U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-KSB/A
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended September 30, 2007
|_| Transition report pursuant to 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. (formerly R Wireless, Inc.)
(Name of small business issuer in its charter)
Georgia 58-2558702
(State or Other Jursidiction (I.R.S. Employer
Of Incorporation or Organization) Identification No.)
1701 North Judge Ely Blvd. #6420
Abilene, Texas 79601
(Address of Principal)
(682) 286-3116
(Registrant's Telephone Number, Including Area Code)
Securities Registered Under Section 12(b) of the Act:
None
Securities Registered Under Section 12(g) of the Act:
Common Stock
(Title of class)
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for past 90 days. Yes [X] No [
]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Registrant's did not have revenues for the fiscal year ended September 30,
2007.
Indicate by check mark whether the registered is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the Common Stock held by non-affiliates, based on
the average closing bid and asked price of the Common Stock on November 30, 2007
was $4,144,966. There are approximately 13,966,431 shares of common voting stock
of the Registrant held by non-affiliates. On November 30, 2007 the average bid
and asked price was $0.13.
1
As of September 30, 2007, there were 31,884,355 shares of common stock
outstanding.
Forward-Looking Statements and Cautionary Words
This annual report on Form 10-KSB ("Annual Report") for the period ending
September 30, 2007 ("fiscal year 2007"), contains forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995 and
as such may involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such forward-looking
statements speak only as of the date of this Form 10-KSB or the amendment
thereto in which they appear, as the case may be. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based. In
addition, particular attention is called to cautionary words such as "may,"
"will," "expect," "anticipate," "estimate" and "intend" where they appear
herein. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors" that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.
Disclosure Regarding Forward-Looking Statements
Included in this report are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-KSB which address
activities, events or developments which we expect or anticipate will or may
occur in the future are forward-looking statements.
As used in this Annual Report, the terms "we", "us", and "our" mean TX Holdings,
Inc.
2
Glossary of Terms
We are engaged in the business of exploring for and producing oil and natural
gas. Oil and gas exploration is a specialized industry. Many of the terms used
to describe our business are unique to the oil and gas industry. The following
glossary clarifies certain of these terms that may be encountered while reading
this report:
"Bbl" means barrel or barrels, used in this annual report to refer to crude oil
or other liquid hydrocarbons.
"Bcf" means billion cubic feet, used in this annual report in reference to
gaseous hydrocarbons.
"BcfE" means billions of cubic feet of gas equivalent, determined using the
ratio of six thousand cubic feet of gas to one barrel of oil, condensate or gas
liquids.
"Farmout" involves an entity's assignment of all or a part of its interest in or
lease of a property in exchange for consideration such as a royalty.
"Gross" oil or gas well or "gross" acre is a well or acre in which we have a
working interest.
"MBbl" means thousand barrels, used in this annual report to refer to crude oil
or other liquid hydrocarbons.
"Mcf" means thousand cubic feet, used in this annual report to refer to gaseous
hydrocarbons.
"McfE" means thousands of cubic feet of gas equivalent, determined using the
ratio of six thousand cubic feet of gas to one barrel of oil, condensate or gas
liquids.
"MMcf" means million cubic feet, used in this annual report to refer to gaseous
hydrocarbons.
"Net" oil and gas wells or "net" acres are determined by multiplying.
"Oil and gas lease" or "Lease" means an agreement between a mineral owner, the
lessor, and a lessee which conveys the right to the lessee to explore for and
produce oil and gas from the leased lands. Oil and gas leases usually have a
primary term during which the lessee must establish production of oil and or
gas. If production is established within the primary term, the term of the lease
generally continues in effect so long as production occurs on the lease. Leases
generally provide for a royalty to be paid to the lessor from the gross proceeds
from the sale of production.
"Prospect" means a location where both geological and economical conditions
favor drilling a well.
"Proved oil and gas reserves" are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e. prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Reservoirs are considered proved if
economic recovery by production is supported by either actual production or
conclusive formation test. The area of a reservoir considered proved includes
(A) that portion delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any, and (B) the immediately adjoining portions not yet drilled,
but which can reasonably be judged as economically productive on the basis of
available geological and engineering data. In the absence of information on
fluid contacts the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
"Proved developed oil and gas reserves" are those proved reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Additional oil and gas reserves expected to be obtained
through the application of fluid injection or other improved secondary or
tertiary recovery techniques for supplementing the natural forces and mechanisms
of primary recovery are included as "proved developed reserves" only after
testing by a pilot project or after the operation of an installed recovery
program has confirmed through production response that increased recovery will
be achieved.
3
"Proved undeveloped oil and gas reserves" are those proved reserves that are
expected to be recovered from new wells on undrilled acreage, or from existing
wells where a relatively major expenditure is required. Reserves on undrilled
acreage are limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units are claimed only where it can be demonstrated with reasonable
certainty that there is continuity of production from the existing productive
formation. Estimates for proved undeveloped reserves attributable to any acreage
do not include production for which an application of fluid injection or other
improved recovery technique is required or contemplated, unless such techniques
have been proved effective by actual tests in the area and in the same
reservoir.
"Royalty interest" is a right to oil, gas, or other minerals that are not
burdened by the costs to develop or operate the related property.
"Working interest" is an interest in an oil and gas property that is burdened
with the costs of development and operation of the property.
4
FORM 10-KSB
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007
TABLE OF CONTENTS
PART I............................................................................................................6
Item 1 Description of Business.......................................................................6
Item 2 Description of Property......................................................................20
Item 3 Legal Proceedings............................................................................21
Item 4 Submission of Matters to a Vote of Security Holders..........................................22
PART II..........................................................................................................23
Item 5 Market for Common Equity and Related Stockholder Matters.....................................23
Item 6 Management's Discussion and Analysis or Plan of Operations...................................27
Item 7 Financial Statements.........................................................................29
Item 8 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure ........51
Item 8A Controls and Procedures......................................................................51
Item 8B Other Information............................................................................52
PART III.........................................................................................................53
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act............................................................53
Item 10 Executive Compensation.......................................................................55
Item 11 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters .........................................................................57
Item 12 Certain Relationships and Related Transactions...............................................59
Item 13 Exhibits and Reports on Form 8-K.............................................................61
Item 14 Principal Accountants Fees and Service.......................................................63
5
PART I
Item 1 Description of Business
Overview of Business
TX Holdings, Inc. ("TX Holdings" or the "Company"), formerly named R Wireless,
Inc. ("RWLS") and, prior to that, named HOM Corporation ("HOM"), is a Georgia
corporation incorporated on May 4, 2000. On December 5, 2004 the Company began
to structure itself into an oil and gas production and exploration company. The
Company acquired oil and gas leases and began development of oil and gas
producing operations as of April 11, 2006. (For a discussion of current oil and
gas activities see sections "Recent Developments"; "Background for Oil and Gas
Business Activities" and "Current Oil and Gas Activities").
History and Corporate Structure
Previously TX Holdings acted as a holding company whose operations were
conducted through two wholly-owned operating subsidiaries, Direct Lending Inc.
("Direct"), a Georgia corporation, and Homes By Owners, Inc. ("Homes"), a
Georgia corporation. Direct was a licensed mortgage broker working with various
financial institutions and underwriters. Homes published and distributed a
monthly magazine, HOMES BY OWNERS, listing residential properties in the
Augusta, Georgia/Aiken, South Carolina metropolitan area for sale by their
owners and containing other advertising material. Homes also listed homes for
sale on its website, www.homesbyowners.net.
Direct, incorporated January 9, 1997, was acquired by Apple Homes, Inc.,
("Apple") a publicly traded company, on October 1, 1998. The stock of Direct was
distributed pro rata to the stockholders of Apple who were of record on March 1,
1999. Homes was incorporated December 6, 1999 as a subsidiary of Direct.
Effective July 5, 2000, the Company, which had been created with a minimal
initial investment, effected a reorganization with Direct and Homes. Direct
shareholders became shareholders of the Company and Direct and Homes became
wholly owned subsidiaries of the Company.
On December 12, 2002, MA&N, LLC ("MA&N") acquired control of the Company through
purchase of 4,647,626 shares of common stock representing 51% of the Company's
9,112,992 outstanding shares of common stock and causing the majority of the
directors of the Company, including the current CEO of the Company, Mark
Neuhaus, and his wife, Nicole B. Neuhaus, to be persons associated with MA&N.
The name of the Company was changed from HOM Corporation to R Wireless, Inc.
effective as of January 22, 2003. The specified consideration from MA&N for this
purchase was (a) causing the provision of Internet Service Provider, or ISP,
wireless service from not less than 5 nodes, (b) provision of consulting
services on financial and management matters to the Company for at least two
years, (c) arranging for personnel to manage the Company, (d) development of a
business plan by MA&N to acquire additional business operations in the ISP
wireless business and the subsequent administration of such plan, and (e)
funding the accounting and legal costs associated with compliance to United
States Securities and Exchange Commission regulations. MA&N fully furnished the
required financial payments and was deemed to satisfy the specified
consideration. Furthermore, the following changes were implemented: CUSIP number
was changed to 74976E 10 4 as of February 4, 2003, and the trading symbol was
changed to RWLS as of February 19, 2003.
In early 2003 the Company contemplated business opportunities in the wireless
fidelity business, more commonly known as Wi-Fi industry (the term is used
generically when referring to any type of 802.11 network, such as 802.11b,
802.11a, or dual-band). Due to the competitive nature of the Wi-Fi business,
resulting from numerous entries of large companies with significant research and
development capabilities, the Company was not able to establish itself in this
industry. Various acquisitions were considered, some of which required extensive
due diligence and research, but none of these was completed.
On December 5, 2004, the Company announced plans to change business direction
based on recent global political and economic developments that drastically
increased the price of energy. The restricted supply of oil and gas from OPEC
member countries and other exporters led to a surge in energy prices. These
trends opened new opportunities for local companies in the oil and gas sector,
and the Company decided to pursue this opportunity. In connection with this
decision, the Company effected its name change to "TX Holdings, Inc." on
September 1, 2005. Management believes the new name reflects the new business
direction of the Company, specifically the acquisition of producing oil and gas
properties. Furthermore, the following changes were implemented: CUSIP number
changed to 873 11R 101 as of September 6, 2005, and the trading symbol changed
to TXHG as of September 19, 2005.
6
On September 4, 2003, the Company signed an agreement with Jim Evans ("Evans"),
sole owner of Freedom Homes, Inc. ("Old Freedom"), established in Wrens, Georgia
and currently based in Augusta, Georgia, a manufactured housing dealer. The
agreement was for the acquisition of Old Freedom by Homes in exchange for stock
of Homes that gave Evans 70%, and left TX Holdings with 25%, of the outstanding
common stock of Homes. Robert W Wilson ("Wilson") the President and Chief
Executive Officer of the Company prior to the acquisition of control by MA&N,
received 5% of the outstanding common stock of Homes for services in connection
with the transaction and otherwise. (SEE EXHIBIT 2.3). The transaction was
subject to a condition subsequent that a financing for Homes of $500,000 be
completed by March 5, 2004, which subsequently was extended to April 5, 2004
(SEE EXHIBIT 2.5). The condition subsequent was not fulfilled, and consequently
the shares of Old Freedom were returned to Evans, and the shares of Homes held
by Evans were returned to the Company. As a result, TX Holdings owned 95% of the
outstanding common stock of Homes and Wilson owned 5%.
Effective March 25, 2005, Evans (again the owner of all the outstanding common
stock of Old Freedom), Old Freedom, TX Holdings (the owner of 95% of the
outstanding common stock of Homes), Homes and Robert Wilson ("Wilson", the owner
of 5% of the outstanding common stock of Homes) executed an Agreement to Merge
that provided for the merger of Old Freedom into Homes (with Homes taking the
name Freedom Homes, Inc. following the effectiveness of the merger, after which
it is referred to as "New Freedom". (SEE EXHIBIT 10.4)). As a result of the
merger, Evans would own 4,100,000 shares (63.1%), TX Holdings would own
2,100,000 shares (32.3%), and Wilson would own 300,000 shares (4.6%), of the
outstanding common stock of New Freedom. That agreement contemplated that an
additional 500,000 shares of New Freedom common stock would be issued in a
private placement at $1.00 a share for a total of $500,000 (which has not been
accomplished but which TX Holdings, New Freedom and Old Freedom agreed to use
their best efforts to accomplish). TX Holdings, New Freedom, Evans and Old
Freedom also undertook to use their respective best efforts to cause at least
50% (and possibly all) of the 2,100,000 shares of common stock of New Freedom
that TX Holdings held to be spun off to its shareholders (which then could not
be legally done in view of the financial situation of the Company). In
implementation of the Agreement to Merge, Freedom and Old Freedom entered into
an Agreement and Plan of Merger dated as of May 12, 2005, which became effective
May 26, 2005 as a statutory merger under Georgia law and is designed to qualify
as a tax-free reorganization for Federal and Georgia tax purposes. Although
Homes was the surviving corporation the resulting corporation, is named Freedom
Homes, Inc.
In February 2006 TX Holdings entered into a Memorandum of Understanding to
acquire Oil and Gas Leases located in Texas. The negotiations and due diligence
under the Memorandum of Understanding were concluded on November 1, 2006
resulting in TX Holdings acquiring a turn-key prospect known as Contract Area #1
located in the counties of Callahan and Eastland, Texas. On August 1, 2006 TX
Holdings acquired the Williams Lease, located in Callahan County, Texas. On
April 11, 2006 TX Holdings acquired the Parks Lease, located in Callahan County,
Texas.
On March 28, 2006, TX Holdings appointed to its Board of Directors Bobby Fellers
who has worked in the oil and gas business for more than thirty years. Mr.
Fellers has assisted TX Holdings in the acquisition of the above referenced
leases and owns a forty percent working interest position in the Contract Area
#1 lease and a twenty-five percent working interest in the Parks Lease. In
addition Mr. Fellers is employed by Masada Oil & Gas a Texas corporation, which
is the current operator of record on both the Parks and Contract Area 1 leases
in which TX Holdings owns an interest.
On March 28, 2006, TX Holdings appointed Douglas C. Hewitt to its Board of
Directors. Mr. Hewitt has in excess of twenty years in the oil and gas business
and more than eighteen years in the organizing and building of energy and
technology businesses. Mr. Hewitt is currently an operator and owner of an
independent oil and gas production and exploration company.
On March 28, 2006, TX Holdings appointed Michael A. Cederstorm as the interim
Chief Financial Officer of TX Holdings while TX Holdings completes its
reorganization as an exploration and production company. Mr. Cederstrom has
served as the Chief Financial Officer for several oil and gas companies over the
past 10 years. Once oil and gas production has been instituted a new Chief
Financial Officer will be sought.
7
On August 2, 2006, TX Holdings appointed W.A. ("Bill") Alexander as the Chief
Operating Officer. Mr. Alexander is a licensed Petroleum Engineer with over 30
years of experience. Mr. Alexander is experienced in all areas of exploration
and production of oil and gas fields.
Recent Developments
On August 1, 2007, the Company retained the services of Energy Capital Solutions
to advise the Company regarding acquisitions and funding of oil and gas
properties. The contract is for the advising of the acquisition of leases and
currently operating oil and gas Companies located in the Louisiana area. The
Company is paying the sum of $30,000 and a 4.5 percent success fee for all debt
or equity raised in addition to 4.5 percent in warrants for all equity raised.
On August 10, 2007, Douglas C. Hewitt resigned as a Director of the Company. Mr.
Hewitt is pursuing the funding of oil and gas projects owned by Hewitt Energy
Group, LLC and the pursuit of lenders in competition with the Company may lead
to conflicts of interest.
On December 1, 2007, Mark S. Neuhaus provided his resignation as the Chairman of
the Board, Director and CEO of the Company. The Board accepted Mr. Neuhaus's
resignation on December 24, 2007. The resignation was terminated due to the
signing of a consent decree in two cases filed by the SEC. (See Legal
Proceedings). Mr. Neuhaus will remain a consultant and advisor to the Company.
On December 24, 2007, William "Buck" Shrewsbury was appointed as the CEO and the
Chairman of the Board of Directors of the Company, replacing Mark Neuhaus. Mr.
Shrewsbury attended the University of Kentucky 1962 -1965 with a major in Civil
Engineering. He served as the IT Manager with a large steel mill for 19 years.
Mr. Shrewsbury owns his own trucking company as well as being an agent for a
major transportation company.
On December 24, 2007, Martin Lipper was appointed to the Board of Directors of
the Company, replacing Douglas C. Hewitt. Martin Lipper is a Korean War Veteran.
He graduated from N.Y.U. in 1958 with a Bachelor of Science degree in Finance
and Economics. Mr. Lipper began his career on Wall St. as a securities analyst
specializing in bank stock analysis. He Joined the Bank of N.Y. and was the
senior bank insurance and finance analyst. Later he became co-director of
research at Eastman Dillon Union Securities and later Purcell Graham. In 1973,
Mr. Lipper became V.P. and treasurer of APF Electronics. Mr. Lipper currently
service as Senior Vice President and Research Director of Baron Group U.S.A.
On December 24, 2007, Rob Hutchings was appointed as the Interim President of
the Company and a Director. Mr. Hutchings graduated from the Royal Institute of
Chemistry. He has over 30 years of experience in commercial and industrial
product development and market realization with Vulcan Sun Ltd. This experience
has provided Mr. Hutchings the opportunity to manage and interface between
research, development, production, sales, marketing, and finance strategies to
maximize business objectives.
On December 24, 2007, the Company changed the authorized common shares of the
Company from 50,000,000 common shares to 250,000,000 common shares.
On December 24, 2007, the Board of Directors canceled the 1,000 preferred shares
of stock issued to Mark Neuhaus. The Company issued 10,715,789 common shares to
Mr. Neuhaus to replace the preferred shares of stock. The Board determined that
this was in the best interest of the Company to remove Mr. Neuhaus from complete
voting control of the Company.
Background for Oil and Gas Business Activities
Since August 2005 oil prices have exceeded $50.00 per barrel. On March 19, 2007
the closing price for a barrel of oil was $56.59. At these prices, secondary
recovery, or the recovery accomplished by injecting gas or water into a
reservoir to replace produced fluids and thus maintain or increase the reservoir
pressure, becomes financially viable. The current corporate direction is to
acquire through purchase, merger and option, fields with proven reserves and
excellent development prospects. Concurrently, the Company is exploring options
for the acquisition of operational expertise and equipment.
8
This strategy is contingent upon the Company's ability to obtain sufficient
capital to fund the high start up costs of testing, analyzing, acquiring capital
equipment and lease acquisition. On May 11, 2006 the Company announced that it
had entered into a private placement agreement with Brill Securities, Inc.
Pursuant to the private placement agreement the Company completed the sale of
4,133,324 units during the 3rd quarter of 2006 at a price of $0.30 per unit, for
a total of $1,240,000, which after commission and expenses resulted in net
proceeds of approximately $1,180,000. Each unit includes one share of common
stock and a warrant to purchase an additional share at a price of $0.50 per
share. This infusion of capital allowed the Company to pursue its strategy of
acquiring oil and gas producing properties.
