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UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
COMMISSION FILE NUMBER 0-30746
AMENDMENT NUMBER 4 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
TBX RESOURCES, INC.
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(Name of Small Business Issuer in its charter)
Texas 75-2592165
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12300 Ford Road, Suite 194, Dallas, TX 75234
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (972) 243-2610
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Securities to be registered pursuant to Section 12(b) of the Act:
Not Applicable.
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Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock
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(Title of Class)
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TABLE OF CONTENTS
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DESCRIPTION OF BUSINESS...........................................................................................1
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........................................................8
DESCRIPTION OF PROPERTIES........................................................................................14
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS....................................................19
DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS..................................................20
EXECUTIVE COMPENSATION...........................................................................................22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................................22
SECURITIES BEING REGISTERED......................................................................................23
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................................................23
LEGAL PROCEEDINGS................................................................................................24
RECENT SALES OF UNREGISTERED SECURITIES..........................................................................25
INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................................26
FINANCIAL STATEMENTS.............................................................................................26
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DESCRIPTION OF BUSINESS
BACKGROUND
TBX Resources, Inc., was incorporated in the state of Texas in March,
1995, by our president, Mr. Tim Burroughs. Our primary focus has been to acquire
producing oil and gas properties with opportunities for future development.
Prior to acquiring a property, we analyze the previous production and operating
history of the property, as well as the production history and related operating
procedures for similar wells producing from the same formations in the general
area. By acquiring producing properties which respond positively to improved
production practices and enhanced recovery techniques, we have built an
inventory of infield development drilling locations.
As of August 31, 2000, our company had total assets of $3,608,954 of
which net oil and gas properties amounted to $2,804,641 or 77.7% of our total
assets. Our accumulative losses through August 31, 2000, total ed $3,220,902.
Our revenues for our fiscal year ended November 30, 1999 were $377,965 and our
net losses for the same period were $742,857. Our ratio of current assets to
current liabilities is 2.9:1; our company has no long-term debt. As of August
31, 2000, our shareholders equity was a positive $3,434,774.
Our company has experienced losses over the past years. However, our
management is projecting a decrease in general and administrative expenses, an
increase in prices obtained for our oil and gas produced and an increase in our
total production, due to more of our wells being brought on-line. Our management
believes that, with the projected lower general and administrative expenses,
increases in production and higher prices for our production, our company's
financial success should improve for the fiscal year ending November 30, 2001.
However, this success is dependent upon many factors, some of which are not
within our control and there can be no assurance that our actual results will
improve.
Mr. Burroughs' experience in the oil and gas industry began as a
financier for an exploration company, where he arranged drilling capital to meet
the company's annual drilling budget. As the major oil and gas companies focused
their investment capital offshore and overseas, and high quality domestic
producing properties became available, Mr. Burroughs developed his strategy for
building an oil and gas production company. Over time, Mr. Burroughs cultivated
relationships with various oil and gas engineers, geologists and operating
personnel with backgrounds in oil and gas fields of eastern Texas and western
Louisiana. These relationships resulted in the development of an informal
network of consultants and associates who have assisted TBX to locate and
qualify properties for acquisition by TBX Resources, perform workover operations
on the acquired wells and analyze the daily production operations to maximize
the production of the acquired leases.
As a result of his operating history in East Texas, Mr. Burroughs
became acquainted with the oil and gas fields along with the numerous field
operators and service companies serving this area. Through these acquaintances
with several East Texas field operators in the past, Mr. Burroughs has been made
aware of oil and gas acquisition opportunities in east Texas which meet our
criteria. Although we have no specific, formal agreements with any operators or
service providers to provide us with acquisition opportunities, our familiarity
with the area and the persons
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involved in the oil and gas industry in this area establishes us as a company
that is interested and capable of purchasing producing properties in this area.
Our goal is to be a publicly traded, independent oil and gas
exploration and production company which can take full advantage of
opportunities resulting from the major oil companies' divestiture of domestic
oil and gas properties. In particular, most major oil companies are currently
more interested in devoting their exploration dollars toward the development of
oil and gas fields that are not located in the United States, primarily because
of the assumption by the major oil companies that domestic oil and gas
properties have been significantly depleted. In addition, due to the extent of
the development of domestic oil and gas properties, it is more likely that a
significant new discovery in the oil and gas industry would likely be conducted
in those areas that have not been so heavily developed, generally being
properties that are not contained within the United States. Because major oil
companies are more interested in developing their overseas holdings, they often
sell their domestic properties at prices that are attractive to independent oil
companies, especially since we have significantly lower administrative costs
than large oil companies. Due to our lower infrastructure costs, we believe that
our costs of owning and operating domestic oil and gas properties are lower than
those same costs as experienced by major oil companies.
PREVIOUS JOINT VENTURES
Since our inception, we have acted as the joint venture manager of 11
Joint Ventures, all of which have been located in east Texas and western
Louisiana. We remain the Joint Venture Manager of only one of these joint
ventures, the Bethany Field Joint Venture. The remaining joint ventures we
developed were essentially "rolled up" into our company in that we exchanged
shares of our common stock in return for our joint venture partners' interest in
the properties developed by their previous joint ventures.
Our previous joint ventures were structured relatively similarly. In
particular, each joint venture acquired approximately 90% of the working
interest, or expense bearing interest, in various producing oil and gas
properties, with the joint venture generally entitled to a 75% net revenue
interest or interest in production from the joint venture properties. Typically,
the joint venture properties had producing oil and gas wells on them at the time
the prospects were acquired by the joint venture.
Generally, our company, acting as the joint venture manager, retained a
carried working interest in the joint venture properties, meaning that the joint
venture manager paid its share of operating costs and smaller amount of other
costs, with the other costs being borne or "carried" by the other joint venture
participants. The amount of the carried interest we held in these previous
programs varied, but did not exceed 10%. This carried working interest generally
entitled us to receive 5% of net revenues from a joint venture property.
The joint venturers typically entered into turn-key rework agreements
with us whereby we agreed to conduct various rework operations on the joint
venture wells with the intent of increasing production therefrom. We generally
agreed to conduct these reworking operations on a "turn-key" or fixed basis,
meaning that we agreed to conduct the activities for a fixed price. If the
actual costs
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associated with conducting these activities were in excess of this fixed price,
we suffered a loss; if the actual costs incurred were less than the fixed price,
we experienced a profit.
Finally, we generally received a management fee that was approximately
9% of the total amount raised as capitalization for each joint venture for our
efforts in managing the joint venture. In addition, we were reimbursed for the
organizational costs associated with establishing each joint venture, which
costs included legal fees, accounting charges and other similar items.
WELLS HELD BY THE COMPANY
As more particularly described in the description of properties
section, we own or operate 54 wells located in Gregg, Hopkins, Franklin, Panola
and Wood Counties, Texas. Of these 54 wells, 8 wells have been designated as
injection wells and 3 wells have been designated as water supply wells.
Injection wells are wells into which salt water is injected to either assist in
causing oil or gas to flow to a particular well that is designated as a
production well or to simply dispose of salt water that is often produced along
with oil. In addition, 6 wells are currently producing oil. The remaining 37
wells are either currently shut-in, scheduled to be brought back into production
or are designated as injection wells. During the next twelve months, we hope to
be able to bring some of the wells that are currently shut-in on-line so that
the same will begin to produce oil. However, our ability to re-open these wells
is dependent upon us obtaining sufficient financing to pay the costs associated
with re-opening these wells and operating the same once re-opened.
DEVELOPMENT AND EXPLORATION ACTIVITIES
Economic factors prevailing in the oil and gas industry change from
time to time. The uncertain nature and trend of economic conditions and energy
policy in the oil and gas business generally make flexibility of operating
policies important in achieving desired profitability. We intend to evaluate
continuously all conditions affecting our potential activities and to react to
those conditions as we deem appropriate from time to time by engaging in
businesses most profitable for us.
Recently, economic factors have influenced major integrated oil and gas
companies to consolidate and restructure. In particular, most major oil and gas
companies believe that the best way to maximize profitability in the exploration
and production area of the oil and gas industry is to focus on non-domestic oil
and gas properties due to the perceived higher costs associated with bringing a
barrel of domestic oil and gas equivalent to the market, as compared to foreign
oil and gas properties. Because foreign oil and gas properties, although having
the potential for huge returns, require large amounts of money for development,
several major oil and gas companies have found that they must consolidate with
other oil and gas companies to have the resources available to be able to afford
the costs associated with foreign exploration. In addition, by selling their
domestic production, major oil and gas companies generate cash which can be used
for their foreign operation. If such activities continue, our management
believes that we may have opportunities to acquire domestic producing properties
with developmental drilling potential. This is because we do not have the
numerous employees and equipment that major oil and gas companies have, together
with the related expense. In other words, we think the revenue generated from
domestic oil and gas properties that we either currently own or can acquire will
be sufficient to pay our expenses, as well as generate a profit for our
shareholders. However,
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potential investors should note that our company has experienced significant
losses in the past and there can be no assurance that the company will ever
achieve profitability. Any such opportunity will be evaluated for feasibility at
the time based upon such factors as future development potential of the
producing property, the proximity of property to our existing operations, market
prices for oil and gas, current and proposed drilling activities on existing TBX
Resources prospects and our financial position.
In addition, in order to finance future development and exploration
activities, we will consider sponsoring public or private partnerships depending
upon the number, size and economic feasibility of our generated prospects, the
level of participation of our industry partners and various other factors.
However, potential investors should note that we currently do not have in place
any definite financing opportunities and there can be no assurance that we will
be able to enter into such financing arrangements or that if we are able to
enter into such arrangements, we will be able to achieve any profitability as a
result of our operations.
SEASONAL NATURE OF BUSINESS
Oil and gas prices are subject to seasonal fluctuations that are beyond
our ability to control. Historically, the demand for natural gas decreases
during the summer months and increases during the winter months. Recently, mild
winters have lessened the fluctuation. Pipelines and other entities have begun
to more effectively utilize storage capacity by purchasing some of the winter
load in the summer at reduced prices, further reducing seasonal fluctuations in
gas prices.
BUSINESS RISKS
TBX Resources is subject to all of the risks normally associated with
the exploration for and production of oil and gas, including uncontrollable
flows of oil, gas or well fluids into the atmosphere, pollution, and fires, each
of which could result in damage to or destruction of oil and gas wells,
producing formations, or production facilities or damage to persons and other
property. As is common in the industry, we do not fully insure against all these
risks either because insurance is not available or because we elect not to
insure due to prohibitive premium costs. The occurrence of an event affecting
TBX Resources could have a material adverse effect on the financial position and
results of our operations. Matt Davis supervises our land department and is
responsible for making the applicable filings with the Texas Railroad Commission
and other regulatory agencies having control over our operations.
Our exploration activities carry risks that the value of the related
acreage may be decreased by adverse geological studies, unfavorable drilling
results on nearby acreage, or lease expirations. In addition, drilling carries a
significant risk that no commercial oil or gas production will be obtained and
the investment will not be recovered. We prefer to re-complete or rework
producing properties to minimize this risk. The ultimate cost of drilling,
completing, and operating wells is often uncertain. Moreover, drilling
operations may be curtailed or delayed, with the likelihood of increased costs,
as a result of, among other factors, title problems, wellhead prices, weather
conditions, and geologic uncertainty.
During the period from November 1995 through March 1998, we experienced
extraordinary losses because of the fraudulent activities of one of our former
employees. Specifically, in March
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of 1998 we discovered that a trusted employee of TBX Resources, Inc., Mr.
Patrick Eskew, had been, among other things, misdirecting funds intended for the
maintenance and workover of wells to his own personal accounts. Mr. Eskew's
illegal activities (between November 1995 and March 1998) caused invoices for
routine maintenance of field equipment, ie: pumps, tubing, tanks, flow lines,
etc. to go unpaid. The unpaid expenses accrued to such a point that companies
with which we had formerly held good standing began to refuse work requests. The
inability to contract service for the maintenance of producing wells caused many
of our wells to fail mechanically which resulted in pronounced declines of oil
sales and revenues. The expenses and penalties which accrued through the
beginning of 1998 were paid incrementally during fiscal years 1998 and 1999. Mr.
Eskew has since been formally indicted and has plead guilty to crimes pertaining
to his activities. Over a two and one-half year period, Mr. Eskew's activities
caused us to lose approximately $117,000.00. When spread over the two and
one-half year period during which these activities occurred, losses associated
with Mr. Eskew's activities never represented more than 1% of the total losses
experienced by our company, had no effect on our earnings per share and had only
a minuscule effect on our current losses.
The discovery of Mr. Eskew's activities was a surprise to our
management. We believe that the reason we didn't catch Mr. Eskew any earlier was
our trust in our employees. Specifically, at the time Mr. Eskew was hired, we
were an extremely small company with only 2-3 employees. We expected all of our
employees to have the same devotion to our company, and never expected anyone to
steal from us. Because we had so few employees, we had very little supervision,
again trusting on the integrity of the persons we hired. As the company began to
grow and generate more revenues, Mr. Eskew's activities increased in size. Only
after he increased the magnitude of the sums he was stealing were we able to
discover Mr. Eskew's theft.
