UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2008
---------------------------
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____to _____
Commission File No. 0-32335
TX HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-2558702
------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification. No.)
incorporation or organization)
12080 Virginia Blvd.
Ashland, KY 41102
----------------------------------
(Address of principal)
(606) 928-1131
----------------------------------
Issuer's telephone number
Formerly, R Wireless, Inc.
Former address of TX Holdings, Inc. (changed from last report)
1701 North Judge Ely Blvd. #6420
Abilene, Texas 79601
-------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed from last
report.)
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 past 12 months (or for such
shorter period that the issuer was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) YES |_| NO |X|
As of March 31 2008, there were 43,360,824 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one): YES |_| NO |X|
1
TX Holdings, Inc.
Form 10-QSB/A
For the Quarter Ended March 31, 2008
Table of Contents
PART 1-FINANCIAL INFORMATION
Item 1 Condensed Financial Statements
Unaudited Condensed Balance Sheets as of March 31, 2008 and
September 30, 2007 3
Unaudited Condensed Statements of Operations for the Three and Six
Months Ended March 31, 2008 and 2007, and for the Period From
Inception of the Development Stage, October 1, 2004, to
March 31, 2008 4
Unaudited Condensed Statement of Changes in Stockholders' Equity
(Deficit) for the Six Months Ended March 31, 2008 5
Unaudited Condensed Statements of Cash Flows for the Six Months
Ended March 31, 2008 and 2007, and for the Period From Inception
of the Development Stage, October 1, 2004, to March 31, 2008 6
Notes to Unaudited Condensed Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3 Controls and Procedures 14
PART II-OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3 Defaults upon Senior Securities 16
Item 4 Submission of Matters to a Vote to Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits 16
SIGNATURES 17
2
PART 1-FINANCIAL INFORMATION
ITEM 1 CONDENSED FINANCIAL STATEMENTS
TX HOLDINGS, INC,
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED BALANCE SHEETS
March 31, 2008 and September 30, 2007
--------------------------------------------------------------------------------
March 31, December 31,
2008 2007
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 43,341 $ -
Accounts receivable 4,761 -
Prepaid expenses - -
-------------- -------------
Total current assets 48,102 -
Deposits for oil and gas property acquisition 378,000 378,000
Property and equipment, net 612,328 617,038
Other 55,000 5,000
-------------- -------------
Total Assets $ 1,093,430 $ 1,000,038
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to a stockholder $ 170,000 $ 170,000
Accounts payable and accrued liabilities 704,396 491,788
Accrued stock-based compensation 231,000 231,000
Advances from stockholder/officer 187,845 -
-------------- -------------
Total current liabilities 1,293,241 892,788
Convertible debt to stockholder/officer 1,199,886 1,199,886
-------------- -------------
Total liabilities 2,493,127 2,092,674
-------------- -------------
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock: no par value, 1,000,000 shares
authorized -0- and 1,000 shares issued and
outstanding at March 31, 2008 and September 30,
2007, respectively - 1,018,000
Common stock: no par value, 250,000,000 shares
authorized, 43,360,824 and 31,884,355 shares
issued and outstanding at March 31, 2008 and
September 30, 2007, respectively 9,624,194 8,443,004
Additional paid-in capital 800,409 800,409
Stockholder deposits 40,643 -
Accumulated deficit (1,803,507) (1,803,507)
Losses accumulated in the development stage (10,061,436) (9,550,542)
-------------- -------------
Total stockholders' deficit (1,399,697) (1,092,636)
-------------- -------------
Total liabilities and stockholders'
equity (deficit) $ 1,093,430 $ 1,000,038
============== =============
The accompanying notes are an integral part of the unaudited consolidated
condensed financial statements
3
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended March 31, 2008 and 2007 and for the Period
From Inception of the Development Stage, October 1, 2004, to March 31, 2008
--------------------------------------------------------------------------------------------------------
Inception of
Three Months Ended March 31, Six Months Ended March 31, Development
----------------------------- ----------------------------- Stage to
2008 2007 2008 2007 March 31, 2008
------------- ------------- ------------- ------------- --------------
Revenue $ 4,761 $ - $ 4,761 $ - $ 4,761
------------- ------------- ------------- ------------- --------------
Operating expenses, except
items shown separately
below: 124,083 298,204 256,006 486,966 1,645,023
Stock-based compensation 64,000 64,000 231,000 6,708,504
Professional fees 77,751 71,962 132,009 180,179 1,016,351
Lease expense - - - - 17,392
Depreciation expense - 306 508 362 3,146
Advertising expense - 29,456 - 51,451 83,265
------------- ------------- ------------- ------------- --------------
Total operating
expense 265,834 399,928 452,523 949,958 9,473,681
------------- ------------- ------------- ------------- --------------
Loss from operations (261,073) (399,928) (447,762) (949,958) (9,468,920)
------------- ------------- ------------- ------------- --------------
