TX Holdings, Inc. - Annual Report: 2011 (Form 10-K)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 2011
|_| 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)
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Georgia
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58-2558702
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(State or Other Jurisdiction
Of Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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12080 Virginia Blvd.
Ashland, Kentucky. 41102
(Address of Principal)
(606) 928-1131
(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, No Par Value
(Title of class)
Check whether the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ]
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]
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-K (paragraph 229.405 of this chapter) 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-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the issuer is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [X]
The Registrant had revenues for the fiscal year ended September 30, 2011 of $23,784.
Indicate by check mark whether the registered is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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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 December 1, 2011 was $1,323,539
There are approximately 44,117,960 shares of common voting stock of the Registrant held by non-affiliates. On December 1, 2011 the average bid and asked price was $0.03
As of December 1, 2011 there were 53,271,897 shares of common stock outstanding.
Forward-Looking Statements and Cautionary Words
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-K which address activities, events or developments which we expect or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are only predictions and involve known and unknown risks, uncertainties including the risks in the section entitled "Risk 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-K 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 or to reflect the occurrence of unanticipated events except as required by law. All statements, other than statements of historical fact included in this annual report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this annual report, the words “could,” “believe,” “anticipate,” “intend,” expect,” “estimate,” “may,” “will” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed below and elsewhere in this annual report could affect our actual results and cause our actual results to differ materially from expectations, estimates, or assumptions expressed in, forecasted in, or implied in such forward-looking statements.
Forward-looking statements may include statements about our:
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business strategy;
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estimated quantities of oil and natural gas reserves;
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technology;
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financial strategy;
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oil and natural gas realized prices;
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timing and amount of future production of oil and natural gas;
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the amount, nature and timing of capital expenditures;
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drilling of wells;
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competition and government regulations;
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marketing of oil and natural gas;
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exploitation or property acquisitions;
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costs of exploiting and developing our properties and conducting other operations;
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uncertainty regarding our future operating results; and
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plans, objectives, expectations and intentions contained in this annual report that are not historical.
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You should not place undue reliance on these forward-looking statements. All forward-looking statements speak only as of the date of this annual report.
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Although we believe that our plans, objectives, expectations and intentions reflected in or suggested by the forward-looking statements we make in this annual report are reasonable, we can give no assurance that they will be achieved. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
As used in this Annual Report, the terms "we", "us", and "our" mean TX Holdings, Inc.
CAUTIONARY NOTE TO U.S. INVESTORS
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION PERMITS OIL AND GAS COMPANIES, IN THEIR FILINGS WITH THE SEC, TO DISCLOSE ONLY PROVED RESERVES THAT A COMPANY HAS DEMONSTRATED BY ACTUAL PRODUCTION OR CONCLUSIVE FORMATION TESTS TO BE ECONOMICALLY AND LEGALLY PRODUCIBLE UNDER EXISTING ECONOMIC AND OPERATING CONDITIONS. WE USE CERTAIN TERMS HEREIN, SUCH AS "PROBABLE", "POSSIBLE", "RECOVERABLE", AND “RISKED," AMONG OTHERS, THAT THE SEC'S GUIDELINES STRICTLY PROHIBIT US FROM INCLUDING IN FILINGS WITH THE SEC. READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE BY US WHICH ATTEMPT TO ADVISE INTERESTED PARTIES OF THE ADDITIONAL FACTORS WHICH MAY AFFECT OUR BUSINESS.
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FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011
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Exhibit 23.1
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CERTIFICATIONS
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Exhibit 31.1
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Exhibit 31.2
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Exhibit 32.1
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Exhibit 32.2
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4
Overview of Business
TX Holdings, Inc. ("TX Holdings" or the "Company"), formerly named R Wireless, Inc. ("RWLS") and HOM Corporation ("HOM"), is a Georgia corporation incorporated on May 4, 2000. In December 2004 the Company began to structure itself into an oil and gas exploration and production company. The Company acquired oil and gas leases and began development of a plan for oil and gas producing operations in April 2006.
The Company is actively engaged in the development of crude oil and natural gas in the counties of Callahan and Eastland, Texas. In November 2006, the Company entered into a Purchase and Sale Agreement with Masada Oil & Gas, Inc. ("Masada"). Masada has previously served as the operator on the Park’s Lease in which TX Holdings currently holds a 100% working interest in the counties of Callahan and Eastland, Texas.
The Parks lease covers 320 acres in which the company previously owned a 75% working interest and Masada owned the remaining 25%. The land owners of this lease have a 12.5% royalty interest in the production. TX Holdings is the lease operator of the lease and there are currently 22 wells which may be capable of minimal production rates. (2 to 3 bbls per day). On January 28, 2011, the company purchased from Masada Oil the remaining 25% working interest and thereby increasing the Company working interest on the Parks lease to 100%. In addition to the 25% working interest, the Company purchased 2 acres of land and a 1,400 square foot storage building on the property. In consideration for the purchase, the Company paid $10,400 cash, relinquished an 8.5% working interest on the Contract Area 1(non-producing ) lease with a book Value of $0 and, assumed a $17,000 liability previously owed by the 25% prior lease owner. The Company also adjusted the ARO by $27,969 for the release of the liability for Contract Area 1 and the increase in the liability for the Parks lease.
The Company has an estimated 8% working interest on the Perth lease which is currently under litigation. On September 30, 2011 and September 30, 2010, the Company recorded an impairment loss of $50,000 and $302,560 respectively.
The Company owned an 8.5% working interest on the Contract Area-1 lease which included a total of 247 acres and a total of 36 wells. After repeated unsuccessful attempts over several years, the Company elected to cease operation of the Contract area-1 lease resulting in impairment of the lease. The Company wrote-off the asset and recorded a loss of $252,181 for the year ended September 30, 2010 related to the lease and an impairment loss of $315,866 in 2009.
The Company owned a 100% working interest and was the operator of the 843 acre Williams Lease. An on-going dispute with the land owner of the lease has prevented the Company from operating or reporting any production on this lease. On September 30, 2009, the Company elected to cease operation of the Williams lease resulting in impairment of the lease. The Company recorded an impairment loss of $68,222 for the year ended September 30, 2009 related to this lease.
The Company plans to continue using a combination of debt and equity financing to acquire additional fields and to develop those fields. Currently, management cannot provide any assurance regarding the successful development of acquired oil and gas fields, the completion of additional acquisitions or the continued ability to raise funds, however, it is using its best efforts to complete field work on the fields acquired, acquire additional fields and finance operations.
The Company has experienced substantial costs for engineering and other professional services during 2005 through 2011 in making the attempt to transition to an oil and gas exploration and production company from its current development stage status.
History and Corporate Structure
TX Holdings formerly acted as a holding company whose operations were conducted through two wholly-owned operating subsidiaries, Direct Lending Inc. and Homes By Owners, Inc. The Company ceased its former operations in September 2004. In December 2004, as a result of the Company’s research, the Company announced that it would pursue acquisition of producing oil and gas properties operations in the oil and gas industry. In connection with this decision, the Company effected its name change to "TX Holdings, Inc." on September 1, 2005. October 1, 2004 was the beginning day for the first quarter of the determination to pursue operations in the oil and gas industry. The CUSIP number changed to 873 11R 101 as of September 6, 2005, and the trading symbol changed to TXHG as of September 19, 2005.
In April 2006 TX Holdings acquired a 75% working interest in the Parks Lease located in Callahan County, Texas. In February 2006 TX Holdings entered into a Memorandum of Understanding with Masada Oil and Gas Inc. and subsequently acquired an 8.5% working interest in an oil and gas lease known as Contract Area #1 located in 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. Mr. Fellers is the sole owner of Masada Oil & Gas Inc a Texas corporation.
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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, a Director of TX Holdings, Inc. at the time of the transaction. 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. Mr. Hewitt resigned as a director on July, 27, 2007 The Company and Mr. Hewitt mutually agreed to terminate the Strategic Alliance Agreement and to negotiate the participation in individual projects. There is currently a dispute between the Company and Mr. Hewitt as to the extent of the Company’s performance and entitlement under the new agreement executed in August of 2007.
In July through September 2006 the Company raised $1,240,000 in a Private Placement offering. The funds raised were used to purchase interests in three oil and gas fields located in Texas as described above. 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. In November 2007, the Company began work on the Parks Lease.
On December 1, 2007, Mark Neuhaus resigned as Chairman of the Board, Director and CEO of the Company. On December 24, 2007 the Board accepted Mr. Neuhaus' resignation and canceled the 1,000 preferred shares of stock held by Mr. Neuhaus, in exchange for 10,715,789 common shares . The Board determined that it was in the best interest of the Company to remove Mr. Neuhaus from voting control of the Company. On November 11, 2008 the Company entered into a settlement agreement with Mr. Neuhaus and his wife. The agreement was subject to the condition precedent that the Company finalize a transaction with a third party involving certain oil and gas properties within 90 days of November 11, 2008 ("Third Party Closing"). Effective as of and when the Third Party Closing occured, the agreement provided for mutual general releases between the Company and Mark Neuhaus and Nicole Neuhaus. In connection with the agreement, seven million shares of the common stock of the Company previously issued to Mark Neuhaus were to be delivered to the Company to be held pending the Third Party Closing. If the Third Party Closing occured within the 90 day period, (1) four million five hundred thousand of the deposited shares would be cancelled and returned to authorized but unissued shares of the Company,(2) two million five hundred thousand of the deposited shares would be delivered to Nicole Neuhaus and (3) certain alleged claims of Mark Neuhaus against the Company for compensation and reimbursement for $178,862 of advances and a purported indebtedness of the Company to Mark Neuhaus of $1,303,875, including interest accrued through October 31, 2008 and represented by a convertible note dated as of September 28, 2007 would be cancelled. If the Third Party Closing did not occur within 90 days of November 11, 2008 the settlement agreement would be void and of no force and effect and the deposited shares would be returned. The Company was not successful in finalizing the transaction with the third party within the stipulated period resulting in the cancellation of the settlement agreement between the Company and Mark Neuhaus and Nicole Neuhaus.
On June 11, 2009, Richard “Rick” Novack was appointed to the Board of Directors and elected president of the Company, replacing Rob Hutchings. Mr. Hutchings continued to serve as a member of the Board of Directors until August 2009, when he tendered his resignation. Rick Novack attended the Indiana University of Pennsylvania where he majored in Business Administration. Mr. Novack began his career in finance and subsequently started several business enterprises, including entities in the printing, vending and real estate industries.
Recent Developments
On January 28, 2011, the company purchased from Masada Oil the remaining 25% working interest in the Parks lease thereby increasing the Company working interest to 100%. In addition to the 25% working interest, the Company purchased 2 acres of land and a 1,400 square foot storage building on the property. In consideration for the purchase, the Company relinquished the 8.5% working interest on the Contract Area 1(non-producing ) lease.
Background for Oil and Gas Business Activities
Since August 2005 oil prices have exceeded $31 per barrel. On December 1, 2011 the closing price for a barrel of oil was $100.2 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 is 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.
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.
Principal Products or Services and Markets
The principal markets for our crude oil and natural gas are expected to 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 operates are only capable of producing oil. Currently, sufficient quantities of natural gas are not produced to warrant the cost of installing a collection system.
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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 the volume we produce or the prices we receive will be sufficient to make our operations profitable.
Distribution Methods of Products or Services
Crude oil will be stored in tanks at well sites located on our leases, until the purchaser takes delivery of the crude oil by tanker truck. On May, 2008, TX Holdings entered into a contract for the sale of its crude with BML, Inc.
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, most 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. We do not anticipate, that the loss of one or more of our primary purchasers will 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.
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 arranged a letter of credit in the amount of $50,000 to meet the requirements for the bond.
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.
Research and Development
During 2011 and 2010 we did not incur any research and development expenditures.
