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EX-32.1 - EXHIBIT 32.1 - TX Holdings, Inc.a6606096ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - TX Holdings, Inc.a6606096ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - TX Holdings, Inc.a6606096ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - TX Holdings, Inc.a6606096ex32-2.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q
 
x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended December 31, 2010
___________________________
 
o           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from _____to _____

Commission File No. 0-32335
  
 
TX HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter) 

GEORGIA
 
58-2558702
(State or other jurisdiction of
 
(I.R.S. Employer Identification. No.)
incorporation or organization)
   

12080 Virginia Blvd.
                        Ashland, KY  41102                    
(Principal Address of Issuer)

                             (606) 928-1131                         
Issuer's telephone number



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act  of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   YES x    NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.   Smaller reporting company   x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)   YES o    NO x


Transitional Small Business Disclosure Format (check one):   YES o    NO x

As of February 10, 2011 there were 53, 041,897 shares of common stock outstanding.
 
 
 

 
 
TX Holdings, Inc.
Form 10-Q
For the Quarter Ended December 31, 2010

Table of Contents

PART 1-FINANCIAL INFORMATION
       
   
       
   
3
       
   
 
4
       
   
 
5
       
   
 
12
       
   
13
       
 
18
       
 
20
       
PART II-OTHER INFORMATION
       
 
21
       
 
21
       
 
21
       
 
21
       
 
22
       
   
23
 
 
 
 
2

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
Balance Sheets
December 31, 2010 and September 30, 2010
   
Unaudited
   
Audited
 
   
December 31,
   
September 30,
 
   
2010
   
2010
 
          ASSETS
           
             
Current assets:
           
  Cash and cash equivalents
  $ 8,995     $ 5,848  
  Accounts Receivable-(Net of Allowance for Doubtful Accounts)
 
_
   
_
 
     Total current assets
    8,995       5,848  
                 
Unproved oil and gas properties-successful efforts, net
    187,814       188,702  
Other
    50,000       50,000  
                 
       Total Assets
  $ 246,809     $ 244,550  
                 
          LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
Current liabilities:
               
  Notes payable to a stockholder
  $ 289,997     $ 289,997  
  Accounts payable and accrued liabilities
    1,055,489       1,003,737  
  Accounts payable-related party
    158,308       158,308  
  Advances from stockholder/officer
    77,897       51,397  
 Convertible debt to stockholder/officer
    1,199,886       1,199,886  
    Total current liabilities
    2,781,577       2,703,325  
                 
Asset Retirement Obligation
    50,981       50,981  
   Total Liabilities
    2,832,558       2,754,306  
                 
Commitments and contingencies
               
                 
Stockholders' deficit:
               
   Preferred stock: no par value, 1,000,000 shares authorized
               
    no shares outstanding as of December 31,2010 and September 30,2010
 
_
   
_
 
  Common stock:no par value, 250,000,000 shares
               
    authorized, 53,041,897 and 53,041,897 shares
               
    issued and outstanding at December 31, 2010
               
    and September 30, 2010, respectively
    10,558,437       10,558,437  
  Additional paid-in capital
    1,379,409       1,379,409  
  Accumulated deficit
    (1,803,507 )     (1,803,507 )
  Losses accumulated in the development stage
    (12,720,088 )     (12,644,095 )
                 
      Total stockholders' deficit
    (2,585,749 )     (2,509,756 )
                 
    Total liabilities and stockholders' deficit
  $ 246,809     $ 244,550  
                 
The accompanying notes are an integral part of these financial statements.
         
 
 
 
3

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 2010, and 2009 and for the Period From
Inception of the Development Stage, October 1, 2004 to December 31, 2010
               
Inception of
 
               
Development
 
   
THREE MONTHS ENDED
   
Stage to
 
   
December 31,
   
December 31,
   
December 31,
 
   
2010
   
2009
   
2010
 
                   
Revenue
  $ 159     $ 6,406     $ 36,623  
                         
Operating expenses, except items shown
                       
  separately below
  $ 42,574     $ 55,126     $ 2,340,060  
  Stock-based compensation
 
_
      177,500       7,452,389  
  Professional fees
                    1,183,016  
  Impairment Expense
                    686,648  
  Lease expense
 
_
   
_
      17,392  
  Loss on write-off of leases and equipment
                    263,383  
  Depreciation expense
    888    
_
      7,585  
  Advertising expense
 
_
   
_
      83,265  
                         
     Total Operating Expenses
    43,462       232,626     $ 12,033,738  
                         
Loss from operations
    (43,303 )     (226,220 )   $ (11,997,115 )
                         
Other income and (expense):
                       
  Legal settlement
 
_
   
_
      204,000  
  Other income
 
_
   
_
      838  
  Forbearance agreement costs
 
_
   
_
      (211,098 )
  Interest expense
    (32,690 )     (32,289 )     (716,713 )
                         
   Total other income and (expenses), net
    (32,690 )     (32,289 )     (722,973 )
                         
Net loss
  $ (75,993 )   $ (258,509 )   $ (12,720,088 )
                         
Net loss per common share
                       
   basic and diluted
 
  -
    $ (0.01 )        
                         
Weighted average number of common shares
                       
   outstanding-basic and diluted
    53,041,897       46,272,587          
                         
The accompanying notes are an integral part of the financial statements.
         