On September 1, 2005, TX Holdings announced an agreement whereby W.D. Von Gonten
& Co., of Houston, Texas will advise the Company on economics and future value
projections of prospective wells and producing properties. An essential
component of Von Gonten's service offerings is the provision of certified
reserve reports.
In December 2006 Van Gonten requested additional well data on the wells owned by
TX Holdings in order to evaluate the wells. Until this information can be
provided and evaluated Van Gonten is unable to evaluate any proven reserves.
Current Oil and Gas Activities
We are actively engaged in the exploration, development, and acquisition of
crude oil and natural gas in the counties of Callahan and Eastland, Texas. In
November 2006 we entered into a Purchase Sale Agreement with Masada Oil & Gas,
Inc. ("Masada") Masada has served as the operating contractor in two of the
leases that TX Holdings currently holds in the counties of Callahan and
Eastland, Texas. The leases and the current working interest of TX Holdings in
each lease are as follows:
a. Contract Area # 1, 60% Working Interest;
b. Park's Lease, 75% Working Interest;
c. Williams Lease, 89% Working Interest.
Currently, TX Holdings is not producing any of its wells. The Company is
applying for its Operator's License in Texas. The Company is currently
refurbishing the William's Lease by repairing electrical lines, flow lines, and
testing well integrity. Upon the completion of the well integrity testing and
approval by the Texas Railroad Commission, the Company will receive its permit
to produce the wells. Upon obtaining the Operator's License, TX Holdings will
begin production. Once the wells are in production with sufficient production
data the information required by the reserve engineer to complete its evaluation
of the reserves will be provided and a reserve report produced. (For a
discussion of leases see section "Oil and Gas Leases" under Item 2: Description
of property).
Principal Products or Services and Markets
The principal markets for our crude oil and natural gas will be refining
companies, pipeline companies, utility companies and private industry end users.
The point of delivery of our crude oil is at tank batteries located at or near
well sites on the leases. We believe that our customers will be based in the
State of Texas and in the industries discussed above. Currently, the wells the
Company owns are only capable of producing oil. Sufficient quantities of natural
gas are not produced at this time to warrant the cost of installing a collection
system.
Although we anticipate that any crude oil and natural gas that we produce will
be sold to customers in the State of Texas, no assurance can be given that such
sales will occur, or that if they do, that we will receive a price that is
sufficient to make our operations profitable.
Distribution Methods of Products or Services
Crude oil will be stored in tanks at well site located on our leases, until the
purchaser takes delivery of the crude oil by tanker truck. TX Holdings has not
entered into any contracts for the sale of its crude as of September 30, 2007.
9
Competitive Business Conditions
Our oil and gas exploration activities in Texas are undertaken in a highly
competitive and speculative business environment. In seeking any other suitable
oil and gas properties for acquisition, we will be competing with a number of
other companies located in Texas and elsewhere, including large oil and gas
companies and other independent operators, many with greater financial
resources.
Although, our management generally does not foresee difficulties in procuring
logging of wells, cementing and well treatment services in the area of our
operations, several factors, including increased competition in the area, may
limit the availability of logging equipment, cementing and well treatment
services. If such an event occurs, it will have a significant adverse impact on
the profitability of our operations.
The prices of our products are controlled by the world oil market; thus,
competitive pricing behavior in this regard is considered unlikely; however,
competition in the oil and gas exploration industry exists in the form of
competition to acquire the most promising acreage blocks and obtaining the most
favorable prices for completion of wells and drilling costs.
Dependence on One or a Few Major Customers
We will be dependent on local purchasers of hydrocarbons to purchase our
products in the areas where our properties are located. The loss of one or more
of our primary purchasers may have a substantial adverse impact on our sales and
on our ability to operate profitably.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or
Labor Contracts
Royalty agreements relating to oil and gas production are fairly standardized in
the industry. However, the percentage and amount of royalties paid by producers,
vary from lease to lease. (See Description of Business - "Current Business" in
this Annual Report.)
Governmental Approval and Regulation
The production and sale of oil and gas are subject to regulation by federal,
state and local authorities. None of the products that we expect to offer
require governmental approval, although permits are required for the drilling of
oil and gas wells. Additionally, testing of well integrity is required on a
routine basis.
When and if we begin to sell natural gas we will be affected by intrastate and
interstate gas transportation regulation. Beginning in 1985, the Federal Energy
Regulatory Commission ("FERC"), which sets the rates and charges for the
transportation and sale of natural gas, adopted regulatory changes that have
significantly altered the transportation and marketing of natural gas. The
stated purpose of FERC's changes is to promote competition among the various
sectors of the natural gas industry. In 1995, FERC implemented regulations
generally grandfathering all previously approved interstate transportation rates
and establishing an indexing system for those rates by which adjustments are
made annually based on the rate of inflation, subject to certain conditions and
limitations. These regulations may tend to increase the cost of transporting oil
and natural gas by pipeline. Every five years, FERC will examine the
relationship between the change in the applicable index and the actual cost
changes experienced by the industry. We are not able to predict with certainty
what effect, if any, these regulations will have on us.
Texas law requires that we obtain state permits for the drilling of oil and gas
wells and to post a bond with the Texas Railroad Commission (the "RRC") to
ensure that each well is reclaimed and properly plugged when it is abandoned.
The reclamation bond amount is $50,000 for up to ninety-nine wells. The Company
has a bond arrangement in the amount of $50,000, through IPACT.
The state and regulatory burden on the oil and natural gas industry generally
increases our cost of doing business and affects our profitability. While we
believe we are presently in compliance with all applicable federal, state and
local laws, rules and regulations, continued compliance (or failure to comply)
and future legislation may have an adverse impact on our present and
contemplated business operations. Because such federal and state regulation are
amended or reinterpreted frequently, we are unable to predict with certainty the
future cost or impact of complying with these laws.
10
Research and Development
During 2006and 2007 we did not incur any research and development expenditures.
Intellectual Property
None.
Environmental Compliance
We are subject to various federal, state and local laws and regulations
governing the protection of the environment, such as the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), and the Federal Water Pollution Control Act of 1972, as amended (the
"Clean Water Act"), which affect our operations and costs. In particular, our
exploration, development and production operations, our activities in connection
with storage and transportation of oil and other hydrocarbons and our use of
facilities for treating, processing or otherwise handling hydrocarbons and
related wastes may be subject to regulation under these and similar state
legislation. These laws and regulations:
o restrict the types, quantities and concentration of various substances
that can be released into the environment in connection with drilling
and production activities;
o limit or prohibit drilling activities on certain lands lying within
wilderness, wetlands and other protected areas; and
o impose substantial liabilities for pollution resulting from our
operations.
Failure to comply with these laws and regulations may result in the assessment
of administrative, civil and criminal fines and penalties or the imposition of
injunctive relief. Changes in environmental laws and regulations occur
regularly, and any changes that result in more stringent and costly waste
handling, storage, transport, disposal or cleanup requirements could materially
adversely affect our operations and financial position, as well as those in the
oil and natural gas industry in general. While we believe that we are in
substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements would not
have a material adverse impact on us, there is no assurance that this trend will
continue in the future.
As with the industry generally, compliance with existing regulations increases
our overall cost of business. The areas affected include:
o unit production expenses primarily related to the control and
limitation of air emissions and the disposal of produced water;
o capital costs to drill exploration and development wells primarily
related to the management and disposal of drilling fluids and other
oil and natural gas exploration wastes; and
o capital costs to construct, maintain and upgrade equipment and
facilities.
CERCLA, also known as "Superfund," imposes liability for response costs and
damages to natural resources, without regard to fault or the legality of the
original act, on some classes of persons that contributed to the release of a
"hazardous substance" into the environment. These persons include the "owner" or
"operator" of a disposal site and entities that disposed or arranged for the
disposal of the hazardous substances found at the site. CERCLA also authorizes
the Environmental Protection Agency ("EPA") and, in some instances, third
parties to act in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs they
incur. It is not uncommon for neighboring landowners and other third parties to
file claims for personal injury and property damage allegedly caused by the
hazardous substances released into the environment. In the course of our
ordinary operations, we may generate waste that may fall within CERCLA's
definition of a "hazardous substance." We may be jointly and severally liable
under CERCLA or comparable state statutes for all or part of the costs required
to clean up sites at which these wastes have been disposed.
11
We currently lease properties that for many years have been used for the
exploration and production of oil and natural gas. Although we and our
predecessors have used operating and disposal practices that were standard in
the industry at the time, hydrocarbons or other wastes may have been disposed or
released on, under or from the properties owned or leased by us or on, under or
from other locations where these wastes have been taken for disposal. In
addition, many of these properties have been operated by third parties whose
actions with respect to the treatment and disposal or release of hydrocarbons or
other wastes were not under our control. These properties and wastes disposed on
these properties may be subject to CERCLA and analogous state laws. Under these
laws, we could be required:
o to remove or remediate previously disposed wastes, including wastes
disposed or released by prior owners or operators;
o to clean up contaminated property, including contaminated groundwater;
or to perform remedial operations to prevent future contamination;
o to clean up contaminated property, including contaminated groundwater;
or to perform remedial operations to prevent future contamination.
At this time, we do not believe that we are associated with any Superfund site
and we have not been notified of any claim, liability or damages under CERCLA.
The Resource Conservation and Recovery Act ("RCRA") is the principal federal
statute governing the treatment, storage and disposal of hazardous wastes. RCRA
imposes stringent operating requirements and liability for failure to meet such
requirements on a person who is either a "generator" or "transporter" of
hazardous waste or an "owner" or "operator" of a hazardous waste treatment,
storage or disposal facility. At present, RCRA includes a statutory exemption
that allows most oil and natural gas exploration and production waste to be
classified as non-hazardous waste. A similar exemption is contained in many of
the state counterparts to RCRA. As a result, we are not required to comply with
a substantial portion of RCRA's requirements because our operations generate
minimal quantities of hazardous wastes. At various times in the past, proposals
have been made to amend RCRA to rescind the exemption that excludes oil and
natural gas exploration and production wastes from regulation as hazardous
waste. Repeal or modification of the exemption by administrative, legislative or
judicial process, or modification of similar exemptions in applicable state
statutes, would increase the volume of hazardous waste we are required to manage
and dispose of and would cause us to incur increased operating expenses.
The Clean Water Act imposes restrictions and controls on the discharge of
produced waters and other wastes into navigable waters. Permits must be obtained
to discharge pollutants into state and federal waters and to conduct
construction activities in waters and wetlands. The Clean Water Act requires us
to construct a fresh water containment barrier between the surface of each
drilling site and the underlying water table. This involves the insertion of a
seven-inch diameter steel casing into each well, with cement on the outside of
the casing. The cost of compliance with this environmental regulation is
approximately $10,000 per well. Certain state regulations and the general
permits issued under the Federal National Pollutant Discharge Elimination System
program prohibit the discharge of produced waters and sand, drilling fluids,
drill cuttings and certain other substances related to the oil and natural gas
industry into certain coastal and offshore waters. Further, the EPA has adopted
regulations requiring certain oil and natural gas exploration and production
facilities to obtain permits for storm water discharges. Costs may be associated
with the treatment of wastewater or developing and implementing storm water
pollution prevention plans.
The Clean Water Act and comparable state statutes provide for civil, criminal
and administrative penalties for unauthorized discharges for oil and other
pollutants and impose liability on parties responsible for those discharges for
the costs of cleaning up any environmental damage caused by the release and for
natural resource damages resulting from the release. We believe that our
operations comply in all material respects with the requirements of the Clean
Water Act and state statutes enacted to control water pollution.
12
Our operations are also subject to laws and regulations requiring removal and
cleanup of environmental damages under certain circumstances. Laws and
regulations protecting the environment have generally become more stringent in
recent years, and may in certain circumstances impose "strict liability,"
rendering a corporation liable for environmental damages without regard to
negligence or fault on the part of such corporation. Such laws and regulations
may expose us to liability for the conduct of operations or conditions caused by
others, or for acts which may have been in compliance with all applicable laws
at the time such acts were performed. The modification of existing laws or
regulations or the adoption of new laws or regulations relating to environmental
matters could have a material adverse effect on our operations.
In addition, our existing and proposed operations could result in liability for
fires, blowouts, oil spills, discharge of hazardous materials into surface and
subsurface aquifers and other environmental damage, any one of which could
result in personal injury, loss of life, property damage or destruction or
suspension of operations. We have an Emergency Action and Environmental Response
Policy Program in place. This program details the appropriate response to any
emergency that management believes to be possible in our area of operations. We
believe we are presently in compliance with all applicable federal and state
environmental laws, rules and regulations; however, continued compliance (or
failure to comply) and future legislation may have an adverse impact on our
present and contemplated business operations.
The foregoing is only a brief summary of some of the existing environmental
laws, rules and regulations to which our business operations are subject, and
there are many others, the effects of which could have an adverse impact on our
business. Future legislation in this area will no doubt be enacted and revisions
will be made in current laws. No assurance can be given as to what effect these
present and future laws, rules and regulations will have on our current future
operations.
Insurance
Our operations are subject to all the risks inherent in the exploration for, and
development and production of oil and gas including blowouts, fires and other
casualties. Currently the Company does not maintain insurance coverage. Losses
could arise from uninsured risks.
Former Business of TX Holdings
Business of Freedom Homes, Inc. ("New Freedom")
The principal business of New Freedom is the retailing of manufactured homes,
which has been its principal business since the merger of Old Freedom into
Homes, which was renamed "Freedom Homes Inc.", the name of Old Freedom, when
merger became effective on May 26, 2005 ("Freedom Merger"). Prior to the
effective dates of the Freedom Merger, publishing the periodic magazine, FOR
SALE BY OWNER, and maintaining the residential sales web site was the only
business of Homes. Subsequent to the Freedom Merger, the periodic magazine was
discontinued and the web site no longer maintained, although New Freedom has
intermittently issued a magazine in support of a local real estate broker.
Since May 26, 2005, the operations of New Freedom have not been consolidated
with the financial statements of the Company. In 2005, the Company sold a 67.7%
interest in New Freedom and New Freedom is no longer a subsidiary because it is
now controlled by of Jim Evans. Old Freedom began to sell pre-owned manufactured
homes in the Augusta, Georgia market in February 2002. In June, 2004, it became
a retailer of new homes manufactured by Horton Homes and subsequently has also
sold new homes manufactured by Southern Energy Homes and Precision Homes. TX
Holdings now owns a 32.3% interest in New Freedom and TX Holdings' management
has determined that the investment in New Freedom is worthless.
13
Business of Direct Lending, Inc.
Direct Lending, Inc. was a mortgage broker. It located sources of capital
willing to grant home mortgage loans to clients of Direct. Direct acted as a
broker and was paid a fee only upon the closing of a loan to a customer. These
fees were typically in the range of $2,000 for each loan closed by Direct and
are the result of origination fees, and yield spread income.
Sources of capital that provided home mortgage loans to clients of Direct
included finance companies, banks and wholesale lenders. When a lending
institution indicated an interest in providing a loan to a Direct client, Direct
provided the appropriate documents and assisted their client's completion of the
documentation and the process to complete the loan. Direct would attend the
closing of the loan, providing value by facilitating the entire loan process.
Sale of the Assets and Business of Direct Lending, Inc.
In Fiscal 2002, in an environment of sharply declining interest rates,
residential housing became more affordable to new home buyers as monthly
mortgage payments fell and existing homeowners made the decision to refinance
their old mortgages with new low rate loans. Direct management increased its
personnel, leased additional space and incurred other additional expenses to
capture a share of the new growth in the mortgage brokerage business. In October
2002 management decided to sell Direct, and on November 25, 2002, completed the
sale of Direct to Stuckey Enterprises, Inc., an unaffiliated entity,
("Stuckey"). The sale included all of the assets of Direct other than its
corporate records, but including the name, Direct Lending. TX Holdings assumed
the past liabilities of Direct. Mortgage transactions originating prior to
October 25, 2002 were for the account of TX Holdings and subsequent transactions
were for the account of Stuckey. Stuckey assumed responsibility for the
employees and premises and equipment costs from October 25, 2002, thus relieving
TX Holdings of these expenses. Stuckey agreed to pay a $5,000 down payment. In
January 2003, the terms of the original agreement were renegotiated, and on
January 14, 2003 Stuckey made a payment of $10,000 as an agreed upon lump sum
payment.
Company Employees and Other Workers
As of September 30, 2007 we had four employees. Mark S. Neuhaus is Chairman of
the Board of Directors and President of TX Holdings. On March 28, 2006, Michael
A. Cederstrom was appointed the interim Chief Financial Officer of TX Holdings.
Mr. Cederstrom works on a part time basis with the understanding that once full
scale oil and gas production is achieved a permanent chief financial officer
will be named. Mr. Cederstrom also provides legal services through his law firm,
Dexter and Dexter. On August 2, 2006, TX Holdings appointed W.A. "Bill"
Alexander as the Chief Operating Officer. On February 2, 2007, Jose Fuentes was
hired as the Vice President of Finance for the Company. Other specialized
functions are provided as necessary through the engagement of independent
consulting contractors. On December 10, 2007, Mark S. Neuhaus resigned as
Chairman of the Board of Directors and President of TX Holdings. On December 11,
2007, William "Buck" Shrewsbury was appointed as the CEO and the Chairman of the
Board of Directors, Martin Lipper was appointed to the Board of Directors and
Rob Hutchings was appointed as the Interim President and a Director of the
Company.
Risk Factors Relating to the Company's Business
Due to the competitiveness of the oil and gas industry, the lack of acquisitions
and uncertainty of the present negotiations, and the nature of the Company's
business, it encounters many risk factors. Each of these factors, as well as
matters set forth elsewhere in this Form 10-KSB, could adversely affect the
business, operating results and financial condition of the Company.
Any investment in our Common Stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below and the other
information included in this Annual Report. Although the risks described below
are the risks that we believe are material, they are not the only risks relating
to our business and our Common Stock. Additional risks and uncertainties,
including those that are not yet identified or that we currently believe are
immaterial, may also adversely affect our business, financial condition or
results of operations. If any of the events described below occur, our business
and financial results could be materially and adversely affected. The market
price of our Common Stock could decline due to any of these risks, perhaps
significantly, and you could lose all or part of your investment.
14
General Risks Related To Our Business
Our business may fail if we do not succeed in our efforts to develop and replace
oil and gas reserves.