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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:
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restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities;
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limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and
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impose substantial liabilities for pollution resulting from our operations.
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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:
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unit production expenses primarily related to the control and limitation of air emissions and the disposal of produced water;
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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
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capital costs to construct, maintain and upgrade equipment and facilities.
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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.
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:
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to remove or remediate previously disposed wastes, including wastes disposed or released by prior owners or operators;
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to clean up contaminated property, including contaminated groundwater; or to perform remedial operations to prevent future contamination;
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to clean up contaminated property, including contaminated groundwater; or to perform remedial operations to prevent future contamination.
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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.
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
Company Employees and Other Workers
On September 30, 2011, the Company had three employees. On December 24, 2007, William Shrewsbury was appointed Chairman of the Board of Director. Jose Fuentes was promoted to the Chief Financial Position on May 12, 2008 after the resignation of the interim Chief Financial Officer, Michael Cederstrom. On June 11, 2009 Richard “Rick” Novack was appointed to the Board of Directors and elected President. Other specialized functions are provided as necessary through the engagement of independent consulting contractors.
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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 current 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-K, 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.
General Risks Related To Our Business
Brief Operating History - No Assurance of Profitability
The Company has a brief operating history. Although we commenced operations in 1997, prior businesses have been sold or discontinued and 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. As of December 1, 2011 the Company has sold only a limited amount of 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.
The Company Has A History Of Operating Losses And Cannot Guarantee Profitable Operations In The Future. Any Failure On Our Part To Achieve Profitability May Cause To Reduce Or Eventually Cease Operations
We reported a net loss of $1,141,303 for the twelve months ending September 30, 2010 and a net loss of $101,376 for the twelve months ending September 30, 2011. At September 30, 2010 and 2011 respectively, we reported accumulated deficits of $14,447,602 and $14,548,978. 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 operate and lease, and the acquisition of additional oil and gas producing properties.
We will require additional financing to fund ongoing operations, as our current sales and revenue growth are insufficient to meet our operating costs. At this time the Company has no material revenue and is unable to meet its current obligations. In the past the Company has been able to raise capital from its stockholders/officers through stock-based compensation and advances. 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 $200,000 in working capital to complete the refurbishment and development of the lease it currently operates. The Company estimates that it will take from 12 to 24 months to achieve profitability. Our inability to obtain necessary capital or financing to fund these needs will adversely affect our ability to fund operations and continue as a going concern. Additional financing may not be available when needed or may not be available on terms acceptable to us. If adequate funds are not available, we may be required to delay, scale back or eliminate one or more of our business strategies, which may affect our overall business results of operations and financial condition.
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.
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.
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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 obtain financing and 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.
In March 2008, TX Holdings began receiving its first revenue from the production of oil and gas. The Company’s 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:
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changes in global supply and demand for oil and natural gas;
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actions by the Organization of Petroleum Exporting countries, or OPEC;
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political conditions, including embargoes, which affect other oil-producing activities;
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levels of global oil and natural gas exploration and production activity;
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levels of global oil and natural gas inventories;
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weather conditions affecting energy consumption;
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technological advances affecting energy consumption; and
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prices and availability of alternative fuels.
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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. The leases in which the Company has a working interest allow the Company to produce only to a depth of 1000 feet.
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:
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delays imposed by or resulting from compliance with regulatory requirements;
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pressure or irregularities in geological formations;
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shortages of or delays in obtaining equipment and qualified personnel;
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equipment failures or accidents;
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adverse weather conditions;
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reductions in oil and natural gas prices;
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land title problems; and
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limitations in the market for oil and natural gas.
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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. The Company currently does not carry insurance to cover any of these risks.
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.
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We May Incur Losses As A Result Of Title Deficiencies
We purchase working and revenue interests in the oil and natural gas leasehold interests upon which we will perform our exploration activities from third parties or directly from the mineral fee owners. The existence of a material title deficiency can render a lease worthless and can adversely affect our results of operations and financial condition. Title insurance covering mineral leaseholds is not generally available and often we forego the expense of retaining lawyers to examine the title to the mineral interest to be placed under lease or already placed under lease until the drilling block is assembled and ready to be drilled. As is customary in our industry, we rely upon the judgment of oil and natural gas lease brokers or independent landmen who perform field work in examining records in the appropriate governmental offices and abstract facilities before attempting to acquire or place under lease a specific mineral interest. Where, despite our efforts, title deficiencies exist, we risk loss of some or all of our interest in the affected properties or possible economic adjustment where we may have overpaid or underpaid one or more economic interest owners.
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.
Our Board of Directors Has No Independent Directors and We Have Not Instituted Corporate Governance Policies or Procedures
Our Board of Directors has no director who may be considered independent. Further, we do not have an audit committee, a nominating committee, or any other corporate governance committee. Thus, our shareholders do not have the benefits or protections associated with corporate governance controls and other corporate oversight mechanisms overseen by independent directors
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
The issuance of shares upon exercise of warrants may result in substantial dilution to the interests of other shareholders. 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, if any, 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.
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Our Common Stock Is Subject To Penny Stock Rules Which Limit the Market For Our Common Stock
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:
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that a broker or dealer approve a person's account for transactions in penny stocks; and
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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.
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In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and
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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.
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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:
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sets forth the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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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.
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.
Concentration of Share Ownership Gives Insiders Control
Our current 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. The aggregate percentage of Company stock owned by current directors and executive officers as well as warrants held by management is 17.2%.
Our former President, Mark Neuhaus and/or his wife, Nicole B. Neuhaus beneficially control approximately 17.6% of the existing common stock. In addition Mark Neuhaus caused the Company to issue to him a convertible note in the principal amount of $1,199,886 which bears interest at 8% per annum and is convertible into 4,285,306 shares of the Company’s common stock which is currently under litigation.
Possibility That No Public Market or Only a Limited Public Market Will Be Established for the Common Stock of TX Holdings
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 from inception have been sporadic and have ranged from $.03 to $1.05 a share. See MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Company has its principal lease in Putnam, Texas. The Company's headquarters are located at 12080 Virginia Blvd. Ashland, Kentucky 41102. Our telephone number is (606) 928-1131. Management believes that these properties will be sufficient for its current and immediately foreseeable administrative needs. In addition to the oil and gas Lease, the Company owns approximately two acres of land and a storage building that are used to satisfy 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.
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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 lease in which the company currently owns a working interest allow the Company to produce to 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 in the process of raising additional capital to develop the Park’s lease. The Park's Lease is a single lease containing 320 acres. The field is located in the counties of Callahan and Eastland, Texas.
Lease and Royalty Terms-Parks Lease
This lease includes 320 acres in which we have a 100% working interest. The land owners of this lease own a 12.5% royalty interest in the production. The Company purchased this lease from Masada Oil and Gas. There are currently 22 wells on this lease with 10 wells capable of producing 2 to 3 bbls per-day. Production for the period was reduced as a result of continued well workover, the Company anticipates raising the production to 6 to 8 bbls per day with the on-going well rework program. The lease provides that the Company is limited to production from 1,000 feet and above.
Oil and Gas Reserve Analyses
Currently the lease 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 the Parks 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 Company is currently working to establish reserves and has had some limited production to-date.
Management is currently aware of no pending, past or present litigation involving the Company which management believes could have a material adverse effect on the Company.
TX Holdings had filed an action in Dade County, Florida in District Circuit #11, case number 06-14396CA04 entitled TX Holdings, Inc vs. Darren Bloom. The Company 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 owned 2,000,000 shares of TX Holdings common stock. In 2009, The Company reached an agreement with Mr. Bloom whereby he retained 700,000 shares and returned 1,300,000 shares to the Company.
On November 17, 2009 the Company filed a legal claim in the Miami Circuit Court against several defendants for alleged services and reimbursed expenses paid by the Company. The claim stipulates that the defendants did not perform any services on TX Holdings behalf which would have entitled them to receive compensation or reimbursement of expenses. A favorable legal claim settlement on behalf of the Company will include 1) The recall and return of approximately 10,000,000 shares of the company’s stock to be reclassified to treasury stock, 2) the write–off of a recorded debt and interest claimed by a prior officer of the Company, 3) A favorable monetary settlement from a prior legal service provider and 4) Compensation from the Company’s claim on the disputed investment on a third party Oil/Gas producing field. In a court hearing held on February 2, 2011 the court determined that the State of Utah will be the venue where the claim will be adjudicated.
Except as disclosed above, the Company has no material legal proceedings in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.
None.
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.
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Closing Prices ($)
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Quarter Ended
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High
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Low
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September 30, 2011
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0.04
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0.02
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June, 30, 2011
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0.04
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0.02
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March, 31, 2011
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0.05
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0.02
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December 31, 2010
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0.06
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0.02
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September 30, 2010
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0.05
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0.02
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June, 30, 2010
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0.10
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0.02
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March, 31, 2010
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0.11
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0.05
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December 31, 2009
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0.13
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0.05
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As of September 30, 2011 there were approximately 817 holders of record of our common stock.
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.
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.
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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, 2011 and 2010, TX Holdings has issued and outstanding 53,271,897 and 53,041,897 shares of common stock respectively.
Of the total 53,271,897 shares outstanding as of September 30, 2011, 25,568,376 shares were deemed "restricted securities," as defined by the Securities Act of 1933 (the “Act”) when issued to their registered owner and continues to have their restricted status noted on the books of Company’s 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 six months, 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
On October 6, 2009, the Company sold 300,000 shares to private investors for cash proceeds of $15,000.
On December 1, 2009, the Company sold 200,000 shares to a private investor for cash proceeds of $10,000.
On December 8, 2009, the Company sold 500,000 shares to a private investor for cash proceeds of $25,000.
On December 8, 2009, the Company issued 2,500,000 shares of restricted common stock for services, The services were valued at $177,500 based on the quoted market price of the Company’s common stock on the date of issuance.
On December 10, 2009 the Company sold 100,000 shares to a private investor for cash proceeds of $5,000.
On February 16, 2010 the Company sold 350,000 shares to private investors for cash proceeds of $17,500.
On February 16, 2010, the Company issued 580,000 shares of restricted common stock for services. The services were valued at $41, 760 based on the quoted market price of the Company’s stock on the date of issuance.
On March 1, 2010 the Company issued 275,000 shares of restricted common stock for services. The services were valued at $20,625 based on the quoted market price of the Company’s stock on the date of issuance.
On March 18, 2010, the Company sold 400,000 shares to a private investor for cash proceeds of $20,000.
On April 26, 2010, the Company sold 200,000 shares to a private investor for cash proceeds of $10,000.
In June 2011, the Company issued 230,000 shares of common stock for services valued at $8,050
Share Repurchases
None.
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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.
The Company has never earned a profit, and has incurred an accumulated deficit of $14,548,978 as of September 30, 2011. As of September 30, 2006, the Company had raised $1,240,000 in equity. The Company has used these funds to purchase or place deposits on three oil and gas fields to begin its operations as an oil and gas exploration and production company. Revenues derived from the planned production and sale of oil will be based on the evaluation and development of fields. If our development plan is successful, it is estimated it will take approximately one year to reach production levels to sufficiently capitalize the Company on an ongoing basis. During this initial ramp up period, the Company believes it will need to raise additional funds to fully develop its fields, purchase equipment and meet general administrative expenses. The Company may seek both debt and equity financing. The Company currently has in excess of twenty two wells located Texas. Each of the wells will need to be reworked to establish production at a cost of approximately $7,000 to $10,000 per well. Initial production from each well is estimated to be between two to five barrels per day. Once initial production has been established the Company intends to begin a water flood program that injects water into the oil producing zone through injector wells. The water then forces the oil towards the producing well and, if successful, may increase production of each well up to an estimated four to seven barrels per day per well. If the Company is able to produce its wells upon the re-completion the Company revenues will exceed current operating expenses if 40 barrels of oil is produced and the price of oil remains above $55.00 per barrel. The Company's success is dependent on if and how quickly it can reach these levels of production. The Company plans to use all revenues for general corporate purposes as well as, future expansion of its current oil producing properties and the acquisition of other oil and gas properties. There is no certainty that the Company can achieve profitable levels of production or that it will be able to raise additional capital through any means.
