 | ||||||
Total current liabilities |
426,094 | 563,789 | ||||||
Long-term Liabilities |
||||||||
Asset retirement obligations |
21,531 | 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 May 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 |
(11,353,289 | ) | (11,377,279 | ) | ||||
Total stockholders’ deficit |
(383,075 | ) | (407,065 | ) | ||||
Total Liabilities and Stockholders’ Deficit |
$ | 64,550 | $ | 177,745 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-1
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| May 31, 2010 | May 31, 2009 | May 31, 2010 | May 31, 2009 | |||||||||||||
Revenues: |
||||||||||||||||
Oil and gas sales |
$ | 13,741 | $ | 10,320 | $ | 36,109 | $ | 24,845 | ||||||||
Total revenues |
13,741 | 10,320 | 36,109 | 24,845 | ||||||||||||
Expenses: |
||||||||||||||||
Lease operating and taxes |
11,427 | 8,905 | 19,577 | 20,665 | ||||||||||||
General and administrative |
14,669 | 91,271 | 81,077 | 219,601 | ||||||||||||
Depreciation, depletion, amortization and accretion |
2,537 | 2,268 | 5,529 | 4,662 | ||||||||||||
Gain on sale of oil and gas properties |
— | (1,687 | ) | — | (1,687 | ) | ||||||||||
Total expenses |
28,633 | 100,757 | 106,183 | 243,241 | ||||||||||||
Operating Loss |
(14,892 | ) | (90,437 | ) | (70,074 | ) | (218,396 | ) | ||||||||
Other Income: |
||||||||||||||||
Partial loss recovery (Note 10) |
87,122 | — | 94,064 | — | ||||||||||||
Income (Loss) Before Provision for Income Taxes |
72,230 | (90,437 | ) | 23,990 | (218,396 | ) | ||||||||||
Provision for income taxes |
— | — | — | — | ||||||||||||
Net Income (Loss) |
$ | 72,230 | $ | (90,437 | ) | $ | 23,990 | $ | (218,396 | ) | ||||||
Net Income (Loss) per Common Share, Basic and Diluted |
$ | 0.02 | $ | (0.02 | ) | $ | 0.01 | $ | (0.05 | ) | ||||||
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.
F-2
Table of Contents
TBX RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended | ||||||||
| May 31, 2010 | May 31, 2009 | |||||||
Cash Flows From Operating Activities: |
||||||||
Net income (loss) |
$ | 23,990 | $ | (218,396 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities: |
||||||||
Depreciation, depletion, amortization and accretion |
5,529 | 4,662 | ||||||
Stock based compensation |
— | 500 | ||||||
Gain on sale of oil and gas properties |
— | (1,687 | ) | |||||
Changes in operating assets and liabilities other than advances
from affiliate: |
||||||||
Decrease (increase) in: |
||||||||
Oil and gas revenue receivable |
105,298 | (24,844 | ) | |||||
Accounts receivable from affiliate |
— | 21,824 | ||||||
Inventory |
(156 | ) | (5,300 | ) | ||||
Increase (decrease) in: |
||||||||
Trade accounts payable and accrued expenses |
(30,023 | ) | 39,169 | |||||
Deferred revenue |
156 | 5,300 | ||||||
Net cash provided by (used for) operating activities |
104,794 | (178,772 | ) | |||||
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 |
108,360 | 177,402 | ||||||
Payments to affiliate |
(216,188 | ) | — | |||||
Net cash provided by (used for) financing activities |
(107,828 | ) | 177,402 | |||||
Net Increase (Decrease) in Cash |
(3,034 | ) | 317 | |||||
Cash at beginning of period |
5,327 | 2,506 | ||||||
Cash at end of period |
$ | 2,293 | $ | 2,823 | ||||
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.
F-3
Table of Contents
TBX RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 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. In addition,
the Company sold its primary source of revenue (East Texas properties) effective April 1, 2008.
These factors raise substantial doubt about the ability of the Company to continue as a going
concern.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
For direct oil and gas operations, the revenue is recorded when production is sold. The Company
accrues revenue for oil and gas production sold but not paid.
Principles of Consolidation
The condensed consolidated financial statements for the six months ended May 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.
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Table of Contents
Concentration of Credit Risk
During the six months ended May 31, 2010 the Company had a net reduction in advances from Gulftex
totaling $107,828. The Company received advances from Gulftex totaling $177,402 during the six
months ended May 31, 2009. The balance due Gulftex as of May 31, 2010 is $388,774.
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 May 31, 2010 consist of the following:
Proved oil and gas properties |
$ | 518,538 | ||
Accumulated depreciation, depletion and
amortization |
(473,966 | ) | ||
| $ | 44,572 | |||
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 unit-of-production method, based upon independent reserve engineers’
estimates of recoverable oil and gas reserves from the property.
Asset Retirement Obligations
The Company accounts for asset retirement obligations 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
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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 six months ended
May 31, 2010.