Other Income and (expense):
Other income - - - - 710
Loss on disposal of (4,202) - (4,202) - (11,202)
equipment
Forbearance agreement
costs - - - - (211,098)
Interest expense (29,785) (2,314) (58,930) (6,887) (370,926)
------------- ------------- ------------- ------------- --------------
Total other income
and
(expenses), net (33,987) (2,314) (63,132) (6,887) (592,516)
------------- ------------- ------------- ------------- --------------
Net loss $ (295,060) $ (402,242) $ (510,894) $ (956,845) $ (10,061,436)
============= ============= ============= ============= ==============
Net loss per common share
basic and diluted $ (0.01) $ (0.01) $ (0.02) $ (0.04)
============= ============= ============= =============
Weighted average number of
common shares outstanding
basic and diluted 37,782,486 27,002,558 32,713,650 26,766,698
============= ============= ============= =============
The accompanying notes are an integral part of the unaudited consolidated
condensed financial statements
4
TX HOLDINGS INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Six Months Ended March 31, 2008
-----------------------------------------------------------------------------------------------------------------------------
Losses
Accumulated
Preferred Stock Common Stock Additional in the
-------------------- ------------------------ Paid in Stockholder Accumulated Development
Shares Amount Shares Amount Capital Deposit Deficit Stage Total
------- ------------------------ ------------ ---------- ----------- ------------- -------------- -------------
Balance at
December 31,
2007 1,000 $ 1,018,000 31,884,355 $ 8,443,004 $ 800,409 $ - $ (1,803,507) $ (9,550,542) $ (1,092,636)
Common stock
issued in
exchange for
preferred
stock (1,000) (1,018,000) 10,715,789 1,018,000 - - - - -
Common stock
issued for
professional
services - - 400,680 120,190 - - - - 120,190
Common stock
sold to
private
investors - - 660,000 43,000 - - - - 43,000
Stockholder
deposit - - - - - 40,643 - - 40,643
Common stock
returned to
treasury - - (300,000) - - - - - -
Net Loss - - - - - - - (510,894) (510,894)
------- ------------ ----------- ------------ ---------- ----------- ------------- -------------- -------------
Balance at
March 31,
2008 - $ - 43,360,824 $ 9,624,194 $ 800,409 $ 40,643 $ (1,803,507) $ (10,061,436) $ (1,399,697)
======= ============ =========== ============ ========== =========== ============= ============== =============
The accompanying notes are an integral part of the unaudited consolidated
financial statements
5
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2008 and 2007 and for the Period From
Inception of the Development Stage, October 1, 2004, to March 31, 2008
--------------------------------------------------------------------------------
Inception of
Six Months Ended Development
March 31, Stage to
------------------------ March 31,
2008 2007 2008
----------- ----------- --------------
Cash flows from operating activities:
Net loss $ (510,894) $ (956,845) $ (10,061,436)
Adjustments to reconcile net loss to
net cash used by operating activities:
Warrants issued for forbearance
agreement - - 211,098
Loss on disposal of equipment 4,202 - 11,202
Depreciation expense 508 362 3,146
Common and preferred stock issued for
services 120,190 830,000 5,568,089
Common stock issued to settle accounts
payable - - 251,308
Warrants issued for services - - 376,605
Common stock issued in payment of
interest expense - - 196,666
Common stock issued by an
officer/stockholder to satisfy
expenses of the Company and increase
stockholder advances 616,750
Changes in operating assets and
liabilities:
Prepaid expenses and other assets (50,000) 10,000 (54,750)
Accounts receivable (4,761) - (4,761)
Accrued interest added to stockholder
advances 56,650 6,887 91,821
Accounts payable and accrued
liabilities 155,958 (477,443) 1,359,464
----------- ----------- --------------
Net cash used by operating
activities (228,147) (587,039) (1,434,798)
----------- ----------- --------------
Cash flows from investing Activities:
Deposits paid for oil and gas property
acquisitions - (125,000) (378,000)
Property and equipment additions - (45,538) (335,556)
----------- ----------- --------------
Net cash used by investing
activities - (170,538) (713,556)
----------- ----------- --------------
Cash flows from financing activities:
Short-term loan - 350,000 -
Proceeds from note payable to
stockholder - - 520,000
Proceeds from sale of common stock 43,000 - 1,207,997
Repayment of note payable to a bank - - (20,598)
Proceeds from exercise of warrants - - 78,404
Proceeds from stockholder/officer
advances 187,845 - 365,249
Stockholder deposit 40,643 75,462 40,643
----------- ----------- --------------
Net cash provided by financing
activities 271,488 425,462 2,191,695
----------- ----------- --------------
Increase (decrease) in cash and cash
equivalents 43,341 (332,115) 43,341
Cash and cash equivalents at beginning
of period - 332,546 -
----------- ----------- --------------
Cash and cash equivalent at end of
period $ 43,341 $ 431 $ 43,341
=========== =========== ==============
The accompanying notes are an integral part of the unaudited consolidated
financial statements
6
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES
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 when the Board of Directors made the
affirmative election to investigate the oil & gas industry as is discussed below
in "CURRENT BUSINESS ACTIVITIES".