Results of Operations
Year Ended September 30, 2011 Compared With Year Ended September 30, 2010
Revenues from Operations- Revenues for the year ended September 30, 2011 and September 30, 2010 were $23,784 and $20,252 respectively. On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has an oil and gas lease in the county of Callahan, Texas and has begun development of oil and gas. The company received its first revenues from oil and gas operations in March, 2008. In the next fiscal year, it is the Company’s intent to increase production by placing additional wells into operation. Since it ceased its former business operations, the Company has devoted its efforts to research prospective leases and business combinations and secure financing.
Expenses from Continuing Operations - The Company incurred operating expenses of $272,517 for the fiscal year ended September 30, 2011; a decrease of $760,893 compared to $1,033,410 for the fiscal year ended September 30, 2010. The operating expense decrease is primarily attributed to: lower stock based compensation of $231,835, Impairment losses and assets write-offs of $302,560and $252,181 respectively, recorded in 2010. The favorable variance was partially offset by a $50,000 impairment loss recorded in 2011.
Net Loss - For the fiscal year ended September 30, 2011 the Company incurred a loss of $101,376 compared to a loss of $1,141,303 for the fiscal year ended September 30, 2010, a loss decrease of $1,039.927. The major reasons for the Company having a lower net loss during the fiscal year ended September 30, 2011 can be attributed to: lower stock based compensation of $231,835, lower impairment losses and asset write–offs of $504,741 and, an accounts payable/accrued liability write-off of $276,637 resulting from open balances as of the statute of limitation expiration date.
Net Operating Loss Carry forward for Tax Purposes
The Company has tax net operating loss carry forwards totaling approximately $4,200,000, expiring in 2018 through 20311. 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.
18
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.
Liquidity
At September 30, 2011 the Company had a cash balance of $3,019. As of September 30, 2010 the Company had a cash balance of $5,848. This is a result of work that has been completed in the oil & gas fields and the purchase of the fields. Property and equipment, net was $133,714 as of September 30, 2011 compared to $188,702 as of September 30, 2010, The investment in the oil and gas fields has caused the Company a liquidity crisis. The Company has been able to borrow money from William Shrewsbury primarily to resolve the Company's liquidity needs. The Company completed its testing required by the Texas Railroad Commission as of December 28, 2007. This will allow the Company to increase production on the oil wells on the Parks lease. While the Company anticipates generating greater revenue beginning in the second quarter of 2012 the amount of production will not be sufficient 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 claimed that he provided loans for operating purposes to the Company in the amount of $1,199,886 for operating purposes as of September 30, 2010. Mr. Shrewsbury has also provided the company with a short term loan of $289,997 as well as advances in the amount of $143,500. As of September 30, 2011, the Company has a recorded liability of $62,719 owed to Dexter & Dexter, Attorneys at Law for attorneys’ fees and the sum of $365,077 to Jose Fuentes as payment for service.
During the 2007 fiscal year Mark Neuhaus caused the Company to issue him a note for $1,199,886 for advances he made on behalf of the Company and which the Company disputes. This disputed 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 provides that it 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 operate and lease, and the acquisition of additional oil and gas producing properties.
The Company currently requires operating capital of approximately $30,000 per month to meet current obligations. At this time the Company has no material 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 $200,000 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 generate higher revenue from its oil and gas leases.
The Company's balance sheets as of September 30, 2011 and, 2010 and the related statements of operations, changes in stockholders deficit and cash flows for the years then ended have been audited by Turner, Stone and Company, LLP. Turner, Stone and Company, LLP is an independent registered public accounting firm. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to Regulation S-K as promulgated by the Securities and Exchange Commission and are included herein in response to Part F/S of this Form 10-K. The financial statements have been prepared assuming the Company will continue as a going concern.
19
|
TX HOLDINGS, INC.
|
||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
||||
|
FINANCIAL STATEMENTS - TABLE OF CONTENTS
|
||||
|
As of and For the Years Ended September 30, 2011 and 2010 and for the period from inception of
the Development Stage, October 1, 2004 to September 30, 2011
|
||||
|
Page(s)
|
||||
|
Reports Of Independent Registered Public Accounting Firm
|
21
|
|||
|
Audited Financial Statements:
|
||||
|
|
||||
|
Balance Sheets at September 30, 2011 and 2010
|
22
|
|||
|
Statements of Operations for the years ended September 30, 2011 and 2010, and
|
||||
|
for the period from inception of the development stage, October 1, 2004, to
|
||||
|
September 30, 2011
|
23
|
|||
|
Statements of Changes In Stockholders' Deficit for the years ended
|
||||
|
September 30, 2011 and 2010 and for the period from inception of the development
|
||||
|
stage, October 1, 2004, to September 30, 2011
|
30
|
|||
|
Statements of Cash Flows for the years ended September 30, 2011 and 2010, and
|
||||
|
for the period from inception of the development stage, October 1, 2004, to
|
||||
|
September 30, 2011
|
31
|
|||
|
Notes to Financial Statements
|
33
|
|||
20
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
TX Holdings, Inc.
We have audited the accompanying balance sheets of TX Holdings, Inc. (the “Company”) (a corporation in the development stage) (the “Company”) as of September 30, 2011 and 2010 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended and cumulatively for the period from October 1, 2009 to September 30, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the cumulative totals of the Company for the period from October 1, 2004 (inception of development stage) to September 30, 2009, which totals reflected a deficit of $11,502,792 accumulated during the development stage. Those cumulative totals were audited by other independent auditors whose report dated January 8, 2010, expressed an unqualified opinion on the cumulative amounts. Our opinion, insofar as it relates to amounts included for that period is based on the report of the other independent auditors, mentioned above.
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. at September 30, 2011 and 2010, and the results of its operations and its cash flows for the years ended September 30, 2011 and 2010 and for the period from inception of the development stage, October 1, 2004 to September 30, 2011 in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to examine management’s assertion about the effectiveness of TX Holdings, Inc.’s internal control over financial reporting as of September 30, 2011 and 2010, accordingly, we do not express an opinion thereon.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant recurring losses from operations since inception and has a working capital deficiency both of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
December 6, 2011
21
|
TX Holdings, Inc.
|
||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
||||||||
|
AUDITED BALANCE SHEETS
|
||||||||
|
SEPTEMBER 30, 2011 AND 2010
|
||||||||
|
September 30,
|
September 30,
|
|||||||
|
2011
|
2010
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 3,019 | $ | 5,848 | ||||
|
Accounts Receivable-(Net of Allowance for Doubtful Accounts)
|
_
|
_
|
||||||
|
Total current assets
|
3,019 | 5,848 | ||||||
|
Unproved oil and gas properties-successful efforts, net
|
133,714 | 188,702 | ||||||
|
Other
|
50,000 | 50,000 | ||||||
|
Total Assets
|
$ | 186,733 | $ | 244,550 | ||||
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
|
Current liabilities:
|
||||||||
|
Notes payable to a stockholder
|
$ | 289,997 | $ | 289,997 | ||||
|
Accounts payable and accrued liabilities
|
1,106,223 | 1,003,737 | ||||||
|
Accounts payable-related party
|
_
|
158,308 | ||||||
|
Advances from stockholder/officer
|
170,697 | 51,397 | ||||||
|
Convertible debt to stockholder/officer
|
1,199,886 | 1,199,886 | ||||||
|
Total current liabilities
|
2,766,803 | 2,703,325 | ||||||
|
Asset Retirement Obligation
|
23,012 | 50,981 | ||||||
|
Total Liabilities
|
2,789,815 | 2,754,306 | ||||||
|
Commitments and contingencies (Notes 8 and 11)
|
||||||||
|
Stockholders' deficit:
|
||||||||
|
Preferred stock: no par value, 1,000,000 shares authorized
|
||||||||
|
no shares outstanding
|
_
|
_
|
||||||
|
Common stock:no par value, 250,000,000 shares
|
||||||||
|
authorized, 53,271,897 and 53,041,897 shares
|
||||||||
|
issued and outstanding at September 30, 2011
|
||||||||
|
and September 30, 2010, respectively
|
10,566,487 | 10,558,437 | ||||||
|
Additional paid-in capital
|
1,379,409 | 1,379,409 | ||||||
|
Accumulated deficit
|
(1,803,507 | ) | (1,803,507 | ) | ||||
|
Losses accumulated in the development stage
|
(12,745,471 | ) | (12,644,095 | ) | ||||
|
Total stockholders' deficit
|
(2,603,082 | ) | (2,509,756 | ) | ||||
|
Total liabilities and stockholders' deficit
|
$ | 186,733 | $ | 244,550 | ||||
The accompanying notes are an integral part of these financial statements.
22
|
TX HOLDINGS, INC.
|
||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
||||||||||||
|
AUDITED STATEMENTS OF OPERATIONS
|
||||||||||||
|
For the Years Ended September 30, 2011 and 2010 and for the Period From
|
||||||||||||
|
Inception of the Development Stage, October 1, 2004 to September 30, 2011
|
||||||||||||
|
Inception of the
|
||||||||||||
|
Development
|
||||||||||||
|
Stage to
|
||||||||||||
|
September 30,
|
September 30,
|
September 30,
|
||||||||||
|
2011
|
2010
|
2011
|
||||||||||
|
Revenue
|
$ | 23,784 | $ | 20,252 | $ | 60,248 | ||||||
|
Operating expenses, except items shown
|
||||||||||||
|
separately below
|
188,161 | 224,007 | 2,485,647 | |||||||||
|
Stock-based compensation
|
8,050 | 239,885 | 7,460,439 | |||||||||
|
Professional fees
|
21,887 | 11,226 | 1,204,903 | |||||||||
|
Impairment Expense
|
50,000 | 302,560 | 736,648 | |||||||||
|
Lease expense
|
_
|
_
|
17,392 | |||||||||
|
Loss on write-off of leases and equipment
|
252,181 | 263,383 | ||||||||||
|
Depreciation expense
|
4,419 | 3,551 | 11,116 | |||||||||
|
Advertising expense
|
_
|
_
|
83,265 | |||||||||
|
Total Operating Expenses
|
272,517 | 1,033,410 | 12,262,793 | |||||||||
|
Loss from operations
|
(248,733 | ) | (1,013,158 | ) | (12,202,545 | ) | ||||||
|
Other income and (expense):
|
||||||||||||
|
Legal settlement
|
_
|
204,000 | ||||||||||
|
Gain on extinguishment of debt
|
276,637 | 276,637 | ||||||||||
|
Other income
|
125 | 838 | ||||||||||
|
Forbearance agreement costs
|
_
|
(211,098 | ) | |||||||||
|
Interest expense
|
(129,280 | ) | (128,270 | ) | (813,303 | ) | ||||||
|
Total other income and (expenses), net
|
147,357 | (128,145 | ) | (542,926 | ) | |||||||
|
Net loss
|
$ | (101,376 | ) | $ | (1,141,303 | ) | $ | (12,745,471 | ) | |||
|
Net loss per common share
|
||||||||||||
|
basic and diluted
|
$ | - | $ | (0.02 | ) | |||||||
| Weighted average number of common shares |
|
|||||||||||
|
outstanding-basic and diluted
|
53,115,623 | 51,649,099 | ||||||||||
The accompanying notes are an integral part of these financial statements.