On an ongoing basis, we have implemented several steps to hopefully
prevent any employee from stealing in the future. In particular, our accounting
records are reviewed monthly by both our CPA and directly by our president. A
new accounting computer program has been installed and has been operational
since December, 1999, that allows for quick verification of payable balances as
well as deposits. Finally, we require that three individuals sign off on our
accounting records each month: the president, secretary/treasurer, and the
independent CPA for our company. We think that these steps should be sufficient
to prevent activities such as Mr. Eskew's in the future.
EMPLOYEES AND CONSULTANTS
TBX Resources has two (2) full-time employees. Tim Burroughs, our
president, supervises all of the day-to-day operations of the company. Christine
Coley is our secretary/treasurer and oversees all phases of accounting,
purchasing, customer service, scheduling, compliance and day-to-day office
operations.
Matt Davis serves as consultant to our company and assists us by
maintaining our land department and by insuring that all necessary filings are
made with the Texas Railroad Commission and other regulatory agencies having
jurisdiction over our operations.
Gulftex Operating, Inc., is the operator for Texas Railroad Commission
purposes of all of our wells. Our president, Tim Burroughs, owns all of the
common stock of Gulftex Operating, Inc.
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In the past, no compensation was paid to Gulftex Operating, Inc. or Tim
Burroughs for the ownership of Gulftex Operating, Inc. or for the management
activities conducted by Gulftex Operating, Inc. However, we have now begun to
pay Gulftex Operating, Inc., $800.00 per month for the activities conducted by
Gulftex Operating, Inc., in operating our wells. It should be noted that Gulftex
Operating, Inc., is the operator of record, for Texas Railroad Commission
purposes, of our wells; we have designated Gulftex Operating, Inc., as the
operator of record to protect our company from liability to third persons who
may injure themselves on our wells or any other instances in which we may have
liability associated with our wells. Although we do not anticipate terminating
our relationship with Gulftex, if we did terminate the relationship, or if
Gulftex chose to discontinue providing services to us, through the experience of
TBX Resource's management, we are confident that other, comparable operations
supervisors could be found on a basis that is similar to that currently
experienced by us. In particular, because Gulftex Operating, Inc., is primarily
only serving as the operator of record for Texas Railroad purposes, Gulftex
Operating, Inc., does not perform significant services for us. Because of this,
we are confident that we could locate another company with a license with the
Texas Railroad Commission who would be willing to serve as operator of record
for our wells for the $800.00 per month currently being paid to Gulftex
Operating, Inc.
We will also from time to time rely on the services of independent
landmen, geologists and reservoir and drilling engineers and other technical
consultants as needed.
We maintain our corporate offices at 12300 Ford Road, Suite 194,
Dallas, Texas, and pay a monthly rental of approximately $2,100.00 per month.
Our lease originally terminated on April 30, 1996, but in January, 2000, we
entered into an agreement by which our lease was extended until July 31, 2000.
In July, 2000, we began negotiations with our landlord, the result of which was
that in September, 2000, we entered into a new lease that terminates in
September, 2001. We currently have no plans to move our offices. Although we
currently do not have any plans to terminate our lease, because of the small
amount of space required for our offices, together with the abundance of office
space available in the Dallas/Ft. Worth metroplex, we do not anticipate any
problems in obtaining suitable office space if our lease were terminated.
COMPETITION
Our competitors include major oil companies and numerous independent
oil and gas companies, individuals and drilling and income programs. Many of our
larger competitors possess and employ financial and personnel resources
substantially greater than those available to us. Such companies are able to pay
more for oil and gas properties and to define, evaluate, bid for and purchase a
greater number of properties than our financial or human resources permit. Our
ability to acquire additional properties and to discover reserves in the future
will be dependent upon our ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment.
OIL AND GAS MARKETING
The availability of a ready market for oil and gas produced from
properties now owned or hereafter acquired by us and the prices for such
production are dependent upon numerous factors, many of which are beyond our
control. These factors include, among other things, the level of
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domestic production, the availability of imported oil and gas, actions taken by
foreign oil and gas producing nations, the availability of pipelines with
adequate capacity and other transportation facilities, the availability and
marketing of other competitive fuels, fluctuating demand for oil, gas and
refined products, and the extent of government regulation and taxation (under
both present and future legislation) of the production, refining,
transportation, pricing, use and allocation of oil, natural gas, refined
products, and substitute fuels. In view of the many uncertainties affecting the
supply and demand for crude oil, natural gas, and refined petroleum products, we
cannot predict the prices or marketability of our oil and gas production.
Our oil production is sold at or near our wells under short-term
purchase contracts at prevailing prices in accordance with arrangements which
are customary in the oil industry. We currently do not have any gas production,
but when we do, we expect substantially all of our gas production to be sold on
the spot market and not, therefore, subject to long term contracts. Although
this may prevent us from being required to dispose of our production at low
rates, there can be no assurance that purchasers will be willing to continue to
purchase our natural gas on the spot market.
REGULATION
The following discussion of regulation of the oil and gas industry is
necessarily brief, and is not intended to constitute a complete discussion of
the various statutes, rules, regulations or governmental orders to which our
operations may be subject.
The production of oil and gas is subject to extensive federal, state
and city laws, rules, orders and regulations governing a wide variety of
matters, including the drilling and spacing of wells, allowable rates of
production, prevention of waste and pollution and protection of the environment.
In addition to the direct costs borne in complying with such regulations,
operations and revenues may be impacted to the extent that certain regulations
limit oil and gas production to below economic levels. Although the particular
regulations applicable in each state in which operations are conducted vary,
such regulations are generally designed to ensure that oil and gas operations
are carried out in a safe and efficient manner and to ensure that
similarly-situated operators are provided with reasonable opportunities to
produce their respective fair share of available oil and gas reserves. However,
since these regulations generally apply to all oil and gas producers, our
management believes that these regulations should not put us at a material
disadvantage to other oil and gas producers.
While not always the case, sales of crude oil, condensate, and natural
gas liquids by TBX Resources presently can be made at uncontrolled market
prices. While there are currently no federal price controls on crude oil
condensate or natural gas liquids, there can be no assurance that Congress will
not reenact controls at a future time.
The exploration, development, production and processing of oil and gas
are subject to various federal and state laws and regulations designed to
protect the environment. Compliance with these regulations is part of our
day-to-day operating procedures. Infrequently, accidental discharge of such
materials as oil, natural gas or drilling fluids can and does occur. Such
accidents can require material expenditures to correct. We maintain levels of
insurance customary in the
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industry to limit our financial exposure. We are unaware of any material capital
expenditures required for environmental control.
The trend in environmental regulation has been to place more
restrictions and limitations on activities that impact the environment, such as
emissions off pollutants, general disposal of wastes, and the use and handling
of chemical substances. Increasingly, strict environmental restrictions and
limitations have resulted in higher operating costs for us and other similar
businesses throughout the United States, and it is possible that the costs of
compliance with environmental laws and regulations will continue to increase.
State initiatives to regulate further the disposal of oil and gas
wastes could have a similar impact on us. In addition, we are subject to laws
and regulations concerning occupational health and safety. It is not anticipated
that TBX Resources will be required in the near future to expend amounts that
are material in relation to our total capital expenditures program by reason of
environmental or occupation health and safety laws and regulations, but insomuch
as such laws and regulations are frequently changed, we are unable to predict
the ultimate cost of compliance with these laws.
We do not believe that our environmental risks are materially different
from those of comparable gas and oil companies operating in similar geographic
areas.
Nevertheless, no assurance can be given that environmental laws will
not, in the future, result in a curtailment of production or material increases
in the cost of production, development or exploration or otherwise adversely
affect our operations and financial condition. Although we maintain liability
insurance coverage against certain liabilities from pollution, such
environmental risks generally are not fully insurable.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
DESCRIPTION OF PROPERTIES
Our properties, including the production costs associated therewith,
are described in detail in the description of properties section that follows,
to which section your attention is directed. Generally, we own leasehold rights
in six oil and gas fields located in Gregg, Hopkins, Franklin, Panola and Wood
Counties, Texas, which are located in East Texas. These six fields are referred
to as the East Texas, Mitchell, Talco, Manziel, Quitman and Bethany Fields.
Because the Mitchell Creek and Talco Fields and the Manziel and Quitman Fields
are located in the immediate vicinity of each other, the geologic information we
have for these four fields are combined into the Manziel and Quitman Fields and
the Mitchell Creek and Talco Fields discussion. As of August, 2000, we owned or
operated an interest in 54 wells, 6 of which were producing, 8 of which were
designated as injection wells and 3 were designated as water supply wells with
our remaining 37 wells either shut-in or being reworked to re-establish
production.
This Registration Statement contains language that either is or could
be construed to be a projection. All of these statements have been prepared by
us, have not been reviewed by any independent third parties and are subject to
fluctuation due to numerous factors. While we think these projections are valid
and that the bases on which such projections have been prepared are
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reasonable, each person reviewing the same should note that because the
projections have been prepared by us and have not been verified by an
independent source, undue certainty to these projections should not be given. In
addition, given the inherently speculative nature of projections, there can be
no guarantee that any of the projections will prove to be accurate.
RESULTS OF OPERATIONS IN 1999 VS. 1998
We incurred a net loss of $742,857 for the fiscal year ended November
30, 1999 as compared to a net loss of $861,825 for fiscal year ended November
30, 1998. This decrease in the loss of $118,968 is discussed below.
REVENUES: We generate revenues from producing oil and gas properties
and managing an oil and gas joint venture development program. Our oil sales
decreased $31,284 from $74,279 for the twelve months ended November 30, 1998 to
$42,995 for the twelve months ended November 30, 1999. The decrease is
attributable to the fact that continuing depressed oil prices caused us to
shut-in the majority of our wells in 1998. We undertook this measure to preserve
the commercial viability of our wells and reduce operating costs.
Joint venture income increased $198,166 in the most recent fiscal year
from $37,714 in fiscal year ended November 30, 1998 to $235,880 in the fiscal
year ended November 30, 1999. In May 1999 we sponsored the formation of a joint
venture for the purpose of conducting oil and gas development and production
activities on approximately 229 acres in Panola County, Texas. We serve as
General Manager for the joint venture and, as such, have full and exclusive
discretion in the management and control of the venture. We have a 1% working
interest and a 9% carried interest until the development work to be conducted by
this joint venture is complete. Thereafter, joint venture expenses are allocated
90% to the joint venture partners and 10% to us. Net revenues from this
venture's oil and gas properties are allocated 95% to the joint venture partners
and 5% to us. The program was undertaken on a fixed cost, or turnkey basis
(meaning that the risk of cost overruns is absorbed by us; likewise, any cost
savings will inure to our benefit). Accordingly, all monies raised are recorded
as joint venture income and all expenses to acquire, rework and operate this
joint venture's wells are charged to joint venture costs and expenses. We expect
to make a profit on the turnkey portion of the venture but there can be no
assurance this profit will be attained. We did not sponsor joint venture
development programs in 1998. The Joint venture income in the amount of $37,714
reflected in our financial statements for 1998 relates to several partners who
entered programs we conducted in 1997 late so that this income was entered on
our books in 1998.
The November 30, 1999 other income entry in our financial statements of
$99,090 is an increase of approximately $99,000 over the same twelve months in
the previous fiscal year. The increase primarily consists of the settlement of a
claim in the amount of $75,000 against a financial institution. The claim arose
as a result of the fact that the financial institution from whom we received the
$75,000 settlement bank had accepted and wrongfully honored checks forged by a
former employee that was uncovered in 1998. Because the unrecovered losses
caused by this employee's illegal acts represented less than 5% of our revenue
for the fiscal year ended November 30, 1998, the losses sustained as a result of
the forgeries were not material to the results of our operations for the fiscal
year ended November 30, 1998.
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EXPENSES: Lease operating expenses and taxes for the twelve months
ended November 30, 1999 were $204,531 as compared to $258,049 for the twelve
months ended November 30, 1998. The decrease of $53,518 is attributable to the
decrease in lease operating expenses resulting from the sale of 12 wells and the
shut-in of producing wells for entire fiscal year. We disposed of 12 wells in
June, 1999. Our management was of the opinion that the costs of re-working,
developing and producing these wells would far exceed the potential revenues
from the wells. Also, by keeping these wells, we would have been required to pay
substantial plugging expenses. To avoid a future drain on our working capital
resources, we elected to transfer all of our interest in these wells to a third
party for nominal consideration. The net book value of these wells at the time
of the conveyance was $112,739, which was charged to current earnings.
As discussed above, in May 1999, we sponsored the formation of a joint
venture for the purpose of conducting oil and gas development and production
activities on approximately 229 acres in Panola County, Texas. The increase in
joint venture expenses of $57,840 from the previous fiscal year is the result of
expenses paid or accrued for the joint venture. We did not sponsor joint venture
development programs during the fiscal year ended November 30, 1998.