CURRENT BUSINESS ACTIVITIES
In April 2008 the Company completed the work that was required to receive its
own Operators License from the State of Texas. This will allow the Company to
complete and begin the production and sale of oil and gas. The Company has
started by placing 3 wells into operation on the Parks Lease. The initial
production has averaged 2 bopd. The company will place an additional 9 wells
into production on the Parks Lease over the next quarter. Once these wells are
in production the company will return to each well and perform work over
operations to clean up the wells and increase production. The company for the
next year will concentrate on placing into production the three fields it
currently owns in Texas. It is managements' goal to place sufficient wells into
production to achieve profitability and not rely on continued raising capital
and borrowing to continue operations.
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 on February 13, 2008. (See
Note 7 Preferred Stock, below) The Board determined that this was in the best
interest of the Company to remove Mr. Neuhaus from complete voting control of
the Company.
Management raised $1,240,000 in a Private Placement offering during the months
of July through September 2006 to finance 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, by way of cleaning up the
fields and preparing the wells located in the fields for testing required by the
State of Texas. As of April 30, 2008, the testing of wells located in the
Williams Field has been completed. In November 2007 The Company began work on
the Parks Lease. The Company has 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. The Company
plans to continue using a combination of debt and equity financing to acquire
additional fields and to develop those fields. Currently, management cannot
provide any assurance regarding the successful development of acquired oil and
gas fields, the completion of additional acquisitions or the continued ability
to raise funds, however, it is using its best efforts to complete field work on
the fields acquired, acquire additional fields and finance the operations.
7
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES
CURRENT BUSINESS ACTIVITIES, continued
On or about May 7, 2007, the Company entered into a Strategic Alliance Agreement
with Hewitt Energy Group, LLC ("Hewitt"), a company owned by Douglas C. Hewitt,
Director of TX Holdings, Inc. The Strategic Alliance Agreement provided that TX
Holdings, Inc. would acquire a 50% Working Interest in eight projects in Kansas
and Oklahoma. The purchase and development of all of the prospects were
estimated at approximately $15,000,000 in cash and stock to be paid over a 6
month period. The Company used its best efforts to raise the funds necessary to
purchase the prospects utilizing its former investment banker, Baron Group. As
of December 31, 2007, the Company failed to raise the capital needed to
participate in all of the prospects. The Company and Hewitt have mutually agreed
to terminate the Strategic Alliance Agreement and to negotiate the participation
in individual projects. No assurance can be given that any negotiations for
participation in specific projects will be consummated.
In August 2007, the Company entered into an investment banking agreement with
Energy Capital Solutions which has offices located in Dallas and Houston, Texas.
This Agreement requires the Company to pay Energy Capital Solutions three equal
monthly payments of $10,000 totaling $30,000. Energy Capital Solutions will use
its best efforts to arrange debt and/or equity financing for future
acquisitions. The Company will utilize Energy Capital Solutions' expertise in
financing energy acquisitions and developments. As of March 30, 2008 the Company
has failed to acquire any additional properties or to receive any funding from
Energy Capital Solutions. As of August 1, 2007, the previous investment banking
relationship with Baron Capital Group was terminated.