23
|
TX HOLDINGS, INC.
|
||||||||||||||||||||||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
||||||||||||||||||||||||||||||||
|
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
|
||||||||||||||||||||||||||||||||
|
For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2005
|
||||||||||||||||||||||||||||||||
|
Losses
|
||||||||||||||||||||||||||||||||
|
Additional
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
in the 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.
24
|
TX HOLDINGS, INC.
|
||||||||||||||||||||||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
||||||||||||||||||||||||||||||||
|
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
|
||||||||||||||||||||||||||||||||
|
For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2006
|
||||||||||||||||||||||||||||||||
|
Losses
|
||||||||||||||||||||||||||||||||
|
Additional
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
in the 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 | 2,318,295 | - | - | - | 2,318,295 | ||||||||||||||||||||||||
| Common stock issued for | ||||||||||||||||||||||||||||||||
|
cash
|
- | - | 4,633,324 | 1,164,997 | - | - | - | 1,164,997 | ||||||||||||||||||||||||
|
Common stock issued upon
|
||||||||||||||||||||||||||||||||
|
exercise of warrants
|
- | - | 294,341 | 2,944 | - | - | - | 2,944 | ||||||||||||||||||||||||
|
Common stock surrendered
|
- | - | (500,000 | ) | - | - | - | - | - | |||||||||||||||||||||||
|
Warrants issued for services
|
- | - | - | - | 376,605 | - | - | 376,605 | ||||||||||||||||||||||||
|
Preferred stock issued to the
|
||||||||||||||||||||||||||||||||
|
Company's chief executive
|
||||||||||||||||||||||||||||||||
|
officer/stockholder
|
1,000 | 1,018,000 | - | - | - | - | - | 1,018,000 | ||||||||||||||||||||||||
|
Net income (loss)
|
- | - | - | - | - | - | (5,015,719 | ) | (5,015,719 | ) | ||||||||||||||||||||||
|
Balance at September 30, 2006
|
1,000 | $ | 1,018,000 | 25,782,558 | $ | 5,104,541 | $ | 587,703 | $ | (1,803,507 | ) | $ | (5,465,509 | ) | $ | (558,772 | ) | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
25
|
TX HOLDINGS, INC.
|
||||||||||||||||||||||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
||||||||||||||||||||||||||||||||
|
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
|
||||||||||||||||||||||||||||||||
|
For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2007
|
||||||||||||||||||||||||||||||||
|
Losses
|
||||||||||||||||||||||||||||||||
|
Additional
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
in the 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 interest
|
- | - | 833,333 | 546,666 | - | - | - | 546,666 | ||||||||||||||||||||||||
|
Common stock issued in
|
||||||||||||||||||||||||||||||||
| settlement of accounts | ||||||||||||||||||||||||||||||||
|
payable
|
- | - | 1,437,088 | 215,114 | - | - | - | 215,114 | ||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | (4,085,033 | ) | (4,085,033 | ) | ||||||||||||||||||||||
|
Balance at September 30, 2007
|
1,000 | $ | 1,018,000 | 31,884,355 | $ | 8,443,004 | $ | 800,409 | $ | (1,803,507 | ) | $ | (9,550,542 | ) | $ | (1,092,636 | ) | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
26
|
TX HOLDINGS, INC.
|
||||||||||||||||||||||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
||||||||||||||||||||||||||||||||
|
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
|
||||||||||||||||||||||||||||||||
|
For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2008
|
||||||||||||||||||||||||||||||||
|
Losses
|
||||||||||||||||||||||||||||||||
|
Additional
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid-In
|
Accumulated
|
in the Develop-
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
ment Stage
|
Total
|
|||||||||||||||||||||||||
|
Balance at September 30, 2007
|
1,000 | $ | 1,018,000 | 31,884,355 | $ | 8,443,004 | $ | 800,409 | $ | (1,803,507 | ) | $ | (9,550,542 | ) | $ | (1,092,636 | ) | |||||||||||||||
|
Common stock issued in
|
||||||||||||||||||||||||||||||||
|
exchange of preferred stock
|
(1,000 | ) | (1,018,000 | ) | 10,715,789 | 1,018,000 | - | - | - | - | ||||||||||||||||||||||
|
Common stock issued for
|
||||||||||||||||||||||||||||||||
|
professional services
|
- | - | 450,680 | 128,440 | - | - | - | 128,440 | ||||||||||||||||||||||||
|
Common stock issued for
|
||||||||||||||||||||||||||||||||
| cash | - | - | 780,000 | 73,000 | - | - | - | 73,000 | ||||||||||||||||||||||||
|
Common stock issued in
|
||||||||||||||||||||||||||||||||
|
settlement of legal claim
|
- | - | 175,000 | 31,500 | - | - | - | 31,500 | ||||||||||||||||||||||||
|
Contribution by stockholder
|
- | - | - | - | 10,643 | - | - | 10,643 | ||||||||||||||||||||||||
|
Common stock returned
|
||||||||||||||||||||||||||||||||
|
to treasury
|
- | - | (300,000 | ) | - | - | - | - | - | |||||||||||||||||||||||
|
Accrued salary contributed
|
||||||||||||||||||||||||||||||||
|
by officer/stockholder
|
- | - | - | - | 125,000 | - | - | 125,000 | ||||||||||||||||||||||||
|
Accounting for employee
|
||||||||||||||||||||||||||||||||
|
stock warrants
|
- | - | - | - | 190,000 | - | - | 190,000 | ||||||||||||||||||||||||
|
Accounting for options
|
||||||||||||||||||||||||||||||||
|
issued to a consultant
|
- | - | - | - | 19,000 | - | - | 19,000 | ||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | (676,123 | ) | (676,123 | ) | ||||||||||||||||||||||
|
Balance at September 30, 2008
|
- | $ | - | 43,705,824 | $ | 9,693,944 | $ | 1,145,052 | $ | (1,803,507 | ) | $ | (10,226,665 | ) | $ | (1,191,176 | ) | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
27
|
TX HOLDINGS INC.
|
|||||||||||||||||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|||||||||||||||||||||||||||
|
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
|
|||||||||||||||||||||||||||
|
For the Period from Inception of the Development Stage , October 1, 2004 to September 30, 2009
|
|||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
Losses
|
|||||||||||||||||||||||||||
|
Additional
|
Accumulated in
|
||||||||||||||||||||||||||
| Preferred Stock |
Common Stock
|
Paid in
|
Accumulated |
the Development
|
|||||||||||||||||||||||
| Shares |
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Stage
|
Total
|
||||||||||||||||||||
|
Balance at September 30, 2008
|
_ |
_
|
43,705,824 | $ | 9,693,944 | $ | 1,145,052 | $ | (1,803,507 | ) | $ | (10,226,665 | ) | $ | (1,191,176 | ) | |||||||||||
|
Common stock issued in Payment of
|
|||||||||||||||||||||||||||
|
Shareholders'advances
|
_ |
_
|
2,581,073 | 258,108 |
_
|
_
|
_
|
258,108 | |||||||||||||||||||
|
|
|||||||||||||||||||||||||||
|
Common stock issued
|
|||||||||||||||||||||||||||
|
for professional services
|
_ |
_
|
2,450,000 | 244,000 |
_
|
_
|
_
|
244,000 | |||||||||||||||||||
|
Common stock sold
|
|||||||||||||||||||||||||||
|
to private investors
|
_ |
_
|
200,000 | 20,000 |
_
|
_
|
_
|
20,000 | |||||||||||||||||||
|
Common stock returned
|
|||||||||||||||||||||||||||
|
to treasury
|
_ |
_
|
(1,300,000 | ) |
_
|
_
|
_
|
_
|
_
|
||||||||||||||||||
|
Shareholders' advances previously
|
|||||||||||||||||||||||||||
|
reported as Additional Paid in Capital
|
_ |
_
|
_
|
_
|
(10,643 | ) |
_
|
_
|
(10,643 | ) | |||||||||||||||||
|
Imputed salary contributed
|
|||||||||||||||||||||||||||
|
by officer/stockholder
|
_ |
_
|
_
|
_
|
125,000 |
_
|
_
|
125,000 | |||||||||||||||||||
|
Accounting for employee
|
|||||||||||||||||||||||||||
|
stock warrant
|
_ |
_
|
_
|
_
|
120,000 |
_
|
_
|
120,000 | |||||||||||||||||||
|
Net Loss
|
_ |
_
|
_
|
_
|
_
|
_
|
(1,276,127 | ) | (1,276,127 | ) | |||||||||||||||||
|
Balance at
|
|||||||||||||||||||||||||||
|
September 30, 2009
|
_ |
_
|
47,636,897 | $ | 10,216,052 | $ | 1,379,409 | $ | (1,803,507 | ) | $ | (11,502,792 | ) | $ | (1,710,838 | ) | |||||||||||
The accompanying notes are an integral part of these financial statements.
28
|
TX HOLDINGS INC.
|
|||||||||||||||||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|||||||||||||||||||||||||||
|
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
|
|||||||||||||||||||||||||||
|
For the Period from Inception of the Development Stage , October 1, 2004 to September 30, 2010
|
|||||||||||||||||||||||||||
|
Losses
|
|||||||||||||||||||||||||||
|
Accumulated
|
|||||||||||||||||||||||||||
|
Additional
|
in the
|
||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid in
|
Accumulated |
Development
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Stage
|
Total
|
||||||||||||||||||||
|
Balance at
|
|||||||||||||||||||||||||||
|
September 30, 2009
|
_
|
_
|
47,636,897 | $ | 10,216,052 | $ | 1,379,409 | $ | (1,803,507 | ) | $ | (11,502,792 | ) | $ | (1,710,838 | ) | |||||||||||
|
Common stock issued
|
|||||||||||||||||||||||||||
|
for professional
|
|||||||||||||||||||||||||||
|
services
|
_
|
_
|
3,355,000 | 239,885 |
_
|
_
|
_
|
239,885 | |||||||||||||||||||
|
Common stock sold
|
|||||||||||||||||||||||||||
|
to private investors
|
_
|
_
|
2,050,000 | 102,500 |
_
|
_
|
_
|
102,500 | |||||||||||||||||||
|
Net Loss
|
_
|
_
|
_
|
_
|
_
|
_
|
(1,141,303 | ) | (1,141,303 | ) | |||||||||||||||||
|
Balance at
|
|||||||||||||||||||||||||||
|
September 30, 2010
|
_
|
_
|
53,041,897 | $ | 10,558,437 | $ | 1,379,409 | $ | (1,803,507 | ) | $ | (12,644,095 | ) | $ | (2,509,756 | ) | |||||||||||
The accompanying notes are an integral part of these financial statements.
29
|
TX HOLDINGS INC.
|
|||||||||||||||||||||||||||
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|||||||||||||||||||||||||||
|
AUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
|||||||||||||||||||||||||||
|
For the Period from Inception of the Development Stage, October 1, 2004 to September 30, 2011
|
|||||||||||||||||||||||||||
|
Losses
|
|||||||||||||||||||||||||||
| Accumulated | |||||||||||||||||||||||||||
|
Additional
|
in the
|
||||||||||||||||||||||||||
|
Preferred Stock
|
Common Stock
|
Paid in
|
Accumulated
|
Development
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Stage
|
Total
|
||||||||||||||||||||
|
Balance at
|
|||||||||||||||||||||||||||
|
September 30, 2010
|
_
|
_
|
53,041,897 | $ | 10,558,437 | $ | 1,379,409 | $ | (1,803,507 | ) | $ | (12,644,095 | ) | $ | (2,509,756 | ) | |||||||||||
| Common srock issued for |
|
||||||||||||||||||||||||||
| professional services |
|
230,000 | 8,050 | 8,050 | |||||||||||||||||||||||
|
Net Loss
|
_
|
_
|
_
|
_
|
_
|
_
|
(101,376 | ) | (101,376 | ) | |||||||||||||||||
|
Balance at
|
|||||||||||||||||||||||||||
|
September 30, 2011
|
_
|
_
|
53,271,897 | $ | 10,566,487 | $ | 1,379,409 | $ | (1,803,507 | ) | $ | (12,745,471 | ) | $ | (2,603,082 | ) | |||||||||||
The accompanying notes are an integral part of these financial statements.