Our future success will depend upon our ability to find, acquire and develop
additional economically recoverable oil and gas reserves. Our proved reserves
will generally decline as they are produced, except to the extent that we
conduct revitalization activities, or acquire properties containing proved
reserves, or both. To increase reserves and production, we must continue our
development drilling and completion programs, identify and produce previously
overlooked or bypassed zones in shut-in wells, acquire additional properties or
undertake other replacement activities. Our current strategy is to increase our
reserve base, production and cash flow through the development of our existing
oil and gas fields and selective acquisitions of other promising properties
where we can use new or existing technology. Despite our efforts, our planned
revitalization, development and acquisition activities may not result in
significant additional reserves, and we may not be able to discover and produce
reserves at economical exploration and development costs. If we fail in these
efforts, our business may also fail.
Our revenues may be less than expected if our oil and gas reserve estimates are
inaccurate.
Oil and gas reserve estimates and the present values attributed to these
estimates are based on many engineering and geological characteristics as well
as operational assumptions that generally are derived from limited data. Common
assumptions include such matters as the anticipated future production from
existing and future wells, future development and production costs and the
ultimate hydrocarbon recovery percentage. As a result, oil and gas reserve
estimates and present value estimates are frequently revised to reflect
production data obtained after the date of the original estimate. If reserve
estimates are inaccurate, production rates may decline more rapidly than
anticipated, and future production revenues may be less than estimated. In
addition, significant downward revisions of reserve estimates may hinder our
ability to borrow funds in the future, or may hinder other financing
arrangements that we may consider.
In addition, any estimates of future net revenues and their present value are
based on period ending prices and on cost assumptions that only represent our
best estimate. If these estimates of quantities, prices and costs prove
inaccurate and we are unsuccessful in expanding our oil and gas reserves base,
or if oil and gas prices decline or become unstable, we may have to write down
the capitalized costs associated with our oil and gas assets. We will also
largely rely on reserve estimates when we acquire producing properties. If we
overestimate the potential oil and gas reserves of a property to be acquired, or
if our subsequent operations on the property are not successful, the acquisition
of the property could result in substantial losses.
We are implementing a growth strategy which, if successful, will place
significant demands on us and subject us to numerous risks.
Growing businesses often have difficulty managing their growth. If our growth
strategy is successful, significant demands will be placed on our management,
accounting, financial, information and other systems and on our business. We
will have to expand our management and recruit and employ experienced executives
and key employees capable of providing the necessary support. In addition, to
manage our anticipated growth we will need to continue to improve our financial,
accounting, information and other systems in order to effectively manage our
growth, and in doing so could incur substantial additional expenses that could
harm our financial results. We cannot assure you that our management will be
able to manage our growth effectively or successfully, or that our financial,
accounting, information or other systems will be able to successfully
accommodate our external and internal growth. Our failure to meet these
challenges could materially impair our business.
We may not be able to compete successfully in acquiring prospective reserves,
developing reserves, marketing oil and natural gas, attracting and retaining
quality personnel and raising additional capital.
Our ability to acquire additional prospects and to find and develop reserves in
the future will depend on our ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. In addition,
there is substantial competition for capital available for investment in the oil
and natural gas industry. Our inability to compete successfully in these areas
could have a material adverse effect on our business, financial condition or
results of operations.
15
When TX Holdings begins the production of oil and gas, its revenues could be
affected by a substantial or extended increase or decline in oil and natural gas
prices. The price we receive for future oil and natural gas production will
heavily influence our revenue, profitability, access to capital and rate of
growth. Oil and natural gas are commodities and their prices are subject to wide
fluctuations in response to relatively minor changes in supply and demand.
Historically, the markets for oil and natural gas have been volatile and
currently oil and natural gas prices are significantly above historic levels.
These markets will likely continue to be volatile in the future and current
record prices for oil and natural gas may decline in the future. The prices we
may receive for any future production, and the levels of this production, depend
on numerous factors beyond our control. These factors include the following:
o changes in global supply and demand for oil and natural gas;
o actions by the Organization of Petroleum Exporting countries, or OPEC;
o political conditions, including embargoes, which affect other
oil-producing activities;
o levels of global oil and natural gas exploration and production
activity;
o levels of global oil and natural gas inventories;
o weather conditions affecting energy consumption;
o technological advances affecting energy consumption; and
o prices and availability of alternative fuels.
Lower oil and natural gas prices may not only decrease our future revenues but
also may reduce the amount of oil and natural gas that we can produce
economically. A substantial or extended decline in oil or natural gas prices may
reduce our earnings, cash flow and working capital.
Drilling for and producing oil and natural gas are high risk activities with
many uncertainties that could substantially increase our costs and reduce our
profitability.
Oil and natural gas exploration is subject to numerous risks beyond our control;
including the risk that drilling will not result in any commercially viable oil
or natural gas reserves. Failure to successfully discover oil or natural gas
resources in properties in which we have oil and gas leases may materially
adversely affect our operations and financial condition.
The total cost of drilling, completing and operating wells will be uncertain
before drilling commences. Overruns in budgeted expenditures are common risks
that can make a particular project uneconomical. Further, many factors may
curtail, delay or cancel drilling, including the following:
o delays imposed by or resulting from compliance with regulatory
requirements;
o pressure or irregularities in geological formations;
o shortages of or delays in obtaining equipment and qualified personnel;
o equipment failures or accidents;
o adverse weather conditions;
o reductions in oil and natural gas prices;
16
o land title problems; and
o limitations in the market for oil and natural gas.
Oil and gas operations involve many physical hazards.
Natural hazards, such as excessive underground pressures, may cause costly and
dangerous blowouts or make further operations on a particular well financially
or physically impractical. Similarly, the testing and completion of oil and gas
wells involves a high degree of risk arising from operational failures, such as
blowouts, fires, pollution, collapsed casing, loss of equipment and numerous
other mechanical and technical problems. Any of these hazards may result in
substantial losses to us or liabilities to third parties. These could include
claims for bodily injuries, reservoir damage, loss of reserves, environmental
damage and other damages to people or property. Any successful claim against us
would probably require us to spend large amounts on legal fees and any
successful claim may make us liable for substantial damages.
Our dependence on outside equipment and service providers may hurt our
profitability. We need to obtain logging equipment and cementing and well
treatment services in the area of our operations. Several factors, including
increased competition in the area, may limit their availability. Longer waits
and higher prices for equipment and services may reduce our profitability.
The oil and gas industry is highly competitive and there is no assurance that we
will be successful in acquiring any further leases.
The oil and gas industry is intensely competitive. We compete with numerous
individuals and companies, including major oil and gas companies, which have
substantially greater technical, financial and operational resources and staffs.
Accordingly, there is a high degree of competition for desirable oil and gas
leases, suitable properties for drilling operations and necessary drilling
equipment, as well as access to funds. We cannot predict if the necessary funds
can be raised. There are also other competitors that have operations in our
potential areas of interest and the presence of these competitors could
adversely affect our ability to acquire additional leases.
Oil and gas operations are subject to comprehensive regulation which may cause
substantial delays or require capital outlays in excess of those anticipated,
causing an adverse effect on our Company.
Oil and gas operations are subject to federal, state, and local laws relating to
the protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages. To date we have not been required to spend any material
amount on compliance with environmental regulations. However, we may be required
to do so in future and this may affect our ability to expand or maintain our
operations.
Risks Related To Our Common Stock
The limited trading volume in our common stock may depress our stock price. Our
common stock is currently traded on a limited basis on the NASDAQ Bulletin Board
("BB"). The quotation of our common stock on the BB does not assure that a
meaningful, consistent and liquid trading market currently exists. We cannot
predict whether a more active market for our common stock will develop in the
future. In the absence of an active trading market, investors may have
difficulty buying and selling our common stock. Market visibility for our common
stock may be limited. A lack of visibility of our common stock may have a
depressive effect on the market price for our common stock.
The issuance of shares upon exercise of outstanding warrants may cause immediate
and substantial dilution of our existing shareholders.
17
The issuance of shares upon exercise of warrants may result in substantial
dilution to the interests of other shareholders since the selling shareholders
may sell the full amount issuable on exercise. In addition, such shares would
increase the number of shares in the "public float" and could depress the market
price for our Common Stock.
We have never declared or paid cash dividends on our Common Stock. We currently
intend to retain future earnings to finance the operation, development and
expansion of our business.
We do not anticipate paying cash dividends on our Common Stock in the
foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of our board of directors and will depend on our financial condition,
results of operations, contractual restrictions, capital requirements, business
prospects and other factors that our board of directors considers relevant.
Accordingly, investors will only see a return on their investment if the value
of our securities appreciates.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:
o that a broker or dealer approve a person's account for transactions in
penny stocks; and
o that broker or dealer receives from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our Common Stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
Brief Operating History - No Assurance of Profitability
The Company has a brief operating history. Although we commenced operations in
1997, original management has been replaced as previous operations have not been
profitable. The Wi-Fi business contemplated subsequent to the acquisition of a
controlling interest in the Company by MA&N did not materialize. The Company has
recently completed the acquisition of its initial oil and gas leases. However,
as of December 10, 2007 the Company has not sold any of its oil and gas
production. The Company has encountered unforeseen costs, expenses, problems,
difficulties and delays frequently associated with new ventures, and these may
continue. There is no assurance that the Company's business ventures will be
successful or that the Company will be able to produce and acquire sufficient
productive wells to meet its goals. The Company anticipates that its operating
expenses will increase if and as its business expands, and it will need to
generate revenues sufficient to meet all of its expenses to achieve
profitability.
18
Competition Could Negatively Affect Revenues
The proposed business of the Company is highly competitive. Additional
competitors may also enter the market and future competition may intensify. Most
of these competitors have substantially greater financial resources than the
Company, and they may be able to accept more financial risk than the Company
feels is prudent.
Concentration of Share Ownership Gives Insiders Control
Our management owns a significant amount of the Common Stock, giving them
influence or control in corporate transactions and other matters, and their
interests could differ from those of other stockholders. Our President, Mark
Neuhaus and/or his wife, Nicole B. Neuhaus beneficially controls approximately
28% of the Existing Common Stock and 100% of the Preferred Stock. The Preferred
Stock has voting rights the entitle Mr. Neuhaus to effectively control the
Company. As a result, Mr. Neuhaus is in a position to significantly influence or
control the outcome of matters requiring a stockholder vote, including the
election of directors, the adoption of any amendment to the Certificate of
Incorporation and By-Laws, and the approval of significant corporate
transactions. This control may delay or prevent a change of control on terms
favorable to our other stockholders.
Possibility That No Public Market or Only a Limited Public Market Will Be
Established For the Common Stock of TX Holdings
On August 14, 2002, NASD Regulation, Inc. cleared a broker's request for an
un-priced quotation on the OTC Bulletin Board for TX Holdings' common stock.
Sales have been sporadic and have ranged from $.05 to $1.08 a share.
On February 19, 2004, the Company was delisted from the OTC Bulletin Board due
to failure to file current financial statements with the Securities and Exchange
Commission in an acceptable format.
In or about March 2007, NASD Regulation, Inc. cleared a broker's request for an
unpriced quotation on the OTC Bulletin Board for TX Holdings'. Sales have ranged
from $0.09 to $1.05 a share. See MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Limited Access to Qualified Personnel
To be effective, the Company needs persons with the skills necessary to conduct
the proposed oil and gas business. The Company is continually trying to attract
and retain qualified personnel to conduct the proposed oil and gas business. The
Company has lacked the resources to train personnel, so it needs to find persons
with the required experience, understanding, ability and effectiveness. The
Company's financial position has made this difficult and the inability to
attract and retain appropriate personnel may have a materially adverse effect
upon the Company and its operations.
Legal and Regulatory Risk
Laws and regulations, including securities laws and regulations, applicable to
the Company's business and operations are extensive and complex. As a start up
business with limited personnel and funding, the Company has taken actions
without being able to fully ascertain their legal effect and potential conflict
with applicable law and regulations. The Company believes that this situation
often pertains to minimally-funded new businesses which are in a financial
position similar to that of the Company. As a result, actions taken by the
Company could subject it to regulatory review and challenge, and involve it in
legal or administrative proceedings, that could have a material adverse affect
on the Company.
19
Shareholders Voting Control Risk
On May 11, 2006, the Company issued 1,000 shares of preferred stock to Mark
Neuhaus. The preferred shares provide super-voting rights to Mark Neuhaus equal
to 50% of the common stock voting rights. These super-voting rights provide Mark
Neuhaus with control of the Company; this may allow Mr. Neuhaus the ability to
act in a manner contrary to the vote of other shareholders and that may be
detrimental to other shareholders.
On December 24, 2007, the 1,000 shares of preferred stock owned by Mark Neuhaus
were canceled and exchanged with 10,715,789 shares of common stock. The
cancellation of the preferred stock released Mr. Neuhaus's total voting control
of the Company. Mr. Neuhaus still has substantial control of the Company via his
common stock ownership.
Item 2 Description of Property
The Company has its principal leases in Abilene, Texas. The Company is currently
utilizing space of Masada Oil, a company that Bobby Fellers has a beneficial
interest in and that currently performs some of our field operations. The
Company's headquarters are located at 1701 North Judge Ely Blvd., Suite 6420,
Abilene, Texas 79601. Our telephone number is 682 - 286 - 3116. In addition we
maintain an office in Miami, Florida. The office in Miami is provided by Mark
Neuhaus. Management believes that these properties will be sufficient for its
current and immediately foreseeable administrative needs. The Company does not
hold any investments or interests in real estate other than the Oil and Gas
Leases it holds for its operational needs. The Company currently seeks
additional oil and gas leases for operational purposes, which is an essential
part of operations of any oil and gas production company.
We are an oil and gas exploration and production company that uses the history
of old fields, geophysical exploration and development techniques to identify
oil and gas wells that are now considered to be economical feasible based on the
current and predicted future price of oil and gas. It is the Company's current
plan to re-enter old wells in a confined area and then utilize water flood
techniques to produce the wells. Water flood techniques work well on shallow
wells to push the oil to the producing wells to facilitate recovery. The leases
currently owned by the Company allow the Company to produce to a depth of a
depth of 1,000 feet from the surface. It is the Company's intention to initially
place these leases into production in the shallow development to produce cash
flow for the Company. Once these wells are in production the Company will then
consider the opportunity for deeper drilling.
We are presently developing leases referred to as the Contract Area # 1; Parks
Lease; and the Williams Lease. The Contract Area # 1 Lease contains four leases
containing a total of 247 acres. The Park's Lease is a single lease containing
320 acres. The Williams Lease contains 4 leases containing a total of
approximately 843 acres. All three fields are located in the counties of
Callahan and Eastland, Texas.
Lease and Royalty Terms
Contract Area # 1
Located in the counties of Callahan and Eastland, Texas, this lease includes the
development of the field. The Purchase and Sale Contract provides for a total
investment of up to $7,200,000. To reach this purchase price Masada Oil & Gas
will need to procure an additional 1186 acres in Callahan County, Texas which is
contiguous to the Company's currently owned 247 acres. In addition the Purchase
and Sale agreement contemplates that Masada Oil and Gas will perform all of the
work on the field to put into production a minimum of 121 wells within 21
months. This production schedule is conditioned upon the Company providing the
funds necessary to complete the work on a timely basis and Masada Oil and Gas'
ability to acquire the additional acreage. If Masada Oil and Gas is unable to
deliver the additional acreage the Purchase and Sale Agreement will be adjusted
to reduce the price of the purchase. The Purchase and Sale Contract for this
field was not completed until November 2006 and the payments wemade towards
purchase of the field are presented in the financial statements as a deposit
towards the Purchase and Sale Agreement. The ultimate total price is conditioned
upon performance and future acquisitions. TX Holdings currently own a 60%
working interest in the field and Masada Oil and Gas owns a 40% working
interest. The ORRI on each lease varies, thus the net revenue interest the
Company will receive from the wells of the respective leases will also vary. The
table below sets forth the royalty interest for each lease, the net working
interest and the gross acreage of each lease within Contract Area # 1:
20
Description ORRI Working Interest
----------- ---- ----------------
17.97% 60%
Roy Adams Lease RRC #01470
20.00% 60%
W. Isenhower Lease RRC# 20398
26.25% 60%
Isenhower Lease RRC# 21474
20.00% 60%
Isenhower Estate Lease RRC # 30700
As of November 25, 2006, there were eighteen oil wells capable of producing on
the leases. As of March 20, 2007, these wells are not producing due to the
Company waiting to obtain its Operator's License in Texas. The production of the
wells is minimal, from 1 to 2 bbls per day. The Company has not completed the
development of the water flood program. The water flood will inject water into
the field through injection wells. The water will force the oil towards the
production wells so that it can be recovered. The Company's wells on this field
are considered shallow wells and only produce to a depth of 1,000 feet.
Parks Lease
This lease includes 320 acres in which we have a 75% working interest and a 63%
net revenue interest in the oil and gas produced from this field. The land
owners of this lease own a 12.5% royalty interest in the production. Masada Oil
and Gas owns a 25 % working interest in the lease. The Company purchased this
lease from Masada Oil and Gas as part of the purchase of Contract Area 1. The
Company's obligation is to pay for the refurbishment of the wells and the
infrastructure of the lease. There are currently 30 wells on this lease and none
of the wells are currently producing. The lease provides that TX Holdings is
limited to production from 1,000 feet and above. The wells on this lease are not
currently producing.
Williams Lease
This lease contains 843 acres with a working interest of 89% owned by the
Company. The lease was acquired through a foreclosure sale on August 1, 2006 for
the sum of $68,221. There are no contingencies or other commitments. The lease
carries an ORRI to the land owners of 25%. The Company's net Revenue interest on
the wells contained in this lease is 75%. This lease is limited to production
from 1,000 feet and above.
Oil and Gas Reserve Analyses
Currently the leases that have been acquired have not been developed in a way
that allows our Petroleum Engineers to assign estimated net proved oil and gas
reserves and the present value of estimated cash flows from those reserves. The
Company is currently performing work on each lease to provide the required
information of logging each well to provide the information to the Petroleum
Engineers. The Company currently has no proved reserves on the leases. The
leases were acquired during the third and fourth quarter of 2006. The Company is
currently working to establish reserves and commence operations on the leases.
Item 3 Legal Proceedings
Management is currently aware of one pending, past or present litigation
involving the Company which management does not believe could have a material
adverse effect on the Company. Management does not know of any outstanding
bankruptcy or receivership issues and is not aware of any securities law
violations other than the failure to file timely Form 10-KSB for 2005 and 2006,
and timely Forms 10-QSB for the quarterly periods in 2005 and 2006. The Company
has recently filed Form 10-KSB for fiscal year end 2005. The Forms 10-QSB for
the quarterly periods in 2005 have been incorporated in the Form 10-KSB 2005
filing as provided in an agreement between the Company and the SEC.
21
On March 24, 2004, the SEC filed a civil complaint seeking a temporary
restraining order ("TRO") and other relief, alleging an illegal distribution to
the public of common stock of Universal Express, Inc. ("Universal"), an
unaffiliated organization, by Universal's chief executive officer, its general
counsel and four others, including Mark Neuhaus, the Company's Chairman and
Chief Executive Officer.