GOING CONCERN CONSIDERATIONS
The Company, with its prior subsidiaries, has suffered recurring losses while
devoting substantially all of its efforts to raising capital and identifying and
pursuing advantageous businesses opportunities. Management currently believes
that its best opportunities lie in the oil and gas industry. The Company's total
liabilities exceed its total assets and the Company's liquidity has depended
excessively on raising new capital. As of March 30, 2008 the Company received
its first revenue from oil & gas operations. In addition, the Company has
obtained its Operators License for the State of Texas and is now able to produce
and sell its oil & gas production. Over time the Company will seek to increase
oil production and to move away from the dependency of raising additional
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 successful business plan is to generate profits
commensurate to financial viability. The consolidated financial statements do
not include adjustments relating to the recoverability of recorded assets nor
the implications of associated bankruptcy costs should the Company be unable to
continue as a going concern.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make various assumptions and calculated estimates. These postulates directly
affect (a) certain reported amounts of assets and liabilities, (b) disclosure of
contingent assets and liabilities at the date of the financial statements, and
(c) 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
8
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
experience and various other common 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.
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, costs of carrying and retaining unproved
properties, and exploratory dry hole drilling costs, are all 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 geological, geophysical, and architectural 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 in which 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 are 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. The Company 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 their historical 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.
9
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES
POTENTIALLY DILUTIVE OPTIONS AND WARRANTS
At March 31, 2008 the Company has outstanding 6,618,324 warrants which were not
included in the calculation of diluted net loss per share since their inclusion
would be anti-dilutive. These warrants have exercise prices ranging from $0.28
to $0.50 per share and expire at various dates through September 2011.
RECENTLY ISSUED ACCOUNTING STANDARDS
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.
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 - INCOME TAXES
Following is an analysis of deferred taxes at March 31, 2008:
Deferred tax assets:
Net operating losses $ 1,124,590
Accrued expenses 221,653
Valuation allowance (1,346,143)
-------------
Total deferred tax assets 100
Deferred tax liabilities:
Basis of property and equipment 100
-------------
Net deferred tax asset $ -
=============
The Company has tax net operating loss carryforwards totaling approximately
$3,306,000, expiring in 2018 through 2028. 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.
10
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - INCOME TAXES, continued
Net operating losses after December 12, 2002 through September 30, 2007 were
approximately $2,882,000. The total net operating losses available to the
Company to offset future taxable income is approximately $3,306,000. Following
is a reconciliation of the tax benefit at the federal statutory rate to the
amount reported in the statement of operations for the three months ended March
31, 2008 and 2007:
2007 2006
-------------------- --------------------
Amount Percent Amount Percent
---------- --------- ----------- --------
Benefit for income tax at federal
statutory rate $ 73,384 34% $ 188,565 34%
Change in valuation allowance (73,384) (34) (110,025) (20)
Non-deductible stock-based
compensation - - (78,540) (14)
---------- --------- ----------- --------
$ - -% $ - -%
========== ========= =========== ========
NOTE 3 - 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 bonuses based
on oil and gas production. In addition, the employment agreement provides Mr.
Neuhaus with 1,000 shares of preferred stock. The preferred stock has the
following rights and privileges:
1. Super voting rights: The preferred stock gives Mr. Neuhaus the right to
vote on any item of business submitted to the common shareholders for a
vote equivalent to the number of votes representing 50% of the outstanding
common shares then issued by 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 had been issued was valued at $1,018,000 due to the fact that
the preferred shares granted Mr. Neuhaus complete control over every decision
made by the Company.
On December 24, 2007, the Company accepted the resignation of Mark S. Neuhaus as
the Chairman of the Board and the CEO of the Company. Mr. Neuhaus' resignation
resulted in the cessation of any bonuses or any other compensation. There is
currently no consulting agreement between Mr. Neuhaus and the Company. As part
of the resignation Mr. Neuhaus agreed to exchange his 1,000 preferred shares of
stock for restricted common shares. The Company agreed to issue to Mr. Neuhaus
10,715,789 shares of Common Stock. The total amount of shares to be issued was
calculated by dividing the value of the preferred stock ($1,018,000) by the
current market price of the stock ($0.095) to arrive at the 10,715,789 common
shares. By issuing the common shares and retiring the preferred shares the
Company was able to return control to the shareholders of the Company.