 
 
 
4

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
For the Period from Development Stage , October 1, 2004 to June 30, 2010
 
                                    Losses        
                                    Accumulated        
                  Additional           in the        
 
Preferred Stock
 
Common Stock
   
Paid -In
   
Accumulated
    Development        
 
Shares
  Amount  
Shares
   
Amount
   
Capital
   
Deficit
    Stage    
Total
 
                                               
Balance at September 30, 2004
    $     $ 15,793,651     $ 1,532,111       -     $ (1,912,397 )   $       $ (380,286 )
                                                         
Inception of the development
                                                       
     stage on October 1, 2004
            -       -       -                          
Common stock issued for
                                                       
     professional services
            450,000       40,000       -                       40,000  
Common stock issued for
                                                       
     prepaid services
            100,000       10,000       -                       10,000  
Common stock issued to
                                                       
     settle accounts payable
            361,942       36,194       -                       36,194  
Warrants issued under
                                                       
     forbearence agreement
            -       -       211,098                       211,098  
Net income (loss)
            -       -       -       108,890      
(449,790
)     (340,900 )
                                                         
Balance at September 30, 2005
    $     $ 16,705,593       1,618,305       211,098     $ (1,803,507 )   $
         (449,790
)   $ (423,894 )
                                                         
 
The accompanying notes are an integral part of the financial statements
 
 
 
5

 
 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from Development Stage, October 1, 2004 to June 30, 2010
 
                                      Losses        
                                      Accumulated        
                          Additional           in the        
  Preferred Stock     Common Stock     Paid-in     Accumulated     Development        
  Shares     Amount    
Shares
   
Amount
   
Capital
    Deficit    
Stage
   
Total
 
                                               
Balance at September 30, 2005
  -     $ -       16,705,593     $ 1,618,305       211,098     $ (1,803,507 )   $ (449,790 )   $ (423,894 )
                                                               
Common stock issued for
                                                             
professional services
  -               4,649,300       2,318,295       -                       2,318,295  
Common stock issued for cash
  -               4,633,324       1,164,997                       -       1,164,997  
Common stock issued upon
                                                             
exercise of warrants
  -               294,341       2,943                       -       2,943  
Common stock surrendered
                  (500,000 )     -       -                          
Warrants issued for services
  -                       -       376,605       -       -       376,605  
    -               -               -                          
Preferred stock issued to the
                                                             
Company's chief executive
          -       -               -       -       -          
officer/stockholder
  1,000     $ 1,018, 000               -                               1,018,000  
            -               -                                  
Net income (loss)
  -               -       -       -       -       (5,015,719 )     (5,015,719 )
    -       -                                                  
Balance at September 30, 2006
  1,000     $ 1,018,000       25,782,558     $ 5,104,541     $ 587,703     $ (1,803,507 )   $ (5,465,509 )   $ (558,772 )
                                                               
                                                               
 
The accompanying notes are an integral part of the financial statements
 
 
 
 
6

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from Development Stage , October 1, 2004 to June 30, 2010
 
                                       
Losses
       
                                       
Accumulated
       
                           
Additional
         
in the
       
   
Preferred Stock
    Common Stock    
Paid-In
   
Accumulated
   
Development
       
   
Shares
   
Amount
    Shares    
Amount
   
Capital
   
Deficit
   
Stage
   
Total
 
                                                 
Balance at September 30, 2006
    1,000     $ 1,018,000       25,782,558     $ 5,104,541     $ 587,703     $ (1,803,507 )   $ (5,465,509 )   $ (558,772 )
                                                                 
Common stock issued for
                                                               
professional services
    -       -       3,475,555       2,501,222       -       -               2,501,222  
Contribution by stockholder
    -       -       -       -       53,325       -               53,325  
Warrants issued for service
    -       -       -       -       159,381       -               159,381  
Common stock issued upon
                                                               
exercise of warrants
    -       -       355,821       75,461       -       -               75,461  
Common stock issued in
settlement of notes payable and
                                                               
and interest
    -       -       833,333       546,666       -       -               546,666  
Common stock issued in settle-
                                                               
of accounts payable
    -       -       1,437,088       215,114       -       -               215,114  
Net loss
    -       -       -       -       -       -       (4,085,033 )     (4,085,033 )
                                                                 
Balance at September 30, 2007
    1,000     $ 1,018,000       31,884,355     $ 8,443,004     $ 800,409     $ (1,803,507 )     (9,550,542 )     (1,092,636 )
                                                                 
 
The accompanying notes are an integral part of the financial statements
 
 
 
 
 
7

 
 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the period from development Stage, October 1, 2004 to June 30, 2010
 
                                  Losses        
                                  Accumulated        
                     
Additional
        in the        
 
Preferred Stock
 
Common Stock
 
Paid-In
  Accumulated   Development        
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
  Deficit   Stage   Total  
                                             