Mr. Neuhaus has been cited for Sections 5 violations and is alleged to have
violated Sections 5(b) and (c) and Sections 17(a)(1), (2) and (3) of the
Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 thereunder. Mr. Neuhaus denies violation of any applicable law in
connection with his resale of Universal common stock. On February 21, 2007 the
United States District Court Southern District of New York granted a motion for
summary judgment against Mr. Neuhaus as to Section 5 liability only. The summary
judgment motion was denied as to all other issues pending against Mr. Neuhaus.
The Company believes there is no connection between the Company and Universal
other than Mr. Neuhaus' position with the Company and the fact that Mr. Neuhaus
was a consultant to Universal and received and resold shares of its common
stock.
On November 21, 2007, TX Holdings Inc. reported that Mark Neuhaus, Chairman
settled his involvement in the case of SEC VS Universal Express, Inc. Mr.
Neuhaus consented to an order to not violate securities laws and not to be
involved in the raising of money for penny stock companies. Mr. Neuhaus did not
admit or deny any liability. A copy of the statement is attached to this report
as Exhibit 99.10.
TX Holdings has filed an action in Dade County, Florida in District Circuit #11,
case number 06-14396CA04 entitled TX Holdings, Inc vs. Darren Bloom. The Company
has brought an action against Mr. Bloom for breach of contract, damages and for
the cancellation of common stock issued to Mr. Bloom pursuant to a three year
employment contract. Mr. Bloom resigned from the Company on March 17, 2006,
after serving only 9 months. Mr. Bloom currently owns 2,000,000 shares of TX
Holdings common stock. Management believes that this matter can be resolved and
will have no material effect on the Company operations. (The cancellation of
shares, if granted would have a positive effect on Earnings Per Share).
On July 26, 2007, the Company received a letter from the SEC requesting
clarification of certain disclosures contained in its 2006 10KSB and its Form
10QSB for the Interim Period Ended March 31, 2007. The Company is working with
its auditors to respond to the letter.
On December 4, 2007, the Company received a letter from Van Goton and Associates
reporting a past due invoice for services in the approximate amount of $18,000.
If payment is not received a legal action for collection may be brought against
the Company.
Except as disclosed above, the Company has no material legal proceedings in
which any director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of any class of voting securities of the Company,
or security holder is a party adverse to the Company or has a material interest
adverse to the Company.
Item 4 Submission of Matters to a Vote of Security Holders
None.
22
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
Market Information
The common stock of TX Holdings is currently traded on the OTC Bulletin Board,
under the symbol TXHG.
The following table sets forth the high and low bid prices of our Common Stock
for the periods indicated. The quotations set forth below reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not represent
actual transactions.
Bid Prices ($)
Quarter Ended: High Low
-------------- ---- ---
December 31, 2007 0.40 0.09
September 30, 2007 0.95 0.22
June 30, 2007 1.05 0.51[
March 31, 2007 0.83 0.45
December 31, 2006 0.87 0.45
September 30, 2006 0.99 0.55
June 30, 2006 1.07 0.33
March 31, 2006 0.47 0.19
December 31, 2005 0.37 0.16
September 30, 2005 0.55 0.05
June 30, 2005 0.15 0.06
March 31, 2005 0.15 0.04
As of September 30, 2007 there were approximately 253 holders of record of our
common stock.
On January 21, 2005, the Company signed a subscription agreement with Pink
Sheets LLC for Real Time Inside Quote and Full Level II Quote Montage on
www.pinksheets.com. The service keeps investors up-to-date by providing real
time quotes of the Company's common stock. All expenses associated with this
service are paid by the Company.
The ability of an individual shareholder to trade his or her shares in a
particular state may be subject to various rules and regulations of that state.
A number of states require that an issuer's securities be registered in their
state or appropriately exempted from registration before the securities are
permitted to trade in that state. The Company has no present plans to register
its securities in any particular state, although it may take action that will
allow it to receive appropriate exemption.
The shares of TX Holdings' common stock are subject to the provisions of Section
15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. The Commission
generally defines penny stock to be any equity security that has a market price
less than $5.00 per share, subject to specified exceptions. Section 15(g) sets
forth requirements for transactions in penny stocks and Rule 15g-9(d)(1)
incorporates the definition of penny stock as that used in Rule 3a51-1 of the
Exchange Act. Rule 3a51-1 provides that any equity security is considered to be
a penny stock unless that security is registered and traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for quotation on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at least $5.00 per
share) or the issuer's net tangible assets; or exempted from the definition by
the Commission. As a result, trading in TX Holdings' common stock is subject to
additional sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors, generally
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse.
23
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in TX Holdings' common stock and may affect the
ability of shareholders to sell their shares.
Preferred Stock
This Company has 1,000 shares of preferred stock issues to Mark Neuhaus, the
President and Chairman of the Board of Directors. The preferred stock has no
dividend rights, no registration rights and no conversion rights. The preferred
stock does have a super-voting right equivalent to 50% of the outstanding voting
rights held by the common stock holders. This voting right provides Mr. Neuhaus
with control of the Company.
On December 24, 2007, the 1,000 shares of preferred stock owned by Mark Neuhaus
were canceled and exchanged with 10,715,789 shares of common stock. The
cancellation of the preferred stock released Mr. Neuhaus's total voting control
of the Company. Mr. Neuhaus still has substantial control of the Company via his
common stock ownership.
Dividends
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.
Holders
As of September 30, 2007, TX Holdings has issued and outstanding 31,884,355
shares of common stock. During the fiscal year 2007 the following warrants were
issued: Michael A. Cederstrom, exercisable for 1,000,000 shares and Jose Fuentes
exercisable for 1,000,000.
Of the total 31,884,355 shares outstanding as of December 7, 2007, 18,377,580
were deemed "restricted securities," as defined by the Act when issued to their
registered owner and continues to have their restricted status noted on the
books of TX Holdings' transfer agent. Certificates representing such shares bear
an appropriate restrictive legend and their sale is subject to Rule 144 under
the Act.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted shares of the
Company for at least one year, is entitled to sell, within any three-month
period, an amount of shares that does not exceed the greater of (i) the average
weekly trading volume in the Company's common stock, as reported through the
automated quotation system of a registered securities association, during the
four calendar weeks preceding such sale or (ii) 1% of the shares then
outstanding. A person who is not deemed to be an "affiliate" of the Company (as
the term "affiliate" is defined in the Act), and has not been an affiliate for
the most recent three months, and who has held restricted shares for at least
two years would be entitled to sell such shares without regard to the resale
limitations of Rule 144.
Recent Sales of Unregistered Securities
As of September 30, 2007, TX Holdings has issued and outstanding 31,884,355
shares of common stock. As of September 30, 2006, TX Holdings had issued and
outstanding 25,782,558 shares of common stock. On December 12, 2002, MA&N
acquired control of the Company through purchase of 4,647,626 shares of common
stock representing 51% of the 9,112,992 outstanding shares of common stock of
the Company.
24
Robert S. Wilson was the Chairman and Chief Executive Officer of the Company
since its incorporation on June 16, 2000, until December 12, 2002. He resigned
as a member of the Board of Directors on April 30, 2003. Mr. Wilson had agreed
to accept options to purchase 294,341 shares of the Company's common stock in
lieu of compensation due him for his tenure with the Company. In December 2005,
Mr. Wilson exercised all of his options.
On February 19, 2003, the Company issued to Mark Neuhaus the chief executive
officer of the Company, 3,000,000 shares of its common stock as compensation to
Mr. Neuhaus for services provided to the Company and were registered under
Securities and Exchange Commission Form S-8 under the Securities Act of 1933.
On February 19, 2003, the Company issued 1,500,000 shares of the Company's
Common Stock to Ned Baramov, Secretary - Treasurer were registered under
Securities and Exchange Commission Form S-8 under the Securities Act of 1933.
Mr. Baramov resigned from the Company on June 24, 2005.
On August 2, 2004, the Company issued 500,000 shares of common stock of the
Company to S2 Consulting. The shares were issued as payment of $35,000 in fees
for past and future advisory services provided to the Company in relation to the
evaluation of potential merger and acquisition targets. Such services include,
but are not limited to advising, evaluating and developing corporate strategy,
providing company guidance, and assisting in developing relationships and
opportunities. S2 Consulting is an accredited investor. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933.
On May 11, 2005, the Company issued 100,000 shares of common stock of the
Company to Frank Shafer. The shares were issued as payment of $12,000 in fees
for past and future advisory services provided to the Company in relation to
financial aspects of the Company's plans for expansion, acquisitions, and
business opportunities. Frank Shafer is an accredited investor. The sale was
exempt pursuant to Section 4 (2) of the Securities Act of 1933.
On July 1, 2005, the Company authorized the issuance of 350,000 shares of TX
Holdings common stock to Ned Baramov for services, valued at $28,000, in
relation to the preparation of SEC filings. Mr. Baramov's role included
assisting the Company in record keeping, accounting and data management. Mr.
Baramov is an accredited investor. The sale was exempt pursuant to Section 4 (2)
of the Securities Act of 1933.
On July 21, 2005, a warrant to purchase 1,434,088 shares of TX Holdings stock
("Warrant") was issued to Baker, Johnston & Wilson LLC (now Baker & Johnston LLC
("B & J")) at an exercise price of $.15 a share. The Warrant provided that it
expires June 30, 2010, was callable by the Company on or after February 1, 2006
if the per share market value of TX Holdings common stock has been at least 2
1/2 times the exercise price for 20 consecutive trading days. The Warrant was
issued pursuant to a Forbearance Agreement between B & J and TX Holdings whereby
B & J agreed not to seek collection of $215,113.20 owed to it by TX Holdings for
legal services and expenses until January 21, 2007. The Warrant, if exercised,
provides for a total exercise price of $215,113.30 ($.15 x 1,434,088), exactly
equaling the indebtedness of the Company to B & J and the warrant may be
exercised by application of indebtedness to the exercise price. B & J is an
accredited investor. The sale was exempt pursuant to Section 4(2) of the
Securities Act of 1933. On January 12, 2006 but effective November 1, 2005, (i)
the Warrant was amended to expire December 31, 2010, (ii) to be callable only on
or after August 1, 2006, and (iii) to be exercisable only on or after July 1,
2006 and the Forbearance Agreement was amended to provide for forbearance until
July 21, 2007. On or about May 1, 2006 this Warrant was assigned to David R.
Baker as to 717,041 Warrants and to J. Brooke Johnston, Jr. as to 717,041
Warrants.
On August 5, 2005, 461,942 shares of TX Holdings common stock were issued to
David R. Baker, 361,942 representing settlement of $36,494.20 of legal fees and
expenses of Haskell Slaughter Young & Rediker, LLC that were due to Mr. Baker
(the issuance being 3,000 shares less than required, which additional shares
will be issued in due course) and 100,000 shares representing an accountable
retainer valued at $10,000 for future services and expenses of Haskell Slaughter
Young & Rediker, LLC in assisting the Company (through Mr. Baker) in bringing
all required SEC filings up to date. Mr. Baker is an accredited investor. Such
services exceeding $10,000 in value have been performed. The sale was exempt
pursuant to Section 4(2) of the Securities Act of 1933.
25
On December 12, 2005, the Company issued 2,000,000 shares of its common stock to
Darren Bloom as his compensation in the role of, CFO, Secretary - Treasurer. Mr.
Bloom is an accredited investor. The sale was exempt pursuant to Section 4 (2)
of the Securities Act of 1933. TX Holdings has filed suit against Mr. Bloom for
the return of the shares for breach of contract. The shares were issued pursuant
to a three year employment contract which Mr. Bloom only served for 9 months.
(See Item 3 Litigation, above).
On March 28, 2006, a warrant to purchase 200,000 shares of common stock of TX
Holdings, Inc. at an exercise price of $0.30 was issued to Michael A Cederstrom.
The warrant expires on March 31, 2010 and is callable by the Company on or after
March 27, 2007 if the market value of TX Holding Stock is has been at least 2
1/2 times the exercise price for 20 consecutive trading days.
On March 28, 2006, a warrant to purchase 300,000 shares of TX Holdings, Inc.
common stock at an exercise price of $0.30 was issued to Douglas C. Hewitt. The
warrant expires on March 27, 2010 and is callable by the Company on or after
March 31, 2007 if the market value of TX Holding Stock has been at least 2 1/2
times the exercise price for 20 consecutive trading days.
On March 28, 2006, a warrant to purchase 300,000 shares of common stock of TX
Holdings, Inc. at an exercise price of $0.30 was issued to Bobby Fellers. The
warrant expires on March 31, 2010 and is callable by the Company on or after
March 31, 2007 if the market value of TX Holding Stock is has been at least 2
1/2 times the exercise price for 20 consecutive trading days.
On May 11, 2006, the Company entered into an Employment Agreement with Mark
Neuhaus. As part of the Employment Agreement, Mr. Neuhaus was provided 1,000
preferred shares of stock. The preferred shares have no dividend rights and no
conversion to common stock rights. The preferred stock does have a super-voting
right equivalent to 50% of the outstanding shares of common stock. The
super-voting right provides Mr. Neuhaus with control of the Company.
On December 24, 2007, the Company canceled the employment agreement with Mark
Neuhaus and in addition canceled the 1,000 shares of preferred stock owned by
Mark Neuhaus and exchanged with 10,715,789 shares of common stock. The
cancellation of the preferred stock released Mr. Neuhaus's total voting control
of the Company. Mr. Neuhaus still has substantial control of the Company via his
common stock ownership.
During May 2006 the Company entered into a Private Placement Agreement with
Brill Securities, Inc. to act as a financial advisor for the private placement
of shares of common stock of TX Holdings. Pursuant to the Private Placement
Memorandum approximately $1,240,000 of units were placed. The units contained an
aggregate of 4,633,324 shares of the Company's common stock and 4,633,324 common
stock purchase warrants. Each common stock purchase warrant is exercisable for a
period of two years at an exercise price of $.50 per share. In connection with
the offering, the Company paid a placement fee of $70,500 in cash. In addition,
the placing agent was issued warrants to purchase 235,000 shares of common stock
on the same terms and conditions as the investors. The net proceeds of the
offering will be used by the Company to purchase necessary equipment to upgrade,
replace, repair equipment on site at the fields we lease; to search, negotiate
and acquire additional oil and gas leases; and general corporate purposes. All
units placed were sold pursuant to Rule 144 of the Act. All purchasers of the
units met the definition of an accredited investor.
On July 1, 2006, a warrant to purchase 250,000 shares of common stock of TX
Holdings, Inc. at an exercise price of $0.30 was issued to W.A. ("Bill")
Alexander. The warrant expires on March 31, 2010 and is callable by the Company
on or after March 31, 2007 if the market value of TX Holding Stock is has been
at least 2 1/2 times the exercise price for 20 consecutive trading days.
On February 14, 2007, the Company obtained a $250,000 bridge loan from Rob
Hutchings, convertible to common stock at $0.525 per share, the closing price of
the Company's common stock at that date. The note bore interest of 10% per year
with the principal due in 60 days. The terms of the loan required that the
Company issue 500,000 shares of restricted common stock as security for the
loan. On June 29, 2007, Mr. Hutchings elected to convert his note for the shares
provided for collateral. The sum of $250,000 was applied toward the principal
repayment; interest and the balance in the amount of $35,000 was treated as
interest expense.
26
On July 21, 2005, a warrant to purchase 1,434,088 shares of TX Holdings stock
(the "Warrants") was issued to Baker, Johnston & Wilson LLC (now Baker &
Johnston LLC ("B & J")) at an exercise price of $0.15 a share. In May 2006, the
Warrants were assigned to David R. Baker and J. Brooke Johnston, Jr. In April
2007, the Warrants were exercised and 1,434,088 shares of common stock were
issued in full satisfaction of the $215,113 of payables for services owed to
Baker, Johnson and Wilson.
On April 25, 2007, the Company issued 500,000 shares to the Baron Group, LTD.
The Baron Group, LTD. To provide investment banking services to the Company.
On May 17, 2007, the Company issued 100,000 shares to Skye Consulting, Ltd for
investor relation services.
On June 13, 2007, Phoenix Capital Partners exercised 335,821 warrants for
consulting services. The Company received $74,968 for the exercise of the
warrants.
On June 15, 2007, the Company issued William Shrewsbury 333,333 shares of common
stock at a market price of $0.77 per share for a total consideration of
$256,666. The proceeds were issued for a $100,000 reduction of a $270,000 loan
owed to Mr. Shrewsbury and the remaining $156,666 was treated as interest
expense.
On June 15, 2007, the Company hired a public relations firm to represent the
Company. Mercantile Ascendency Inc. will perform public relations work for the
period of one year. The Company issued to Mercantile Ascendency restricted
common shares totaling 1,300,000 at a price of $0.77 per share for total
consideration of $1,001,000.
On June 19, 2007, the Company issued 100,000 shares of restricted common shares
to Frank Shafer for marketing services valued at $86,000.
On June 21, 2007, the Company issued 200,000 shares of restricted common shares
to Sea Coast Advisors for investor relations the services were valued at
$200,000.
On September 28, 2007, a warrant to purchase 1,000,000 shares of common stock of
TX Holdings, Inc. at an exercise price of $0.28 was issued to Michael
Cederstrom. The warrant expires on September 28, 2011.
On September 28, 2007, a warrant to purchase 1,000,000 shares of common stock of
TX Holdings, Inc. at an exercise price of $0.28 was issued to Jose Fuentes. The
warrant expires on September 28, 2011.
On September 28, 2007, a convertible promissory note was issued to Mark Neuhaus
in the amount of $1,199,885.55 which bears interest at 8% per annum. The note is
for a period of two years and contains an automatic conversion at the end of the
period. The Company may pay the note in full at any time prior to the maturity
of the note. The total shares to be held for conversion is 4,970,954 shares. A
copy of the note is attached as Exhibited 10.8 and incorporated herein.
Share Repurchases
None.
Item 6 Management's Discussion and Analysis or Plan of Operations
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.
27
The Company has never earned a profit, and has incurred an accumulated deficit
of $11,345,049 as of September 30, 2007. The acquisition of a controlling
interest in the Company by MA&N has given the Company access to additional funds
directly from MA&N, and the business plan developed by MA&N has enabled the
Company to raise additional funds from third parties. 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. In addition the Company
has entered into negotiations to purchase additional fields of operation that
are scheduled to close during the fourth quarter of 2007. The Company will begin
oil production upon the completion of well integrity tests required to be
performed by the Texas Railroad Commission on the wells located in the Williams
Lease. Upon the successful completion of the test the Company may be in a
position to start the recompletion of the 30 wells located on the Williams
Brothers leases. 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 in excess of seventy wells located on the
three fields located in Texas. Each of the wells will need to be reworked to
establish production at a cost of approximately $5,000 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 will 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 may
increase production of each well up to an estimated eight to twelve barrels per
day per well. If the Company is able to produce its wells upon the recompletion
the Company will be profitable if 150 barrels of oil is produced and the price
of oil remains above $70 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
Year Ended September 30, 2007 Compared With Year Ended September 30, 2006
Revenues From Operations - The Company had no Revenues for the years ended
September 30, 2007 or 2006. In December 2004, the Company announced plans to
change business direction and began to structure itself into an oil and gas
production and exploration company. Since it ceased its former business
operations, the Company has devoted its efforts to research, product development
and securing financing and has not earned revenues.