11
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - STOCKHOLDERS EQUITY, continued
COMMON STOCK
On January 17, 2008, the Secretary of State of Georgia accepted an amendment
from the Company increasing authorized common stock for the Company from
50,000,000 to 250,000,000 shares.
NOTE 4 - SUBSEQUENT EVENTS
On May 12, 2008, Jose Fuentes was named chief financial officer of the Company
when Michael A. Cederstrom tendered his resignation. Mr. Cederstrom had been
receiving $15,000 per month to represent the Company as the chief financial
officer and general counsel. Mr. Cederstrom's law firm Dexter & Dexter,
Attorneys at Law, P.C., will continue to provide legal counsel for the Company
at an hourly rate of $200 per hour; however management believes that greater use
of Mr. Fuentes' efforts will substantially reduce administrative costs.
In April 2008 the Company received its Operators License from the Texas Railroad
Commission. This will allow the Company to operate its own wells and to sell the
production from its wells.
NOTE 5 - RELATED PARTY TRANSACTIONS
During the quarter ended March 31, 2008, the Company recognized crude oil sales
from a lease for which the operator is company owned by a stockholder/director
of the Company. This sale accounts for 100% of our oil and gas revenue for the
three and six months ended March 31, 2008.
12
ITEM 2 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 financial statements and the accompanying notes to the financial statements
included herein. Our actual results could differ materially from those discussed
in these forward-looking statements.
The Company has never earned a profit, and has incurred an accumulated deficit
of $11,864,943 as of March 31, 2008. The acquisition of a controlling interest
in the Company by MA&N proved 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 well. The Company has used the
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. The Company has
begun oil production in March 2008 the Company placed into production 3 wells
located in the Parks' leases. The Company has also begun development of the
Contract Area 1 leases. If our development plan is successful, and sufficient
funds are raised to pay for the development, it is estimated that 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 that 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 in order to establish production at a cost of
approximately $10,000 to $15,000 per well. Initial production from each well is
estimated to be between one 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 40
barrels of oil are produced and the price of oil remains above $100.00 per
barrel. The Company's success is dependent on if and how quickly it can reach
these levels of production. The Company plans to use all revenues for general
corporate purposes and future expansion of its current oil producing properties.
There is no certainty that the Company can achieve profitable levels of
production or that it will be able to raise additional capital through any
means.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
REVENUES FROM OPERATIONS
Revenues for the three months ended March 31, 2008 and 2007 were $4,761 and zero
respectively. On December 5, 2004, the Company began to structure itself into an
oil and gas production and exploration company. The Company has acquired three
oil and gas leases in the counties of Eastland and Callahan, Texas and has begun
development of oil and gas. The Company received its first revenues from oil and
gas operations in March 2008. The Company will continue to place additional
wells into operation during the 3rd and 4th quarters of 2008.
EXPENSES FROM CONTINUING OPERATIONS
The Company incurred operating expenses of $265,834 for the three months ended
March 31, 2008; a decrease of $134,094 compared to $399,928 for the three months
ended March 31, 2007. The majority of the savings was attributable to lower
personnel related expenses of $157,967 and lower legal fees of $43,686. The
lower expenses were partially offset by higher Stock based compensation, paid
for services to the company, in the amount of $64,000.
13
The lower personnel expenses were achieved by reducing staff and switching to
direct payment of staff instead of leasing staff. The Company continues to
ramp-up in the initial phases of entering a new industry (oil and gas) and
hiring the necessary professionals to assist in the selection process and
development of potential oil and gas producing properties. The Company will rely
on hiring independent operators for all field work and will not be adding to its
in house staff until production has been achieved.
NET INCOME/LOSS
For the quarter ended March 31, 2008, the Company had a net loss of $295,060,
representing a positive variance of $107,182 when compared to a net loss of
$402,242 for the quarter ended March 31, 2008. The positive variance results
from lower personnel related expenses and lower legal fees as described above.
Interest expense for the three months ended March 31, 2008, was $27,471 higher
than the same period in 2007. The higher interest expense results from cash
borrowed from short term loans from officers/shareholders to meet the operations
cash requirement and from additional costs to convert debt to equity and
beneficial conversion features associated with convertible debt. On March 2008,
the company recorded a loss from equipment disposal in the amount of $4,202.
SIX MONTHS ENDED MARCH 31, 2008 COMPARED TO SIX MONTHS ENDED MARCH 31, 2007
REVENUES FROM OPERATIONS
Revenues for the three months ended March 31, 2008 and 2007 were $4,761 and zero
respectively. On December 5, 2004, the Company began to structure itself into an
oil and gas production and exploration company. The Company has acquired three
oil and gas leases in the counties of Eastland and Callahan, Texas and has begun
development of oil and gas.