Balance at September 30, 2007
1,000
 
$
1,018,000
 
31,884,355
 
$
8,443,004
 
$
800,409
 
$
(1,803,507
)
$
(9,550,542
)
$
(1,092,636
)
                                             
Common stock issued in
                                           
       exchange  of preferred stock
-1,000
   
-1,018,000
 
10,715,789
   
1,018,000
   
                -
   
                -
   
                -
   
                -
 
Common stock issued for
                                           
       professional services
           -
   
                  -
 
450,680
   
128,440
   
                -
   
                -
   
                -
   
128,440
 
Common stock issued for
                                           
       cash
           -
   
                  -
 
780,000
   
73,000
   
                -
   
                -
   
                -
   
73,000
 
Common stock issued  in
                                           
       settlement of legal claim
           -
   
                  -
 
175,000
   
31,500
   
                -
   
                -
   
                -
   
31,500
 
Contribution by stockholder
           -
   
                  -
 
                  -
   
                -
   
10,643
               
10,643
 
Common stock  returned
                                           
       to treasury
           -
   
                  -
 
-300,000
   
                -
   
                -
   
                -
   
                -
   
                -
 
Accrued salary contributed by
                                           
       officer/stockholder
           -
   
                  -
 
                  -
   
                -
   
125,000
   
                -
   
                -
   
125,000
 
Accounting for employee
                                           
       stock warrants
           -
   
                  -
 
                  -
   
                -
   
190,000
   
                -
   
                -
   
190,000
 
Accounting for options issued
                                           
       to a consultant
           -
   
                  -
 
                  -
   
                -
   
19,000
   
                -
   
                -
   
19,000
 
Net loss
           -
   
                  -
 
                  -
   
                -
   
                -
   
                -
   
(676,123
)  
(676,123
)
                                             
Balance at September 30, 2008
           -
 
$
                  -
 
43,705,824
 
$
9,693,944
 
$
1,145,052
 
$
(1,803,507
)
$
(10,226,665
)
$
(1,191,176
)
                                             
 
The accompanying notes are an integral part of the financial statements
 
 
 
8

 
 
 
TX HOLDINGS INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from Inception of the Development Stage, October 1, 2004, to June 30, 2010
 
                               
Losses
       
                               
Accumulated
       
                   
Additional
         
in the
       
 
Preferred Stock
 
Common Stock
   
Paid in
   
Accumulated
   
Development
       
 
Shares
Amount
 
Shares
   
Amount
   
Capital
   
Deficit
   
Stage
   
Total
 
Balance at
                                       
September 30, 2008
_
 _
    43,705,824     $ 9,693,944     $ 1,145,052     $ (1,803,507 )   $ (10,226,665 )   $ (1,191,176 )
                                                     
Common stock issued
                                                   
 in Payment for
                                                   
 Shareholders'advances
_
_
    2,581,073       258,108    
_
   
_
   
_
      258,108  
                                                     
 Common stock issued
                                                   
  for professional
                                                   
  services
_
_
    2,450,000       244,000    
_
   
_
   
_
      244,000  
                                                     
Common stock sold
                                                   
  to private investors
_
_
    200,000       20,000    
_
   
_
   
_
      20,000  
                                                     
Common stock returned
                                                   
 to treasury
_
_
    (1,300,000 )  
_
   
_
   
_
   
_
   
_
 
                                                     
Shareholders' advances
                                                   
previously reported as
                                                   
Additional Paid in Capital
_
_
 
_
   
_
      (10,643 )  
_
   
_
      (10,643 )
                                                     
Imputed salary contributed
                                                   
 by officer/stockholder
_
_
 
_
   
_
      125,000    
_
   
_
      125,000  
                                                     
Accounting for employee
                                                   
 stock warrant
_
_
 
_
   
_
      120,000    
_
   
_
      120,000  
                                                     
  Net Loss
_
_
 
_
   
_
   
_
   
_
      (1,276,127 )     (1,276,127 )
                                                     
Balance at
                                                   
September 30, 2009
_
 _
    47,636,897     $ 10,216,052     $ 1,379,409     $ (1,803,507 )   $ (11,502,792 )   $ (1,710,838 )
                                                     
 
The accompanying notes are an integral part of these financial statements.
                           
 
 
 
9

 
 
 
TX HOLDINGS INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from Inception of the Development Stage , October 1, 2004 to September 30, 2010
 
                                         
                               
Losses
       
                               
Accumulated
       
                   
Additional
         
in the
       
 
Preferred Stock
 
Common Stock
   
Paid in
   
Accumulated
   
Development
       
 
Shares
Amount
 
Shares
   
Amount
   
Capital
   
Deficit
   
Stage
   
Total
 
                                         
Balance at
                                       
September 30, 2009
_
 _
    47,636,897     $ 10,216,052     $ 1,379,409     $ (1,803,507 )   $ (11,502,792 )   $ (1,710,838 )
                                                     
 Common stock issued
                                                   
  for professional
                                                   
  services
_
_
    3,355,000       239,885    
_
   
_
   
_
      239,885  
                                                     
Common stock sold
                                                   
  to private investors
_
_
    2,050,000       102,500    
_
   
_
   
_
      102,500  
                                                     
                                                     
  Net Loss
_
_
 
_
   
_
   
_
   
_
      (1,141,303 )     (1,141,303 )
                                                     
Balance at
                                                   
September 30, 2010
_
 _
    53,041,897     $ 10,558,437     $ 1,379,409     $ (1,803,507 )   $ (12,644,095 )   $ (2,509,756 )
                                                     
 
The accompanying notes are an integral part of these financial statements.
                           