Expenses From Continuing Operations - The Company incurred operating expenses of
$3,787,199 for the fiscal year ended September 30, 2007; a decrease of
$1,210,940 compared to $4,998,139 for the fiscal year ended September 30, 2006.
The decrease in operating expenses is primarily related to stock-based
compenstion decreasing by $2,481,298 to $2,061,603 for the year ended September
30, 2007 from $4,542,901 for the year ended September 30, 2006. This decrease to
stock based compensation was partially offset by increses in professional fees
of $340,388 and significant personnel related expenses as it pursues its
business strategy of oil and gas exploration and production. The stock based
compensation in 2006 was incurred because of the cost of raising capital for the
Company pursuant to a private placement, the bringing current of the required
reporting of the Company and the payment for services rendered in prior years.
Net Loss - For the fiscal year ended September 30, 2007 the Company incurred a
loss of $4,085,033 compared to a loss of $5,015,719 for the fiscal year ended
September 30, 2006, a decrease of $930,686. The major reasons for this loss
decrease is having a decrease in stock-based compensation for the fiscal year
ended September 30, 2007 partially offset by higher professional fees and
personnel expenses for the fiscal year ended September 30, 2007 as discussed
above. The Company's interest expense in 2007 also increased from $18,290 in
2006 to $299,834 in 2007 an increase of $272,544 in interest expense. During
2007 the Company shifted its focus to oilraised capital by loans primarily from
shareholders and gas exploration and production.management. At September 30,
2007, Mark S. Neuhaus has made cash advances an payments with common stock of
the Company $1,199,886. The resulting note to Mr. Neuhaus bears interest at 8%
interest. During the year 2007 the Company was required to pay interest up to
24% for some loans.
28
Net Operating Loss Carryforward for Tax Purposes
The Company has tax net operating loss carryforwards totaling approximately
$1,740,000, expiring in 2018 through 2026. Approximately $1,200,000 of net
operating losses was 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.
Net operating losses after December 12, 2002 through September 30, 2007 were
approximately $2,666,000. The total net operating losses available to the
Company to offset future taxable income is approximately $3,090,000.
There can be no assurance that these deferred tax assets can ever be used. A
deferred tax asset can be used only if there is future taxable income, as to
which there can be no assurance in the case of the Company. (See NOTE 5 - NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS.)
Liquidity
At September 30, 2007, we had no cash or cash equivalent or prepaid current
assets. As of September 30, 2006, we had a cash balance of $332,546 and $15,000
in prepaid current assets. This is a result of work that has been completed in
the oil & gas fields and the purchase of the fields. Property and equipment
increased to $617,038 in 2007 from $290,318 in 2006 an increase of $326,720 or
53%. In addition Deposit for oil and gas property acquisitions increased to
$378,000 in 2007 from $253,000 in 2006 an increase of $125,000 or 33%. The
investment in the oil and gas fields has caused the Company a liquidity crisis.
The Company has been able to borrow money from Mark S. Neuahus primarily to
resolve the Company's liquity needs. The Company has completed its testing
required by the Texas Railroad Commision as of December 28, 2007. This will
allow the Company to start to produce the oil wells on the Williams lease. (See
"Oil and Gas Leases" under Item 2 Description of Properties) While the Company
will begin to generate revenue during the second quarter of 2008 to amount of
production will not be suffiecient to meet all of the Company's liquidity needs.
Historically the Company has lacked liquidity, a result of insufficient
financing alternatives available to the Company and the lack of a business
strategy that produced significant revenues. Since MA%N took a controlling
interest in the Company in December 2002, Mr. Neuhaus has provided loans to the
Company providing the Company with $1,199,886 for operating purposes as of
September 30, 2007. As of September 30, 2007, the Company owed to Dexter &
Dexter, Attorneys at Law the sum of $80,205 for attorneys' fees and the sum of
$25,671 to Jose Fuentes as payment for service.
During the 2007 and 2006 fiscal years the Company borrowed $1,199,886 from Mark
Neuhaus. This obligation is set forth in a convertible promissory note which
pays interest at 8% per annum effective September 28, 2007. The conversion price
for common stock is twenty-eight cents per share. The note is for two years and
may be converted at any time during that period.
Based on current expectations, the Company will need to find additional sources
of financing to meet our general corporate needs as well as the large capital
requirements necessary for the production of the oil and gas in the wells we
currently own and lease, and the acquisition of additional oil and gas producing
properties.
The Company currently requires operating capital of approximately $75,000 per
month to meet its current obligations. At this time the Company has no revenue
and is unable to meet its current obligations. In the past the Company has been
able to raise capital from its shareholders/officers through stock-based
compensation and advances. The Company will require the officers of the Company
to continue to receive stock-based compensation and the Company will need to
borrow or raise sufficient equity capitalization to meet its current
obligations. In addition the Company will need to raise approximately $500,000
in working capital to complete the refurbishment and development of the leases
it currently owns. If the Company is unable to raise sufficient capital to
refurbish and develop its fields, it will need to find working interest partners
to assist in the development of its oil and gas leases. The Company's primary
challenge is to begin to generate revenue from its oil and gas leases. If the
revenue is not generated, then the Company will need to seek merger partners.
29
Item 7 Financial Statements
The Company's consolidated balance sheets as of September 30, 2006 and 2007, and
the related consolidated statements of operations, changes in stockholders
deficit and cash flows for the years then ended have been audited by Ham,
Langston & Brezina, LLP, independent registered public accountants. These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant to Regulation
S-B as promulgated by the Securities and Exchange Commission and are included
herein in response to Part F/S of this Form 10-KSB. The financial statements
have been prepared assuming the Company will continue as a going concern.
30
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
FINANCIAL STATEMENTS - TABLE OF CONTENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006
-----------------------------------------------------------------------------------------------------------------------------
Page(s)
----------------
Report Of Independent Registered Public Accounting Firm 32
Audited Financial Statements:
Balance Sheets at September 30, 2007 and 2006 33
Statements Of Operations for the years ended September 30, 2007 and 2006,
and for the period from inception of the development stage, October
1, 2004, to
September 30, 2007 34
Statements Of Changes In Stockholders' Deficit for the period from inception of the
Development stage, October 1, 2004, to September 30, 2007 35
Statements Of Cash Flows for the years ended September 30, 2007 and 2006, and
for the period from inception of the development stage, October 1, 2004, to 38
September 30, 2007
Notes to Financial Statements 39
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Directors of TX Holdings, Inc.:
We have audited the accompanying balance sheets of TX Holdings, Inc. as of
September 30, 2007 and 2006 and the related statements of operations,
stockholders' deficit and cash flows for the years then ended and for the period
from inception of the development stage, October 1, 2004, to September 30, 2007.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
upon our audits
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TX Holdings, Inc. as of
September 30, 2007 and 2006, and the results of its operations and its cash
flows for the years then ended and for the period from inception of the
development stage, October 1, 2004, to September 30, 2007, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements
and discussed in Note 1, the Company has incurred significant recurring losses
from operations since inception and is dependent on outside sources of financing
for continuation of its operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans with
regard to this matter are also discussed in Note 1. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
December 28, 2007
32
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
BALANCE SHEETS
September 30, 2007 and 2006
-----------------------------------------------------------------------------------------
2007 2006
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 332,546
Prepaid expenses -- 15,000
----------- -----------
Total current assets -- 347,546
Deposit for oil and gas property acquisition 378,000 253,000
Property and equipment, net 617,038 290,318
Other 5,000 --
----------- -----------
Total assets $ 1,000,038 $ 890,864
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to a stockholder $ 170,000 $ --
Accounts payable and accrued liabilities 491,788 455,251
Accrued stock-based compensation 231,000 830,000
Advances from a stockholder/officer -- 164,385
----------- -----------
Total current liabilitiess 892,788 1,449,636
Convertible debt to stockholder/officer 1,199,886 --
----------- -----------
Total liabilities 2,092,674 1,449,636
----------- -----------
Commitments and contingencies
Stockholders' deficit:
Preferred stock: no par value, 1,000,000 shares
authorized, 1,000 shares issued or outstanding 1,018,000 1,018,000
Common stock: no par value, 250,000,000 shares
authorized, 31,884,355 and 25,782,558 shares
issued and outstanding at September 30, 2007
and 2006, respectively 8,443,004 5,104,541
Additional paid-in capital 800,409 587,703
Accumulated deficit (1,803,507) (1,803,507)
Losses accumulated in the development stage (9,550,542) (5,465,509)
----------- -----------
Total stockholders' deficit (1,092,636) (558,772)
----------- -----------
Total liabilities and stockholders' deficit $ 1,000,038 $ 890,864
=========== ===========
The accompanying notes are an integral part of these financial statements
33
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENTS OF OPERATIONS
For the Years Ended September 30, 2007 and 2006 and for the Period from Inception
of the Development Stage, October 1, 2004, to September 30, 2007
------------------------------------------------------------------------------------------------
Inception of
Development
Stage to
September 30,
2007 2006 2007
------------ ------------ ------------
Operating expenses, except items shown
separately below $ 1,119,590 $ 202,177 $ 1,389,017
Stock-based compensation 2,061,603 4,542,901 6,644,504
Professional fees 552,012 211,624 884,342
Lease expense -- 12,392 17,392
Depreciation expense 1,378 780 2,638
Advertising expense 52,616 28,265 83,265
------------ ------------ ------------
Total operating expenses 3,787,199 4,998,139 9,021,158
------------ ------------ ------------
Loss from operations (3,787,199) (4,998,139) (9,021,158)
------------ ------------ ------------
Other income and (expenses):
Other income -- 710 710
Loss on disposal of equipment (7,000) -- (7,000)
Forebearance agreement costs -- -- (211,098)
Interest expense (290,834) (18,290) (311,996)
------------ ------------ ------------
Total other income and (expenses), net (297,834) (17,580) (529,384)
------------ ------------ ------------
Net loss $ (4,085,033) $ (5,015,719) $ (9,550,542)
============ ============ ============
Net loss per common share - basic and diluted $ (0.14) $ (0.25)
============ ============
Weighted average number of common shares
outstanding - basic and diluted 28,750,169 20,192,875
============ ============
34
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2007
------------------------------------------------------------------------------------------------------------------------------------
Losses
Accum-
Additional ulated
Preferred Stock Common Stock Paid-In in the
------------------------- ----------------------- Paid-In Accumulated Develop-
Shares Amount Shares Amount Capital Deficit ment 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 these financial statements
35
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE'
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2007
------------------------------------------------------------------------------------------------------------------------------------
Losses
Accumulated
Preferred Stock Common Stock Additional in the
------------------------ ------------------------- Paid-In Accumulated Develop-
Shares Amount Shares Amount Capital Deficit ment 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 2,318,296 -- -- -- 2,318,296
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
Preferrd stock issued
to the Company's
chief executive
officer/stockholder 1,000 1,018,000 -- -- -- -- -- 1,018,000
Net 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 these financial statements
36
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2007
------------------------------------------------------------------------------------------------------------------------------------
Losses
Accumulated
Preferred Stock Common Stock Additional in the
------------------------ ------------------------ Paid-In Accumulated Develop-
Shares Amount Shares Amount Capital Deficit ment 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 accrued
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 June 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 these financial statements
37
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2007 and 2006 and for the Period From Inception
of the Development Stage, October 1, 2004, to September 30, 2007
------------------------------------------------------------------------------------------------------------
Inception of
Development
Stage to
September 30,
2007 2006 2007
------------- ------------- -------------
Cash flows from opersating activities:
Net loss $ (4,085,033) $ (5,015,719) $ (9,550,542)
Adjustments to reconcile net loss to net cash used in
operating activities
Warrants issued for forbearance agreement -- -- 211,098
Loss on disposal of equipment 7,000 7,000
Depreciation expense 1,378 780 2,638
Common stock issued for services 2,061,603 3,336,296 5,447,899
Preferred stock issued for services -- 376,605 376,605
Common stock issued to settle accounts payable 215,114 -- 251,308
Common stock issued in payment of interest expense 196,666 -- 196,666
Common stock issued by an officer/stockholder to
satisfy expenses of the Company and increase
stockholder advances 616,750 -- 616,750
Accrued interest added to stockholder advances 35,171 -- 35,171
Changes in operating assets and liabilities:
Prepaid expenses and other assets 10,000 (5,000) (4,750)
Accounts payable and accrued liabilities 99,537 1,083,264 1,203,506
------------- ------------- -------------
Net cash used by operating activities (841,814) (223,774) (1,206,651)
------------- ------------- -------------
Cash flows from investing activities:
Payment of deposits for oil and gas property
acquisition (125,000) (253,000) (378,000)
Property and equipment additions (45,538) (290,018) (335,556)
------------- ------------- -------------
Net cash used by investing activities (170,538) (543,018) (713,556)
------------- ------------- -------------
Cash flows from financing activities:
Repayment of note payable to a bank -- -- (20,598)
Proceeds from note payable to stockholders 520,000 520,000
Proceeds from sale of common stock -- 1,164,997 1,164,997
Proceeds from warrant exercise 75,461 2,943 78,404
Proceeds from stockholder/officer advances 84,345 (68,602) 177,404
------------- ------------- -------------
Net cash provided by financing activities 679,806 1,099,338 1,920,207
------------- ------------- -------------
Decrease in cash and cash equivalents (332,546) 332,546 --
Cash and cash equivalents at beginning of year 332,546 -- --
------------- ------------- -------------
Cash and cash equivalents at end of year $ -- $ 332,546 $ --
============= ============= =============
Supplemental disclosure of cah flow information
Cash paid for interest expense $ -- $ 13,717
Cash paid for income taxes -- --
The accompanying notes are an integral part of these financial statements
38
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
HISTORICAL BUSINESS ACTIVITIES
TX Holdings, Inc. (formerly R Wireless, Inc. and HOM Corporation) (the
"Company"), incorporated May 4, 2000 in the State of Georgia, is transitioning
from a holding company to an oil and gas exploration and production company.
This transition began during 2005 and is discussed below in "CURRENT BUSINESS
ACTIVITIES." Prior to May 26, 2005, the Company operated as a holding company
for its formerly two wholly owned subsidiaries, Homes By Owners, Inc. ("Homes")
and Direct Lending, Inc. ("Direct"). The Company received approval from the
Secretary of State of Georgia for a certificate of merger between Homes and
Freedom Homes, Inc. ("Freedom"). The Company remains the owner of 32.3% of the
common shares of Homes. The remaining common shares of Homes are owned as
follows: 63.1% by Jim Evans, owner of Freedom, and 4.6% by Robert S. Wilson,
operating officer of Homes. In 2005 the company sold a 67.7% interest in Freedom
and wrote off its remaining 32.3% investment because management was unable to
demonstrate that its equity interest had any future value. Accordingly, at
September 30, 2005 the Company recognized a gain from discontinued operations of
$108,890.
The principal business of Freedom was the retailing of manufactured homes, the
publishing of the periodic magazine, For Sale by Owner, and maintaining its
residential sales web site. Subsequent to the May 26, 2005 Freedom Merger, the
periodic magazine as well as web site maintenance were discontinued, although
Freedom did intermittently issue a magazine in support of a local real estate
broker. Since May 26, 2005, none of the operations of Freedom are included in
the financial statements of the Company. As of May 26, 2005, the operations of
Freedom are not consolidated with the financial statements of the Company since
Freedom no longer is a subsidiary and is under the control of Jim Evans, not TX
Holdings, Inc. In fact, TX Holdings, Inc. has not participated in the operation
of Freedom since May 26, 2005. The Company's management has determined that the
value of its interest in Freedom is $0.00. The Company has not received any
revenue, dividends, or distributions from Freedom since prior to its merger on
May 26, 2005. Freedom is a private company that is not publicly traded, with
limited investors, and has no market for its stock. The liquidation value of
Freedom would be difficult to determine and no market is currently available for
the transfer of TX Holdings' shares.
Clarification of Freedom Homes was incorporated in the State of Georgia in
December 1999 and operates in the real estate market as an advertiser of real
estate listed as "for sale by owner" ("FSBO"). Homes has published a periodic
magazine which contains FSBO and other advertising, and Homes offers an Internet
web page that serves as an advertising venue for FSBO residential and commercial
real estate in the Central Savannah River Area.
CURRENT BUSINESS ACTIVITIES
Management seeks to acquire producing oil and gas properties in and around
Texas, Louisiana and Oklahoma that will define the operational holdings of The
Company. Management has defined a number of criteria for acquisition which
include:
o Wells should be currently Producing
o Production should be broadly distributed across lease
o Lease should show a 24 month payback (or better)
o Wells should show upside potential (proved undeveloped reserves of
approximately 20%)
These criteria were developed in an effort to mitigate risk for TX Holdings,
Inc. and its investors.
Management raised $1,240,000 in a Private Placement offering during the months
of July through September 2006 to finance these acquisitions. The funds raised
in 2006 were used to purchase an interest in three oil and gas fields located in
Texas. Development of the fields began on November 1, 2006. The Company
experienced substantial costs for engineering and other professional services
during 2005, 2006 and 2007 in making the transition to an oil and gas
exploration and production company. During 2007 the Company borrowed money and
obtained other advances from Mark Neuhaus in the form of payments in common
stock on behalf of the Company. The total
39
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, continued
CURRENT BUSINESS ACTIVITIES, continued
borrowed from Mr. Neuhaus in fiscal 2007 and 2006 totaled $1,199,885 The Company
plans to continue to use a combination of debt, and equity finance. 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 operations.
DEVELOPMENT STAGE COMPANY
The Company ceased its former operations as of September 30, 2004. During the
first quarter for 2005 beginning on October 1, 2004, the Company researched
different alternatives for the future development of the Company. In December
2004, as a result of the Company's research, the Company announced that it would
pursue operations in the oil and gas industry. October 1, 2004 was the beginning
day for the first quarter of the determination to pursue operations in the oil
and gas industry. Therefore October 1, 2004 was identified as the beginning of
the developmental stage.
GOING CONCERN CONSIDERATIONS
Since it ceased its former business operations, the Company has devoted its
efforts to research, product development, and securing financing and has not
earned significant revenue from its planned principal operations. Accordingly,
the consolidated financial statements are presented in accordance with Statement
of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by
Development-Stage Enterprises.