Selling, general and administrative expenses decreased $247,352 to
$651,723 for the twelve months ended November 30, 1999. The decrease is
attributable to reduction of the costs associated with the conversion of
previous joint venture partners to stockholders of the Company, such costs
including, legal, engineering and other professional fees.
We assigned our interest in the Pine Mills Field located in East Texas
in April of 1999 for settlement of a dispute in a civil action. The net book
value of this field of approximately $75,000 was reported as a one-time charge
to current earnings.
Depreciation, depletion and amortization increased $4,943 to $18,989
for the year ended November 30, 1999. Because depreciation, depletion and
amortization on oil and gas wells are calculated on the units of production
method, this increase was primarily a result of wells being brought back on in
late 1999, with the resulting increase in production. On a historical basis, the
charges made to depreciation, depletion and amortization are relatively low for
both 1998 and 1999 since the majority of our wells were shut-in.
INCOME TAX BENEFIT: We recorded an income tax benefit of $197,259 for
the fiscal year ended November 30, 1998. Our cumulative benefit as of November
30, 1999 was $235,742, after giving affect to a valuation reserve of $75,000.
Based on the most recent independent engineering report for our wells (prepared
by Harold Neff & Associates, Inc.), Management expects to realize sufficient
profits from our operations to utilize the income tax benefits recorded to date.
No income tax benefit was recorded for the fiscal year ended November 30, 1999.
As a result of depressed oil prices, Management elected to not record additional
income tax benefits for the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES: We have funded our operations through
cash generated from the sale of our common stock. Our cash used for operating
activities totaled $609,653 and $1,191,642 for the twelve months ended November
30, 1999 and November 30, 1998, respectively. We used approximately $160,490 for
capital investments related to development of oil and gas properties during the
twelve months ended November 30, 1998. Capital investments
-10-
<PAGE> 13
for the twelve months ended November 30, 1999 were primarily for the purchase of
a 20% equity interest and options in Southern Oil & Gas Company for $300,000.
Cash provided by the sale of common stock totaled $794,758 and $1,481,701 for
the twelve months ended November 30, 1999 and November 30, 1998, respectively.
We expect the principal source of funds in the near future will be from
the sale of our common stock. We expect that the principal use of funds in the
foreseeable future will be for reworking and developing existing oil and gas
properties.
RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED AUGUST 31, 2000 VS AUGUST 31, 1999
REVENUE: During the nine months ended August 31, 2000, the Company
generated approximately $29,876 in revenue from oil and gas sales as compared to
$37,034 for the nine months ended August 31, 1999. The $7,158 decrease was
primarily due to reduced oil sales. Joint venture income for the nine months
ended August 31, 2000 was $180,473 as compared to $82,202 for the same period
last year. The increase of $98,271 in joint venture partnership income resulted
from the Company's increased development activities in the current year. Other
income for the nine months ended August 31, 2000 was $17,502 as compared to
$22,677 for the same period last year. The decrease of $5,175 was attributable
to reduced fee income of $14,325 offset by higher interest on the Company's
money market accounts.
EXPENSES: Lease operating and taxes decreased $47,227 from $152,397 for
the nine months ended August 31, 1999 to $105,170 for the nine months ended
August 31, 2000. The decrease is primarily the result of the shut-in of
producing wells and the disposal of 12 wells. Joint venture costs and expenses
were approximately $180,473 as compared to $14,889 for the same period last
year. The increase of $165,584 resulted from the Company's increased joint
venture development activities in the current year. Selling, general and
administrative expenses increased approximately $417,617 from $512,784 for the
nine months ended August 31, 1999 to $930,401 for the nine months ended August
31, 2000. The increase is primarily due to higher salaries and employee related
costs, and consulting fees offset by reduced legal and accounting fees.
Geological and engineering fees of $101,857 for the nine months ended August 31,
2000 relate to reserve studies for a proposed acquisition. The acquisition was
not consummated and the fees were charged to current operations. For the nine
months ended August 31, 1999, the Company recorded a loss of $187,739 on the
sale of oil and gas properties and the settlement of litigation. The net book
value of the wells sold was $112,739. The Company assigned its interest in the
Pine Mills Field located in East Texas for the settlement of a dispute in a
civil action. The net book value of $75,000 was charged to earnings. For the
nine months ended August 31, 2000, the Company recorded a loss of $100,000 on
the lapse of its option to purchase additional shares of Southern Oil & Gas
Company, Inc. Depreciation, depletion and amortization increased $24,689 from
$15,311 for the nine months ended August 31,1999 to $40,000 for the nine months
ended August 31, 2000. The increase is due to a change in estimate.
PROVISION FOR INCOME TAXES: During the nine months ended August 31,
2000, the Company reversed tax benefits totaling $235,742 that corresponds to
the losses sustained in prior years. No tax benefits were recorded for the nine
months ended August 31, 1999.
-11-
<PAGE> 14
NET LOSS: The Company's net loss increased approximately $723,585 from
$741,207 for the nine months ended August 31, 1999 to $1,464,792 for the nine
months ended August 31, 2000. The increase in the loss is primarily attributable
to increased general and administrative expenses, geological and engineering
fees, the write-off of Southern Oil & Gas Co. options and the reversal of the
Company's previous income tax benefits.
Effective December 1, 1999, our president, Mr. Tim Burroughs received
stock options good for five years from the date of issuance to purchase up to
500,000 shares of the Company's common stock a year at a price which shall not
be greater than 50% of the average bid price for the shares during the previous
year. The fair value of the options will be recorded as compensation expense
when a reasonable estimate of such costs are available or the amount Mr.
Burroughs has to pay is known. Based on the formula for calculating the purchase
price, material charges to compensation expense may be recorded in future years.
LIQUIDITY AND CAPITAL RESOURCES: At August 31, 2000, the Company had
approximately $489,448 in cash and money market accounts and $417,448 in working
capital. At November 30, 1999 cash and working capital were approximately $3,174
and $93,617, respectively.
The Company has funded its operations through cash generated from the
sale of its common stock. The Company's cash used for operating activities
totaled $822,776 and $625,582 for the nine months ended August 31, 2000 and
August 31, 1999, respectively. The Company's capital investments totaled
$198,626 and $284,794 for the nine months ended August 31, 2000 and August 31,
1999, respectively. Cash provided by the sale of common stock totaled $1,474,649
during the nine months ended August 31, 2000 while cash provided by the sale of
common stock totaled $794,758 for the nine months ended August 31, 1999.
The Company expects that the principal source of funds in the near
future will be from the sale of its common stock. The Company expects that the
principal use of funds in the foreseeable future will be for developing existing
oil and gas properties and the acquisition of new properties.
CASH FLOWS OF THE COMPANY
The main source of cash flow we anticipate receiving in the succeeding
twelve months will come from production revenues. We are in the process of
bringing more of our wells that have been shut-in on-line and in developing the
Bethany Field. This increased number of wells producing, together with the
increase in oil prices experienced as compared to twelve months ago, should
enable us to absorb well-related costs and general administrative expenses and
hopefully improve our financial situation, especially as compared to that period
in which many of our wells were shut in. However, these projections and
expectations of ours are subject to fluctuation due to numerous factors. While
we think our projections are valid and that the bases on which such projections
have been prepared are reasonable, anyone reviewing these should note that
because we have prepared them and the projections have not been verified by an
independent source, undue certainty to any projections in this registration
statement should not be given. In addition, given the inherently speculative
nature of projections, there can be no guarantee that any of our projections
will prove to be accurate. We are available to answer questions that may be
raised by these projections to facilitate anyone's understanding of the bases
for and limitations of our projections.
-12-
<PAGE> 15
In the past, we have sponsored joint ventures that have generated
revenue to us from management fees, turn-key contract fees and revenue from
production from wells to be generated by such joint ventures. Although we
currently do not have any specific plans to develop any new joint ventures, if
presented with the appropriate opportunities, we will enter into joint ventures
and hopefully generate revenue for us. However there can be no assurance that we
will be able to locate prospects that are appropriate for our development.
In the past, we have also generated cash from the sale of our common
stock. Although we currently do not have any plans to sell additional amounts of
our common stock, if we were capable of doing so, additional revenues would be
generated. However, because we have no financing arrangements in place nor any
current plans to sell additional stock, an investor should not expect us to
generate significant sums from the sale of common stock.
PLAN OF OPERATION FOR THE FUTURE
For the fiscal year ended November 30, 1998, we had $112,086.00 in
revenues, of which $74,279.00 was oil and gas sales, $37,714.00 was joint
venture income, and $93.00 was other income. In addition, during the same
period, we had total expenses of $1,171,170.00, comprised of $258,049.00 in
lease operating and taxes, $899,075.00 in selling, general and administrative
expenses, and $14,046.00 in depreciation, depletion and amortization. Our net
loss for November 30, 1998, totaled $861,825.00.
For the fiscal year ended November 30, 1999, we had total revenues of
$377,965.00, comprised of $42,995.00 from oil and gas sales, $235,880.00 in
joint venture income, and $99,090.00 in other income. During this same period,
we had expense of $1,120,822.00, comprised of $204,531.00 in lease operating and
taxes, $57,840.00 in joint venture costs and expenses, $651,723.00 in selling,
general and administrative expenses, $187,739.00 on the loss on the sale of oil
and gas properties and settlement of litigation and $18,989.00 in depreciation,
depletion and amortization. The result for the fiscal year ended November 30,
1999, was a net loss of $742,857.00.
We currently expect to generate sufficient revenues from the sale of
our production to pay all costs associated with our company for at least the
following twelve months. We think that this sufficient revenue will come from
two sources: increased prices for oil production and increased number of wells
brought on-line. Specifically, over the past twelve months, the price paid for
oil production in the area in which our wells are located has more than doubled.
This increase in oil price has meant that more of our wells are capable of
commercial production such that those wells that have been shut in may be
reopened and production commenced therefrom, thus additionally increasing our
revenues. However, our existing plan is subject to alterations based on
opportunities that may present themselves. These plans may involve selling
additional shares of our common stock.
We may purchase new oil and gas properties or additional equipment to
operate same. Any such additional purchases will be done on an "as needed" basis
and will only be done in those instances in which we believe such additional
expenditures will increase our profitability. However, at present, we have no
definite plans to acquire any specific oil and gas properties or additional
equipment and we have no firm commitments by any financial institution to
provide any funds
-13-
<PAGE> 16
necessary to procure the same. As a result, our ability to acquire additional
properties or equipment is strictly contingent upon our ability to locate
adequate financing to pay for these additional properties or equipment. There
can be no assurance that we will be able to obtain the opportunity to buy
properties or equipment that are suitable for our investment or that we may be
able to obtain financing to pay for the costs of these additional properties or
equipment at terms that are acceptable to us. Additionally, if economic
conditions justify the same, we may hire additional employees although we do not
currently have any definite plans to make additional hires.
The oil and gas industry is subject to various trends. In particular,
at times crude oil prices increase in the summer, during the heavy travel
months, and are relatively less expensive in the winter. Of course, the prices
obtained for crude oil are dependent upon numerous other factors, including the
availability of other sources of crude oil, interest rates, and the overall
health of the economy. We are not aware of any specific trends that are unusual
to our company, as compared to the rest of the oil and gas industry.
We do not currently have any material commitments for capital
expenditures of which we are aware. However, if we decide to purchase additional
oil and gas properties, the funds we would need to acquire such properties could
be material. However, we will not acquire properties without obtaining, in
advance, suitable financing to fund the purchase of such properties. In general,
although conditions have improved over the past six months, many financial
institutions are reluctant to loan amounts to oil and gas companies, primarily
based upon the significant downturn with the past twenty four months of the
price of oil. As a general rule, as the price of oil increases, the ability to
obtain financing for projects in the oil and gas industry increases. However,
because of the cycles experienced in the oil and gas industry, there can be no
assurance that the company will be able to obtain financing for projects it
wishes to pursue, regardless of the economic viability we envision for the
project, if institutional funds are not available. We currently do not have any
firm commitments by anyone to loan or otherwise make available to us funds
necessary to conduct our operations.
DESCRIPTION OF PROPERTIES
GENERAL: The following is various information concerning production
from our oil and gas wells, and our productive wells and acreage and undeveloped
acreage. Our oil and gas properties are located within the northern part of the
prolific east Texas salt basin. The earliest exploration in this area dates back
to the early 1920s and 1930s, when frontier oil producers were exploring areas
adjacent to the famous "east Texas field" located near the town of Kilgore,
Texas. We have leasehold rights in three oil and gas fields located in Gregg,
Hopkins, Franklin, Panola, and Wood Counties, Texas.
RESERVES REPORTED TO OTHER AGENCIES. We are not required and do not
file any estimates of total, proved net oil or gas reserves with reports to any
federal authority or agency.
-14-
<PAGE> 17
PROPERTIES. The following is a breakdown of our properties:
<TABLE>
<CAPTION>
Name of Field Gross Producing Well Count Net Producing Well Count
------------- -------------------------- ------------------------
<S> <C> <C>
East Texas Field 0 0
Mitchell Creek & Talco Field(1) 4 3.9
Manziel & Quitman Field 4 4
Bethany Field 0 0
</TABLE>
(1) Although these wells are classified as producing wells, since they
have only recently been brought back to on-line status and are currently
undergoing testing, we do not have sufficient information to record the current
production from these wells.