30
|
TX HOLDINGS, INC.
|
||||||||||||
|
AUDITED STATEMENTS OF CASH FLOWS
|
||||||||||||
|
For the Years Ended September 30, 2011 and 2010 and for the Period From
|
||||||||||||
|
Inception of the Development Stage, October 1, 2004 to September 30, 2011
|
||||||||||||
|
Inception of
|
||||||||||||
|
Development
|
||||||||||||
|
Stage to
|
||||||||||||
|
9/30/2011
|
9/30/2010
|
9/30/2011
|
||||||||||
|
Cash flows used by operating activities:
|
||||||||||||
|
Net loss
|
$ | (101,376 | ) | $ | (1,141,303 | ) | $ | (12,745,471 | ) | |||
|
Adjustments to reconcile net loss to net cash used
|
||||||||||||
|
in operating activities:
|
||||||||||||
|
Warrants issued for forbearance agreement
|
_
|
_
|
211,098 | |||||||||
|
Loss on disposal of equipment
|
_
|
252,181 | 263,383 | |||||||||
|
Impairment of unproved oil and gas properties
|
50,000 | 302,560 | 736,648 | |||||||||
|
Depreciation expense
|
4,419 | 3,551 | 11,116 | |||||||||
|
Bad Debt Expense
|
_
|
_
|
1,729 | |||||||||
|
Common and preferred stock issued for services
|
8,050 | 239,885 | 6,068,274 | |||||||||
|
Accounting for Warrants issued to employees and
|
||||||||||||
|
a consultant
|
_
|
_
|
329,000 | |||||||||
|
Warrants issued for services
|
_
|
_
|
376,605 | |||||||||
|
Common stock issued to settle accounts payable
|
_
|
_
|
251,308 | |||||||||
|
Common stock issued in payment of interest expense
|
_
|
_
|
196,666 | |||||||||
|
Common stock issued by an officer/stockholder to
|
||||||||||||
|
satisfy expenses of the Company and increase
|
||||||||||||
|
stockholder advances
|
_
|
_
|
616,750 | |||||||||
|
Common stock issued in settlement of legal claim
|
_
|
_
|
31,500 | |||||||||
|
Accrued salary contributed by stockholder/former officer
|
_
|
_
|
250,000 | |||||||||
|
Changes in operating assets and liabilities:
|
||||||||||||
|
Accrued stock-based compensation reversal
|
||||||||||||
|
resulting from legal claim settlement
|
_
|
_
|
(231,000 | ) | ||||||||
|
Gain on extinguishment of debt
|
(276,637 | ) | (276,637 | ) | ||||||||
|
Prepaid expenses and other assets
|
_
|
_
|
(49,750 | ) | ||||||||
|
Accounts receivable
|
_
|
(1,729 | ) | |||||||||
|
Accounts payable and accrued liabilities
|
193,415 | 248,452 | 2,102,349 | |||||||||
|
Net cash used in operating activities
|
(122,129 | ) | (94,674 | ) | (1,858,161 | ) | ||||||
31
| TX HOLDINGS, INC. | ||||||||||||
| AUDITED STATEMENTS OF CASH FLOWS-CONT'D | ||||||||||||
| For the Years Ended September 30, 2011 and 2010 and for the Period From | ||||||||||||
| Inception of the Development Stage, October 1, 2004 to September 30, 2011 | ||||||||||||
|
Cash flows used in investing activities:
|
||||||||||||
|
Deposits paid for oil and gas property acquisitions
|
_
|
_
|
(378,000 | ) | ||||||||
|
Purchase of oil and gas properties
|
_
|
(10,716 | ) | (425,329 | ) | |||||||
|
Net cash used in investing activities
|
_
|
(10,716 | ) | (803,329 | ) | |||||||
|
Cash flows provided by financing activities:
|
||||||||||||
|
Proceeds from stockholder/officer contribution
|
_
|
_
|
10,643 | |||||||||
|
Repayment of note payable to a bank
|
_
|
_
|
(20,598 | ) | ||||||||
|
Proceeds from note payable to stockholder
|
_
|
_
|
520,000 | |||||||||
|
Proceeds from sale of common stock
|
_
|
102,500 | 1,360,497 | |||||||||
|
Proceeds from exercise of warrants
|
_
|
_
|
78,404 | |||||||||
|
Proceeds from stockholder/officer advances
|
119,300 | 9,050 | 722,463 | |||||||||
|
Payments of stockholders advances
|
_
|
(6,900 | ) | (6,900 | ) | |||||||
|
Net cash provided by financing activities
|
119,300 | 104,650 | 2,664,509 | |||||||||
|
Increase (Decrease) in cash and cash equivalents
|
(2,829 | ) | (740 | ) | 3,019 | |||||||
|
Cash and cash equivalents at beginning of period
|
5,848 | 6,588 |
_
|
|||||||||
|
Cash and Cash Equivalent at end of period
|
$ | 3,019 | $ | 5,848 | $ | 3,019 | ||||||
|
Non-cash investing and financing activities:
|
||||||||||||
|
Common stock issued in payment of Shareholders' advances
|
_
|
_
|
$ | 258,107 | ||||||||
|
Shareholders'advances converted to notes payable from stockholder
|
_
|
_
|
$ | 119,997 | ||||||||
|
Shareholders' advances previously reported as paid-in capital
|
_
|
_
|
$ | (10,643 | ) | |||||||
|
Increase in property and equipment from recognition of asset retirement obligation
|
$ | (27,969 | ) |
_
|
$ | 23,012 | ||||||
|
Land and Building in exchange for Accounts Payable
|
$ | 27,400 |
_
|
$ | 27,400 | |||||||
The accompanying notes are an integral part of these financial statements.
32
|
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 an oil and gas exploration and production company.
CURRENT BUSINESS ACTIVITIES
Management seeks to acquire producing oil and gas properties in and around Texas. The acquisition of these properties will define the operational holdings of the Company. Management has defined a number of criteria for acquisition which include:
|
●
|
Wells should be currently producing
|
|
●
|
Production should be broadly distributed across lease
|
|
●
|
Lease should show a 24 month payback (or better)
|
|
●
|
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 Mark Neuhaus caused the Company to issue to him a convertible note in the principal amount of $1,199,886. Mr. Neuhaus claimed that he advanced funds in that amount on behalf of the Company for operations of the Company. The Company plans to continue to use a combination of debt, and equity financing to fund operations. 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 commenced researching of 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 FASB Accounting Standards Codification (“ASC”) Topic 915 Development Stage Entities.
The Company, with its prior subsidiaries, has suffered recurring losses while devoting substantially all of its efforts to raising capital and identifying and pursuing advantageous businesses opportunities. Management currently believes that its best opportunities lie in the oil and gas industry. The Company's total liabilities exceed its total assets and the Company's liquidity has depended excessively on raising new capital.
33
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES-continued
GOING CONCERN CONSIDERATIONS-continued
These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which contemplates continuing operations and realization of assets and liquidation of liabilities in the ordinary course of business. The Company's ability to continue as a going concern is dependent upon its ability to raise sufficient capital and to implement a successful business plan to generate profits sufficient to become financially viable. The financial statements do not include adjustments relating to the recoverability of recorded assets nor the implications of associated bankruptcy costs should the Company be unable to continue as a going concern.
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 and calculated estimates that 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, measurement of stock based compensation, and the asset retirement obligation on oil and gas properties. 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.
CASH AND CASH FLOWS
For purposes of the statements of cash flows, cash includes demand deposits, time deposits, certificate of deposits and short-term liquid investments in government securities with original maturities of three months or less when purchased. The Company maintains deposits in two financial institutions. The Federal Deposit Insurance Corporation provides coverage up to $250,000 per depositor, per bank. At September 30, 2011, none of the Company’s cash was in excess of federally insured limits. The Company has not experienced any losses in such accounts and does not believe is is exposed to any significant credit risks from these excess deposits.
ACCOUNTS RECEIVABLE AND PROVISION FOR BAD DEBTS
The Company practice is to record an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The estimate is based on management’s assessment of the collectability of customer accounts and includes consideration for credit worthiness and financial condition of those customers. The Company reviews historical experience with customers, the general economic environment and the aging of receivables to determine the adequacy of the allowance. The Company records an allowance to reduce receivables to the amount that can be reasonably expected to be collectible. The allowance for doubtful accounts was zero and $1,729 for the years ended September 30, 2011 and 2010, respectively.
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
34
|
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-continued
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.
ASSET RETIREMENT OBLIGATION
The Company follows ASC Topic 410,” Asset Retirement and Environmental Obligations”, which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs will be capitalized as part of the carrying amount of the long-lived asset. The carrying value of a property associated with the capitalization of an asset retirement cost is included in unproved oil and gas property in the accompanying balance sheets. The future cash outflows for oil and gas property associated with settling the asset retirement obligations is accrued in the balance sheets, and is excluded from ceiling test calculations. The Company’s asset retirement obligation consists of costs related to the plugging of wells and removal of facilities and equipment on its oil and gas properties.
For the years ended September 30, 2011 and 2010, the changes in the Company’s asset retirement obligations are as follows.
35
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ACTIVITIES-Continued
ASSET RETIREMENT OBLIGATION-Continued
|
2011
|
2010
|
|||||||
|
Balance at beginning of Year
|
$ | 50,981 | $ | 86,455 | ||||
|
Costs incurred during year
|
_
|
(17,248 | ) | |||||
|
Changes in estimate
|
(32,627 | ) | (18,226 | ) | ||||
|
Accretion
|
4,658 |
_
|
||||||
|
Balance at end of year
|
$ | 23,012 | $ | 50,981 | ||||
REVENUE RECOGNITION
Currently the Company has limited revenue from oil and gas operations. If and when the Company begins to receive higher 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.
STOCK BASED COMPENSATION
The Company accounts for share-based expense and activity in accordance with FASB ASC Topic 718 which establishes accounting for equity instruments exchanged for services. Under this provision share-based compensation costs are measured at the grant date, based on the calculated fair value of the award, and are recognized as an expense over both the employee and non-employee’s requisite service period, generally the vesting period of the equity grant.
The Company estimates the fair value of stock options using the Black-Scholes valuation model . Key imput assumptions used to estimate the fair value of stock options include the excersise price of the award, expected option term, expected volatility of the stock over the option’s expected term, risk-free interest rate over the option’s expected term and the expected annual dividend yield. The Company believes that the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair value of the stock options granted.
36
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ACTIVITIES-Continued
POTENTIALLY DILUTIVE OPTIONS AND WARRANTS
There were no outstanding options and warrants at September 30, 2011.
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.
FINANCIAL INSTRUMENTS
The Company includes fair value information in the notes to the financial statements when the fair value of its financial instruments is different from the book value. When the book value approximates fair value, no additional disclosure is made, which is the case for financial instruments outstanding as of September 30, 2011. The book value of those financial instruments that are classified as current approximates fair value because of the short maturity of these instruments. For non-current financial instruments, the Company uses quoted market prices or, to the extent that there are no quoted market prices, market prices for similar instruments.
FAIR VALUE MEASUREMENT
ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.
37
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ACTIVITIES-Continued
ROUNDING
Throughout our financial statements and footnotes, amounts have been rounded to the nearest dollar. Consequently, the addition and subtraction totals of some columns and category presentations may have differences of a dollar due to this rounding.