EXPENSES FROM CONTINUING OPERATIONS
The Company incurred operating expenses of $452,523 for the six months ended
March 31, 2008; a decrease of $497,435 compared to $949,958 for the six months
ended March 31, 2007. The major reasons for the lower expenses were attributable
to a $167,000 decrease in stock based compensation being reduced to $64,000
during the six months ending March 31, 2008 from $231,000 for the six months
ending March 31, 2007 and, lower personnel related expenses which decreased from
$306,374 for the six months ending March 31, 2007 to $154,005 for the six months
ending March 31, 2008. The $152,369 personnel expense savings was achieved by
reducing staff and switching to direct payment of staff instead of leasing
staff. Other lower expense contributors during the period were: legal expenses,
$50,424; advertising, $51,451and travel expense, $29,575.
NET INCOME/LOSS
For the six months ended March 31, 2008, the Company had a net loss of $510,894
representing a positive variance of $445,951 when compared to a net loss of
$956,845 for the six months ended March 31, 2007. The positive variance results
from lower stock based compensation and lower personnel related expenses, as
described above. Interest expense for the six months ended March 31, 2008, was
$52,043 higher than the same period in 2007. The higher interest expense results
from cash borrowed from short term loans from officers/shareholders to meet the
operations cash requirement and from additional costs to convert debt to equity
and beneficial conversion features associated with convertible debt.
ITEM 3 CONTROLS AND PROCEDURES
Effectiveness of Disclosure and Procedures
The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America. The Company's internal
control over financial reporting includes those policies and procedures which
(i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management
and directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company's assets that could have a material effect on the financial
statements.
14
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance
with the policies or procedure may deteriorate. Management has assessed the
effectiveness of the Company's internal control over financial reporting as of
March 31, 2008 and management is of the opinion that the controls are adequate
at this time.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Management is currently aware of one pending, past, or present litigation
involving the Company which management does not believe could have a materially
adverse effect on the Company. Management does not know of any outstanding
bankruptcy or receivership issues and is also unaware of any securities law
violations other than the failure to file Form 10-KSB in 2005 and in 2006 in a
timely manner. The same violation occurred in filing Form 10-QSB for the
quarterly periods in 2005 and 2006.
TX Holdings, Inc. 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, Inc.'s common stock. Management believes that
this matter can be resolved and that it will have no material effect on the
Company operations.
On July 26, 2007, the Company received a letter from the SEC requesting the
clarification of certain disclosures contained in its 2006 10KSB and its Form
10QSB for the Interim Period ended March 31, 2007. On or about December 1, 2007
the Company responded to the July 26, 2007 letter. On January 14, 2008 the
Company received a revised letter from the SEC addressing some of the previous
issue. The Company has responded to all of the issues raised by the SEC. On
April 14, 2008 the Company received a letter from the SEC stating that the SEC
had completed its review of the Company's 10-KSB and their amendments and that
the Company had no further comments at this time.
Except as disclosed above, the Company has no material legal proceedings in
which any director, officer, affiliate of the Company, 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 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
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ITEM 6 EXHIBITS
Exhibit 31.1 Section 302 Certification of Chief Executive Officer
Exhibit 31.2 Section 302 Certification of Chief Financial Officer
Exhibit 32.1 Section 906 Certification of Chief Executive Officer
Exhibit 32.2 Section 906 Certification of Chief Financial Officer
EXPLANATORY NOTE
This 10-QSB/A for TX Holdings, Inc. is being filed solely to update Mr. Mark
Neuhaus' current relationship to the Company. (See Note 3 Stockholders' Equity -
Preferred Stock).
16
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: May 14, 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" Shrewsbury Chairman of the Board of Directors and
----------------------------- Chief Executive Officer
William "Buck" Shrewsbury
May 14, 2008
/s/ Rob Hutchings President and Director
-----------------------------
Rob Hutchings
May 14, 2008
/s/ Jose Fuentes Chief Financial Officer
-----------------------------
Jose Fuentes
May 14, 2008
/s/ Bobby S. Fellers Director
-----------------------------
Bobby S. Fellers
May 14, 2008
/s/ Martin Lipper Director
-----------------------------
Martin Lipper
May 14, 2008
17