The Company, with its prior subsidiaries, has suffered recurring losses while
devoting substantially all of its efforts to raising capital, identifying and
pursuing businesses opportunities and management currently believes its best
opportunities are in the oil and gas business. The Company's total liabilities
exceed its total assets and the Company's liquidity is substantially dependent
on raising capital.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuing operations,
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 to implement a successful business plan
and to generate profits sufficient to become financially viable. The financial
statements do not include adjustments relating to the recoverability of recorded
assets or liabilities that might be necessary should the Company be unable to
continue as a going concern.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Significant items subject to such estimates and
assumptions include recoverability of long-lived and deferred tax assets,
valuation of acquired in-process research and development, measurement of
stock-based compensation, and the fair value of the Company's common stock. The
Company bases its estimates on historical experience and various other
assumptions that management believes to be reasonable under the circumstances.
Changes in estimates are recorded in the period in which they become known.
Actual results could differ from those estimates.
40
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, continued
PROPERTY AND EQUIPMENT
The Company uses the successful efforts method of accounting for oil and gas
producing activities. Under this method, acquisition costs for proved and
unproved properties are capitalized when incurred. Exploration costs, including
geological and geophysical costs, the costs of carrying and retaining unproved
properties and exploratory dry hole drilling costs, are expensed. Development
costs, including the costs to drill and equip development wells, and successful
exploratory drilling costs to locate proved reserves are capitalized.
Exploratory drilling costs are capitalized when incurred pending the
determination of whether a well has found proved reserves. A determination of
whether a well has found proved reserves is made shortly after drilling is
completed. The determination is based on a process that relies on
interpretations of available geologic, geophysic, and engineering data. If a
well is determined to be successful, the capitalized drilling costs will be
reclassified as part of the cost of the well.
If a well is determined to be unsuccessful, the capitalized drilling costs will
be charged to expense in the period the determination is made. If an exploratory
well requires a major capital expenditure before production can begin, the cost
of drilling the exploratory well will continue to be carried as an asset pending
determination of whether proved reserves have been found only as long as: i) the
well has found a sufficient quantity of reserves to justify its completion as a
producing well if the required capital expenditure is made and ii) drilling of
the additional exploratory wells is under way or firmly planned for the near
future. If drilling in the area is not under way or firmly planned, or if the
well has not found a commercially producible quantity of reserves, the
exploratory well is assumed to be impaired, and its costs are charged to
expense.
In the absence of a determination as to whether the reserves that have been
found can be classified as proved, the costs of drilling such an exploratory
well is not carried as an asset for more than one year following completion of
drilling. If, after that year has passed, a determination that proved reserves
exist cannot be made, the well is assumed to be impaired, and its costs are
charged to expense. Its costs can, however, continue to be capitalized if
sufficient quantities of reserves are discovered in the well to justify its
completion as a producing well and sufficient progress is made in assessing the
reserves and the well's economic and operating feasibility.
The impairment of unamortized capital costs is measured at a lease level and is
reduced to fair value if it is determined that the sum of expected future net
cash flows is less than the net book value. TX Holdings determines if impairment
has occurred through either adverse changes or as a result of the annual review
of all fields.
Development costs of proved oil and gas properties, including estimated
dismantlement, restoration and abandonment costs and acquisition costs, are
depreciated and depleted on a field basis by the units-of-production method
using proved developed and proved reserves, respectively. The costs of unproved
oil and gas properties are generally combined and impaired over a period that is
based on the average holding period for such properties and the Company's
experience of successful drilling.
Other property and equipment are stated at cost. Major renewals and betterments
are capitalized, while maintenance and repairs that do not materially improve or
extend the useful lives of the assets are charged to expense as incurred. Costs
relating to the initial design and implementation of the Internet web page have
been capitalized while the costs of web page maintenance are expensed as
incurred. Assets are depreciated over their estimated useful lives using the
straight-line method. The Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets.
REVENUE RECOGNITION
Currently the Company has no revenue from oil and gas operations. When the
Company begins to receive revenue from oil and gas operations it will be
recognized upon the delivery of the oil or gas to the purchaser of the oil or
gas.
41
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, continued
INCOME TAXES
Income taxes are estimated for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the financial reporting basis and
income tax basis of assets and liabilities. Deferred tax assets and liabilities
represent future tax consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes may also be recognized for operating losses that are available to
offset future taxable income. Deferred taxes are adjusted for changes in tax
laws and tax rates when those changes are enacted.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
temporary differences become deductible. Management considers the reversal of
any deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
BASIC NET LOSS PER COMMON SHARE
Net loss per share is computed based on the guidance of SFAS No. 128, Earnings
Per Share (SFAS 128), requiring companies to report both basic net loss per
common share, which is computed using the weighted average number of common
shares outstanding during the period, and diluted net loss per common share,
which is computed using the weighted average number of common shares outstanding
and the weighted average dilutive potential common shares outstanding using the
treasury stock method. However, for all periods presented, diluted net loss per
share is the same as basic net loss per share as the inclusion of weighted
average shares of common stock issuable upon the exercise of stock options and
warrants and conversion of convertible preferred stock would be anti-dilutive.
The following table summarizes potentially dilutive securities outstanding at
each of the periods presented which were not included in the calculation of
diluted net loss per share since their inclusion would be anti-dilutive.
2007 2006
--------- ---------
Convertible notes 4,285,306 --
Warrants Issued for forbearance of payable -- 1,434,088
Warrants issued as compensation 1,050,000 1,050,000
Warrants issued in private placement 4,368,324 4,368,324
--------- ---------
Total 6,852,412
========= =========
RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the SEC issued SAB No. 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements." SAB 108 provides interpretative guidance on the process of
quantifying financial statement misstatements and is effective for fiscal years
ending after November 15, 2006. The adoption of this statement in fiscal 2007
did not have a material impact on the Company's financial condition, results of
operations or cash flows.
42
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, continued
RECENTLY ISSUED ACCOUNTING STANDARDS, continued
In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error
Corrections" which supersedes APB Opinion No. 20, "Accounting Changes" and SFAS
3, "Reporting Accounting Changes in Interim Financial Statements." SFAS 154
changes the requirements for the accounting for and reporting of a change in
accounting principle. SFAS 154 also carries forward, without change, the
guidance contained in APB 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate. SFAS
154 requires retrospective application to prior periods' financial statements of
changes in accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. The
correction of an error in previously issued financial statements is not a change
in accounting principle. However, the reporting of an error correction involves
adjustments to previously issued financial statements similar to those generally
applicable to reporting an accounting change retroactively. Therefore, the
reporting of a correction of an error by restating previously issued financial
statements is also addressed by SFAS 154. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The adoption of this statement in fiscal 2007 did not have a material
impact on The Company's financial condition, results of operations or cash
flows.
In September 2006, the FASB issued SFAS 157, "Fair Value Measurements." SFAS 157
defines fair value, establishes a framework for measuring fair value under
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years. The Company is
currently evaluating the impact the adoption of this statement could have on its
financial condition, results of operations and cash flows.
In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes." FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold a
tax position is required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The interpretation applies to all tax positions
related to income taxes subject to SFAS 109. FIN 48 is effective for fiscal
years beginning after December 15, 2006. Differences between the amounts
recognized in the statements of financial position prior to the adoption of FIN
48 and the amounts reported after adoption should be accounted for as a
cumulative-effect adjustment recorded to the beginning balance of retained
earnings. The Company is currently evaluating the impact of the adoption of FIN
48 but does not expect the adoption of this statement to have a material impact
on the Company's financial condition, results of operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities -- Including an Amendment of FASB
Statement No. 115." SFAS No. 159 permits an entity to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. Entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting
date. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. The Company is currently evaluating the impact the adoption of this
statement could have on its financial condition, results of operations and cash
flows.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--an amendment of ARB No. 51." SFAS No. 160
requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements. Its intention
is to eliminate the diversity in practice regarding the accounting for
transactions between an entity and noncontrolling interests. This Statement is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited The
Company is currently evaluating the impact of the adoption of FIN 48 but does
not expect the adoption of this statement to have a material impact on the
Company's financial condition, results of operations or cash flows.
43
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, continued
RECENTLY ISSUED ACCOUNTING STANDARDS, continued
In December 2007, the FASB issued SFAS No. 141(R), a revised version of SFAS No.
141, "Business Combinations." The revision is intended to simplify existing
guidance and converge rulemaking under U.S. generally accepted accounting
principles (GAAP) with international accounting rules. This statement applies
prospectively to business combinations where the acquisition date is on or after
the beginning of the first annual reporting period beginning on or after
December 15, 2008, and may affect the release of our valuation allowance against
prior acquisition intangibles. An entity may not apply it before that date. The
new standard also converges financial reporting under U.S. GAAP with
international accounting rules. The Company is currently evaluating the impact
the adoption of this statement could have on its financial condition, results of
operations and cash flows.
NOTE 2 - DEPOSITS FOR OIL AND GAS PROPERTY ACQUISITION
On November 1, 2006, the Company entered into a purchase and sale agreement (the
"Agreement") for a 60% interest in certain oil and gas properties located in
Eastland County, Texas. Under the Agreement, the Company is obligated to pay a
total of $7,200,000 for equipment, mineral leases, drilling and reworks, and
various other catagories of costs if all provisions of the agreement are met. At
September 30, 2007, the Company had made payments totaling $378,000 to the
seller and those payments are presented as deposits for oil and gas property
acquisition in the accompanying balance sheet.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 2007 and 2006:
Life
Years 2007 2006
------------------ --------------------- ----------------------
Oil and gas properties and equipment $ 614,328 $ 289,348
Furniture and office equipment 3-5 years 6,088 3,070
--------------------- ----------------------
Total 620,416 292,318
Less accumulated depreciation, depletion and
amortization (3,378) (2.000)
--------------------- ----------------------
$ 617,038 $ 290,318
===================== ======================
Depreciation expense of $1,378 and $780 was recognized during the years ended
September 30, 2007 and 2006, respectively. At September 30, 2007 and 2006, the
Company had no proven oil and gas properties and, accordingly, there is no
amortization of oil and gas properties during the yer ended September 30, 2007
or 2006.
Included in oil and gas properties and equipment is $352,560 of 2007 additions
thet were acquired in excghange for shares of the Company's common stock
transferred by the Company's former Chief Executive Officer who is a major
stockholder of the Company. This amount is now due the former Chief Executive
Officer/Stockholder and is included in Convertible Debt to Officer/Stockholder.
See Note 4.
44
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4 - NOTES PAYABLE TO A STOCKHOLDER AND CONVERTIBLE DEBT TO OFFICER/
STOCKHOLDER
On February 14, 2007 the Company obtained a $250,000 bridge loan from Rob
Hutchings, convertible to common stock at $0.525 per share, the closing price of
the Company's common stock at that date. The beneficial conversion feature
associated with the debt was valued at $35,000. The note bore interest of 10%
per year with the principal due in 60 days. The terms of the loan required that
the Company issue 500,000 shares of restricted common stock as security for the
loan. On June 29, 2007, Mr. Hutchings elected to convert his note for the shares
provided for collateral. The sum of $250,000 was applied toward the principal
repayment; the beneficial conversion value of $35,000 was charged to interest
expense.
The balance in note payable to a stockholder of $170,000 is the remaining
principal due on $270,000 of advances from William Shrewsbury. The note bears
interest at 10% per year and due on demand. On June 15, 2007, the Company issued
William Shrewsbury 333,333 shares of common stock at a market price of $0.77 per
share for a total consideration of $256,666. The proceeds were issued for a
$100,000 reduction of a $270,000 loan owed to Mr. Shrewsbury and the remaining
$156,666 was treated as interest expense.
Mark Neuhas, Chairman of the Board of Directors and former Chief Executive
Officer of the Company and entities he controls have provided much of the
support of the Company in the development stage. In September 2007 the Company
issued 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 maket 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.
NOTE 5 - INCOME TAXES
2007 2006
---------------- -----------------
Deferred tax assets:
Net operating losses $ 1,051,207 $ 591,580
Accrued expenses 221,653 -
Valuation allowance (1,272,760) (591,480)
---------------- -----------------
Total deferred tax assets 100 100
(591,480)
Deferred tax liabilities:
Basis of property and equipment 100 100
---------------- -----------------
Net deferred tax asset $ - $ -
================ =================
The Company has tax net operating loss carryforwards totaling approximately
$3,090,000, expiring in 2018 through 2027. Approximately $1,200,000 of net
operating losses was 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.
Net operating losses after December 12, 2002 through September 30, 2007 were
approximately $2.666,000. The total net operating losses available to the
Company to offset future taxable income is approximately $3,090,000. Following
is a reconciliation of the tax benefit at the federal statutory rate to the
amount reported in the statement of operations:
45
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 5 - INCOME TAXES, continued
2007 2006
------------------------- -------------------------
Amount Percent Amount Percent
----------- ----------- ----------- -----------
Benefit for income tax at federal
statutory rate $ 1,388,911 34% $ 1,705,344 34%
Change in valuation allowance (681,280) (16) (160,758) (3)
Non-deductible interest (66,866) (1) -- --
Non-deductible stock-based
compensation (700,945) (17) (1,544,586) (31)
----------- ----------- ----------- -----------
$ -- --% $ -- --%
=========== =========== =========== ===========
There were no income taxes due or receivable from operations for the years ended
September 30, 2007 or 2006, and the Company's reported benefit for income taxes
differs from the amount computed by applying statutory tax rates to loss before
income taxes due to changes in the valuation allowance for financial reporting
purposes.
NOTE 6 - SEGMENT INFORMATION
As of September 30, 2007 the Company's only operation were in the oil and gas
operations.
NOTE 7 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
In May 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus bonus based
on oil and gas production. In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred stock. The preferred stock has 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, the
preferred stock he was issued was valued at $1,018,000 due to the fact that the
shares give Mr. Neuhaus complete control over every decision made by the
Company. The shares were valued at $1,018,000 based on an opinion letter
received from Baron Capital Group, Inc.
COMMON STOCK
During the years ended September 30, 2006 and 2007, the Company issued Common
stock to raise capital, compensate employees and professionals, and to settle
liabilities. Following is a description of stock issuances in 2006 and 2007:
In October 2005 the Company issued 2,000,000 shares of its common stock to
Darren Bloom as his compensation in the role of, CFO, Secretary - Treasurer. The
Company has filed suit against Mr. Bloom for the return of the shares for breach
of contract. The shares were issued pursuant to a three year employment contract
which Mr. Bloom only served for 9 months.
46
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - STOCKHOLDERS' EQUITY, continued
COMMON STOCK, continued
In February 2006 the Company issued 200,000 shares of common stock to The
Research Works for consulting services, valued at $70,000.
In March 2006 the Company entered into a contract with Global Investment
Holdings, LLC ("Global"). Global acts as a consultant and provides advice in the
areas of paper-based stock and internet-based stock information publishers who
are in compliance with the federal securities laws, etc. For their services,
Global will receive 400,000 restricted shares of common stock each month for a
period of six months commencing March 1, 2006. The Company used the services of
Global for seven months in 2006 and issued Global a total of 1,600,000 shares in
2006 with a value of $1,300,000. An additional 1,220,000 shares were issued to
Global subsequent to September 30, 2006, with a value of $830,000. The liability
for the services performed for which shares were not issued in 2006 is presented
as accrued stock-based compensation of $231,000 in the accompanying balance
sheet.
In March 2006 the Company also issued 400,000 shares of common stock to Security
Pacific Holdings LLC for consulting services, valued at $100,000.
During May 2006, the Company entered into a Private Placement Agreement with
Brill Securities, Inc. to act as a financial advisor for the private placement
of shares of common stock of TX Holdings. Pursuant to the private placement
memorandum $1,240,000 of units were placed. The units contained an aggregate of
4,133,324 shares of the Company's common stock and 4,133,324 common stock
purchase warrants. Each common stock purchase warrant is exercisable for a
period of two years at an exercise price of $.50 per share and is subject to a
call provision. The warrants are exercisable for up to twenty-four (24) months
after the date of their issuance and the exercise price is subject to adjustment
for stock splits, combinations and dividends. The Company may call the warrant
at anytime after January 1, 2007 if the stock price of the Company is trading
above $1.50 per share for a period of ten (10) trading days as quoted on the
stock quotation system where the shares are regularly traded. If the Company
chooses to call the warrants, then the warrant holder shall have twenty trading
days from the day the Company sets as the call date to surrender the warrants
with the required payment If the warrant holder fails to exercise the warrants
within the twenty day period, the warrants expire.
In connection with the offering, the Company paid a placement fee of $70,500 in
cash. In addition, the placing agent was issued warrants to purchase 235,000
shares of common stock on the same terms and conditions as the investors. The
net proceeds of the offering will be used by the Company to purchase necessary
equipment to upgrade, replace, repair equipment on site at the fields we lease;
to search, negotiate and acquire additional oil and gas leases; and general
corporate purposes.
In June 2006 the Company issued 17,900 shares of common stock to Michael Pisani
for consulting services in assisting with investor relations efforts, valued at
$18,079.
In June 2006 the Company also issued 11,400 shares of common stock to Barker
Design Inc. for website design services valued at $11,514.
47
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - STOCKHOLDERS' EQUITY, continued
STOCK OPTIONS AND WARRANTS
On December 12, 2002, the award of five year options to purchase 294,341 shares
of TX Holdings Common Stock at $0.01 per share to Robert Wilson, then Chairman
and Chief Executive Officer of the Company was authorized in lieu of $54,000 in
compensation earned during calendar year 2001, and cash advances and accrued
interest of $19,585 for a total of $73,585. The options were exercised in
December 2005.
On July 21, 2005, a warrant to purchase 1,434,088 shares of TX Holdings stock
was issued to Baker, Johnston & Wilson LLC ((now Baker & Johnston LLC ("B & J"))
at an exercise price of $.15 a share pursuant to a forbearance agreement between
B & J and the Company. Under the forbearance agreement B & J agreed not to seek
collection of $215,113 owed to it by TX Holdings for legal services and expenses
until January 21, 2007. In 2007 the warrant was exercised in exchange for the
$215,113 owed by the Company.
On March 28, 2006, warrants to purchase a total of 800,000 shares of the
Company's common stock at an exercise price of $0.30 were issued to Michael A
Cederstrom (200,000 shares), Douglas C. Hewitt (300,000 shares) and Bobby
Fellers (300,000 shares). The warrants expires on March 27, 2010 and are
callable by the Company if the market value of TX Holding Stock is has been at
least 2 1/2 times the exercise price for 20 consecutive trading days.
In September 1, 2006, the Company entered into a consulting agreement with W.A.
("Bill") Alexander to provide technical support and advice in setting up the oil
and gas operations. Mr. Alexander was granted a warrant to purchase 250,000
shares of the Company's Common Stock at an exercise price of $0.30 per share.
The warrant expires on March 27, 2010.
On September 28, 2007, warrants to purchase a total of 2,000,000 shares of the
Company's common stock at an exercise price of $0.28 were issued to Michael A
Cederstrom (1,000,000 shares) and Jose Fuentes (1,000,000 shares). The warrants
expire on September 30, 2011and vest over a two year period with 1,000,000
shares vesting September 28, 2007 and 1,000,000 shares vesting September 28,
2008.
