TX Holdings, Inc. - Quarter Report: 2008 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-QSB

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TX HOLDINGS, INC.

 (Exact name of registrant as specified in its charter)

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12080 Virginia Blvd.

Ashland, KY  41102

 (Address of Principal Executive Office) (Zip Code)

(606) 928-1131

 (Registrant’s telephone number, including area code)

R Wireless, Inc.

1701 North Judge Ely Blvd. #6420

Abilene, Texas 79601

 (Former name, former address and former fiscal year, if changed since last report)

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TX Holdings, Inc.

Form 10-QSB

For the Quarter Ended June 30, 2008

Table of Contents

PART 1-FINANCIAL INFORMATION

ITEM 1

CONDENSED FINANCIAL STATEMENTS

TX HOLDINGS, INC,

A CORPORATION IN THE DEVELOPMENT STAGE

UNAUDITED BALANCE SHEETS

June 30, 2008 and September 30, 2007

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TX  HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

UNAUDITED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended June 30, 2008 and 2007 and for the Period From

Inception of the Development Stage, October 1, 2004, to June 30, 2008

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TX HOLDINGS INC.

A CORPORATION IN THE DEVELOPMENT STAGE

UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the Nine Months Ended June 30, 2008

The accompanying notes are an integral part of the unaudited consolidated condensed financial statements

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TX HOLDINGS, INC

A CORPORATION IN THE DEVELOPMENT STAGE

UNAUDITED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30, 2008 and 2007 and for the Period From

Inception of the Development Stage, October 1, 2004, to June 30, 2008

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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.

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.

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TX HOLDINGS, INC

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES, continued

CURRENT BUSINESS ACTIVITIES, continued

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 June 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.

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.

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 31, 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 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.

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TX HOLDINGS, INC

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES, 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, 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.

POTENTIALLY DILUTIVE OPTIONS AND WARRANTS

At June 30, 2008 the Company has outstanding 7,718,324 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.

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TX HOLDINGS, INC

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES, continued

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:

The Company has tax net operating loss carryforwards totaling approximately $3,650,000, 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.

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TX HOLDINGS, INC

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Net operating losses after December 12, 2002 through June 30, 2008 were approximately $3,226,000.  The total net operating losses available to the Company to offset future taxable income is approximately $3,650,000. 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:

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.  As part of the resignation Mr. Neuhaus agreed to exchange his 1000 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.

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 5 – RELATED PARTY TRANSACTIONS

During the quarters ended March 31, 2008 and, June 30, 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 nine months ended June 30. 2008.

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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 $11,853,839 as of June 30, 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 30 barrels of oil are produced and the price of oil remains above $120.00 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 JUNE 30, 2008 COMPARED TO THREE MONTHS ENDED JUNE 30, 2007

REVENUES FROM OPERATIONS

Revenues for the three months ended June 30, 2008 and 2007 were $739 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 believes that it will place additional wells into operation during the fourth quarter of 2008.

EXPENSES FROM CONTINUING OPERATIONS

The Company operating expenses for the three months ended June 30, 2008 were $85,952. The current quarter operating expenses represent a favorable variance of $2,224,071 when compared to operating expenses of $2,310,023 for the quarter ended June 30, 2007. The favorable variance results primarily from no stock based compensation during the three months ended June 30, 2008  as compared to $1,813,381 for the three months period ended June 30, 2007. Other favorable variances as compared to the same three months period for the prior year were: lower outside consultants, $224,550; lower payroll related expenses, $101,273 and lower legal expenses of $55,474.

NET INCOME/LOSS

For the quarter ended June 30, 2008, the Company had a net loss of $113,896 representing a positive variance of $2,395,150 when compared to a net loss of $2,509,046 for the quarter ended June 30, 2007. The positive variance results from having issued no company stock for compensation during the three months ended June 30, 2008 as compared to $1,813,381 for the same period the prior year. With the exception of higher well related expenses of $12,860, most other major areas of administrative expenses for the current quarter were lower than the same three months period in the prior year. Interest expenses for the quarter ended June 30, 2008 were $28,683 as compared to $199,023 for the quarter ended June 30, 2007. The higher interest expense for the quarter ended June 30, 2007 resulted from cash borrowed from short term loans and 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.

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NINE MONTHS ENDED JUNE 30, 2008 COMPARED TO NINE MONTHS ENDED JUNE 30, 2007

REVENUES FROM OPERATIONS

Revenues for the nine months ended June 30, 2008 and 2007 were $5,501and 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 $538,475 for the nine months ended June 30, 2008; a decrease of $2,721,506 compared to $3,259,981 for the nine months ended June 30, 2007. The major reason for the lower expenses was attributable to a $1,980,381 decrease in stock based compensation being reduced to $64,000 during the six months ending June 30, 2008 from $2,044,381 for the nine months ended June 30, 2007. Lower personnel compensation between the two periods resulted in a favorable variance of $257,742 related to reduced staff levels and a switch to direct payment of staff instead of staff leasing. Other lower expense contributors during the period were: Outside consultants,$224,275; legal expenses, $105,898; advertising, $50,616 and travel expense, $35,296.

NET INCOME/LOSS

For the nine months ended June 30, 2008, the Company had a net loss of $624,790 representing a positive variance of $2,841,101 when compared to a net loss of $3,465,891 for the nine months ended June 30, 2007. The positive variance results from lower stock based compensation, lower personnel related expenses and lower general administrative expenses, as described above. Interest expense for the nine months ended June 30, 2008, was $118,296 lower than the same period in 2007. The lower 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 during 2007. During the current period the company recorded  $4,202 loss on disposal of equipment.

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.

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 June 30, 2008 and management is of the opinion that the controls are adequate at this time.

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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. As a result of a preliminary agreement with Mr. Bloom, , the company has  elected on March 28, 2008 to rescind  the case against Mr. Bloom. Under the new agreement, Mr. Bloom will return 1,300,000 shares to treasury stock and will keep 700,000 shares.

On or about July 2, 2008 TX Holdings received a judgment in favor of the Investor Relation Group, Inc (IRG), an investor relation firm previously used by the company, in the amount of $54,074. IRG claims that TX Holdings did not meet their contractual obligation and was not properly compensated for their services. The company is currently negotiating a settlement with IRG and anticipates that the outcome of the negotiations will not have a material adverse impact on the Company. If settlement negotiations do not result in a resolution, TX Holdings intends to contest the judgment and claims asserted in the litigation.  

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.

ITEM 6

EXHIBITS

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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.

Date:  August 8, 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.

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