 
 
 
10

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Period from Inception of the Development Stage , October 1, 2004 to December 31, 2010
           
Additional
         
Losses
Accumulated
in the
       
 
Preferred Stock
 
Common Stock
   
Paid in
   
Accumulated
   
Development
       
 
Shares
Amount
 
Shares
   
Amount
   
Capital
   
Deficit
   
Stage
   
Total
 
                                         
Balance at
                                       
September 30, 2010
_
 _
    53,041,897     $ 10,558,437     $ 1,379,409     $ (1,803,507 )   $ (12,644,095 )   $ (2,509,756 )
                                                     
                                                     
  Net Loss
_
_
 
_
   
_
   
_
   
_
      (75,993 )     (75,993 )
                                                     
Balance at
                                                   
December 31, 2010
_
 _
    53,041,897     $ 10,558,437     $ 1,379,409     $ (1,803,507 )   $ (12,720,088 )   $ (2,585,749 )
                                                     
The accompanying notes are an integral part of these financial statements.
                         
 
 
 
 
11

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
For the Nine Months Ended June 30, 2010 and 2009 and for the Period From
Inception of the Development Stage, October 1, 2004, to June 30, 2010
               
Inception of
 
               
Development
 
   
THREE MONTHS ENDED
   
Stage to
 
   
12/31/2010
   
12/31/2009
   
12/31/2010
 
                   
Cash flows used by operating activities:
                 
Net loss
  $ (75,993 )   $ (258,509 )   $ (12,720,088 )
Adjustments to reconcile net loss to net cash used
                       
in operating activities:
                       
       Warrants issued for forbearance agreement
 
_
   
_
      211,098  
     Loss on disposal of equipment
 
_
   
_
      263,383  
       Impairment of unproved oil and gas properties
                    686,648  
   Depreciation expense
    888    
_
      7,585  
   Bad Debt Expense
 
_
   
_
      1,729  
       Common and preferred stock issued for services
 
_
      177,500       6,060,224  
       Accounting for Warrants issued to employees and
                       
       a consultant
 
_
   
_
      329,000  
     Warrants issued for services
 
_
   
_
      376,605  
       Common stock issued to settle accounts payable
 
_
   
_
      251,308  
       Common stock issued in payment of interest expense
 
_
   
_
      196,666  
       Common stock issued by an officer/stockholder to
                       
           satisfy expenses of the Company and increase
                       
         stockholder advances
 
_
   
_
      616,750  
       Common stock issued in settlement of legal claim
 
_
   
_
      31,500  
       Accrued salary contributed by stockholder/former officer
 
_
   
_
      250,000  
       Changes in operating assets and liabilities:
                       
        Accrued stock-based compensation reversal
                       
          resulting from legal claim settlement
 
_
   
_
      (231,000 )
        Prepaid expenses and other assets
 
_
      (2,000 )     (49,750 )
    Accounts receivable
 
_
   
_
      (1,729 )
        Accounts payable and accrued liabilities
    51,752       38,366       1,960,686  
Net cash used by operating activities
  $ (23,353 )     (44,643 )     (1,759,385 )
                         
Cash flows used in investing activities:
                       
         Deposits paid for oil and gas property acquisitions
 
_
   
_
      (378,000 )
         Property and equipment additions
 
_
   
_
      (425,329 )
Net cash used in investing activities
 
_
   
_
      (803,329 )
                         
Cash flows provided by financing activities:
                       
          Proceeds from stockholder/officer contribution
 
_
   
_
      10,643  
          Repayment of note payable to a bank
 
_
   
_
      (20,598 )
          Proceeds from note payable to stockholder
 
_
   
_
      520,000  
          Proceeds from sale of common stock
 
_
      55,000       1,360,497  
          Proceeds from exercise of warrants
 
_
   
_
      78,404  
          Proceeds from stockholder/officer advances
    26,500    
_
      629,663  
          Payments of stockholders advances
 
_
      (6,900 )     (6,900 )
Net cash provided by financing activities
    26,500       48,100       2,571,709  
                         
Increase in cash and cash equivalents
    3,147       3,457       8,995  
Cash and cash equivalents at beginning of period
    5,848       6,588    
_
 
                         
Cash and cash equivalent at December 31, 2009 and 2008
  $ 8,995     $ 10,045     $ 8,995  
                         
Non-cash investing and financing activities:
                       
 Common stock issued in payment of Shareholders' advances
 
_
   
_
    $ 258,107  
 Shareholders'advances converted to notes payable from stockholder
 
_
   
_
    $ 119,997  
 Shareholders' advances previously reported as paid-in capital
 
_
   
_
    $ (10,643 )
 Increase in property and equipment from recognition of asset retirement obligation
 
_
   
_
    $ 86,455  
                         
The accompanying notes are an integral part of these financial statements.
                 