ARO at November 30, 2009 |
$ | 21,021 | ||
Accretion expense |
510 | |||
Liabilities incurred |
— | |||
Liabilities settled |
— | |||
Changes in estimates |
— | |||
ARO at May 31, 2010 |
$ | 21,531 | ||
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:
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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: |
| - | 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 May 31, 2010, up until the
issuance of the financial statements, which occurred on or about October 12, 2010.
5. RECENT ACCOUNTING PRONOUNCEMENTS:
During the six months ended May 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 six months ended May 31, 2010 the Company had a net reduction in advances from Gulftex totaling $107,828. During the six months ended May 31, 2009, the Company received advances from Gulftex totaling $177,402. The balance due Gulftex as of May 31, 2010 is $388,774. | ||
| 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 $36,786 for the six months ended May 31, 2010 and $48,607 for the six months ended May 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
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on August 4, 2005.) In the event the closing bid price of TBX’s common stock is below $0.70 on the
date of a call by Mr. Burroughs, the exercise price would be reduced to the lower actual bid price.
Mr. Burroughs’ Employment Agreement was further amended in April 2007. In exchange for TBX dropping
the three year service requirement, Mr. Burroughs agreed to forgo his eligibility to call for stock
options for fiscal years 2005 and 2006. Mr. Burroughs did not call any of his potential stock
options as of May 31, 2010. In accordance with the terms of April l, 2007 Amended Employment
Agreement, no compensation expense is recognized as of May 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 May 31, 2010 and the changes during
the six 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 May 31, 2010 |
— | — | ||||||
Options exercisable at May 31, 2010 |
— | — | ||||||
8. COMMITMENTS AND CONTINGENCIES:
The Company is currently obligated for $56,957 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 six months ended May 31, 2010 and 2009 is $34,837 and $35,697,
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 14th 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
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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 Mach 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 $94,064 during the six months ended
May 31, 2010 and the balance outstanding as of May 31, 2010 is approximately $56,123.
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 six months ended May 31, 2010 and 2009 due to the Company’s net
operating loss in 2009 and the available tax loss carryforward in 2010.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
Statements in this report which are not purely historical facts, including statements
regarding the Company’s anticipations, beliefs, expectations, hopes, intentions or strategies for
the future, may be forward-looking statements within the meaning of Section 21E of the Securities
Act of 1934, as amended. All forward-looking statements in this report are based upon information
available to us on the date of the report. Any forward-looking statements involve risks and
uncertainties that could cause actual results or events to differ materially from events or results
described in the forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements.
DESCRIPTION OF PROPERTIES
GENERAL: The following is information concerning our oil and gas wells, our productive wells
and acreage and undeveloped acreage. We have wells in Denton 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 May 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 May 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 May 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 May 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 |
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| 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 second quarter ended May 31, 2010 we reported net income of $72,230 as compared to a net
loss of $90,437 for the same quarter last year. For the six months ended May 31, 2010, we reported
net income of $23,990 as compared to a net loss of $218,396 for the same period last year. The
components of these results are explained below.
Revenues- The components of our revenues for the three and six months ended May 31, 2010 and 2009
are as follows:
Oil and gas revenue for the three months ended May 31, 2010 was $13,741, an increase of 31.2%, as
compared to $10,320 for the three months ended May 31, 2009. The increase is attributable to higher
oil and gas prices offset by lower production from our wells. Oil and gas revenue for the six
months ended May 31, 2010 was $36,109, an increased of 13.8%, as compared to $24,845 for the six
months ended May
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31, 2009. The increase is attributable to higher oil and gas prices and increased production from
our gas wells offset by lower oil 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 $2.10 and the MBTU sold decreased 110 from the quarter ended
May 31, 2009. The average price per barrel increased $32.87 and the quantity sold decreased by 39
barrels from the quarter ended May 31, 2009.
| Gas | MBTU | Price/ | Oil | Bbls | Price/ | |||||||||||||||||||
| Sales | Sold | MBTU | Sales | Sold | Bbl | |||||||||||||||||||
May 31, 2010 |
$ | 13,439 | 2,519 | $ | 5.33 | $ | 302 | 4 | $ | 75.50 | ||||||||||||||
May 31, 2009 |
$ | 8,487 | 2,629 | $ | 3.23 | $ | 1,833 | 43 | $ | 42.63 | ||||||||||||||
3 Month Change |
||||||||||||||||||||||||
2010 vs 2009 |
||||||||||||||||||||||||
Amount |
$ | 4,952 | (110 | ) | $ | 2.10 | $ | (1,531 | ) | (39 | ) | $ | 32.87 | |||||||||||
Percentage |
58.35 | % | -4.18 | % | 65.02 | % | -83.52 | % | -90.70 | % | 77.11 | % | ||||||||||||
As the above table shows, gas revenue increased 58.35% and oil revenue decreased 83.52% 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 $1.81 and the MBTU sold increased 4,127 from the six months
ended May 31, 2010. The average price per barrel increased $35.36 and the quantity sold increased
by 54 barrels from the six months ended May 31, 2009.