The following information pertains to our properties as of August 31,
2000:
<TABLE>
<CAPTION>
Proved Proved Percentage of
Proved Proved Developed Developed Current Reserves in Field
Reserves: Reserves: Reserves: Reserves: Production: to Total Reserves
Name of Oil Gas Oil Gas Oil Held by the
Field (bbls) (mcf) (bbls) (mcf) (bbls)(1) Company
------- --------- --------- --------- --------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
East 14,093 0 14,093 0 0 oil 5.0
Texas gas 0
Field
Mitchell 113,690 0 113,690 0 0 oil 40.1
Creek & gas 0
Talco Field
Manziel & 155,932 0 155,932 0 148 oil 54.9
Quitman gas 0
Field
Bethany 0 1,455,915 0 0 0 oil 0
Field gas 100
</TABLE>
(1) The current production figure specified above is for the production for the
month of August, 2000.
PRODUCTION. The following tables set forth for the years indicated by
the geographic areas indicated the average sales price, including transfers, per
unit of oil produced and of gas produced and the average production costs per
unit of production.
-15-
<PAGE> 18
<TABLE>
<CAPTION>
1997:
Average Average Average Average
Cumulative Sales Price Production Cumulative Sales Price Production
Annual Per Unit Cost Per Unit Annual Per Unit Cost Per Unit
Geographic Production of (barrel) of Oil (barrel) of Oil Production of (mcf) of Gas (mcf) of Gas
Area Oil (barrels) Produced Produced Gas (mcf) Produced Produced
---------- ------------- --------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
East Texas 23,567 $18.50 $5.86 N/A N/A N/A
Field
</TABLE>
When the above amounts are computed for all of the properties we own, on a
weighted average basis, the average sales price per barrel of oil for our oil
wells for 1997 equaled $18.50 per barrel of oil. In addition, the average
production costs (lifting costs) per equivalent barrel in 1997 was $5.86, again
computed by taking into account weighted averages of the above numbers.
<TABLE>
<CAPTION>
1998:
Average Average Average Average
Cumulative Sales Price Production Cumulative Sales Price Production
Annual Per Unit Cost Per Unit Annual Per Unit Cost Per Unit
Geographic Production of (barrel) of Oil (barrel) of Oil Production of (mcf) of Gas (mcf) of Gas
Area Oil (barrels) Produced Produced Gas (mcf) Produced Produced
---------- ------------- --------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
East Texas 7,758 $11.90 $13.31 N/A N/A N/A
Field
</TABLE>
When the above amounts are computed for all of our properties, on a weighted
average basis, the average sales price per barrel of oil for our oil wells for
1998 equaled $11.90 per barrel of oil. In addition, the average production costs
(lifting costs) per equivalent barrel in 1998 was $13.31, again computed by
taking into account weighted averages of the above numbers.
<TABLE>
<CAPTION>
1999:
Average Average Average Average
Cumulative Sales Price Production Cumulative Sales Price Production
Annual Per Unit Cost Per Unit Annual Per Unit Cost Per Unit
Geographic Production of (barrel) of Oil (barrel) of Oil Production of (mcf) of Gas (mcf) of Gas
Area Oil (barrels) Produced Produced Gas (mcf) Produced Produced
---------- ------------- --------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
East Texas 2,536 $17.40 $12.09 N/A N/A N/A
Field
</TABLE>
When the above amounts are computed for all of our properties, on a weighted
average basis, the average sales price per barrel of oil for our oil wells for
1999 equaled $17.40 per barrel of oil. In addition, the average production costs
(lifting costs) per equivalent barrel in 1999 was $12.09, again computed by
taking into account weighted averages of the above numbers.
-16-
<PAGE> 19
Notes:
1. In fiscal year 1997, the interest in properties were owned by several Joint
Ventures which TBX Resources, Inc. managed. All production costs (also referred
to as lease operating expenses or LOE) were paid through the individual Joint
Ventures. TBX Resources, Inc. received a percentage of the net (after LOE)
revenue from each Joint Venture managed in return for TBX's services. All Joint
Ventures were closed in the beginning of fiscal year 1998, partners in the Joint
Ventures were issued restricted stock in TBX Resources and the interests held by
the Joint Ventures were rolled up into TBX Resources, Inc. directly.
2. Average Production Cost per Unit of Oil Produced was calculated by dividing
the total lifting costs (pumper fees, utility costs and material costs) for all
properties by the total barrels of oil produced during the corresponding time
period. Our average production cost per unit increased from $5.86 in 1997 to
$13.31 in 1998. The primary reason this average production cost per unit
increased was that as oil prices dropped precipitously in 1998, we significantly
curtailed our production, choosing to preserve our prime assets at a time when
we thought the prices we would obtain from our production were at a historically
low level. In general, we only produced a sufficient amount from most of our
wells to allow us to perpetuate our oil and gas leases. Because several lifting
costs, such as electricity and pumper fees, have a minimum amount that must be
charged each month, as we shut-in wells and had fewer producing wells, our
average production cost per unit produced increased. In addition, our electrical
charges were higher than normal in proportion to our production rates because of
our sporadic use of electricity. As seen in the above tables, our average
production cost per unit decreased slightly in 1999, as compared to 1998. We are
hopeful that this decrease in average production cost per unit will continue, as
we bring additional wells on-line, thus enjoying economies of scale.
PRODUCTIVE WELLS AND ACREAGE
<TABLE>
<CAPTION>
Net Net Total Gross Net
Geographic Total Gross Productive Total Gross Productive Developed Developed
Area Oil Wells Oil Wells Gas Wells Gas Wells Acres Acres
---------- ----------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
East Texas
Salt Basin 42 41.83865 1 1(1) 3,507.2 3,502.34
---------- ----------- ---------- ----------- ---------- ----------- ---------
</TABLE>
(1) We have drilled a gas well that appears to be capable of production
after all completion efforts have been finished. However, as of August
31, 2000, no production of gas from this well had been obtained.
In addition to our ownership in the above described wells, we own 20%
of the common stock of Southern Oil & Gas Company ("Southern"). Southern is an
oil and gas company that owns interests in approximately 435 wells, primarily in
north east Louisiana, which wells produce on average approximately 3,500 barrels
of oil each month. When we originally entered into this agreement with Southern,
we also entered into an operations and management contract (the "Operations
Contract") providing that we were to be paid those profits of Southern that
exceeded $40,000 each month. Because the amounts we have been paid under the
Operations Contract
-17-
<PAGE> 20
have not been at the levels we anticipated, we have decided not to increase our
ownership interest in Southern.
Notes:
1. Total Gross Oil Wells were calculated by subtracting 8 wells designated as
Injection Wells, 3 wells designated as water supply wells and 15 wells either
sold or plugged and abandoned from the 69 wells owned and/or operated by TBX
Resources, Inc. as of November 30, 1999.
2. Net Productive Oil Wells were calculated by multiplying the working interest
held by TBX Resources, Inc. in each of the 43 Gross Oil Wells and adding the
resulting products.
3. Total Gross Developed Acres is equal to the total surface acres of the
properties in which TBX Resources, Inc. holds an Interest.
4. Net Developed Acres is equal to the Total Gross Developed Acres multiplied by
the percentage of the total working interest held by TBX Resources, Inc. in the
respective properties.
5. All acreage in which we hold a working interest as of November 30, 1999 had
existing wells located thereon; thus all acreage leased by TBX Resources, Inc.
may be accurately classified as developed.
<TABLE>
<CAPTION>
Geographic Area Gross Acres Net Acres
--------------- ----------- ---------
<S> <C> <C>
East Texas Salt Basin 3,507.2 3,502.34
</TABLE>
Notes:
1. Acreage that has existing wells and may be classified as developed may also
have additional development potential based on the number of producible zones
beneath the surface acreage.
2. A more comprehensive study of all properties currently leased by us would be
required to determine precise developmental potential. Currently, only the 2,336
acres which make up the NE Bethany Waterflood Unit #3 and its associated leases
have been studied in enough depth to have determined a developmental program
which will be implemented over the entirety of the acreage.
DELIVERY COMMITMENTS
In October, 1996, TexEast Operating Company, Inc., a company that is
affiliated with our company, entered into a crude oil purchase agreement with
Sun Company, Inc. (R&M). Tim Burroughs, our president, owns all of the common
stock of TexEast Operating Company, Inc. Pursuant to the Sun agreement, Sun
agreed to purchase crude oil and condensate produced from our properties. The
Sun agreement had a term of six months commencing on October 1, 1996, and
continuing thereafter month-to-month. Although we are in the "month-to-month"
portion of the crude oil purchase agreement, if Sun chose to terminate the
purchase agreement, we are confident that we would be able to obtain another
purchaser in the vicinity of the wells who would purchase our crude oil on
prices similar to those offered by Sun.
-18-
<PAGE> 21
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth the stock ownership of the officers,
directors and shareholders holding more than 5% of the common stock of TBX
Resources as of August 31, 2000:
<TABLE>
<CAPTION>
NAME AND AMOUNT PERCENT OF
TITLE OF CLASS ADDRESS OF OWNER OWNED CLASS
-------------- ------------------------- --------- ----------
<S> <C> <C> <C>
Common Stock Tim Burroughs(1) 2,500,000 15.22%
12300 Ford Road
Suite 194
Dallas, Texas 75234
Common Stock John O. Clayton(2) 109,000 0.0066%
Common Stock Joe A. Ayres(3) 74,998 0.0046%
Common Stock Burroughs Family Trust(4) 5,000,000 30.50%
12300 Ford Road
Suite 194
Dallas, Texas 75234
</TABLE>
---------
(1) Effective December 1, 1999, we entered into an employment agreement
with our President, Mr. Burroughs, whereby Mr. Burroughs shall receive stock
options good for five years from the date of issuance to purchase up to 500,000
shares of our common stock each year at a price which shall not be greater than
50% of the average bid price for our common stock during the previous year. This
right to purchase cumulates so that if Mr. Burroughs does not purchase the
shares to which he is entitled from a year, that amount of shares that are not
purchased is added to the previous number of shares that Mr. Burroughs may
purchase. The result is that Mr. Burroughs shall have the right to acquire an
additional 2,500,000 shares of our common stock over a five year period. Mr.
Burroughs currently owns 1,500,000 shares of our common stock and is also
currently entitled to purchase 1,000,000 additional shares pursuant to his
employment agreement, which results in Mr. Burroughs owning or being currently
entitled to purchase a total of 2,500,000 shares of our common stock. Pursuant
to a Lock Up Agreement we entered into with Mr. Burroughs and the Burroughs
Family Trust, Mr. Burroughs cannot sell any of his stock for a period of 180
days, beginning with July 31, 2000.
(2) John O. Clayton currently owns 99,000 shares of our common stock
and is also currently entitled to purchase 10,000 additional shares pursuant to
an agreement with our company, which results in Mr. Clayton owning or being
currently entitled to purchase a total of 109,000 shares of our common stock.
Mr. Clayton's options to purchase are exercisable for the period commencing
August 4, 2000, and terminating August 4, 2005, and provide that these
additional shares may be acquired on the basis of $2.50 per share of common
stock, if exercised.
(3) Joe A. Ayres currently owns 64,998 shares of our common stock and
is also currently entitled to purchase 10,000 additional shares pursuant to an
agreement with our company, which results in Mr. Ayres owning or being currently
entitled to purchase a total of 74,998 shares of our common stock. Mr. Ayres'
options to purchase are exercisable for the period commencing August 4, 2000,
and terminating August 4, 2005, and provide that these additional shares may be
acquired on the basis of $2.50 per share of common stock, if exercised.
(4) The beneficiary of the Burroughs Family Trust is Becca Burroughs,
the daughter of Tim Burroughs, our President and Chairman of the Board of
Directors. Pursuant to a Lock Up Agreement we entered into with Mr. Burroughs
and the Burroughs Family Trust, the Burroughs Family Trust cannot sell any of
its stock for the period of 180 days, beginning with July 31, 2000.
-19-
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
Common Stock Christine Coley 100,000 0.0061%
12300 Ford Road
Suite 194
Dallas, Texas 75234
</TABLE>
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Our current executive officers and directors, their ages and present
positions with TBX Resources are identified below. Our directors hold office
until the annual meeting of the shareholders following their election or
appointment and until their successors have been duly elected and qualified. Our
officers are elected by and serve at the pleasure of our Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Tim Burroughs 41 President and Director
Joe A. Ayres 71 Chairman of the Board of Directors
John O. Clayton 70 Director
Christine Coley 45 Secretary/Treasurer
</TABLE>
TIM BURROUGHS is the President, Chairman of the Board and founder of
TBX Resources, Inc. Mr. Burroughs has been our President and Chairman of the
Board of Directors since our company's inception in 1995. Prior to founding our
company, Mr. Burroughs worked for several Dallas/Ft. Worth area based energy
companies. Mr. Burroughs also studied business administration at Texas Christian
University in Ft. Worth, Texas.