 
 
12

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE

NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES

INTERIM FINANCIAL STATEMENTS

The accompanying interim unaudited financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), have been condensed or omitted pursuant to such rules and regulations.

These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s 2010 Annual Report. The results of operations for interim periods are not necessarily indicative of the results for any subsequent quarter or the entire year ending September 30, 2011.

CAUTIONARY NOTE TO U.S. INVESTORS

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION PERMITS OIL AND GAS COMPANIES, IN THEIR FILINGS WITH THE SEC, TO DISCLOSE ONLY PROVED RESERVES THAT A COMPANY HAS DEMONSTRATED BY ACTUAL PRODUCTION OR CONCLUSIVE FORMATION TESTS TO BE ECONOMICALLY AND LEGALLY PRODUCIBLE UNDER EXISTING ECONOMIC AND OPERATING CONDITIONS. WE USE CERTAIN TERMS HEREIN, SUCH AS "PROBABLE", "POSSIBLE", "RECOVERABLE",AND “RISKED," AMONG OTHERS, THAT THE SEC'S GUIDELINES STRICTLY PROHIBIT US FROM INCLUDING IN FILINGS WITH THE SEC. READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE BY US WHICH ATTEMPT TO ADVISE INTERESTED PARTIES OF THE ADDITIONAL FACTORS WHICH MAY AFFECT OUR BUSINESS

OVERVIEW OF BUSINESS

TX Holdings, Inc. ("TX Holdings" or the "Company"), formerly named R Wireless, Inc. ("RWLS") and HOM Corporation ("HOM"), is a Georgia corporation incorporated on May 4, 2000. In December 2004 the Company began to structure itself into an oil and gas exploration and production company. The Company acquired oil and gas leases and began development of a plan for oil and gas producing operations in April 2006.

The Company is actively engaged in the development, and acquisition of crude oil and natural gas in the counties of Callahan and Eastland, Texas. In November 2006, the Company entered into a Purchase and Sale Agreement with Masada Oil & Gas, Inc. ("Masada"). Masada has previously served as the operator on the Park’s Lease in which TX Holdings previously held a 75% working interest as of December 31, 2010 (See note 5).
 
The Parks lease covers 320 acres in which the company owns a 75% working interest and Masada owned the remaining 25%. The land owners of this lease have a 12.5% royalty interest in the production. TX Holdings is the lease operator of the lease and there are currently 22 wells with minimal production rates. (2 to 3 bbls per day). On January 28, 2011, the company purchased from Masada Oil the remaining 25% and thereby holding 100% working interest on the Parks lease.

The Company has an estimated 8% working interest on the Perth lease which is currently under litigation. On September 30, 2010, the Company recorded an impairment loss of $302,560.


 
13

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES- CONT’D

OVERVIEW OF BUSINESS-CONT’D

The Company owned a 100% working interest and was the operator of the 843 acre Williams Lease. An on-going dispute with the land owner of the lease has prevented the Company from operating or reporting any production on this lease. On September 30, 2009, the Company elected to cease operation of the Williams lease resulting in impairment of the lease. The Company recorded an impairment loss of $68,222 for the year ended September 30, 2009 related to this lease.

The Company plans to continue using a combination of debt and equity financing to acquire additional fields and to develop those fields. Currently, management cannot provide any assurance regarding the successful development of acquired oil and gas fields, the completion of additional acquisitions or the continued ability to raise funds, however, it is using its best efforts to complete field work on the fields acquired, acquire additional fields and finance

The Company has experienced substantial costs for engineering and other professional services during 2005 through 2010 in making the attempt to transition to an oil and gas exploration and production company from its current development stage status.

GOING CONCERN CONSIDERATIONS

Since it ceased its former business operations, the Company has devoted its efforts to securing financing and has not earned significant revenue from its planned principal operations. Accordingly, the financial statements are presented in accordance with FASB Accounting Standards Codification  (“ASC”) Topic 915 Development Stage Entities.

The Company, with its prior subsidiaries, has suffered recurring losses while devoting substantially all of its efforts to raising capital and identifying and pursuing advantageous businesses opportunities. Management currently believes that its best opportunities lie in the oil and gas industry. The Company's total liabilities exceed its total assets and the Company's liquidity has depended excessively on raising new capital.

These factors raise substantial doubt about the Company's ability to continue as a going concern.  The accompanying financial statements have been prepared on a going concern basis, which contemplates continuing operations and realization of assets and liquidation of liabilities in the ordinary course of business.  The Company's ability to continue as a going concern is dependent upon its ability to raise sufficient capital and to implement a successful business plan to generate profits sufficient to become financially viable. The financial statements do not include adjustments relating to the recoverability of recorded assets nor the implications of associated bankruptcy costs should the Company be unable to continue as a going concern.
 
RECENTLY ISSUED ACCOUNTING STANDARDS

During the three months ended December 31, 2010, there were several new accounting pronouncements issued by the FASB  the most recent of which was Accounting Standards Update 2011-01, Receivables: Deferral of the Effective Date  of Disclosures about Trouble Debt Restructurings in Update No. 201020s. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.