| Gas | MBTU | Price/ | Oil | Bbls | Price/ | |||||||||||||||||||
| Sales | Sold | MBTU | Sales | Sold | Bbl | |||||||||||||||||||
May 31, 2010 |
$ | 25,542 | 4,467 | $ | 5.72 | $ | 10,567 | 143 | $ | 73.90 | ||||||||||||||
May 31, 2009 |
$ | 21,415 | 5,477 | $ | 3.91 | $ | 3,430 | 89 | $ | 38.54 | ||||||||||||||
6 Month Change |
||||||||||||||||||||||||
2010 vs 2009 |
||||||||||||||||||||||||
Amount |
$ | 4,127 | (1,010 | ) | $ | 1.81 | $ | 7,137 | 54 | $ | 35.36 | |||||||||||||
Percentage |
19.27 | % | -18.44 | % | 46.24 | % | 208.08 | % | 60.67 | % | 91.74 | % | ||||||||||||
As the above table shows, gas revenue increased 19.27% while oil revenue increased 208.08% from
fiscal year 2009.
Expenses- The components of our expenses for the three and six months ended May 31, 2010 and 2009
are as follows:
| % | % | |||||||||||||||||||||||
| Three Months Ended | Increase | Six Months Ended | Increase | |||||||||||||||||||||
| May 31, 2010 | May 31, 2009 | (Decrease) | May 31, 2010 | May 31, 2009 | (Decrease) | |||||||||||||||||||
Expenses: |
||||||||||||||||||||||||
Lease operating and taxes |
$ | 11,427 | $ | 8,905 | 28.32 | % | $ | 19,577 | $ | 20,665 | -5.26 | % | ||||||||||||
General and administrative |
14,669 | 91,271 | -83.93 | % | 81,077 | 219,601 | -63.08 | % | ||||||||||||||||
Depreciation, depl, amort., & accretion |
2,537 | 2,268 | 11.86 | % | 5,529 | 4,662 | 18.60 | % | ||||||||||||||||
Gain on sales of O&G properties |
— | (1,687 | ) | -100.00 | % | — | (1,687 | ) | -100.00 | % | ||||||||||||||
| $ | 28,633 | $ | 100,757 | -73.26 | % | $ | 106,183 | $ | 243,241 | -56.35 | % | |||||||||||||
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Lease operating expenses increased $2,522 for the quarter ended May 31, 2010 and decreased
$1,088 for the six months ended May 31, 2010 over the same periods last year. The increase in
quarterly operating expenses is primarily attributable to higher marketing and compression charges.
The decrease in year to date expenses is attributable to lower operating costs.
General and administrative expenses decreased $76,602 for the three months ended May 31, 2010 as
compared to the same period last year. The decrease in general and administrative expenses is
attributable to lower professional fees of $21,429, rent of $13,757, salaries and wages of $63,519,
expenses in all other categories totaling $1,745, offset by lower G&A cost allocations of $23,848.
For the six months ended May 31, 2010, General and administrative expenses decreased $138,525 as
compared to the same period last year. The decrease in general and administrative expenses is
attributable to lower professional fees of $73,356, salaries and wages of $72,531, expenses in all
other categories totaling $4,459, offset by lower G&A cost allocations of $11,821.
Depreciation and depletion expense totaled $2,283 for the three months ended May 31, 2010 and
$2,012 for the three months ended May 31, 2009. Depreciation and depletion expense totaled $5,019
for the six months ended May 31, 2009 and $4,151 for the six months ended May 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 May 31, 2010 and $256 for the three months ended May 31, 2009. Accretion expense totaled $510
for the six months ended May 31, 2010 and $511 for the six months ended May 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 six months ended May 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 six months ended May 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 $2,293 as of May 31, 2010. Our current ratio at May 31, 2010 was
.03:1, and we had no long-term debt other than our asset retirement obligations of $21,531. As of
May 31, 2010, our stockholders’ deficit was $383,075. Net cash provided by operations totaled
$104,794 for the six months ended May 31, 2010 and cash used for operations totaled $178,772 for
the six months ended May 31, 2009. This represents a decrease of $283,566 in cash used for
operating activities.
For the six months ended May 31, 2010 net cash provided by investing activities was $0. For the six
months ended May 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 $107,828 for the six months ended May 31, 2010 while
net cash provided by financing activities totaled $177,402 for the six months ended May 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
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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 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 May 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,
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and that breakdowns can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 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 13, 2010
SIGNATURE: /s/ Tim Burroughs
TIM BURROUGHS, PRESIDENT/ CHIEF FINANCIAL OFFICER
TIM BURROUGHS, PRESIDENT/ CHIEF FINANCIAL OFFICER
8