In addition to serving as the President of our Company, Mr. Burroughs
is also the President of Petroleum Holdings, Inc., Marketing Research Group,
Inc. and Sweetwater Land & Oil Co. These companies were all organized by Mr.
Burroughs in 1997 to participate in various opportunities in the oil and gas
industry. However, since the organization of these companies, Mr. Burroughs has
decided to not aggressively pursue through these companies the business he
originally intended and has instead spent the majority of his professional time
devoted to our business. In the future, Mr. Burroughs expects to spend little or
no time on the business of these other companies.
In November, 1997, the Pennsylvania Securities Commission issued a
summary order to our company, Mr. Burroughs and David York, ordering these three
parties to cease and desist from offering and selling any securities within the
Commonwealth of Pennsylvania. In August, 1999, TBX, Mr. Burroughs and Mr. York
entered into an agreement with the Commonwealth of Pennsylvania whereby, without
admitting, or denying the allegations made by the Pennsylvania Securities
Commission, these three persons agreed to refrain from offering or selling
securities in Pennsylvania for a period of 60 days from the date of the order.
In addition, a fine in the amount of $531.00 was paid to the Commonwealth of
Pennsylvania. TBX, Mr. Burroughs and Mr. York
-20-
<PAGE> 23
have paid the fine described in the order, refrained from the acts specified in
the order, and have complied with their obligations under the Settlement
Agreement.
The basic complaint made by the Pennsylvania Securities Commission was
that our company, Mr. Burroughs and Mr. York had offered to sell securities in
the State of Pennsylvania without registering the same. Although none of the
offered securities were ever actually sold in Pennsylvania, the Pennsylvania
Securities Commission was concerned about the mere offering of securities in
Pennsylvania.
On May 17, 2000, the Texas Securities Commissioner ordered that the
exemption provided under Section 5.O of the Texas Securities Act in connection
with the offer for sale and sale of the common stock of our company was
suspended, meaning that no securities dealer shall offer for sale or sell our
common stock in the State of Texas while this suspension is in effect. A copy of
the order issued by the Texas Securities Commissioner has been filed under the
EDGAR system as an attachment to an 8-k filing made by us on July 24, 2000,
reference to which 8-k is made for all purposes.
On July 31, 2000, the Texas Securities Commissioner ordered that the
above described order of suspension of exemption provided under Section 5.O of
the Texas Securities Act be lifted and that Mr. Burroughs and our company be
ordered to comply with an undertaking attached to the July 31, 2000, order. A
copy of the July 31, 2000, order and related exhibits is attached to this
Registration Statement as an exhibit, to which exhibit reference is made for all
purposes.
JOE A. AYRES, who was elected to be the Chairman of our Board of
Directors in August, 2000, has been retired since 1993. During that time to
present, Mr. Ayres has occasionally served as a consultant to the U.S.
Departments of Navy and Justice. Prior to his retirement, Mr. Ayres served as
the vice president - product development for Vought Aircraft Company. While at
Vought Aircraft Company and its predecessor, LTV, Mr. Ayres served as a design
engineer through a series of increasingly responsible engineering positions. Mr.
Ayres is a graduate of the University of Texas at Austin and has done graduate
work at Southern Methodist University.
JOHN O. CLAYTON, who was elected to be a Director of our company in
August, 2000, has served as president and director or Economy Supply Company,
Economy Supply Company of Austin, Economy Supply Company of Irving, Economy
Supply Company of Dallas, Economy Supply Company of San Antonio and Economy
Supply Company of Waco for the period from 1965 to 1991. All of these companies
are generally involved in the construction and plumbing supply business. Since
1991, Mr. Clayton has served as the secretary, treasurer and director of all of
the above named companies. Mr. Clayton received BSC and MBA degrees from Texas
Christian University
CHRISTINE COLEY is the Secretary-Treasurer for TBX Resources. During
the period from August 1998, to June, 2000, Ms. Coley also served on our board
of directors. Ms. Coley joined our company in June, 1998. From May, 1996 to
June, 1998, Ms. Coley served as the office manager for Or-Tech Ingredients,
Inc., a manufacturing and packaging company. At Or-Tech Ingredients, Ms. Coley
was responsible for handling most of the financial aspects of the company, as
well as customer service, records management and other general office management
activities. From January, 1994 to June, 1996, Ms. Coley acted as office manager
for CIC, Inc., a telemarketing firm.
-21-
<PAGE> 24
While at CIC, Inc., Ms. Coley was responsible for maintaining financial records,
as well as serving as the human resource manager, event coordinator and public
relations manager.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by,
or paid to the executive officers named:
<TABLE>
<CAPTION>
Name and Position Year Annual Salary Bonus
<S> <C> <C> <C>
Tim Burroughs 1998 $100,000.00 N/A
President 1999 $100,000.00(1) N/A
2000 $150,000.00(2) $126,000(1)
Christine Coley 1998 $35,000.00 $2,000.00
Secretary/Treasurer 1999 $38,000.00 N/A
2000 $42,000.00
</TABLE>
(1) Mr. Burroughs' contractual salary amount to which he was entitled
in 1999 was $100,000. However, Mr. Burroughs deferred part of his salary in 1999
with the amount he was actually paid in 1999 being 37,000. To remedy this
underpayment of Mr. Burroughs' salary, through August 31, 2000, Mr. Burroughs
has been paid $126,000 in cash bonuses.
(2) Although Mr. Burroughs' contractual salary for 2000 is $150,000,
through August 31, 2000, Mr. Burroughs has been paid $43,650 in salary.
Effective December 1, 1999, we entered into an employment agreement
with our President, Mr. Burroughs, whereby Mr. Burroughs shall receive stock
options good for five years from the date of issuance to purchase up to 500,000
of our common stock each year at a price which shall not be greater than 50% of
the average bid price for our common stock during the previous year.
Ms. Coley was issued 50,000 shares in lieu of cash compensation in
October, 1998 and an additional 50,000 shares during the second fiscal quarter
of 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of the operations conducted in the field on behalf of our
company are conducted by Gulftex Operating, Inc. Our president, Tim Burroughs,
owns all of the common stock of Gulftex Operating, Inc. In the past, no
compensation was paid to Gulftex Operating, Inc. or Tim Burroughs for the
ownership of Gulftex Operating, Inc. or for the management activities conducted
by Gulftex Operating, Inc. However, we have now begun to pay Gulftex Operating,
Inc., $800.00 per month for the activities conducted by Gulftex Operating, Inc.,
in operating our wells.
-22-
<PAGE> 25
SECURITIES BEING REGISTERED
COMMON STOCK
Our Articles of Incorporation, as amended, authorize 100,000,000 shares
of common stock, $0.01 par value per share. The shares of common stock have no
preemptive or other subscription rights, have no conversion rights and are not
subject to redemption. No personal liability should attach to the ownership of
our common stock. The holders of common stock are entitled to one vote for each
share held. The common stock has non-cumulative voting rights. In the event of a
liquidation of TBX Resources, the common shareholders would be entitled to their
proportionate part of the assets of TBX Resources, but only after the
satisfaction of all secured and unsecured creditors.
MARKET INFORMATION
At present, prices for our common stock are quoted in the "pink sheets"
maintained by the NASD and our ticker symbol is TBXR. TBX Resources currently
has 4 market makers who assist TBX Resources in maintaining a market for its
stock.
TRANSFER AGENT
The Company's transfer agent is Securities Transfer Corp., 16910 Dallas
Parkway, Suite 100, Dallas, TX 75248, telephone number 972/447-9880.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prices for our common stock are currently quoted in the "pink sheets"
maintained by the NASD and our ticker symbol is TBXR. Prices for our stock were
approved for quotation on the pink sheets on December 7, 1999. The following
table shows the high and low bid information for our common stock for each
quarter during which prices for our common stock have been quoted in the pink
sheets.
<TABLE>
<CAPTION>
Quarter Low Bid High Bid
<S> <C> <C>
Quarter ending February 29, 2000 $1.00 $1.75
Quarter ending May 31, 2000 $3.00 $10.125
Quarter ending August 31, 2000 $2.50 $5.25
</TABLE>
The above information was obtained from the NASD. Because these are
over-the-counter market quotations, these quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not represent
actual transactions.
We have approximately 300 shareholders of our common stock as of August
31, 2000.
-23-
<PAGE> 26
DIVIDEND POLICY
The holders of common stock are entitled to dividends when, and if,
declared by the Board of Directors from funds legally available therefor,
subject to any preference on preferred stock, if applicable, which may then be
outstanding. We have not paid a dividend on our common stock since inception and
do not anticipate that funds will be utilized for the payment of dividends in
the foreseeable future.
LEGAL PROCEEDINGS
In November 1996, we entered into an agreement with Ron Priestly,
Robert Pretus and their respective companies ("Priestly, et al") to acquire,
develop and operate a field in East Texas known as the Pine Mills Field. In
1997, disputes arose between our company and Priestly, et al concerning the
operation and ownership of the Pine Mills Field, which disputes were
subsequently made the subject of a lawsuit filed against other defendants and us
on May 16, 1997, in the 114th District Court of the State of Texas in Wood
County, Texas, in cause Number 97-224. In April, 1999, this dispute was settled
and our company conveyed all of our interest in this field to Priestly, et al in
return for the forgiveness of a total judgment amount of $351,114.51 found to be
owing to Priestly, et al from the Defendants in return for a final settlement of
all disputes concerning this field. We no longer have any interest in the Pine
Mills Field. This dispute and the conveyance of property associated therewith
had no effect on any other properties we own.
On May 17, 2000, the Texas Securities Commissioner ordered that the
exemption provided under Section 5.O of the Texas Securities Act in connection
with the offer for sale and sale of the common stock of our company was
suspended, meaning that no securities dealer shall offer for sale or sell our
common stock in the State of Texas while this suspension is in effect. A copy of
the order issued by the Texas Securities Commissioner has been filed under the
EDGAR system as an attachment to an 8-k filing made by us on July 24, 2000,
reference to which 8-k is made for all purposes.
The Texas order was based upon allegations made against Mr. Burroughs
and our company by Patrick Eskew, the former employee who pled guilty to
committing federal crimes against our company, as described above in the
"description of business - business risks" section. These allegations
essentially claimed that Mr. Burroughs had committed various financial
improprieties to the detriment of our company. Mr. Burroughs has hired counsel
to represent him in this matter in order to present his version of what occurred
to the Texas Securities Board.
On July 31, 2000, after negotiating with Mr. Burrough's counsel, the
Texas Securities Commissioner ordered that the above described order of
suspension of exemption provided under Section 5.O of the Texas Securities Act
be lifted and that Mr. Burroughs and our company be ordered to comply with an
undertaking attached to the July 31, 2000, order. A copy of the July 31, 2000,
order and related exhibits is attached to this Registration Statement as an
exhibit, to which exhibit reference is made for all purposes.
The basic terms of the undertaking between Mr. Burroughs and the Texas
Securities Board are that (1) Mr. Burroughs will not sell any of his stock for a
period of 180 days after July 31, 2000, (2) our company will increase its board
size to three members, two of which must be independent,
-24-
<PAGE> 27
and (3) an amendment to this registration statement must be filed within
fourteen days from July 31, 2000, describing the lifting of the earlier order by
the Texas Securities Board. All of these steps have been completed and Mr.
Burroughs will not sell any of his stock for at least 180 days from July 31,
2000. Mr. Burroughs has no current plans to sell any of his shares of common
stock.
RECENT SALES OF UNREGISTERED SECURITIES
We participated in ten joint ventures established for the drilling or
oil and gas wells for the period commencing March 1, 1995 and ending May 28,
1997. In late 1997, we reached an agreement with the other holders of the joint
ventures whereby the joint venture interests in the oil and gas wells developed
by the joint ventures were exchanged for our common stock. The joint venture
interests were exchanged as of October 8, 1997, November 15, 1997, December 1,
1997 and July 13, 1998. All of the exchanges except the N.E. Bethany No. 1 and
No. 2 Joint Ventures were made based on the ratio of one share of common stock
for each dollar invested in a Joint Venture. The ratio used on the N.E. Bethany
I and II Joint Venture was two shares of common stock for each dollar invested
in each particular Joint Venture. By virtue of this exchange, 4,811,232 shares
of our common stock were issued to 150 persons in exchange for the Joint Venture
interests in the applicable wells. In addition, during the period from November,
1999, to May 10, 2000, we issued 519,042 shares to the participants in the
Bethany Field Joint Venture (approximately 30 people) in exchange for their
joint venture interests in the Bethany Field Joint Venture. The ratio used on
the Bethany Field Joint Venture was one share of common stock for each dollar
invested in the Bethany Field Joint Venture.
Because the exchange offer was conducted between existing joint venture
partners, we did not use any underwriters or other persons to assist us in the
exchange so no underwriting discounts or commissions were paid. Because we had a
pre-existing business relationship with all of the joint venture owners, and
because no public offering of the securities was conducted, we relied upon
Section 4(2) of the Securities Act of 1933 (the "1933 Act") for an exemption
from the registration requirements.