 
14

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
  NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

SUBSEQUENT EVENTS
 
Upon evaluation, the Company notes that there were no material subsequent events between the date of the financial statements and the date that the financial statements were issued except as disclosed in Note 5.
 
NOTE 2 - NOTES PAYABLE TO A STOCKHOLDER AND CONVERTIBLE DEBT TO OFFICER/STOCKHOLDER
 
Mark Neuhaus, the former Chairman of the Board of  Directors  and former  Chief  Executive Officer of the  Company  caused the Company in September 2007 to  issue to him a convertible  promissory  note in the  amount  of  $1,199,886  bearing interest  at 8% per annum and due and payable  within two years for  payments in cash and  common  stock made on behalf of the  Company  through  that date.  The conversion  price is $0.28 per common  share (the market  price of the  Company's common  stock on the date of the note) which will  automatically  convert on the two-year  anniversary  of the  note if not  paid in  full  by the  Company.  The conversion price is subject to adjustments for anti-dilution. The Company disputed that the note was not supported by consideration or that it was properly authorized under Georgia law and on November 11, 2008 the Company entered into a settlement agreement with Mr. Neuhaus and his wife which included provisions cancelling the indebtedness represented by the note contingent on the closing of a third party transaction within 90 days of November 11, 2008. The Company was not successful in finalizing the transaction with the third party within the stipulated period resulting in the cancellation of the settlement agreement between the Company and Mark Neuhaus and his wife.
 
NOTE 3 - INCOME TAXES

Following is an analysis of deferred taxes at December 31, 2010:
     
Deferred tax assets:
   
Net operating losses
$ 1,783,000  
Accrued expenses
  257,000  
Valuation allowance
  (2,040,000 )
       
Total deferred tax assets
_
 
       
Deferred tax liabilities:
     
Basis of property and equipment
_
 
       
Net deferred tax asset
$
_
 
       


The Company has tax net operating loss carryforwards totaling approximately $5,277,000, expiring in 2018 through 2030. Approximately $1,200,000 of net operating losses were incurred prior to December 12, 2002 at which date MA&N acquired 51% of the Company and are consequently subject to certain limitation described in section 382 of the Internal Revenue Code. The Company estimates that, due to the limitations and expiration dates, only $424,000 of the net operating losses incurred prior to December 12, 2002 will be available to offset future taxable income.
 
 
15

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 3 - INCOME TAXES-CONT’D

Net operating losses after December 12, 2002 through December 31, 2010 were approximately $4,077,000.  The total net operating losses available to the Company to offset future taxable income is approximately $4,501,000. Following is a reconciliation of the tax benefit at the federal statutory rate to the amount reported in the statement of operations for the three months ended December 31, 2010 and 2009:


 
Three Months Ended Dec. 31,
 
 
2010
   
2009
 
               
Benefit for income tax at federal
             
statutory rate
$
26,000
   
$
88,000
 
Change in valuation allowance
 
_
     
(28,000
Non-deductible stock-based
             
  Compensation
 
(26,000
)    
(60,000
               
 
$
-
   
$
-
 


NOTE 4 – STOCKHOLDERS’ EQUITY

PREFERRED STOCK

Mark Neuhaus, former President, CEO and Chairman of the Board, has represented that in May 2006 the Company entered into an employment agreement with him.  Mr. Neuhaus claims that the agreement provided that he was to be compensated at the rate of $25,000 per month plus bonus based on oil and gas production. In addition he claims that the employment agreement granted to Mr. Neuhaus 1,000 shares of preferred stock. The preferred stock which Mr. Neuhaus caused to be issued to himself had the following rights and privileges:
 
1.  
Super voting rights: The preferred stock has the right to vote on any item of business submitted to the common shareholders for a vote the equivalent number of votes representing 50% of the outstanding common shares then issued by the Company.

2.  
No other rights: The preferred shares have no other rights, including but not limited to no conversion rights; no dividend rights; and no liquidation priority rights.

During the fiscal year 2006, Mr. Neuhaus waived his salary.  However, Mr. Neuhaus obtained a letter from Baron Capital Group, Inc. stating that value of the preferred stock value was no greater than $1,018,000. On December 24, 2007, and in connection with Mr. Neuhaus’ resignation, the 1,000 preferred shares were exchanged for 10,715,789 common shares, which exchange assumed that the preferred stock had a value of $1,018,000.  Current management of the Company has not seen documentation establishing that an employment agreement existed between Mr. Neuhaus and the Company; that any such agreement was authorized in accordance with Georgia law or that the preferred stock was duly authorized or validly issued in accordance with law.

COMMON STOCK

During the period September 30, 2010 through December 31, 2010, the Company has not issued Common stock to raise capital, compensate employees and professionals, and to settle liabilities.
 
 
 
16

 
 
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 4 – STOCKHOLDERS’ EQUITY-CONT’D

POTENTIALLY DILUTIVE OPTIONS AND WARRANTS

At December 31, 2010, the Company has outstanding 1,000,000 warrants which were not included in the calculation of diluted net loss per share since their inclusion would be anti-dilutive.