On September 28, 2007, a convertible promissory note was issued to Mark Neuhaus
in the amount of $1,199,886 which bears interest at 8% per year. The note is for
a period of two years and contains an automatic conversion at the end of the
period. The Company may pay the note in full at any time prior to the maturity
of the note. The total shares to be held for conversion is 4,970,954 shares.
Following is a summary of outstanding stock warrants at September 30, 2007 and
2006 and activity during the years then ended:
Number of Exercise Weighted
Shares Price Average Price
------------------ --------------------- ----------------------
Warrants at September 30, 2005 1,728,423 $ 0.01 - 0.15 $ 0.01
Issued 5,418,324 0.30 - 0.50 0.15
Exercised (294,341) 0.01
---------------------
Warrants at September 30, 2006 6,852,406 0.01 - 0.15 0.13
Issued 2,355,827 0.21 - 0.28 0.27
Expired (800,000) 0.30 0.30
Exercised (1,789,909) ) 0.15 - 0.21 0.16
---------------------
Warrants at September 30, 2007 6,618,324 $ 0.28 - 0.50 $ 0.42
=====================
48
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 7 - STOCKHOLDERS' EQUITY, continued
STOCK OPTIONS AND WARRANTS, continued
A summary of outstanding warrants at September 30, 2006, follows:
Contractual
Number of Exercise Remaining Life
Expiration Date Shares Price (Years)
------------------------------------- ------------------ --------------------- ----------------------
October 2008 4,368,324 0.50 1.0
March 2010 250,000 0.30 3.5
September 2011 2,000,000 0.28 4.0
--------------------
Warrants at September 30, 2007 6,618,324
====================
NOTE 8 - RELATED PARTY TRANSACTIONS
Mark Neuhas, Chairman of the Board of Directors and Chief Executive Officer of
the Company and entities he controls have provided much of the support of the
Company in the development stage. As described in Note 7, the Company issued a
convertible promissory note in the amount of $1,199,886 bearing interest at 8%
per year and due and payable within two years. The conversion price is $0.28 per
common share which will automatically convert on the two-year anniversary of the
note if not paid in full by the Company. This convertible promissory note is the
result of the consolidation of stockholder advances made by Mark Nuehaus
entities he controls.
Included in the financial statements at September 30, 2006 are advances from
stockholder/officer of $164,385 and due Mark Neuhaus. Interest has been accrued
on these advances at rates ranging from 8% to 10% in 2007 interest expense of
$35,171, in the accompanying statement of operations, relates to those advances.
In June 2007 the Company enetered into a strategic alliance agreement with
Hewett Energy Group, LLC 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. Hewett Energy Group,
LLC is controlled by a former member of the Company's board of directors. During
2007 the Company's Chief Executive Officer, who is a major stockholder,
transferred stock with a market value of $352,560 to Hewett Energy Group, LLC to
acquire an interest in the Perth field in Kansas.
2007 2006
-------------- ---------------
Beginning balance $ 164,385 $ 214,697
Expoenses paid and added to note 84,345 --
Interest accrued 35,171 --
Common stock issued at fair market value for
services and added to advances 616,750 --
Common stock issued at fair market value for
oil and gas property acquisition 352,560 --
Repayments -- (50,312)
Contributions to stockholders' equity (53,325) --
Converted to convertible promissory note (1,199,886) --
-------------- ---------------
Ending balance $ -- $ 164,385
============== ===============
49
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - NON CASH INVESTING AND FINANCING ACTIVITIES
Following is an analysis of non cash investing and financing activities during
the years ended September 30, 2007 and 2006:
2007 2006
--------------- ----------------
Notes payable to stockholders converted to
common stock $ 350,000 $ --
Stockholder advances contributed to the
Company 53,325 --
Common stock issued by the Company's
Former Chief Executive Officer and
Chairman for oil and gas property
Acquisitions and an increase in advances 352,560 --
from officer/stockholder
Advances from officer/stockholder converted to
long-term convertible debt 1,199,886 --
50
Item 8 Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure
Effective August 9, 2005, the Registrant engaged Ham Langston & Brezina L.L.P.,
11550 Fuqua, Suite 475, Houston, Texas 77034 as its auditors to replace its
former auditors, Elliott Davis LLC. The former auditor was notified of their
dismissal on August 09, 2005.
Elliott Davis, LLC audited the financial statements for the Company for the
fiscal years ending September 30, 2002, and September 30, 2003. The audit report
of Elliott Davis, LLC for the year ended September 30, 2003 did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles, except the audit report
prepared by Elliott Davis LLC did contain a going concern qualification; such
financial statements did not contain any adjustments for uncertainties stated
therein.
In connection with the audit for the fiscal years ended September 30, 2002,
September 30, 2003 and the subsequent interim period ended August 9, 2005, there
were no disagreements with Elliott Davis, LLC on any matter of accounting
principles or practices, financial statement disclosures or auditing scope or
procedure, which if not resolved to the satisfaction of Elliott Davis LLC, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports except that Elliott Davis advised the Company's
board of directors that internal controls necessary to develop reliable
financial statements did not exist.
During the fiscal years ended September 30, 2002, September 30, 2003 and the
subsequent interim period ended August 9, 2005, there were no "Reportable
Events" as defined in Regulations S-K Item 304 (a)(1)(v) other than the advice
referred to in the previous paragraph that internal controls necessary to
develop reliable financial statements did not exist.
The Registrant has complied with the requirements of Item 304(a)(3) of
Regulation SB with regard to providing the former accountant with a copy of the
disclosure it is making in response to this Item and has requested the former
accountant to furnish a letter addressed to the Commission stating whether it
agrees with the statements made by the registrant and, if not, stating the
respects in which it does not agree.
The change in accountants was approved by the board of directors.
During the registrant's two most recent fiscal years and the subsequent interim
period prior to the August 9, 2005 appointment of Ham Langston & Brezina L.L.P,
neither the Company nor anyone on its behalf consulted with Ham Langston &
Brezina L.L.P regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the company's financial statements, and
neither a written report nor oral advice was provided to the Company by Ham
Langston & Brezina L.L.P that was an important factor considered by the Company
in reaching a decision as to any accounting, auditing or financial reporting
issue; or (ii) any matter that was either the subject of a disagreement, as that
term is defined to Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to 304 of Regulation S-K, or a reportable event, as that term is
defined in Item (a)(1)(v) of Regulation S-K.
There were no disagreements with accountants on accounting and financial
disclosure.
Item 8A Controls and Procedures
Evaluation of Disclosure Controls and Procedures
TX Holdings, Inc.'s Chief Executive Officer and Chief Financial Officer
performed an evaluation of the Company's disclosure controls and procedures.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Securities Exchange Act
of 1934 is accumulated and communicated to the issuer's management, including
its Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective as of September 30,
2007.
51
Changes in Internal Control over Financial Reporting
There were no changes in TX Holdings, Inc.'s internal controls over financial
reporting during the fourth quarter of 2007 that materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Item 8B Other Information
On March 24, 2004, the SEC filed a civil complaint seeking a temporary
restraining order ("TRO") and other relief, alleging an illegal distribution to
the public of common stock of Universal Express, Inc. ("Universal"), an
unaffiliated organization, by Universal's chief executive officer, its general
counsel and four others, including Mark Neuhaus, the Company's Chairman and
Chief Executive Officer.
Mr. Neuhaus is alleged to have violated Sections 5(b) and (c) and Sections
17(a)(1), (2) and (3) of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Mr. Neuhaus denies
violation of any applicable law in connection with his resale of Universal
common stock. On February 21, 2007 the United States District Court Southern
District of New York granted a motion for summary judgment against Mr. Neuhaus
as to Section 5 liability only. The summary judgment motion was denied as to all
other issues pending against Mr. Neuhaus. The Company believes there is no
connection between the Company and Universal other than Mr. Neuhaus' position
with the Company and the fact that Mr. Neuhaus was a consultant to Universal and
received and resold shares of its common stock.
52
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The following table shows the names, ages and positions held by our executive
officers, directors and significant employees at December 10, 2007:
Name Age Position
-------- ------- ------------
William Shrewsbury 63 Chief Executive Officer and
Chairman of the Board of Directors
Rob Hutchings 65 Interim President and Director
Mark Neuhaus 52 Former Chairman of the Board of Directors and
President (Chief Executive Officer)
(resigned December 10, 2007)
Michael A. Cederstrom 54 Interim Chief Financial Officer
W.A. Alexander 70 Chief Operating Officer
Jose Fuentes 60 Vice President of Finance
Martin Lipper 73 Director
Bobby S. Fellers 57 Director
Business Experience of Executive Officers and Directors
William "Buck" Shrewsbury, CEO and Chairman of the Board, age 63. Mr. Shrewsbury
attended the University of Kentucky 1962 -1965 with a major in Civil
Engineering. He served as the IT Manager with a large steel mill for 19 years.
Mr. Shrewsbury owns his own trucking company as well as being an agent for a
major transportation company.
Rob Hutchings, Interim President and Director, age 65. Mr. Hutchings graduated
from the Royal Institute of Chemistry. He has over 30 years of experience in
commercial and industrial product development and market realization with Vulcan
Sun Ltd. This experience has provided Mr. Hutchings the opportunity to manage
and interface between research, development, production, sales, marketing, and
finance strategies to maximize business objectives.
Mr. Neuhaus served as Chairman and Chief Executive Officer from December 12,
2002 until December 10, 2007. Mr. Neuhaus and his wife, Nicole B. Neuhaus, own
100% of MA&N, LLC and other investment funds specializing in small cap public
companies, which Mr. Neuhaus manages and had been his principal occupation since
1995 until his involvement in TX Holdings. Prior to 1995, Mr. Neuhaus founded
several startup companies including Solar Engineering in 1987, which later
became US Electric Car. Mr. Neuhaus was also one of the founding shareholders of
Interactive Motorsports and Entertainment.
Michael A Cederstrom, Esq., Chief Financial Officer - Mr. Cederstrom joined TX
Holdings as part time interim Chief Financial Officer on March 28, 2006 and will
assist the Company with its reorganization as an oil and gas company. Mr.
Cederstrom has served as the Chief Financial Officer for several oil and gas
companies over the past 10 years. Mr. Cederstrom received his Bachelor of
Science degree in finance with honors from the University of Utah. In addition
he received his Juris Doctorate degree from Southwestern University.
53
W. A. "Bill" Alexander, PE, Chief Operating Officer - Mr. Alexander joined TX
Holdings on August 2, 2006 as Chief Operating Officer. Mr. Alexander has worked
at Shell Oil, Inc and Kirby Exploration, as well consulting in his own practice,
Alexander Engineering. Mr. Alexander received his Bachelor of Science degree in
Mining Engineering from the University of Wisconsin.
Jose Fuentes, Vice President of Finance - Mr. Fuentes has over thirty-five years
of financial related experience in the energy sector. The majority of his early
career, after leaving public accounting, was spent at Atlantic Richfield Co.,
where he held several progressive financial roles including his most recent
position as Vice President of Finance, Planning and Control for Arco Indonesia.
From there, Mr. Fuentes served as Vice President of Finance and CFO at PJM
Interconnection, LLC. Mr. Fuentes received a Bachelor of Science degree in
accounting from Saint John's University in New York and is a Certified Public
Accountant.
Martin Lipper, Director, age 73, is a Korean War Veteran. Mr. Lipper graduated
from N.Y.U. in 1958 with a Bachelor of Science degree in Finance and Economics.
Mr. Lipper began his career on Wall St. as a securities analyst specializing in
bank stock analysis. He Joined the Bank of N.Y. and was the senior bank
insurance and finance analyst. Later he became co-director of research at
Eastman Dillon Union Securities and later Purcell Graham. In 1973, Mr. Lipper
became V.P. and treasurer of APF Electronics. Mr. Lipper currently service as
Senior Vice President and Research Director of Baron Group U.S.A.
Bobby S. Fellers, Member Board of Directors - Mr. Fellers Joined TX Holdings on
March 28, 2006 as a member of the board of directors. Mr. Fellers has over 30
years experience in the oil and gas industry in both field and offshore
operations. Currently, Mr. Fellers is the principal of the Masada Family of
Companies which includes Masada Oil and Gas Company, Ltd.
Term of Office
All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. Directors will be
elected at the annual meetings to serve for one-year terms. The Company does not
know of any agreements with respect to the election of directors. The Company
has not compensated its directors for service on the Board of Directors of TX
Holdings or any of its subsidiaries or any committee thereof. Any non-employee
director of TX Holdings or its subsidiaries is reimbursed for expenses incurred
for attendance at meetings of the Board of Directors and any committee of the
Board of Directors, although no such committee has been established. Each
executive officer of TX Holdings is appointed by and serves at the discretion of
the Board of Directors.
None of the officers or directors of TX Holdings is currently an officer or
director of a company required to file reports with the Securities and Exchange
Commission, other than TX Holdings.
Ned Baramov, a former director, resigned on June 24, 2005. Mr. Baramov received
1,500,000 shares for his services as Secretary Treasurer, for the period January
15, 2003 - June 24, 2005.
Darren Bloom, former director, chief financial officer, Secretary and Treasurer
resigned on March 17, 2006. Mr. Bloom received 2,000,000 shares of stock. The
Company is seeking the return of the shares.
Audit Committee
The Company's Board of Directors has determined that TX Holdings does not
currently have a separately-designated standing audit committee established or a
committee performing similar functions, nor an audit committee financial expert.
Compliance with Section 16(a)
Based solely upon a review of Forms 3 and 4 (there have been no amendments)
furnished to the Company during the year ended September 30, 2006 (no Forms 5
having been furnished with respect to such year) and written representation
furnished to the Company as provided in paragraph (b)(2)(i) of Item 405 of Form
10-KSB, there are no persons who need to be identified under this Item as having
failed to file on a timely basis reports required by Section 16(a) of the
Securities Exchange Act of 1934 during the fiscal years ended September 2005 and
2004, except that Darren Bloom, a former Secretary-Treasurer and past member of
the Board of Directors, and former Chief Financial Officer failed to make timely
filing of a Form 3, which filing he has since made.
54
Code of Ethics
On February 24, 2004, the Company adopted a Code of Ethics that applies to all
officers, directors and employees of the Company. See exhibit 33.1 for the full
text of the Company's Code of Ethics. The Company will provide to any person,
without charge, a copy of its code of ethics upon request to:
TX Holdings, Inc.
1701 North Judge Ely Blvd. #6420
Abilene, Texas 79601
Item 10 Executive Compensation
The following table sets forth all compensation paid in respect of our Chief
Executive Officer and those individuals who received compensation in excess of
$100,000 per year (collectively, the "Named Executive Officers") for our last
three completed fiscal years.
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Other Restricted Under-
Name And Annual Stock Lying LTIP All Other
Principal Salary Bonus Compensation Compensation Options/ Payouts Compensation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
Mark
Neuhaus, 2007 -0- -0- -0- N/A N/A N/A (1)
Chief
Executive 2006 -0- -0- -0- N/A N/A N/A N/A
Officer and 2005 -0- -0- -0- N/A N/A N/A N/A
Chairman 2004 -0- -0- -0- N/A N/A N/A N/A
Michael A. 2007 0 0 180,000 N/A N/A N/A N/A
Cederstrom
Jose
Fuentes 2007 150,000 0 N/A N/A N/A N/A
(1) During the year ended September 30, 2007, Mr. Neuhaus received 1,000 shares of preferred stock. The stock is non
convertible, but provides for 50% of the voting rights in the Company.
The preceding table does not include any amounts for non-cash compensation,
including personal benefits, paid to any of the foregoing officers during the
periods covered herein. The Company believes that the value of such non-cash
benefits and compensation paid during the periods presented did not exceed the
lesser of $50,000 or 10% of the annual salary reported for them.
Equity Compensation Plan Information - Employment Agreements
On December 24, 2007, the 1,000 shares of preferred stock owned by Mark Neuhaus
were canceled and exchanged with 10,715,789 shares of common stock. The
cancellation of the preferred stock released Mr. Neuhaus's total voting control
of the Company. Mr. Neuhaus still has substantial control of the Company via his
common stock ownership.
55
In May, 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus bonus based
on oil and gas production. In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred stock with no rights of conversion to common
stock. The preferred stock documents provide Mr. Neuhaus with voting rights
equivalent to 50% of the common shares of issued by the Company. During the
fiscal year 2006 Mr. Neuhaus waived his monthly salary.
On March 28, 2006, the Company entered into a Contract with Michael A.
Cederstrom for services as the part time interim Chief Financial Officer. Mr.
Cederstrom was granted warrants to purchase 200,000 shares of TX Holdings
Company Stock at an exercise price of $0.30 per share. The September 28, 2007
warrants will expire on March 27, 2010. In addition, Mr. Cederstrom performs
legal services for the Company through his law firm, Dexter and Dexter. The
Company pays to Dexter and Dexter the sum of $15,000 per month for legal
representation.
On March 28, 2006, the Company entered into a consulting agreement with Douglas
C. Hewitt to provide technical support and advice in setting up the oil and gas
operations. Mr. Hewitt was granted warrants to purchase 300,000 shares of TX
Holdings Common Stock at an exercise price of $0.30 per share. The warrants will
expire on March 27, 2010. Mr. Hewitt resigned from the Company on August 10,
2007.
On March 28, 2006, the Company entered into an agreement with Bobby Fellers to
provide technical support and advice in setting up the oil and gas operations.
Mr. Fellers was granted warrants to purchase 300,000 shares of TX Holdings
Common Stock at an exercise price of $0.30 per share. The warrants will expire
on March 27, 2010.
On July 1, 2006, the Company entered into a consulting agreement with W.A.
("Bill") Alexander to provide technical support and advice in setting up the oil
and gas operations. Mr. Alexander was granted warrants to purchase 250,000
shares of TX Holdings Common Stock at an exercise price of $0.30 per share. The
warrants will expire on March 27, 2010.
On December 12, 2005, the Company issued 2,000,000 shares of the Company's
Common Stock for the compensation of Darren Bloom, CFO, Secretary/Treasurer and
member of the Board of Directors. The shares were issued pursuant to a three
year employment contract which Mr. Bloom only served for 9 months. TX Holdings
has filed suit against Mr. Bloom for the return of the shares for breach of
contract.
Option Warrant Grants During 2006 Fiscal Year
The following table provides information related to options and warrants granted
to the named executive officers and directors during the 2006 fiscal year. The
Company does not have any outstanding stock appreciation rights.
Name No. of Securities Underlying % of Total Options Granted Exercise
Expiration Date Options Granted (#) to Employees in Fiscal Price ($/Sh)
-------------------------------- -------------------------------------- ---------------------------------- --------------------
W.A. Alexander 250,000 23.8 $0.30
March 27, 2010
Michael A. Cederstrom
March 27, 2010 200,000 19.0 $0.30
Bobby S. Fellers
March 27, 2010 300,000 28.6 $0.30
Douglas C. Hewitt
March 27, 2010 300,000 28.6 $0.30
Messer Fellers and Hewitt were granted warrants to purchase securities of the
Company for consulting services provided to the Company.