For the period from January, 1998 through September, 1999, a total of
2,133,295 shares were sold by us to 133 persons who had either previously
participated in joint ventures or were referred to us by participants in our
joint ventures. The number of shares and prices at which the shares were sold
were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Share Price $0.50 $1.00 $1.10 $1.50
Number of
Shares 188,334 1,028,904 853,348 62,709
</TABLE>
In addition, during the period from November 30, 1999, to May 10, 2000,
we sold to our existing shareholders and joint venture partners an additional
1,240,281 of our common stock, receiving $1,474,649, or an average purchase
price of $1.18/share. Most of the persons to whom these shares were sold were
our existing shareholders, by virtue of the conversion of joint venture interest
into common stock, as mentioned above. As a result, we had a pre-existing
business relationship with these people that allowed us to make these sales
without public solicitation,
-25-
<PAGE> 28
instead privately offering these shares under Section 4(2) of the 1933 Act. In
addition, some personal acquaintances of Mr. Burroughs purchased shares of our
stock. All of the shares were sold primarily through the efforts of our
President and Chairman of our Board of Directors, Mr. Burroughs, and were all
sold to persons with whom he had a previously existing business relationship.
Mr. Burroughs made no public announcement or advertising concerning these
offering of shares and essentially sold them only to "friends and family."
Because of our pre-existing relationship with these investors, no underwriter
was used and no commissions or underwriting discounts were paid with respect to
these offerings.
In October, 1998, Ms. Coley, our Secretary/Treasurer, was issued 50,000
shares in lieu of cash compensation and in the second fiscal quarter of 2000,
Ms. Coley was issued an additional 50,000 share in lieu of cash compensation. No
commissions or underwriting discounts were paid with respect to these shares and
no underwriter was used. Because of Ms. Coley's insider status with our company,
we relied upon Section 4(2) of the 1933 Act for the exemption from the
registration provisions of the 1933 Act. Because of our pre-existing
relationship with these investors, we relied upon Section 4(2) of the 1933 Act
as our exemption from the registration requirements of the 1933 Act.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
On May 21, 1999, we entered into an agreement with our directors
whereby we agreed to indemnify and hold harmless each member of the board of
directors from any and all liability and expenses arising out of the exercise of
their duties under Texas law as a director of our company, absent fraud or gross
misconduct on the part of each director. Our officers or directors could take
the position that this duty of ours to indemnify our directors or officers may
include the duty to indemnify the officer or director for the violation of
securities laws.
FINANCIAL STATEMENTS
The following are the financial statements of TBX Resources, with
independent auditors report, for the periods ending November 30, 1999 and 1998
as well as the unaudited financial statements of TBX Resources prepared by TBX
Resources for the period ending August 31, 2000.
-26-
<PAGE> 29
TBX RESOURCES, INC.
FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
<PAGE> 30
TBX RESOURCES, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Accountant's Audit Report Dated December 19, 1999 2
Balance Sheets - November 30, 1999 and 1998 3
Statements of Operations-
For The Twelve Months Ended November 30, 1999 and 1998 4
Statements of Cash Flows-
For The Twelve Months Ended November 30, 1999 and 1998 5
Statements of Changes in Stockholders' Equity-
For The Twelve Months Ended November 30, 1999 and 1998 6
Supplemental Statements of Noncash Investing and Financing Activities-
For The Twelve Months Ended November 30, 1999 and 1998 7
Notes to Financial Statements 8
</TABLE>
<PAGE> 31
[JAMES A. MOYERS, CPA LETTERHEAD]
To the Board of Directors and Stockholders
TBX Resources, Inc.
Dallas, Texas
INDEPENDENT ACCOUNTANT'S AUDIT REPORT
I have audited the accompanying balance sheets of TBX Resources, Inc.
as of November 30, 1999 and 1998 and the related statements of operations,
changes in stockholders' equity, cash flows and noncash investing and financing
activities for each of the two years in the period ended November 30, 1999. All
information included in these financial statements is the responsibility of the
management. My responsibility is to express an opinion on these financial
statements based on my audit work.
I have conducted my audit in accordance with generally accepted
auditing standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TBX Resources, Inc.
as of November 30, 1999 and 1998, and the results of its operations, cash flows
and noncash investing and financing activities for each of the two years in the
period ended November 30, 1999, in conformity with generally accepted accounting
principles.
December 19, 1999
James A. Moyers, CPA
2
<PAGE> 32
TBX RESOURCES, INC.
BALANCE SHEETS
(Audited)
<TABLE>
<CAPTION>
November 30,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,174 $ 145,920
Accounts receivable
Trade 2,967 2,969
Affiliates 79,447 117,422
Other 123,965 9,500
Deferred income taxes 56,669 56,669
----------- -----------
Total current assets 266,222 332,480
----------- -----------
EQUIPMENT AND PROPERTY
Office furniture, fixtures and equipment 71,748 71,748
Oil and gas properties, using successful efforts accounting
Proved properties and related equipment 2,363,738 2,566,683
----------- -----------
2,435,486 2,638,431
Less accumulated depreciation, depletion and amortization 81,427 62,438
----------- -----------
Total equipment and property 2,354,059 2,575,993
----------- -----------
INVESTMENT IN SOUTHERN OIL & GAS COMPANY, INC. 300,000 --
----------- -----------
DEFERRED INCOME TAXES 179,073 179,073
----------- -----------
OTHER ASSETS 45,712 2,655
----------- -----------
TOTAL ASSETS $ 3,145,066 $ 3,090,201
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 91,291 $ 79,228
Taxes payable 54,419 65,624
Accrued expenses 26,895 24,789
----------- -----------
Total current liabilities 172,605 169,641
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common stock- $.01 par value; authorized 100,000,000 shares;
14,559,027 shares outstanding at November 30, 1999; 13,699,010
shares outstanding at November 30, 1998. 145,590 136,990
Additional paid-in capital 4,582,976 3,796,818
Accumulated deficit (1,756,105) (1,013,248)
----------- -----------
Total stockholders' equity 2,972,461 2,920,560
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,145,066 $ 3,090,201
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 33
TBX RESOURCES, INC.
STATEMENTS OF OPERATIONS
(Audited)
<TABLE>
<CAPTION>
For the Twelve Months Ended
November 30,
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 42,995 $ 74,279
Joint venture income 235,880 37,714
Other 99,090 93
------------ ------------
Total revenues 377,965 112,086
------------ ------------
EXPENSES:
Lease operating and taxes 204,531 258,049
Joint venture costs and expenses 57,840 --
Selling, general and administrative 651,723 899,075
Loss on sale of oil and gas properties and
settlement of litigation 187,739 --
Depreciation, depletion and amortization 18,989 14,046
------------ ------------
Total expenses 1,120,822 1,171,170
------------ ------------
NET LOSS BEFORE PROVISION FOR
INCOME TAXES (742,857) (1,059,084)
Income tax benefit -- 197,259
------------ ------------
NET LOSS $ (742,857) $ (861,825)
============ ============
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.05) $ (0.07)
============ ============
Weighted average common shares used in per share calculations:
Basic and Diluted 14,234,564 12,567,693
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 34
TBX RESOURCES, INC.
STATEMENTS OF CASH FLOWS
(Audited)
<TABLE>
<CAPTION>
For the Twelve Months Ended
November 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (742,857) $ (861,825)
Adjustments to reconcile net income (loss) to net cash
flow from operating activities:
Depreciation, depletion and amortization 18,989 14,046
Provision for deferred income taxes -- (197,259)
Issuance of stock for services 8,025
Loss on sale of oil & gas properties and settlement of litigation 187,739 --
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade receivables 2 29,031
Affiliate receivables 37,975 (117,422)
Other receivables (114,465) 9,626
Increase (decrease) in:
Accounts payable 12,063 24,761
Taxes payable (11,205) 16,164
Accrued expenses 2,106 24,789
Affiliate payables -- (141,578)
----------- -----------
Net cash provided by (used) for operating activities (609,653) (1,191,642)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in the acquisition of options and stock
of Southern Oil & Gas, Inc. (300,000) --
Cash provided by the disposal of oil and gas properties 15,206 --
Cash used in the acquisition and development
of oil and gas properties -- (160,490)
----------- -----------
(284,794) (160,490)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash used for legal and professional services for stock offering (43,057) --
Cash provided by the issuance of common stock 794,758 1,481,701
----------- -----------
751,701 1,481,701
----------- -----------
Net Increase (Decrease) In Cash (142,746) 129,569
Cash at beginning of period 145,920 16,351
----------- -----------
Cash at end of period $ 3,174 $ 145,920
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 35
TBX RESOURCES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Audited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUM-
------------------------- PAID-IN ULATED
SHARES PAR VALUE CAPITAL DEFICIT
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE DECEMBER 1, 1997 6,700,000 $ 67,000 $ -- $ (151,423)
Issuance of common stock for oil & gas properties 4,811,232 48,112 2,328,970 --
Issuance of common stock for services 802,500 8,025
Issuance of common stock for cash 1,385,278 13,853 1,467,848
Net loss for period (861,825)
---------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1998 13,699,010 136,990 3,796,818 (1,013,248)
Issuance of common stock for cash 860,017 8,600 786,158
Net loss for period (742,857)
---------- ----------- ----------- -----------
BALANCE NOVEMBER 30, 1999 14,559,027 $ 145,590 $ 4,582,976 $(1,756,105)
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 36
TBX RESOURCES. INC.
SUPPLEMENTAL STATEMENT OF NONCASH INVESTING
AND FINANCING ACTIVITIES
(Audited)
<TABLE>
<CAPTION>
For the Twelve Months Ended
November 30,
1999 1998
-------- --------------
<S> <C> <C>
Fair value of oil and gas properties acquired $ -- $ (2,377,082)
Issuance of common stock for assets -- 2,377,082
------ ------------
$ -- $ --
====== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 37
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
1. BUSINESS ACTIVITIES:
TBX Resources, Inc., a Texas Corporation, was organized on March 24, 1995. The
Company's principal business activity is acquiring and developing oil and gas
properties. The Company has 61 oil and gas wells and 8 injection wells that are
located in East Texas. The Company's philosophy is to acquire properties with
the purpose of reworking existing wells and/or drilling development wells to
make a profit. The Company also sponsors joint venture development partnerships
for the purpose of developing oil and gas properties for profit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OIL AND GAS REVENUE
Oil and gas revenue is reported when production is sold. The Company accrues
revenue for oil and gas production sold but not paid.
JOINT VENTURE INCOME AND EXPENSES
The Company sponsors joint venture partnerships. Income from the ventures is
recorded as funds are transferred from the partnership to the Company. The
programs are undertaken on a turnkey basis. Accordingly, all monies raised are
recorded as joint venture income and all expenses to acquire, rework and operate
the wells are charged to joint venture costs and expenses. Profit is recorded as
earned. A provision for loss is reported in the period program cost is estimated
to exceed turnkey revenue.
OFFICE FURNITURE, FIXTURES AND EQUIPMENT
These assets are stated at the Company's cost and depreciated on an accelerated
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 uses the successful efforts method of accounting for oil and gas
producing activities. Costs to acquire mineral interests and to drill and equip
development wells are capitalized. Major costs to enhance existing wells are
capitalized. 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 units of production method. The
computation is based upon recoverable reserves as determined by the Company and
an independent petroleum engineer. Net capitalized costs of acquisitions,
exploration, and development of proved properties are periodically assessed for
impairment by field, pursuant to Statement of Financial Accounting Standards No.
121. If an asset group costs are impaired, i.e., exceeding expected future cash
flow there from, then capitalized costs are reduced to the estimated fair value
of the asset group. Operating and work-over costs are expensed as incurred.
On the sale or retirement of a unit of proved property, gain or loss is
recognized.
INVESTMENT IN SOUTHERN OIL & GAS COMPANY, INC.
The Company's investment in Southern Oil & Gas Company, Inc. is accounted for by
the cost method. The impact of the cost versus equity method (the preferred
method) of accounting for the investment is not considered material.
8
<PAGE> 38
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INCOME TAXES
The Company computes income tax expense using Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS 109 requires the
measurement of deferred tax assets for deductible temporary differences and
operating loss carry forwards and of deferred tax liabilities for taxable
temporary differences. Measurement of current and deferred tax liabilities and
assets is based on provisions of enacted law. The effects of future changes in
tax laws and rates are not anticipated.
EARNINGS PER SHARE (EPS)
The Company computes earnings per share using Statement of Financial Accounting
Standards (SFAS) No. 128, " Earnings Per Share". Basic earnings per common share
is calculated by dividing net income or loss by the average number of shares
outstanding during the year. Diluted earnings per common share is calculated by
adjusting outstanding shares, assuming conversion of all potentially dilutive
stock options. The computation of diluted EPS does not assume conversion,
exercise, or contingent issuance of shares that would have an antidilutive
effect on earnings per common share. Antidilution results from an increase in
earnings per share or reduction in loss per share from the inclusion of
potentially dilutive shares in EPS calculations. The Company had no antidilutive
shares at November 30, 1999 and 1998.