Following is a summary of outstanding stock warrants at December 31, 2010
   
Number of
   
Exercise
   
Weighted
 
   
Shares
   
Price
   
Avg. Price
 
Warrants at September 30,2010
    1,000,000     $ 0.28     $ 0.28  
Issued
 
_
   
_
   
_
 
Expired
 
_
   
_
   
_
 
Warrants at December 31, 2010
    1,000,000     $ 0.28     $ 0.28  



A summary of outstanding warrants at December 31, 2010, follows:
               
Contractual
 
               
Remaining
 
   
Number of
   
Exercise
   
Life
 
Expiration Date
 
Shares
   
Price
   
(Years)
 
                   
                   
September, 2011
    1,000,000       0.28       .75  
      1,000,000                  


NOTE 5 – RELATED PARTY TRANSACTIONS

Beginning with the quarter ended March 31, 2008 to the present, the Company recognized crude oil sales from a lease for which the operator is company owned by a stockholder/director of the Company. These sales account for 100% of our oil and gas revenue for the Three months ended December 31, 2010.

As of December 31, 2010, the Company has an outstanding note payable to Mr. Shrewsbury, the Company’s Chairman and CEO, for the amount of $289,997, the note bears a 10% interest and is payable on demand.

Included in the financial statements at December 31, 2010 are advances from stockholder/officer of $51,397.  Interest has been accrued on the notes payables at rates ranging from 8% to 10%. In the quarter ended December 31, 2010 interest expense of $31,504, in the accompanying statement of operations, relates to the promissory notes.

In June 2007, the Company  entered  into a  strategic  alliance  agreement  with Hewitt Energy Group,  LLC (“Hewitt Energy”) to identify  reserves and prospects,  and to establish production from the projects  mutually owned or contemplated to be jointly owned by the entities in states of Texas,  Kansas and  Oklahoma.  Hewitt Energy  is controlled by a former member of the Company's board of directors. During 2007, the Company's former Chief Executive Officer, who is a  major  stockholder, claimed that he transferred stock on behalf of the Company with a market value of $352,560 to Hewitt Energy Group, LLC to acquire an interest in the Perth field in Kansas. There is currently a dispute as to the extent of the Company’s performance under the leases and agreement with Hewitt Energy.
 
 
 
17

 

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 5 – RELATED PARTY TRANSACTIONS-CON’TD

On November 11, 2008, the Company entered into a settlement agreement with Mark Neuhaus and Nicole Neuhaus. The agreement was subject to the Company finalizing a transaction with a third party involving certain oil and gas properties within 90 days of November 11, 2008 ("Third Party Closing"). If the third party transaction closes, the agreement provides for mutual general releases between the Company, Mark Neuhaus and Nicole Neuhaus. In connection with the agreement, seven million shares of the common stock of the Company previously issued to Mark Neuhaus were delivered to the Company to be held pending the Third Party Closing. If the Third Party Closing occurs within the 90 day period, (1) four million five hundred thousand of the deposited shares will be cancelled and returned to authorized but unissued shares of the Company,(2) two million five hundred thousand of the deposited shares will be delivered to Nicole Neuhaus and (3) certain alleged claims of Mark Neuhaus against the Company for compensation and reimbursement for advances in the aggregate amount of $178,862 and a purported indebtedness of the Company to Mark Neuhaus in the amount of $1,320,071,including interest accrued  through December 31, 2008 and represented by a convertible note dated as of September 28, 2007 will be cancelled. If the Third Party Closing does not occur within 90 days of November 11, 2008, the settlement agreement will be void and of no force and effect and the deposited shares will be returned. On February 6, 2009, an amendment to the settlement agreement was signed by all parties. The amendment extends the period of time provided in paragraph 10 of the settlement agreement by an additional 30 days so that the agreement would remain in full force and effect until March 11, 2009. The Company was not successful in finalizing the transaction with the third party within the stipulated period resulting in the cancellation of the settlement agreement between the Company and Mark Neuhaus and Nicole Neuhaus.

On January 28, 2010 TX Holdings,Inc entered into an agreement with Masada Oil & Gas Inc. to acquire the remaining 25% working interest in the Park’s lease which the Company currently owns a 75% working interest. As part of the agreement, the Company also acquired a storage building and approximately two acres of land. In return, the Company will relinquish an 8.5% working interest which it currently holds in the Contract Area 1 lease, pay the sum of $10,000 and, assume the current 25% lease owners’ liability estimated at approximately $20,000.

INTRODUCTION

The following discussion is intended to facilitate an understanding of our business and results of operations and includes forward-looking statements that reflect our plans, estimates and beliefs. It should be read in conjunction with our audited consolidated financial statements and the accompanying notes to the consolidated financial statements included herein. Our actual results could differ materially from those discussed in these forward-looking statements.