56
The following table provides information related to options and warrants granted
to the named executive officers and directors during the 2007 fiscal year. The
Company does not have any outstanding stock appreciation rights.
Name No. of Securities Underlying % of Total Options Granted Exercise
Expiration Date Options Granted (#) to Employees in Fiscal Price ($/Sh)
-------------------------------- -------------------------------------- ---------------------------------- --------------------
Michael A. Cederstrom 1,000,000 50% $0.28
September 28, 2011
Jose Fuentes
September 28, 2011 1,000,000 50% $0.28
Aggregated Option Exercises During 2006 Fiscal Year and Fiscal Year-End Option
Values
The following table provides information related to employee options exercised
by the named executive officers during the 2006 fiscal year and number and value
of such options held at fiscal year-end.
Number of Securities Underlying
Unexercised Options at Fiscal Value of Unexercised In-the-Money
Year End (#) Options at Fiscal Year End ($) (1)
------------------------------- ----------------------------------
Shares Acquired Value
Name on Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
------------ ---------------- --------- ------------ ------------- -------------- -------------
----------------------------------------------------------------------------------------------------------------------
W.A. Alexander N/A N/A 250,000 -0- 700,000 -0-
Michael
A. Cederstrom N/A N/A 700,000 500,000 196,000 140,000
Jose Fuentes N/A N/A 1,000,000 500,000 140,000 140,000
Bobby S. Fellers N/A N/A 300,000 -0- 84,000 -0-
Douglas C. Hewitt N/A N/A 300,000 -0- 84,000 -0-
(1) Based on the closing price of $0.28 at September 30, 2006.
Item 11 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth information, to the best of the Company's
knowledge, as of January 22, 2007 with respect beneficially ownership (as such
term is defined in Item 403 of Regulation S-B under the Securities Exchange Act
of 1934) of the outstanding TX Holdings common stock by (i) each person to own
more than 5%, (ii) each director, each executive officer and (iii) all directors
and officers as a group.
Name of Beneficial Owner (1) Amount and Nature of Beneficial Ownership
Percent of Class
---------------------------------------------------------------------------------------------------------
Mark Neuhaus 7,662,626 (3)
19.7%
Darren Bloom 2,000,000
7.4%
Nicole B. Neuhaus 4,647,626 (4)
8.6%
MA&N LLC 4,647,626
17.2%
David R. Baker 1,632,669 (5)
6.0%
Ned Baramov 940,000
3.5%
Michael A. Cederstrom 1,200,000 (6)(7)
3.87%
Jose Fuentes 1,000,000(7)
3.22%
William "Buck" Shrewsbury 1,400,000
4.51%
Martin Lipper 400,000
1.29%
Rob Hutchings* 100,000
Bobby S. Fellers 300,000 (6)
W.A. Alexander 250,000 (6)
All Directors and executive officers (5 persons) 10,561,126
57
* Represents less than 1% of our outstanding common stock.
(1) Unless otherwise indicated, the Company has been advised that each
person above has sole investment and voting power over the shares
indicated above. The address of each beneficial owner is c/o TX
Holdings, 1701 North Judge Ely Blvd., #6480, Abilene, Texas 79601.
(2) Based upon shares of common stock outstanding as of December 8,
2006, together with securities exercisable or convertible into
shares of common stock within 60 days of December 27, 2007 for each
stockholder. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities.
Shares of common stock that are currently exercisable or exercisable
within 60 days of December 27, 2007 are deemed to be beneficially
owned by the person holding such securities for the purpose of
computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(3) Of which 4,647,626, shares are owned by MA&N. Mr. Neuhaus has a 50%
equity interest in MA&N. 15,000 shares were acquired in the open
market. Mr. Neuhaus disclaims any beneficial interest in the
2,323,813 shares allocable to his wife's beneficial interest.
(4) Represents shares held by MA&N in which Mrs. Neuhaus has a 50%
equity interest and her husband, Mark S. Neuhaus, also has a 50%
equity interest. Mrs. Neuhaus disclaims any beneficial interest in
the 2,323,813 shares allocable to her husband's beneficial interest.
(5) Represents 915,625 shares owned by Mr. Baker and 717,044 shares
subject to warrants currently exercisable.
(6) Represents warrants issued to each individual for their specific
role with the Company during fiscal year 2006.
(7) Represents warrants issued to each individual for their specific
role with the Company during the fiscal year 2007.
No Director, executive officer, affiliate or any owner of record or beneficial
owner of more than 5% of any class of voting securities of the Company is a
party adverse to the Company or has a material interest adverse to the Company.
58
Item 12 Certain Relationships and Related Transactions
Particular Transactions
There have been no transactions during the last two years between the Company
and any officer, director, nominee for election as director, or any shareholder
owning more than 5% of the Company's outstanding shares, or any member of any
such individual's immediate family, as to which the amount involved in the
transaction or a series of similar transactions exceeded $60,000, except as set
forth below:
(1) During 2006, the Company entered into agreements to purchase, from a
company beneficially owned by Bobby S. Fellers, two fields. Mr.
Fellers is a Member of the Board of Directors of the Company. The
Contract Area #1 field and the Park's Lease field. Mr. Fellers
through his company has retained a 40% working interest in the
Contract Area #1 field and a 25% working interest in the Park's
Lease. The Management believes that the agreements were entered at
arms length and upon terms that would be common for the industry and
location of the fields.
(2) On March 28, 2006, the Company entered into a consulting agreement
with Mr. Bobby S. Fellers, a Member of the Company's Board of
Directors, to provide technical support and advice in organizing the
Company's oil and gas operations. Mr. Fellers received warrants to
purchase 300,000 shares of the Company's common stock at an exercise
price of $0.30 per share.
(3) On December 12, 2005, the Company issued 2,000,000 shares of TX
Holdings Common Stock to Darren Bloom, Mr. Bloom was
Secretary-Treasurer and member of the Board of Directors. The shares
represented $100,000 of stock compensation for 2005. Mr. Bloom is
the brother of Nicole B. Neuhaus, the wife of Mark Neuhaus, the
Company Chief Executive Officer and Chairman of the Board of
Directors. Subsequently, Mr. Bloom resigned from all positions with
the Company. The Company has filed suit for return all of the shares
of Company Common Stock.
(4) The law firm of Dexter and Dexter, located in the state of Utah, has
been engaged by the Company and is paid $15,000 per month for legal
services. Mr. Michael A. Cederstrom, the Company's part-time interim
Chief Financial Officer is a partner with Dexter and Dexter.
(5) On March 28, 2006, the Company entered into a consulting agreement
with Mr. Douglas C. Hewitt, a Member of the Company's Board of
Directors, to provide technical support and advice in organizing the
Company's oil and gas operations. Mr. Hewitt received warrants to
purchase 300,000 shares of the Company's common stock at an exercise
price of $0.30 per share.
(6) As of August 1, 2005, TX Holdings and David R. Baker ("Baker")
executed the Services Settlement Agreement whereby TX Holdings
agreed to issue, and Baker agreed on behalf of himself and his firm,
Haskell Slaughter Young & Rediker, LLC, to accept $6,888.22 in cash
and 464,942 in shares of TX Holdings common stock in full
satisfaction of statements for legal services and expenses of that
firm (for which Baker had full benefit and responsibility)
aggregating $43,382.43 and an accountable retainer for future legal
services and expenses of $10,000, which payment and stock issuances
have been made except that the stock issuance was 3,000 shares less
than the Services Settlement Agreement provided.
(7) As of July 21, 2005, TX Holdings and Baker & Johnston LLP ("BJ,"
then called Baker, Johnston & Wilson LLP) executed the Forbearance
Agreement whereby BJ agreed to forbear collection of the
indebtedness to it of TX Holdings of $215,113.20 until January 21,
2007 in consideration of a warrant (which has been issued to BJ) to
purchase 1,434,088 shares of TX Wireless common stock exercisable
from January 1, 2006 at $0.15 a share and callable at $.001 per
underlying share from February 1, 2006 if on 20 consecutive trading
days ending within 5 trading days of the call the per share market
value of TX Holdings common stock is at least 2 1/2 times the then
exercise price. If the warrants are fully exercised, the aggregate
exercise price would equal the indebtedness of TX Holdings to BJ for
the past legal services. On January 12, 2006, effective November 1,
2005, Baker and Johnson agreed to forbear collection of the
indebtedness of the Company to it until July 21, 2007 and the
Warrant was amended to delay the exercise date until July 1, 2006
and the call date to August 1, 2006.
59
(8) On September 28, 2007, a warrant to purchase 1,000,000 shares of TX
Holdings, Inc. common stock at an exercise price of $0.28 was issued
to Jose Fuentes for services.
(9) On September 28, 2007, a warrant to purchase 1,000,000 shares of TX
Holdings, Inc. common stock at an exercise price of $0.28 was issued
to Michael A.Cederstrom for services.
(10) On December 24, 2007, the 1,000 shares of preferred stock owned by
Mark Neuhaus were canceled and exchanged with 10,715,789 shares of
common stock. The cancellation of the preferred stock released Mr.
Neuhaus's total voting control of the Company. Mr. Neuhaus still has
substantial control of the Company via his common stock ownership.
Controlling Persons
Mark S. Neuhaus, as a director and Chief Executive Officer of TX Holdings, the
owner of a 50% interest in MA&N LLC and the owner of shares of TX Holdings, all
as reflected in Items 9 and 11 hereof; Nicole B. Neuhaus as the owner of a 50%
interest in MA&N LLC as reflected in Item 11 hereof, and MA&N LLC as the owner
of shares of TX Holdings as reflected in Item 11 hereof, may all be deemed to be
controlling persons of TX Holdings. There are no agreements or understandings
between any of the foregoing that they will act as a group, although from time
to time they may act in concert.
60
Item 13 Exhibits and Reports on Form 8-K
Exhibit Description
No.
----------------------------------------------------------------------------------------------------------------------
2.1 Stock Acquisition Agreement for 51% of the outstanding and issuable Common Stock of R Wireless
Corporation dated December 12, 2002 by and between MA&N LLC and R Wireless Corporation (Exhibit B
omitted, to be furnished upon request of the Commission) (1)
2.2 Sale of Assets Agreement dated November 15, 2002 between HOM
Corporation and Stuckey Enterprises (list of assets omitted, to
be furnished upon request of the Commission) (1)
2.3 Stock Acquisition Agreement dated September 4, 2003 between Jim Evans, R Wireless, Inc. and Homes by
Owner, Inc.
2.4 Escrow Agreement dated September 4, 2003 between Jim Evans, R Wireless, Inc., Homes by Owner, Inc.
and David Baker. (11)
2.5 Extension Agreement dated March 5, 2004 between Jim Evans, R Wireless, Inc., and Homes by Owner,
Inc. (12)
3.1a Composite Articles of Incorporation of R Wireless, Inc, as
amended to reflect the change of name from HOM Corporation,
effective January 22, 2003 (3)
3.2 By-Laws of HOM Corporation as adopted December 12, 2002 (13)
4 Instrument defining rights of holders (See Exhibit No. 3.1a, Articles of Incorporation - Article
Four)
4.2 Warrant to Purchase Shares of Common Stock of R Wireless, Inc. issued to Baker, Johnston and Wilson
LLP, dated July 21, 2005
10.4 Agreement to Merge - Freedom Homes, Inc. - Homes By Owners, Inc., dated March 24, 2005 (6)
10.5 Forbearance Agreement between David R. Baker, Baker, Johnston & Wilson LLP, and R Wireless, Inc.,
dated as of July 21, 2005 Services Settlement Agreement between David. Baker and R Wireless, Inc.,
dated August 1, 2005
10.6 Amendment to Forbearance Agreement and Warrant between Baker & Johnston LLP, and TX
Holdings, Inc., dated as of November 1, 2005
10.8 Convertible Promissory Note between Mark S. Neuahaus and TX Holdings Inc. dated September 28, 2007
16.1 Letter of Elliott Davis LLC (8)
21.1 List of Subsidiaries of R Wireless, Inc. (2)
31.1 Certification of Michael A. Cederstrom, Esq., CFO of TX Holdings, Inc.
31.2 Certification of William "Buck" Shrewsbury, CEO of TX Holdings, Inc.
32.1 Certification of Michael A, Cederstrom, Esq., pursuant to Section 1350
32.2 Certification of William "Buck" Shrewsbury, pursuant to Section 1350
33.1 R Wireless, Inc. Code of Ethics adopted February 24, 2004 (7)
99.7 Employment Agreement between Registrant and Ned Baramov dated January 15, 2003 (5)
99.8 Employment Agreement between Registrant and Mark Neuhaus dated January 15, 2003 (5)
99.9 Employment Agreement between Registrant and Darren Bloom dated August, 2005 (9)
99.10 Settlement Agreement between the SEC and Mark S. Neuhaus regarding case SEC vs Univerisal Express
Inc.
(1) Incorporated by reference to the exhibit as filed with Form 8-K of
R Wireless, Inc., with Securities and Exchange Commission filing
date of December 27, 2002.
(2) Incorporated by reference to the exhibit as filed with Form 10-SB
of R Wireless, Inc., with Securities and Exchange Commission
filing date of February 9, 2001.
(3) Incorporated by reference to the exhibit as filed with Form 10-QSB
of R Wireless, Inc., with Securities and Exchange Commission
filing date of February 19, 2003.
(4) Incorporated by reference to the exhibit as filed with Form
10-SB/A2 of R Wireless, Inc., with Securities and Exchange
Commission filing date of August 31, 2001.
61
(5) Incorporated by reference to the exhibit as filed with Form S-8 of
R Wireless, Inc., with Securities and Exchange Commission filing
date of February 19, 2003.
(6) Incorporated by reference to the exhibit as filed with Form 8-K of
R Wireless, Inc., with Securities and Exchange Commission filing
date of March 31, 2005.
(7) Incorporated by reference to the exhibit as filed with Form 10-KSB
of R Wireless, Inc., with Securities and Exchange Commission
filing date of March 12, 2004.
(8) Incorporated by reference to the exhibit as filed with Form 8-K of
R Wireless, Inc., with Securities and Exchange Commission filing
date of August 19, 2005.
(9) Incorporated by reference to the exhibit as filed with Form 13D of
Darren Bloom with Securities and Exchange Commission filing date
of December 14, 2005.
(10) Incorporated by reference to the exhibit as filed with Form
10KSB/A of R Wireless, Inc., with Securities and Exchange
Commission filing date of March 12, 2004.
(11) Incorporated by reference to the exhibit as filed with Form
10KSB/A of R Wireless, Inc., with Securities and Exchange
Commission filing date of March 12, 2004.
(12) Incorporated by reference to the exhibit as filed with Form
10KSB/A of R Wireless, Inc., with Securities and Exchange
Commission filing date of March 12, 2004.
(13) Incorporated by reference to the exhibit as filed with Form 10KSB
of R Wireless, Inc., with Securities and Exchange Commission
filing date of January 14, 2003.
Reports on Form 8-K
Nicole B. Neuhaus' resignation from the Board of Directors as of November 4,
2003, filed with the Security and Exchange Commission on December 12, 2003.
Agreement to Merge between Homes and Freedom as of March 25, 2005, filed with
the Security and Exchange Commission on March 31, 2005.
Changes in R Wireless' Certifying Accountant as of August 9, 2005 - Elliott
Davis LLC dismissed and Ham, Langston & Brezina LLP engaged; filed with the
Security and Exchange Commission on July 19, 2005.
Forbearance Agreement with Baker, Johnston & Wilson LLP as of July 21, 2005;
Resignation of Ned Baramov as of June 24, 2005, and appointment of Darren Bloom
as member of the Board and Chief Financial Officer; filed with the Security and
Exchange Commission on July 25, 2005.
Appointment of Mr. Douglas Hewitt of Hewitt Energy Group and Mr. Bobby Fellers
of The Masada Oil and Gas Companies as a member of the Board; Appointment of Mr.
Michael Cederstrom as Chief Financial Officer; Resignation of Darren Bloom from
positions as Director, Secretary/Treasurer and Chief Financial Officer; filed
with the Security and Exchange Commission on March 28, 2006.
Acquired first producing oil and gas lease. TX Holdings acquired a 75% working
interest in the "Parks" Lease for 320 acres with approximately 22 existing wells
and estimated reserves of 12M to 13M barrels; filed with the Security and
Exchange Commission on April 11, 2006.
Private Placement Agreement with Brill Securities, Inc. Under the terms of the
agreement, Brill Securities will act as financial advisors for the Company's
private placement offering; filed with the Security and Exchange Commission on
May 16, 2006.
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Commencement of legal proceedings against former CFO Darren Bloom in TX
Holdings, Inc. v. Darren Bloom, Case No. 06-14396CA04, 11th Judicial Circuit
Court, Dade County, Florida; filed with the Security and Exchange Commission on
July 31, 2006.
Hiring of W.A. "Bill" Alexander as Chief Operating Officer of TX Holdings, Inc.;
filed with the Security and Exchange Commission on August 2, 2006.
Hiring of Jose Fuentes as Vice President-Finance of TX Holdings, Inc.; filed
with the Security and Exchange Commission on February 2, 2007.
On February 14, 2007, the Company announced it had received a $7,500,000 letter
of commitment from its investment banker's The Baron Group Ltd. The funding was
to be broken into three components $500,000 of bridge funding, $2,000,000 in
equity and $5,000,000 in the form of debt to be based on the companies energy
reserves. All of this funding was to be done on a best efforts basis.
On February 21, 2007, the Company received a $7,500.000 letter of commitment
from its investment banker, the Baron Group, Ltd. The Company first announced
its investment and merchant banking relationship with the Baron Group on
November 20, 2006.
On November 21, 2007, the Company reported that Mark Neuhaus, Chairman settled
his involvement in the case of SEC VS Universal Express, Inc.
Item 14 Principal Accountants Fees and Service
The aggregate fees we paid to Ham Langston & Brezina, LLP for the years ended
September 30, 2007 and 2006 were as follows:
2007 2006
----------------------------------------- ------------------ -----------------
Audit Fees $35,000 $30,000
Audit-Related Fees
Total Audit and Audit-Related Fees
Tax Fees
All Other Fees
Total $35,000 $30,000
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SIGNATURES
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: March 19, 2008
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" Shewsbury Chairman of the Board of Directors and
------------------------- Chief Executive Officer
William "Buck" Shrewsbury
March 19, 2008
/s/ Rob Hutchings President
-------------------------
Rob Hutchings
March 19, 2008
/s/ Michael A. Cederstrom Chief Financial Officer
-------------------------
Michael A. Cederstrom
March 19, 2008
/s/ Bobby S. Fellers Director
-------------------------
Bobby S. Fellers
March 19, 2008
/s/ Martin Lipper Director
-------------------------
Martin Lipper
March 19, 2008
64