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.
Actual results could differ from these estimates.
3. AFFILIATED PARTY TRANSACTIONS:
a. The operators of the oil and gas leases, Texeast Operating Co., Inc.
and Gulf Tex Operating, Inc. are affiliates of TBX Resources. Mr.
Burroughs, the majority stockholder of the Company, is the sole
shareholder of Texeast and Gulf Tex.
b. Affiliate receivables represents advances to companies owned by the
President and majority stockholder of the Company. The amounts due as
of November 30, 1999 and 1998 were $79,447 and $117,422, respectively.
4. ACCOUNTS RECEIVABLE-OTHER:
In November 1999, the Company settled a claim against a financial institution
for $75,000. The claim arose as a result of the bank accepting checks forged by
a former employee over several years. The impact of the loss on the financial
statements for the period ended November 30, 1998 is immaterial.
9
<PAGE> 39
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
5. INVESTMENT IN SOUTHERN OIL & GAS COMPANY, INC:
The Company's investment in Southern has been accounted for on the cost basis as
follows:
<TABLE>
<S> <C>
Option to purchase all of the outstanding shares $100,000
Purchase of twenty percent (20%) interest 200,000
--------
Total investment $300,000
========
</TABLE>
Summarized financial information from the unaudited financial statements of
Southern as of November 30, 1999 follows:
<TABLE>
<CAPTION>
November
----------
1999
----------
<S> <C>
ASSETS
Current assets $ 294,182
Property and equipment net of depreciation, depletion
and amortization of $1,214,555 562,034
---------
Total Assets $ 856,216
=========
LIABILITIES AND EQUITY
Current liabilities $ 47,753
TBX Resources, Inc. purchase option 100,000
Equity 708,463
---------
Total Liabilities and Equity $ 856,216
=========
STATEMENT OF CASH BASIS INCOME AND EXPENSES
FOR NINE MONTHS ENDED NOVEMBER 30, 1999
Revenue $ 299,075
Total expenses (322,552)
---------
Net loss before depreciation and federal income tax benefit $ (23,477)
=========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
a. On January 6, 1999 the Company entered into an option agreement, as
amended, to purchase all of Southern Oil & Gas Company's (Southern) stock
for one million dollars ($1,000,000). Under the terms of the agreement TBX
paid one hundred thousand dollars ($100,000) for the option to purchase the
shares that runs up to and including March 31, 2000. The option amount will
be applied to the final payment. Each additional payment of $100,000 will
entitle TBX to 10% of the shares of Southern. After 40% of the Southern
shares are acquired by TBX, the next payment must be for $500,000 for the
remaining 60% of the Southern shares. As of November 30, 1999 TBX
Resources, Inc. owned a twenty percent (20%) interest in Southern. In
addition to the purchase agreement, TBX and Southern entered into a
Management Contract. Under the terms of the agreement, TBX is to provide
operating funds to Southern in the amount of $40,000. If TBX does not
replenish the operating fund to $40,000 after being notified of the
deficiency, the option to purchase Southern is suspended until such time as
the fund is restored. The Company currently does not plan to increase its
interest in Southern.
10
<PAGE> 40
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES (CONTINUED):
b. The Company is obligated for $12,322 under operating lease agreements
for rent of its offices and one automobile during the year ending
November 30, 2000. Rent expense for the years ended November 30, 1999
and 1998 was $43,579 and $49,315, respectively.
7. AFFILIATED OIL AND GAS PARTNERSHIP:
In May 1999 the Company sponsored the formation of the Bethany Field Joint
Venture for the purpose of conducting oil and gas development and production
activities on approximately 229 acres in Panola County, Texas. The Company
serves as General Manager and receives turnkey income to drill and develop
the leases for the joint venture. In addition, the Company has a 1% working
interest and 9% carried interest until the development work is complete.
Thereafter, joint venture expenses are allocated 90% to the joint venture
partners and 10% to the Company. Net revenues from the venture's oil and gas
properties are allocated 95% to the joint venture partners and 5% to the
Company.
8. STOCKHOLDERS' EQUITY:
a. During 1998, the Company acquired all of the oil and gas properties of
its then joint venture partners in exchange for approximately 4,811,232
shares of TBX Resources' common stock. The transaction was accounted for
as a purchase of property and equipment at the Company's designated fair
value of the assets acquired. The fair value of the assets of the joint
venture partners was determined to be $2,377,082. The common stock of
TBX Resources, Inc. was valued at the same amount.
b. The bylaws of the Company restrict the transfer of shares of common
stock. Transfers of shares of the Corporation shall be made only (i) if
there is an effective registration covering the shares to be transferred
under the Securities Act of 1933 and applicable state securities laws,
(ii) upon the receipt of a letter from an attorney, acceptable to the
board of directors or its agents, stating that in the opinion of the
attorney the proposed transfer is exempt from registration under the
Securities Act of 1933, or (iii) the transfer is made pursuant to Rule
144 under the Securities Act of 1933. In addition, the bylaws reference
Subchapter S of the Internal Revenue Code that does not apply to the
Company at this time.
c. The Company executed an Employment Agreement effective December 1, 1999
with Mr. Timothy Burroughs, President and principal stockholder, for
three years. Under the terms of the agreement, Mr. Burroughs shall
receive among other items, an annual compensation of $150,000 and
bonuses of up to 10% of his base salary each time the Company completes
a major acquisition, funding or financing. In addition, Mr. Burroughs
shall receive stock options good for five years from the date of
issuance to purchase up to 500,000 shares of the Company's common stock
a year at a price which shall not be greater than 50% of the average bid
price for the shares during the previous year.
11
<PAGE> 41
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
9. SALE OF INTERESTS IN OIL AND GAS PROPERTIES AND SETTLEMENT OF LAWSUIT:
The Company disposed of 12 wells in June of 1999. Management is of the
opinion that the costs of re-working, developing and producing these wells
would far exceed the potential revenues from the wells. Also, the retention
of these wells by the Company would have resulted in substantial expenses in
plugging operations. To avoid future drain on the Company's working capital
resources, Management elected to transfer all of the Company's interest in
these wells to a third party for nominal consideration. The net book value
of the wells at the time of sale was $112,739, which was charged to current
earnings.
The Company assigned its interest in the Pine Mills Field located in East
Texas in April of 1999 for settlement of a dispute in a civil action. The
net book value of $75,000 was charged to current earnings.
10. INCOME TAXES:
The net deferred tax assets in the accompanying balance sheet includes the
following amounts of deferred tax assets and liabilities:
<TABLE>
<S> <C>
Deferred tax asset $ 438,356
Valuation allowance (75,000)
---------
Adjusted deferred tax asset 363,356
Deferred tax liability (127,613)
---------
Net deferred tax asset $ 235,743
=========
</TABLE>
The deferred tax assets result from net operating loss carry forwards,
accounts payable and accrued expenses less a valuation reserve. The deferred
tax liability results from deducting depreciation, depletion and
amortization and workover costs prior to recognition in the financial
statements.
The components of the income tax benefit are as follows:
<TABLE>
<S> <C>
Federal
Current $ -0-
Deferred (benefit)
Operating loss carry forward (380,677)
Accounts payable and accruals (57,679)
Workover and other costs 49,802
Depreciation, depletion and
amortization 77,811
Valuation reserve 75,000
---------
Net income tax benefit $(235,743)
=========
</TABLE>
12
<PAGE> 42
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
For the fiscal year ended November 30, 1999, the Company elected not to increase
its deferred tax assets for its net operating loss.
13
<PAGE> 43
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
11. SUPPLEMENTARY OIL AND GAS INFORMATION-UNAUDITED:
<TABLE>
<CAPTION>
November 30,
1999 1998
----------- -----------
<S> <C> <C>
Capitalized Costs Relating to Oil and Gas
Producing Activities:
Property (acreage costs)-Proved $ 741,057 $ 741,057
Producing assets 1,622,681 1,825,626
----------- -----------
2,363,738 2,566,683
Less: accumulated depreciation and depletion 46,965 30,012
----------- -----------
Net Capitalized Costs $ 2,316,773 $ 2,553,494
=========== ===========
Costs Incurred in Property Acquisition,
Exploration and Development Activities:
Property acquisition costs $ -- $ --
Exploration costs -- --
Development costs -- 160,490
----------- -----------
Total $ -- $ 160,490
=========== ===========
Results of Operations for Producing Activities:
Oil and gas sales $ 42,995 $ 74,279
Gain on sale of properties 15,206 --
Production costs (204,531) (258,049)
Loss on sale and litigation of properties (187,739) --
Depreciation, depletion and amortization (16,953) (13,189)
----------- -----------
(351,022) (196,959)
Income tax benefit
-- 37,422
----------- -----------
Results of Operations Excluding Selling, General and
Administrative and Joint Venture Activities $ (351,022) $ (159,337)
=========== ===========
</TABLE>
OIL AND GAS RESERVE QUANTITIES
An independent petroleum engineer determined estimated reserves and related
valuations. Estimates of proved reserves are inherently imprecise and are
subject to revisions based on production history, results of additional
exploration and development and other factors.
14
<PAGE> 44
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
11. SUPPLEMENTARY OIL AND GAS INFORMATION-UNAUDITED (CONTINUED):
Proved reserves are reserves judged to be economically producible in future
years from known reservoirs under existing economic and operating conditions.
Proven developed reserves are expected to be recovered through existing wells,
equipment and operating methods.
Following is a summary of the changes in estimated proved developed and
undeveloped oil and gas reserves of the Company, which are located in East Texas
and formally Northern Louisiana, for the years ended November 30, 1999 and 1998.
<TABLE>
<CAPTION>
Oil Gas
(BBL) (MCF)
----------- -----------
<S> <C> <C>
Proved reserves December 1, 1997 1,324,147 6,106,547
Revisions to previous estimates 165,657 --
Production (4,950) --
Sales, transfers and retirements -- --
---------- ----------
Proved reserves November 30, 1998 1,484,854 6,106,547
Revisions to previous estimates (24,481) (749,174)
Production (2,714) --
Sales, transfers and retirements (204,226) (401,540)
---------- ----------
Proved reserves November 30, 1999 1,253,433 4,955,833
========== ==========
Proved developed reserves:
November 30, 1997 566,873 --
November 30, 1998 687,338 --
November 30, 1999 503,532 44,616
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED CASH FLOWS RELATING TO PROVED OIL AND GAS
RESERVES
Statement of Financial Accounting Standards No. 69 prescribes guidelines for
computing a standardized measure of future net cash flows relating to estimated
proven reserves. The Company has followed these guidelines, which are briefly
discussed in the following paragraph.
Future cash inflows and future production and development costs are determined
by applying year-end prices for 1999 of $23.00/bbl and $2.40/MCF and for 1998
$11.50/bbl and $2.25/MCF and costs to the estimated quantities of oil and gas to
be produced. Estimated future income taxes are computed by using statutory rates
including consideration for previously legislated future statutory depletion
rates. The resulting future net cash flows are reduced to present value amount
by applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are those prescribed by
the Financial Accounting Standards Board and, as such, do not necessarily
reflect the Company's expectations of actual revenues to be derived from those
reserves or their present worth. The limitations inherent in the reserve
quantity estimation process, as discussed previously are equally applicable to
the standardized measure computations since these estimates are the basis for
the valuation process.