BASIC NET LOSS PER COMMON SHARE
Net loss per share is computed based on current accounting guidance 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 securities unissued 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.
|
2011
|
2010
|
||
|
Warrants issued as compensation
|
_
|
1,000,000
|
|
|
Total
|
-
|
1,000,000
|
RECENTLY ISSUED ACCOUNTING STANDARDS
During the twelve months ended September 30, 2011, there were several new accounting pronouncements issued by the FASB the most recent of which was Accounting Standards Update 2010-29 Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 2011 and 2010:
|
2011
|
2010
|
|||||||
|
Oil and Gas properties- successful efforts
|
||||||||
|
method- unproved
|
$ | 141,684 | $ | 192,253 | ||||
| Less accumulated depreciation, | ||||||||
|
depletion and amortization
|
(7,970 | ) | (3,551 | ) | ||||
|
|
||||||||
| $ | 133,714 | $ | 188,702 | |||||
38
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
POLICIES AND ACTIVITIES-Continued
Depreciation expense of $4,419 and $3,551 were recognized during the years ended September 30, 2011 and 2010, respectively. At September 30, 2011 and 2010, the Company had no proven oil and gas properties and, accordingly, there was no amortization of oil and gas properties recorded during the years then ended. The Company unproven oil and gas properties were reviewed for impairment on a field-by-field basis as of September 30, 2011 and 2010. As a result of the review, the Company recognized an impairment loss of $0 and $302,560 for the years ended September 30, 2011 and 2010, respectively. The impairment loss is included in operating expenses on the accompanying statement of operations.
Substantially all the Company’s reserves can only be produced economically through application of improved recovery techniques and are excluded from the proved classification until successful testing by a pilot project, or the operation of an installed program in the reservoir, provide support for the engineering analysis on which the project or program is based.
The Company owned an 8.5% working interest on the Contract Area-1 lease which included a total of 247 acres and a total of 36 wells. After repeated unsuccessful attempts over several years, the Company elected to cease operation of the Contract area-1 lease resulting in impairment of the lease. The Company wrote-off $568,047 and recognized a loss on disposal of $252,560 on the Statement of Operation for the year ended September 30, 2010 related to the lease.
Included in unproved oil and gas properties is $352,560 of 2007 additions that were acquired in exchange for shares of the Company's common stock that the Company's former Chief Executive Officer who is a major stockholder of the Company advised he transferred on behalf of the Company. This amount is included in Convertible Debt to Stockholder/Officer. On September 30, 2010 an impairment amount for this property of $302,560 was recorded reducing the recorded property value to $50,000.
NOTE 3 - 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 shares provided as 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 $289,997 is the principal due on 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. During February 2009, the Company and Mr. Shrewsbury agreed to add $119,997 to shareholder advances to the outstanding note payable.
Mark Neuhaus, the former Chairman of the Board of Directors and former Chief Executive Officer of the Company caused the Company in September 2007 to issue to him a convertible promissory note in the amount of $1,199,886 bearing interest at 8% per annum and due and payable within two years for payments in cash and common stock made on behalf of the Company through that date. The conversion price is $0.28 per common share (the market price of the Company's common stock on the date of the note) which will automatically convert on the two-year anniversary of the note if not paid in full by the Company. The conversion price is subject to adjustments for anti-dilution. The Company disputed that the note was not supported by consideration or that it was properly authorized under Georgia law and on November 11, 2008 the Company entered into a settlement agreement with Mr. Neuhaus and his wife which included provisions cancelling the indebtedness represented by the note
39
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 3 - NOTES PAYABLE TO A STOCKHOLDER AND CONVERTIBLE DEBT TO OFFICER/STOCKHOLDER-Continued
contingent on the closing of a third party transaction within 90 days of November 11, 2008. The Company was not successful in finalizing the transaction with the third party within the stipulated period resulting in the cancellation of the settlement agreement between the Company and Mark Neuhaus and his wife.
NOTE 4 - ASSET RETIREMENT OBLIGATION
In the period in which an asset retirement obligation is incurred or becomes reasonably estimable, the Company recognizes the fair value of the liability if there is a legal obligation to dismantle the asset and reclaim or remediate the property at the end of its useful life. The Company estimates the timing of the asset retirement based on an economic life determine by reference to similar properties and/or reserve reports. The liability amounts are based on future retirement cost estimates and incorporate many assumptions such as expected economic recoveries of oil and gas, time to abandonment, future inflation rates and the adjusted risk-free rate of interest. When the liability is initially recorded, the Company capitalizes the cost by increasing the related property balances. This initial cost is depreciated or depleted over the useful life of the asset.
The Company has identified potential retirement obligations related to the Parks Lease, Williams Lease and Contract Area1 lease. These retirement obligations are determined based on estimated costs to comply with abandonment regulations established by the Texas Railroad Commission and the State of Texas. Management has estimated the cost in today’s dollars, to comply with these regulations. These estimates have been projected out to the anticipated retirement date 9 years in the future. The anticipated future cost of remediation efforts is $101,912. The anticipated future cost of remediation efforts were discounted back at an assumed interest rate of 8 percent, to arrive at a net present value of the obligation. The asset retirement obligation is $23,012 and $50,981 at September 30, 2011 and September 30, 2010, respectively. The Company has not recorded accretion on the asset retirement obligation due to minimal revenues.
NOTE 5 - INCOME TAXES
The tax effects of temporary differences that give rise to deferred taxes are as follows at September 30, 2011 and 2010:
|
2011
|
2010
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating losses
|
$ | 1,789,000 | $ | 1,757,000 | ||||
|
Accrued expenses
|
257,000 | 257,000 | ||||||
|
Valuation allowance
|
(2,046,000 | ) | (2,014,000 | ) | ||||
|
Total deferred tax assets
|
- | - | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Basis of property and equipment
|
- | - | ||||||
|
Net deferred tax asset
|
$ | - | $ | - | ||||
Net operating losses after December 12, 2002 through September 30, 2011 were approximately $3,000,000. The Company has total net operating losses available to the Company to offset future taxable income of approximately $4,300,000. Following is a reconciliation of the tax benefit at the federal statutory rate to the amount reported in the statement of operations:
40
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 5 - INCOME TAXES-Continued
|
2011
|
2010
|
||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||
|
Benefits for Income Tax at federal statutory rate
|
$
|
35,000
|
34
|
|
% |
$
|
388,000
|
34
|
|
% | |||||
|
Change in valuation allowance
|
(32,300
|
) |
(28
|
) |
(306,000
|
) |
(21
|
) | |||||||
|
Non-deductible stock-based
|
|||||||||||||||
|
Compensation
|
(2,700
|
) |
(5
|
) |
(82,000
|
) |
(13
|
) | |||||||
|
$
|
-
|
-
|
|
% |
$
|
-
|
-
|
|
% | ||||||
The Company has tax net operating loss carry forwards totaling approximately $4,300,000, expiring in 2018 through 2031. 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. the company has not filed any federal income tax forms.
NOTE 6 - SEGMENT INFORMATION
As of September 30, 2011 and 2010, the Company’s only operating segment was in oil and gas operations.
NOTE 7 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
Mr. Neuhaus has represented that in May 2006 an employment agreement was entered into with Mr. Neuhaus the then president, CEO and Chairman of the Board. Mr. Neuhaus claims that the agreement provided that he was to be compensated at the rate of $25,000 per month plus bonus based on oil and gas production. In addition he claims that the employment agreement granted to him 1,000 shares of preferred stock. The preferred stock which Mr. Neuhaus caused to be issued to himself had the following rights and privileges:
|
1.
|
Super voting rights: The preferred stock has the right to vote on any item of business submitted to the common shareholders for a vote the equivalent number of votes representing 50% of the outstanding common shares then issued by the Company.
|
|
2.
|
No other rights: The preferred shares have no other rights, including but not limited to no conversion rights; no dividend rights; and no liquidation priority rights.
|
During the fiscal year 2006, Mr. Neuhaus waived his salary. However, Mr. Neuhaus obtained a letter from Baron Capital Group, Inc. stating that value of the preferred stock was no greater than $1,018,000. On December 24, 2007, and in connection with Mr. Neuhaus’ resignation, the 1,000 preferred shares were exchanged for 10,715,789 common shares, which exchange assumed that the preferred stock had a value of $1,018,000. Current management of the Company has not seen documentation establishing that an employment agreement existed between Mr. Neuhaus and the Company; that any such agreement was authorized in accordance with Georgia law or that the preferred stock was duly authorized or validly issued in accordance with law.
41
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 7 - STOCKHOLDERS' EQUITY-Continued
COMMON STOCK
During the years ended September 30, 2010 and 2011, the Company issued Common stock to raise capital, compensate employees and professionals, and to settle liabilities as follows:
On October 6, 2009, the Company sold 300,000 shares to private investors for cash proceeds of $15,000.
On December 1, 2009, the Company sold 200,000 shares to a private investor for cash proceeds of $10,000.
On December 8, 2009, the Company sold 500,000 shares to a private investor for cash proceeds of $25,000.
On December 8, 2009, the Company issued 2,500,000 shares of restricted common stock for services, The services were valued at $177,500 based on the quoted market price of the Company’s common stock on the date of issuance.
On December 10, 2009 the Company sold 100,000 shares to a private investor for cash proceeds of $5,000.
On February 16, 2010 the Company sold 350,000 shares to private investors for cash proceeds of $17,500.
On February 16, 2010, the Company issued 580,000 shares of restricted common stock for services. The services were valued at $41, 760 based on the quoted market price of the Company’s stock on the date of issuance.
On March 1, 2010 the Company issued 275,000 shares of restricted common stock for services. The services were valued at $20,625 based on the quoted market price of the Company’s stock on the date of issuance.
On March 18, 2010, the Company sold 400,000 shares to a private investor for cash proceeds of $20,000.
On April 26, 2010, the Company sold 200,000 shares to a private investor for cash proceeds of $10,000.
On June 6, 2011 the Company issued 230,000 shares of restricted common stock for services. The services were valued at $8,050 based on the quoted market price of the Company’s stock on the date of issuance.
42
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 7 - STOCKHOLDERS' EQUITY-Continued
STOCK OPTIONS AND WARRANTS
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 expired on March 27, 2010 and were not exercised.
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 were subject to continued employment, expire on September 30, 2011 and vest over a two year period with 1,000,000 shares vesting September 28, 2008 and 1,000,000 shares vesting September 28, 2009. Fair value of $480,000 was calculated using the Black-Scholes Model. Variables used in the Black-Scholes option-pricing model during the year ended September 30, 2007, include (1) 4.75% discount rate, (2) warrant life is the expected remaining life of the options as of each year end, (3) expected volatility of 141.90%, and (4) zero expected dividends. Warrant expense of $120,000 and $190,000 was recorded during the years ended September 30, 2009 and 2008, related to these options. On May, 12, 2008 Michael A. Cederstrom forefeited his rights to the warrants upon tendering his resignation.
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 has the right to 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.
On September 4, 2008 a warrant to purchase 300,000 shares of common stock of TX Holdings, Inc at an exercise price of $.50 was issued to Andrew Patzert. The warrants expired on June 22, 2009.
Following is a summary of outstanding stock warrants at September 30, 2010 and 2009 and activity during the years then ended:
|
Number of
|
Exercise
|
Weighted
|
||||||||||
|
Shares
|
Price
|
Average Price
|
||||||||||
|
Warrants at September 30, 2009
|
2,050,000 | $ | 0.28 – 0.30 | $ | 0.29 | |||||||
|
Expired
|
(1,050,000 | ) | 0.30 | 0.30 | ||||||||
|
Warrants at September 30,2010
|
1,000,000 | 0.28 | 0.28 | |||||||||
|
Expired
|
(1,000,000 | ) | 0.28 | 0.28 | ||||||||
|
Warrants at September 30, 2011
|
0 | $ | 0 | $ | 0 | |||||||
A summary of outstanding warrants at September 30, 2011, follows:
None
43
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 8 - LEGAL PROCEEDINGS
On November 17, 2009 the Company filed a legal claim in the Miami Circuit Court against several defendants for alleged services and reimbursed expenses paid by the Company. The claim stipulates that the defendants did not perform any services on TX Holdings behalf which would have entitled them to receive compensation or reimbursement of expenses. The Company is seeking a favorable legal claim settlement. The settlement will include 1) The recall and return of approximately 10,000,000 shares of the company’s stock to be reclassified to treasury stock, 2) the write–off of a recorded debt and interest claimed by a prior officer of the Company, 3) A favorable monetary settlement from a prior legal service provider and 4) Compensation from the Company’s claim on the disputed investment on a third party Oil/Gas producing field. At a court hearing on February 2, 2011 the court determined that the State of Utah will be the jurisdiction where the claim will be adjudicated. The Company has retained legal counsel in Utah to represent them in the on-going litigation.