 
 
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The Company has never earned a profit, and has incurred an accumulated deficit of $14,523,595 as of December 31, 2010. As of September 30, 2006, the Company had raised $1,240,000 in equity. The Company has used these funds to purchase or place deposits on three oil and gas fields to begin its operations as an oil and gas exploration and production company. Revenues derived from the planned production and sale of oil will be based on the evaluation and development of fields. If our development plan is successful, it is estimated it will take approximately one year to reach production levels to sufficiently capitalize the Company on an ongoing basis. During this initial ramp up period, the Company believes it will need to raise additional funds to fully develop its fields, purchase equipment and meet general administrative expenses. The Company may seek both debt and equity financing. The Company currently has twenty two wells located on one field located in Texas. Each of the wells will need to be reworked to establish production at a cost of approximately $7,000 to $10,000 per well. Initial production from each well is estimated to be between two to five barrels per day. Once initial production has been established the Company intends to begin a water flood program that injects water into the oil producing zone through injector wells. The water then forces the oil towards the producing well and, if successful, may increase production of each well up to an estimated four to seven barrels per day per well. If the Company is able to produce its wells upon the re-completion the Company revenues will exceed current operating expenses if 40 barrels of oil is produced and the price of oil remains above $55.00 per barrel. The Company's success is dependent on if and how quickly it can reach these levels of production. The Company plans to use all revenues for general corporate purposes as well as, future expansion of its current oil producing properties and the acquisition of other oil and gas properties. There is no certainty that the Company can achieve profitable levels of production or that it will be able to raise additional capital through any means.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2010 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2009

REVENUES FROM OPERATIONS

Revenues for the three months ended December 31, 2010 and 2009 were $159 and $6,406 respectively. During the quarter ended December 31, 2010, the Company had limited production as a result of  well workover performed during the quarter to increase future production.  On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has acquired one oil and gas lease in the counties of Eastland and Callahan, Texas and has begun development of oil and gas. The Company received its first revenues from oil and gas operations in March 2008.  The Company believes that it will place additional wells into operation during the current fiscal year. Since it ceased its former business operations, the Company has devoted its efforts to research prospective leases and business combinations and secure financing.
 
EXPENSES FROM CONTINUING OPERATIONS

The Company operating expenses for the three months ended December 31, 2010 were $43,462. The current quarter operating expenses represent a positive variance of $189,164 when compared to operating expenses of $232,626 for the quarter ended December 31, 2009. Lower stock based compensation for services, in the current quarter, account for a favorable variance in the amount of $177,500 when compared to the same quarter the prior year. Lower contract labor, lower equipment rental expense, and lower travel expenses primarily account for the remaining  favorable variance of $11,664 in the current quarter.

NET INCOME/LOSS

For the quarter December 31, 2010, the Company had a net loss of $75,993 representing a positive variance of $182,516 when compared to a net loss of $258,509 for the quarter ended December 31, 2009. The favorable  variance in the current quarter as noted above in “Expenses from Continuing Operations” resulted from lower stock based compensation, lower contract labor expense, lower equipment rental and lower travel expenses.

 
 
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Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that the Company’s internal control over financial reporting were not effective as of  December 31, 2010, under the criteria set forth in the Internal Control—Integrated Framework. The determination was made partially due to the small size of the company and a lack of segregation of duties.  The Company continues to implement control processes to mitigate the control weaknesses that are present in a small Company with very few employees.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with management’s evaluation during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
 
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PART II - OTHER INFORMATION


Management is currently aware of no pending, past or present litigation involving the Company which management  believes could have a material adverse effect on the Company.

On November 17, 2009 the Company filed a legal claim in the Miami Circuit Court against several defendants for alleged services and reimbursed expenses paid by the Company. The claim stipulates that the defendants did not perform any services on TX Holdings behalf which would have entitled them to receive compensation or reimbursement of expenses. Management believes that this matter can be resolved and will have no material effect on the Company’s operations.

Except as disclosed above, the Company has no material legal proceedings in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.

None.

None.

None.
 
 
 
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Exhibit 31.1
Section 302 Certification of Chief Executive Officer
   
Exhibit 31.2
Section 302 Certification of Chief Financial Officer
   
Exhibit 32.1
Section 906 Certification of Chief Executive Officer
   
Exhibit 32.2
Section 906 Certification of Chief Financial Officer

 


 
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In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
TX HOLDINGS, INC.        
         
           
By:
/s/ William “Buck” Shrewsbury                  
       
 
William “Buck” Shrewsbury
       
 
Chief Executive Officer
       

Dated:  February 10, 2011
 
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
 
/s/ William “Buck” Shrewsbury                   
    Chairman of the Board of Directors and  
  William “Buck” Shrewsbury     Chief Executive Officer  
  February 10, 2011        
           
           
  /s/ Richard (Rick) Novack                                  President and Director  
 
Richard (Rick) Novack
       
  February 10, 2011        
           
           
  /s/ Jose Fuentes                                                  Chief Financial Officer  
 
Jose Fuentes
       
  February 10, 2011        
           
           
  /s/ Bobby S. Fellers                                            Director  
 
Bobby S. Fellers
       
  February 10, 2011        
           
           
  /s/ Martin Lipper                                                Director  
 
Martin Lipper
       
  February 10, 2011        

 
 
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