15
<PAGE> 45
TBX RESOURCES, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
11. SUPPLEMENTARY OIL AND GAS INFORMATION-UNAUDITED (CONTINUED):
Presented below is the standardized measure of discounted future net cash flows
relating to proved oil reserves as of November 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Future cash inflows $ 40,716,059 $ 30,444,338
Future production costs (11,185,529) (13,977,308)
Future development costs (4,885,200) (4,490,000)
Future income tax expense (8,379,412) (4,072,190)
------------ ------------
Future net cash flows 16,265,918 7,904,840
10% annual discount for estimated
timing of cash flows (8,817,754) (4,229,089)
------------ ------------
Standardized measure of discounted future
net cash flows relating to proved reserves $ 7,448,164 $ 3,675,751
============ ============
</TABLE>
The following reconciles the change in the standardized measure of discounted
future net cash flow:
<TABLE>
<S> <C>
December 1, 1997 $ 5,148,169
Increase (decrease) due to:
Sales of oil and gas produced, net of production costs 98,317
Net changes in prices and production costs (3,256,347)
Net change in future development costs (100,580)
Revisions to previous quantity estimates 1,019,205
Net change from sales, transfers and disposals of minerals in place --
Accretion of discount (147,242)
Net change in income taxes 872,704
Other 41,525
-----------
November 30, 1998 3,675,751
Sales of oil and gas produced, net of production costs 86,422
Net changes in prices and production costs 7,121,883
Net change in future development costs (211,432)
Revisions to previous quantity estimates (1,049,163)
Net change from sales, transfers and disposals of minerals in place (113,464)
Accretion of discount 377,241
Net change in income taxes (2,304,364)
Other (134,710)
-----------
November 30, 1999 $ 7,448,164
===========
</TABLE>
-END-
16
<PAGE> 46
TBX RESOURCES, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 31, November 30,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 489,448 $ 3,174
Accounts receivable
Trade 1,000 2,967
Affiliates -- 79,447
Other 25,916 123,965
Prepaid expenses 75,264 --
Deferred income taxes -- 56,669
------------ ------------
Total current assets 591,628 266,222
------------ ------------
EQUIPMENT AND PROPERTY
Office furniture, fixtures and equipment 72,085 71,748
Oil and gas properties, using successful efforts accounting
Proved properties and related equipment 2,853,983 2,363,738
------------ ------------
2,926,068 2,435,486
Less accumulated depreciation, depletion and amortization 121,427 81,427
Total equipment and property ------------ ------------
2,804,641 2,354,059
------------ ------------
INVESTMENT IN SOUTHERN OIL & GAS COMPANY, INC. 200,000 300,000
------------ ------------
DEFERRED INCOME TAXES -- 179,073
------------ ------------
OTHER ASSETS 12,685 45,712
------------ ------------
TOTAL ASSETS $ 3,608,954 $ 3,145,066
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 54,968 $ 91,291
Taxes payable 45,848 54,419
Accrued expenses 73,364 26,895
------------ ------------
Total current liabilities 174,180 172,605
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - $.01 par value; authorized 100,000,000 shares
16,423,350 shares outstanding at August 31, 2000 and
14,599,027 shares outstanding at November 30, 1999 164,234 145,590
Additional paid-in capital 6,491,442 4,582,976
Accumulated deficit (3,220,902) (1,756,105)
------------ ------------
Total stockholders' equity 3,434,774 2,972,461
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,608,954 $ 3,145,066
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 47
TBX RESOURCES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended For Nine Months Ended
------------------------------ ------------------------------
Aug. 31, 2000 Aug. 31, 1999 Aug. 31, 2000 Aug. 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 9,061 $ 9,852 $ 30,876 $ 37,034
Joint venture income 50,832 82,202 180,473 82,202
Other 9,784 1,389 17,502 22,677
------------ ------------ ------------ ------------
Total revenues 69,677 93,443 228,851 141,913
------------ ------------ ------------ ------------
EXPENSES:
Lease operating and taxes 47,527 43,265 105,170 152,397
Joint venture costs and expenses 50,832 14,889 180,473 14,889
Selling, general and administrative 215,940 83,447 930,401 512,784
Geological and engineering -- -- 101,857 --
Loss on sale of oil and gas leases and settlement of Litigation -- 187,739 -- 187,739
Loss on option to purchase shares of Southern Oil & Gas Company -- -- 100,000
Depreciation, depletion and amortization 15,000 (31,721) 40,000 15,311
------------ ------------ ------------ ------------
Total expenses 329,299 297,619 1,457,901 883,120
------------ ------------ ------------ ------------
NET LOSS BEFORE PROVISION FOR
INCOME TAXES (259,622) (204,176) (1,229,050) (741,207)
Provision for income taxes -- -- (235,742) --
------------ ------------ ------------ ------------
NET LOSS $ (259,622) $ (204,176) $ (1,464,792) $ (741,207)
============ ============ ============ ============
NET LOSS PER COMMON SHARE, BASIC AND DILUTED $ (0.02) $ (0.01) $ (0.10) $ (0.05)
============ ============ ============ ============
Weighted average common shares used in per share calculations:
Basic and Diluted 15,416,529 14,163,743 15,416,529 14,163,743
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 48
TBX RESOURCES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For Nine Months Ended
-------------------------------
Aug. 31, 2000 Aug. 31, 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (1,464,792) $ (741,207)
Adjustments to reconcile net income (loss) to net cash
flow from operating activities:
Depreciation, depletion and amortization 40,000 15,311
Loss on sale of oil and gas leases and settlement of Litigation -- 187,739
Loss on option to purchase shares of Southern Oil & Gas Company 100,000 --
Common stock options issued for consulting services 150,000 --
Common stock issued to employees 10,500 --
Reversal of long-term deferred income tax benefit 179,073 --
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade receivables 1,967 (28,825)
Affiliate receivables 79,447 14,389
Other receivables 98,049 (39,360)
Prepaid expenses (75,264) --
Deferred income tax benefit 56,669 --
Increase (decrease) in:
Accounts payable (36,323) (17,065)
Taxes payable (8,571) (19,447)
Accrued expenses 46,469 2,883
------------ ------------
Net cash provided by (used) for operating activities (822,776) (625,582)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in the acquisition of options and stock
of Southern Oil & Gas Company, Inc. -- (300,000)
Cash provided by the disposal of property and equipment 18,780 15,206
Cash used in the acquisition of property and equipment (217,406) --
------------ ------------
(198,626) (284,794)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash provided (used) by change in other assets 33,027 (27,557)
Cash provided by the issuance of common stock and subscriptions 1,474,649 794,758
------------ ------------
1,507,676 767,201
------------ ------------
Net Increase (Decrease) In Cash 486,274 (143,175)
Cash at beginning of period 3,174 145,920
------------ ------------
Cash at end of period $ 489,448 $ 2,745
------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES (UNAUDITED)
Fair value of oil and gas working and partnership interests acquired $ (291,961) $ --
Issuance of common stock for assets 291,961 --
------------ ------------
$ -- $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 49
TBX RESOURCES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR NINE MONTHS ENDED AUGUST 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUM-
----------------------------- PAID-IN ULATED
SHARES PAR VALUE CAPITAL DEFICIT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE NOVEMBER 30, 1999 14,559,027 $ 145,590 $ 4,582,976 $ (1,756,105)
Sale of common stock 1,240,281 12,403 1,462,246 --
Additions to paid-in capital for consulting services -- -- 150,000 --
Additions to paid-in capital for purchase of working
and partnership interests 519,042 5,191 286,770 --
Additions to paid-in capital for employee services 105,000 1,050 9,450 --
Net loss for period -- -- -- (1,464,797)
------------ ------------ ------------ ------------
BALANCE AUGUST 31, 2000 16,423,350 $ 164,234 $ 6,491,442 $ (3,220,902)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 50
TBX RESOURCES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AUGUST 31, 2000
1. BUSINESS ACTIVITIES:
TBX Resources, Inc., a Texas Corporation, was organized on March 24, 1995. The
Company's principal business activity is acquiring and developing oil and gas
properties. The Company has 64 oil and gas wells and 8 injection wells that are
located in East Texas and Oklahoma. The Company's philosophy is to acquire
properties with the purpose of reworking existing wells and/or drilling
development wells to make a profit. The Company also sponsors joint venture
development partnerships for the purpose of developing oil and gas properties
for profit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-QSB of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Management, these financial statements contain all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position, results of operations and cash flows for the
period indicated. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from these estimates. The
Company's quarterly financial data should be read in conjunction with the
financial statements of the Company for the year ended November 30, 1999
(including the notes thereto) set forth in Form 10-SB.
3. SIGNIFICANT TRANSACTIONS:
a. On January 6, 1999 the Company entered into an option agreement, as amended,
to purchase all of Southern Oil & Gas Company's (Southern) stock for $1,000,000.
Under the terms of the agreement TBX paid $100,000 for the option to purchase
the shares that ran up to and including March 31, 2000. The Company currently
holds a 20% interest in Southern. The Company made a final decision to not
increase its interest in Southern and wrote-off the option amount.
b. The Company has placed restrictions on stockholders wishing to sell their
common stock as follows:
(i) To hold or to sell after an Initial Public Offering only up 20% of the
shares owned during the year 2000 and,
(ii) To continue to hold or to sell up to additional 20% of the original
amount of shares owned during the first quarter of the year 2001.
This agreement expires on March 31, 2001.
c. During the nine months ended August 31, 2000, the Company purchased
approximately 75% of the partnership interests in the Bethany Field Joint
Venture that the Company sponsored in 1999. The Company's common stock was used
to purchase the interests that were valued at $1.00 per share for each dollar
invested in the partnership. The transaction totaled $291,961 that the Company
recorded as and addition to property and equipment.
5
<PAGE> 51
TBX RESOURCES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AUGUST 31, 2000
3. SIGNIFICANT TRANSACTIONS (CONTINUED):
Current year costs in excess of Bethany Field revenue are recorded as an
increase in the Company's basis in the partnership. The Company's interest in
the partnership increased in the current quarter by $114,229 and was recorded as
an addition to property and equipment.
d. The Company executed an Employment Agreement effective December 1, 1999 with
Mr. Timothy Burroughs, President, for three years. Under the terms of the
agreement, Mr. Burroughs received among other items, an annual compensation of
$150,000 and bonuses of up to 10% of the funds raised when the Company completes
a major acquisition, funding or financing. During the nine months ended August
31, 2000, the Company paid Mr. Burroughs approximately $126,000 in bonuses. In
addition, under the terms of the employment agreement, Mr. Burroughs received
stock options good for five years from the date of issuance to purchase up to
500,000 shares of the Company's common stock a year for five years at a price
which shall not be greater than 50% of the average bid price for the shares
during the previous year. The options are cumulative which allow Mr. Burroughs
to exercise his options through November 30, 2004 for a total of 2,500,000
shares. The fair value of the options will be recorded as compensation expense
when a reasonable estimate of such costs are available or the amount Mr.
Burroughs has to pay is known. Based on the formula for calculating the purchase
price, material charges to compensation expense may be recorded in future years.
e. During the nine months ended August 31, 2000, the Company used the services
of a consultant who received 100,000 in common stock options at $1.50 per share.
The Company recorded the transactions as a $150,000 charge to expense with an
offsetting credit to additional capital.
f. Mr. Burroughs, our president, owns a consulting company named Marketing
Research Group, Inc. The Company paid Marketing Research Group consulting fees
of approximately $135,000 for services rendered.
g. The Company paid retainers to attorneys that totaled $100,000 which is to be
applied to legal fees to defend the Company and Mr. Burroughs in an
investigation by the State of Texas Securities Board and the US Justice
Department. The Company paid approximately $50,000 in legal fees through the
current quarter. See the Legal Proceeding section for a more detailed discussion
of this matter.
h. On May 26, 2000 a former employee was sentenced to three years probation for
forging Company checks. As part of the sentencing the employee is required to
make restitution to the Company in the amount of $152,915. The minimum monthly
payment due the Company is $134. The Company established an allowance for
possible non-collection of the receivable for all but one year's required
minimum payments of approximately $1,608.
i. On July 12, 2000 the Company entered into a joint venture agreement with
Getty Natural Gas Corporation (Getty). Under the terms of the agreement TBX can
acquire 50% of Getty's right to acquire, drill, and participate in 83,000 acres
of development in the Anadarko Basin in Oklahoma. As part of the agreement with
Getty, TBX will issue 55,000 restricted shares with another 55,000 restricted
shares to be placed in escrow until the reserve value of TBX's interest
6
<PAGE> 52
TBX RESOURCES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AUGUST 31, 2000
3. SIGNIFICANT TRANSACTIONS (CONTINUED):
in the joint venture reaches $500,000. Upon issuance, the assigned $110,000
value for the shares will be added to the Company's joint venture oil and gas
properties.
j. Mr. Burroughs' option to purchase 500,000 shares of common stock in the
current fiscal year and a consultant's option to purchase 100,000 shares of
common stock were not included in the computation of diluted earnings per share
because the effect would be antidilutive.
7
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: January 8, 2001
(Registrant) TBX Resources, Inc.
By (Signature and Title): /s/ Tim Burroughs
--------------------------------
Tim Burroughs, President
<PAGE> 54
Date Filed: January 9, 2001 SEC File No. 0-30746
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON FORM 10-SB
UNDER
THE SECURITIES AND EXCHANGE ACT OF 1934
----------------------------------
TBX RESOURCES, INC.
(Consecutively numbered pages __________ through ___________ of this
Registration Statement)
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEC REFERENCE
NUMBER NUMBER TITLE OF DOCUMENT LOCATION
<S> <C> <C> <C>
1 2 CHARTER AND BYLAWS Original Filing
2 6 INDEMNITY AGREEMENT Original Filing
3 6 CRUDE OIL PURCHASE Original Filing
AGREEMENT
4 6 III METRO SQUARE OFFICE Original Filing
LEASE AGREEMENT
5 6 EQUIPMENT AND FURNITURE Original Filing
LEASE
6 6 EMPLOYMENT AGREEMENT May 2, 2000 Filing
WITH TIM BURROUGHS
7 6 AGREEMENTS WITH SOUTHERN May 2, 2000 Filing
OIL & GAS COMPANY
8 6 AMENDED JOINT VENTURE OF May 2, 2000 Filing
BETHANY JOINT VENTURE
9 10 CONSENT OF JAMES A. January 9, 2001
MOYERS, CPA Filing
10 10 CONSENT OF HAROLD NEFF & December 14,
ASSOCIATES 2000 Filing
</TABLE>