The Company believes that any on-going litigation will not have a negative material impact on the Company’s financial position or operating results.
NOTE 9 - RELATED PARTY TRANSACTIONS
As described in Note 3, Mark Neuhaus caused the Company to issue 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. Mr. Neuhaus claims that this convertible promissory note is the result of the consolidation of stockholder advances made by him and entities he controls. The Company has filed a legal claim against several defendants (including Mr. Neuhaus) for alleged services and reimbursed expenses paid by the Company. The claim stipulates that the defendants did not perform any services on TX Holdings behalf which would have entitled them to receive payment on the outstanding promissory note (Note 8).
Included in the financial statements as of September 30, 2011 and 2010 are advances from stockholder/officer of $170,697 and $51,397, respectively .
In June 2007 the Company entered into a strategic alliance agreement with Hewitt 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. Hewitt Energy Group, LLC is controlled by a former member of the Company's board of directors. During 2007 the Company's former Chief Executive Officer, who is a major stockholder, claimed that he transferred stock on behalf of the Company with a market value of $352,560 to Hewitt Energy Group, LLC to acquire an interest in the Perth field in Kansas. The Company recorded an impairment of $302,560 during the year ended September 30, 2010 and an additional impairment of $50,000 during the year ended 2011. There is currently a dispute as to the extent of the Company’s performance under the leases and agreement with Hewitt Energy.
44
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 9 - RELATED PARTY TRANSACTIONS-Continued
|
2011
|
2010
|
|||||||
|
Beginning balance
|
$ | 51,397 | $ | 49,247 | ||||
|
Proceeds from stockholder/officer advances of stockholders advances
|
119,300 | 9,050 | ||||||
|
Payments of stockholders advances
|
(6,900 | ) | ||||||
|
Common stock issued at fair market value for services
|
||||||||
|
and added to advances
|
__
|
__
|
||||||
|
Stockholders advances previously reported as
|
||||||||
|
Paid-in capital
|
10,643 | |||||||
|
Advances repaid in Common Stock
|
__
|
__
|
||||||
|
Converted to convertible promissory note
|
__
|
__
|
||||||
|
Ending Balance
|
$ | 170,697 | $ | 51,397 | ||||
NOTE 10 - NON CASH INVESTING AND FINANCING ACTIVITIES
Following is an analysis of non cash investing and financing activities during the years ended September 30, 2011 and 2010:
|
2011
|
||||
|
Property and equipment acquired through exchange of acct. payable
|
$ | 27,400 | ||
NOTE 11 - COMMITMENTS AND CONTINGENCIES
None
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to the period ended September 30, 2011, the Company has received additional advances from Officers/Shareholders in the amount of $29,000.
NOTE 13 - SUPPLEMENTAL INFORMATION ON OIL AND GAS DATA (Unaudited)
The following tables set forth supplementary disclosures for the Company’s oil and gas producing activities in accordance with ASC 932, Disclosures about Oil and Gas Producing Activities.
45
|
TX HOLDINGS, INC
|
|
A CORPORATION IN THE DEVELOPMENT STAGE
|
|
NOTES TO FINANCIAL STATEMENTS
|
NOTE 13 - SUPPLEMENTAL INFORMATION ON OIL AND GAS DATA (Unaudited)-Continued
Capitalized Costs Relating to Oil and Gas Producing Activities:
|
|
Years Ended September 30,
|
|||||||
|
2011
|
2010
|
|||||||
|
Capitalized Costs:
|
||||||||
|
Oil & gas properties
|
$ | 141,684 | $ | 192,253 | ||||
|
Total Capitalized Costs
|
141,684 | 192,253 | ||||||
|
Less: Accumulated depreciation, depletion,
|
||||||||
|
amortization, and valuation allowance
|
(7,970 | ) | (3,551 | ) | ||||
|
Net Capitalized Costs
|
$ | 133,714 | $ | 188,702 | ||||
Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities:
|
Years Ended September 30,
|
||||||||
| 2011 | 2010 | |||||||
|
Costs Incurred:
|
||||||||
|
Acquisition of properties
|
$
|
-
|
$
|
-
|
||||
|
Exploration
|
-
|
-
|
||||||
|
Development
|
17,036
|
10,716
|
||||||
|
Total Costs Incurred
|
$
|
17,036
|
$
|
10,716
|
||||
Results of Operations from Oil and Gas Producing Activities:
|
Years Ended September 30,
|
||||||||
|
2011
|
2010
|
|||||||
|
Revenues from Oil and Gas Producing Activity:
|
$ | 23,784 | $ | 20,252 | ||||
|
Revenue Distributions
|
- | - | ||||||
|
Net Revenues from Producing Activities
|
23,784 | 20,252 | ||||||
|
Production Costs
|
(27,424 | ) | (31,096 | ) | ||||
|
Exploration Expenses
|
- | - | ||||||
|
Depreciation, depletion, amortization, & valuation allowance
|
(4,419 | ) | (3,551 | ) | ||||
|
Pretax Income from Producing Activities
|
(8,059 | ) | (14,395 | ) | ||||
|
Income tax expenses/estimated loss carry forward benefit
|
- | - | ||||||
|
Results of oil and gas producing activities
|
$ | (8,059 | ) | $ | (14,395 | ) | ||
The results of oil and gas producing activities above does not include the impairment charges of $302,560 and write-off of oil and gas properties of $252,181 for the year ended September 30, 2010 and an impairment loss of $50,000 in 2011 since these properties were not operational.
46
There has been no changes or disagreements with accountants on accounting and financial disclosure.
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ending September 30, 2011 covered by this Annual Report on Form 10-KSB. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion is based upon the number and magnitude of the year end adjusting entries.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that the Company’s internal control over financial reporting were not effective as of September 30, 2011, under the criteria set forth in the in Internal Control—Integrated Framework. The determination was made partially due to the small size of the company and a lack of segregation of duties. The Company continues to implement control processes to mitigate the control weaknesses that are present in a small Company with very few employees.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2011, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
None
47
The following table shows the names, ages and positions held by our executive officers, directors and significant employees during the year ended September 30, 2011:
|
Name
|
Age
|
Position
|
|||
|
William Shrewsbury
|
67
|
Chairman of the Board of Directors/CEO
|
|||
|
|
|||||
|
Richard Novack
|
53
|
Director/President
|
|||
|
Jose Fuentes
|
64
|
Chief Financial Officer
|
|||
|
Martin Lipper
|
77
|
Director
|
|||
|
Bobby S. Fellers
|
61
|
Director
|
Business Experience of Executive Officers and Directors
William “Buck” Shrewsbury, Chairman of the Board/CEO, age 66. 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.
Richard Novack attended the Indiana University of Pennsylvania where he majored in Business Administration. Mr. Novack began his career in finance and subsequently started several business enterprises, including entities in the printing, vending and real estate industries.
Martin Lipper, Director, age 76, 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, 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.
Jose Fuentes, Chief Financial Officer - 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.
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.
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.
48
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own beneficiary more than ten percent of our common stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission Based solely upon a review of Forms 3 and 4 (furnished to the Company during the year ended September 30, 2006 and two Forms 5 (no other Forms 5 nor written representations furnished to the Company having been furnished with respect to such year) each of the current directors failed to file a Form 3 on a timely basis. Mr. Shrewsbury timely filed a Form 5 reporting the failure to file the Form 3 and 9 acquisitions that should have been reported on a Form 4 and which took place in February and March of 2008. Mr. Lipper filed a form 5 on November 14, 2008 reflecting his ownership of shares of the common stock of the Company which should have been reported on a Form 3 including 7 acquisitions that took place in November and September of 2007 prior to his becoming a director and one in March of 2008. Timely filings were made for the period ended September 30, 2011.
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.
12080 Virginia Blvd.
Ashland, Kentucky 41102
The following table sets forth all compensation accrued or paid in respect of our Chief Executive Officer and those individuals who received compensation in excess of $100,000 per year (collectively, the "Named Executive Officers") for our last two completed fiscal years:
SUMMARY COMPENSATION TABLE
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($) (1)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
William Shrewsbury
Chairman and Chief Executive Officer
|
2011
2010
|
__
—
|
__
—
|
__
—
|
__
—
|
__
—
|
__
—
|
__
—
|
__
—
|
|
Richard Novack
Director and President
|
2011
2010
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
|
Jose Fuentes (1)
Chief Financial Officer
|
2011
2010
|
104,000
104,000
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
—
—
|
104,000
104,000
|
| (1) |
On September 28, 2008 the Company granted Jose Fuentes warrants for his services, to purchase 1,000,000 shares of TX Holdings, Inc common stock at an exercise price of $0.28. The warrants expired on September 30, 2011
|
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.]
GRANTS OF PLAN-BASED AWARDS
The following table sets forth the information about grants made to the Company’s named executive officers in 2008 pursuant to the 2004 Plan.
Equity Compensation Plan Information - Employment Agreements
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 filed suit against Mr. Bloom for the return of the shares for breach of contract. The Company reached an agreement with Mr. Bloom whereby he retained 700,000 shares and returned 1,300,000 shares to the Company
49
Mr. Neuhaus, the former president, CEO and chairman of the Board claims that an employment agreement was entered into between him and the Company in May 2006 which provided that Mr. Neuhaus was to be paid at the rate of $25,000 per month plus bonus based on oil and gas production. Mr. Neuhaus also claimed that the agreement provided that the Company issue to Mr. Neuhaus 1000 shares of preferred stock with no right of conversion to common stock. The preferred stock provided Mr. Neuhaus with voting rights equivalent to 50% of the common shares issued by the Company. During the fiscal year 2006 Mr. Neuhaus waived his monthly salary. On December 24th, 2007, Mark Neuhaus resigned all his positions with the Company and the preferred stock was canceled in exchange for 10,715,789 shares of common stock.
On March 28, 2006, the Company entered into a contract with Michael A. Cederstrom for legal services and as the part time interim Chief Financial Officer. The retainer amount was $10,000 and in addition 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 expired on March 27, 2010. In addition, Mr. Cederstrom also rendered legal services to the Company through his law firm, Dexter and Dexter. The Company paid to Dexter and Dexter the sum of $15,000 per month for legal representation. The contract with Michael Cederstrom was terminated on May 2, 2008
Mark Neuhaus has advised that 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 expired on March 27, 2010.
Mark Neuhaus has advised that on September 28, 2007, the Company granted Michael A. Cederstrom warrants, for his services, to purchase 1,000,000 shares of TX Holdings, Inc. common stock at an exercise price of $0.28. The warrants were forfeited on May.2, 2008 upon Michael A. Cederstrom submitting his resignation.
On September 28, 2007, the Company granted Jose Fuentes warrants, for his services, to purchase 1,000,000 shares of TX Holdings, Inc. common stock at an exercise price of $0.28. The Warrants expired on September 30, 2011. Mr. Fuentes replaced Mr. Cederstrom to the CFO position on May 2, 2008.
Option Warrant Grants During 2011 and 2010 Fiscal Years
There were no options or warrants granted to executive officers or directors during the 2011 and 2010 fiscal years.
Aggregated Option Exercises During 2009 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 2011 fiscal year and number and value of such options held at fiscal year-end.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
None
Director’s Compensation
The following table sets forth all fees and compensation paid or earned by the Company’ directors for the fiscal years 2011, 2010.
DIRECTORS' COMPENSATION TABLE
|
Fees
|
||||||||||||||
|
earned in
|
Non-equity
|
|||||||||||||
|
Name and
|
paid in
|
Stock
|
Option
|
Incentive plan
|
All other
|
|||||||||
|
Principal
|
cash
|
Awards
|
Awards
|
compensation
|
compensation
|
Total
|
||||||||
|
Position
|
Year
|
$
|
$
|
$
|
$
|
$
|
$
|
|||||||
|
Bobby Fellers
|
2011
|
0
|
0
|
n/a
|
n/a
|
n/a
|
n/a
|
|||||||
|
2010
|
0
|
0
|
n/a
|
n/a
|
n/a
|
n/a
|
||||||||
|
Martin Lipper
|
2011
|
0
|
0
|
n/a
|
n/a
|
n/a
|
n/a
|
|||||||
|
2010
|
0
|
0
|
n/a
|
n/a
|
n/a
|
n/a
|
||||||||
50
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 appointed a director of the company in March 2006. 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 expired on March 27, 2010.
On December 12, 2008 Mr. Martin Lipper was appointed director of the Company. Mr. Lipper has not received any compensation since his Board appointment.
On December 24, 2007 Mr. Hutchings was appointed director and president of the Company. Mr. Hutchings has not received any compensation as president or director. Mr. Hutchings resigned as director and president on August 4, 2009.
The following table sets forth information, to the best of the Company's knowledge, as of January 13, 2011 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.
|
Title
|
Name of beneficial owner
(A)
|
Beneficial Ownership
Number of shares
(B)
|
Percent of class
|
|
Former CEO/Chairman
|
Mark Neuhaus
|
9,323,813
|
17.5 (C)
|
|
Chairman/CEO
|
William Shrewsbury
|
7,351,184
|
13.8
|
|
Director
|
Martin Lipper
|
286,166
|
.5
|
|
President/Director
|
Richard Novack
|
1,016,587
|
1.9
|
|
Director
|
Bobby Fellers
|
__
|
__
|
|
CFO
|
Jose Fuentes
|
500,000
|
.9
|
|
All Officers and Directors
As a group (5)
|
9,153,937
|
17.2 (D)
|
(A) 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, 12080 Virginia Blvd. Ashland Kentucky 41102.
(B) Based upon shares of common stock outstanding as of December 1, 2011, together with securities exercisable or convertible into shares of common stock within 60 days of December 23, 2011 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, 2010 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.
(C) Of which 2,323,813 shares are owned by MA&N.
(D) Total number of shares and % ownership includes all directors and officers as of December 1, 2011.
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.
Particular Transactions
There have been no transactions since the beginning of the last fiscal year, or any currently proposed transaction, 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 the lesser of $120,000, or one percent of the average of the company’s total assets at year-end for the last three completed fiscal years except as set forth below:
In November, 2006, the Company entered into agreements to purchase, from Masada Oil and Gas, Inc. a company beneficially owned a 100% by Bobby S. Fellers, two fields for the amount of $221,426. Mr. Fellers is a Member of the Board of Directors of the Company. Mr. Fellers through his company had retained a 40% working interest in the Contract Area #1 field and a 25% working interest in the Park's Lease. In January, 2011 the Company purchased the remaining 25% working interest on the Parks lease from Mr. Fellers and as part of the deal returned to Mr Feller the 8.5% it owned on the Contract Area#1 field. 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.
51
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. The warrants expired on March 27,2010
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' total voting control of the Company. Mr. Neuhaus still has substantial control of the Company via his common stock ownership.
The law firm of Dexter and Dexter, located in the state of Utah, had previously been engaged by the Company when Mark Neuhaus was the CEO and Chairman of the Board,. The firm was paid $15,000 per month for legal services. Mr. Michael A. Cederstrom, the Company's former part time interim Chief Financial Officer was a partner with Dexter and Dexter at the time. The services with Dexter and Dexter and Mr. Cederstrom were terminated on May 2, 2008.
As of September 30, 2009, the Company has an outstanding note payable to Mr. Shrewsbury, the Company’s Chairman and CEO, for the amount of $289,997, the note bears a 10% interest and is payable on demand. Mr. Shrewsbury has also provided the Company with a cash advance of $143,500 which was used for operating expenses.
On November 11, 2008 the Company entered into a settlement agreement with Mark Neuhaus and Nicole Neuhaus. Mark Neuhaus is the former Chief Executive Officer and a former director of the Company. The agreement was subject to the Company finalizing a transaction with a third party involving certain oil and gas properties within 90 days of November 11, 2008 ("Third Party Closing"). If the third party transaction closes, the agreement provided for mutual general releases between the Company, Mark Neuhaus and Nicole Neuhaus. In connection with the agreement, seven million shares of the common stock of the Company previously issued to Mark Neuhaus were delivered to the Company to be held pending the Third Party Closing. If the Third Party Closing occured within the 90 day period, (1) four million five hundred thousand of the deposited shares were to be cancelled and returned to authorized but unissued shares of the Company,(2) two million five hundred thousand of the deposited shares would be delivered to Nicole Neuhaus and (3) certain alleged claims of Mark Neuhaus against the Company for compensation and reimbursement for advances in the aggregate amount of $178,862 and a purported indebtedness of the Company to Mark Neuhaus in the amount of $1,303.876,including interest accrued through October 31, 2008 and represented by a convertible note dated as of September 28, 2007 would be cancelled. If the Third Party Closing did not occured within 90 days of November 11, 2008 the settlement agreement would be void and of no force and effect and the deposited shares will be returned.. The Company was not successful in finalizing the transaction with the third party within the stipulated period resulting in the cancellation of the settlement agreement between the Company and Mark Neuhaus and Nicole Neuhaus
Controlling Persons
During the time that Mark S. Neuhaus, was a director and Chief Executive Officer of TX Holdings he caused the Company to issue to him 1000 shares of preferred stock with voting rights equal to 50% of the outstanding common stock. In addition during that time he caused the company to issue to him a $1,303,876 convertible note which bears interest at 8% per annum, dated as of September 28, 2007. Mark Neuhaus and his wife Nicole B. Neuhaus, may be deemed to be controlling persons of TX Holdings. The company is not aware of any agreements or understandings between any of the foregoing that they will act as a group, although from time to time they have acted in concert.
Director Independence
Our board of directors consists of Messrs. Shrewsbury, Novack, Fellers and Lipper. No board member is considered to be “independent” as defined by Section 803A of the American Stock Exchange Listing Standards. The board considers all relevant facts and circumstances in its determination of independence of all members of the board (including any relationships set forth in this Form 10-KSB under the heading “Certain Related Person Transactions”).
The following table sets forth the aggregate fees paid or accrued for professional services rendered by Turner, Stone & Company, L.L.P. for the audit of our annual financial statements for fiscal years 2011 and 2010:
|
ACCOUNTING FEES AND SERVICES
|
2011
|
2010
|
||||||
|
Audit fees
|
$
|
23,390
|
$
|
30,438
|
||||
|
Audit-related fees
|
-
|
-
|
||||||
|
Tax fees
|
-
|
-
|
||||||
|
All other fees
|
-
|
-
|
||||||
|
Total
|
$
|
23,390
|
$
|
30,438
|
||||
52
The category of “Audit fees” includes fees for our annual audit, quarterly reviews and services rendered in connection with regulatory filings with the SEC, such as the issuance of comfort letters and consents.
The Category of “Audit-related fees” includes employee benefit plan audits, internal control reviews and accounting consultation.
All above audit services and audit-related services were pre-approved by the Board of Directors, which concluded that the provision of such services by Turner, Stone & Company, L.L.P.. was compatible with the maintenance of the respective firm’s independence in the conduct of its audits.
53
The exhibit numbers preceded by an asterisk (*) indicate exhibits that are filed herewith. All other exhibit numbers indicate exhibits filed by incorporation by reference.
|
Exhibit
No.
|
Description
|
|
|
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. (7)
|
|
|
2.4
|
Escrow Agreement dated September 4, 2003 between Jim Evans, R Wireless, Inc., Homes by Owner, Inc. and David Baker. (7)
|
|
|
2.5
|
Extension Agreement dated March 5, 2004 between Jim Evans, R Wireless, Inc., and Homes by Owner, Inc. (7)
|
|
|
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 (12)
|
|
|
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)
|
|
|
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)
|
|
|
10.6
|
Amendment to Forbearance Agreement and Warrant between Baker & Johnston LLP, and TX
Holdings, Inc., dated as of November 1, 2005(10)
|
|
|
10.8
|
Convertible Promissory Note between Mark Neuhaus and TX Holdings Inc dated September 28, 2007(11)
|
|
|
16.1
|
Letter of Elliott Davis LLC (8)
|
|
|
21.1
|
List of Subsidiaries of R Wireless, Inc. (2)
|
|
|
*31.1
|
Certification of Mark Neuhaus, CEO of TX Holdings, Inc.
|
|
|
*31.2
|
Certification of Michael A. Cederstorm, Esq., CFO of TX Holdings, Inc.
|
|
|
*32.1
|
Certification of Mark Neuhaus pursuant to Section 1350
|
|
|
*32.2
|
Certification of Michael A, Cederstrom, Esq., 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 Registrant and David R. Baker (10)
|
|
|
*99.12
|
Settlement Agreement between the SEC and Mark Neuhaus regarding the SEC vs Universal Express
|
|
|
*99.13
|
Settlement agreement between Registrant and the Investor Relation Group, Inc.
|
|
|
*99.14
|
Settlement agreement between Registrant and Mark Neuhaus and Nicole Neuhaus
|
|
(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)
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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.
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(3)
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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.
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(4)
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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.
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|
(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.
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(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.
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|
(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.
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(8)
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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.
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(9)
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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.
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(10)
|
Incorporated by reference to the exhibit as filed with Form 10KSB of R Wireless, Inc. with Securities and Exchange Commission filing date of January 20, 2006.
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|
(11)
|
Incorporated by reference to the exhibit as filed with Form 10KSB of R Wireless, Inc. with Securities and Exchange Commission filing date of December 31, 2007.
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|
(12)
|
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.
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55
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.
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TX HOLDINGS, INC.
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||
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By:
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/s/ William “Buck” Shrewsbury
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William “Buck” Shrewsbury
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||
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Chief Executive Officer
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||
Dated: December 6, 2011
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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/s/ William “Buck” Shrewsbury
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Chairman of the Board of Directors,
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|
| William “Buck” Shrewsbury |
and Chief Executive Officer
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December 6, 2011
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||
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/s/ Richard Novack
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President
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Richard Novack
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||
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December 6, 2011
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||
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/s/ Jose Fuentes
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Chief Financial Officer
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Jose Fuentes
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||
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December 6, 2011
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||
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/s/ Bobby S. Fellers
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Director
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Bobby S. Fellers
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||
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December 6, 2011
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||
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/s/ Martin Lipper
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Director
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Martin Lipper
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||
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December 6, 2011
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56
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 one stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate or natural gas liquids..
"Bcf" means one billion cubic feet, used in this annual report in reference to gaseous hydrocarbons.
"BcfE" means one billion 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 one thousand barrels, used in this annual report to refer to crude oil or other liquid hydrocarbons.
"Mcf" means one thousand cubic feet, used in this annual report to refer to gaseous hydrocarbons.
"McfE" means one thousand 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 one 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 gross wells or acreage by our working interest therein. Unless otherwise specified, all references to wells and acres are gross.
"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.
57
"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.
58