TX Holdings, Inc. - Quarter Report: 2011 March (Form 10-Q)

a6701811.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

___________________________

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934

For the transition period from _____to _____

Commission File No. 0-32335

TX HOLDINGS, INC.

(Exact name of small business issuer as specified in its charter)

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

12080 Virginia Blvd.

Ashland, KY 41102

(Principal Address of Issuer)

(606) 928-1131

Issuer's telephone number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES xNO o

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

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

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

As of April, 28, 2011 there were 53,041,897 shares of common stock outstanding.

TX Holdings, Inc.

Form 10-Q

For the Quarter Ended March 31, 2011

Table of Contents

PART 1-FINANCIAL INFORMATION

Item 1	Condensed Financial Statements

	Unaudited Balance Sheet as of March 31, 2011 and Audited Balance Sheet as of September 30, 2010	3

	Unaudited Statements of Operations for the Three and Six Months Ended March 31, 2011 and 2010,
	and for the Period From Inception of the Development Stage, October 1, 2004 to March 31, 2011	4

	Unaudited Statement of Changes in Stockholders’ Deficit for the Period From Inception
	of the Development Stage, October 1, 2004 to March 31, 2011	5

	Unaudited Statements of Cash Flows for the Six Months Ended March 31, 2011 and 2010, and for the	12
	Period From Inception of the Development Stage, October 1, 2004, to March 31, 2011

	Notes to Unaudited Financial Statements	13

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 4	Controls and Procedures	18

PART II-OTHER INFORMATION

Item 1	Legal Proceedings	20

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3	Defaults upon Senior Securities	20

Item 5	Other Information	20

Item 6	Exhibits	21

	SIGNATURES	22

TX Holdings, Inc.
A CORPORATION IN THE DEVELOPMENT STAGE
Balance Sheets
March 31, 2011 and September 30, 2010

	Unaudited			Audited
	March 31,			September 30,
	2011			2010
ASSETS

Current assets:
Cash and cash equivalents	$	654		$	5,848
Accounts Receivable-(Net of Allowance for Doubtful Accounts)	_			_
Total current assets		654			5,848

Unproved oil and gas properties-successful efforts, net		186,010			188,702
Other		50,000			50,000

Total Assets	$	236,664		$	244,550

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Notes payable to a stockholder	$	289,997		$	289,997
Accounts payable and accrued liabilities		1,122,846			1,003,737
Accounts payable-related party		158,308			158,308
Advances from stockholder/officer		107,697			51,397
Convertible debt to stockholder/officer		1,199,886			1,199,886
Total current liabilities		2,878,734			2,703,325

Asset Retirement Obligation		23,012			50,981
Total Liabilities		2,901,746			2,754,306

Commitments and contingencies

Stockholders' deficit:
Preferred stock: no par value, 1,000,000 shares authorized
no shares outstanding as of March 31, 2011 and September 30, 2010	_			_
Common stock:no par value, 250,000,000 shares
authorized, 53,041,897 issued and outstanding at March 31, 2011
and September 30, 2010		10,558,437			10,558,437
Additional paid-in capital		1,379,409			1,379,409
Accumulated deficit		(1,803,507	)		(1,803,507	)
Losses accumulated in the development stage		(12,799,421	)		(12,644,095	)

Total stockholders' deficit		(2,665,082	)		(2,509,756	)

Total liabilities and stockholders' deficit	$	236,664		$	244,550

The accompanying notes are an integral part of these financial statements.

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended March 31, 2011 and 2010 and for the Period From
Inception of the Development Stage, October 1, 2004 to March 31, 2011

													Inception of
													Development
	THREE MONTHS ENDED						SIX MONTHS ENDED						Stage to
	March 31,			March 31,			March 31,			March 31,			March 31,
	2011			2010			2011			2010			2011

Revenue	$	9,086		$	592		$	9,245		$	6,998		$	45,709

Operating expenses, except items shown
separately below		55,667			47,682			98,241			102,809			2,395,727
Stock-based compensation	_				62,385						239,885			7,452,389
Professional fees														1,183,016
Impairment Expense														686,648
Lease expense	_			_										17,392
Loss on write-off of leases and equipment														263,383
Depreciation expense		1,235			1,389			2,123			1,389			8,820
Advertising expense	_			_										83,265

Total Operating Expenses		56,902			111,456			100,364			344,083			12,090,640

Loss from operations		(47,816	)		(110,864	)		(91,119	)		(337,085	)		(12,044,931	)

Other income and (expense):
Legal settlement	_			_										204,000
Other income	_				125						125			838
Forbearance agreement costs	_			_										(211,098	)
Interest expense		(31,517	)		(32,016	)		(64,207	)		(64,304	)		(748,230	)

Total other income and (expenses), net		(31,517	)		(31,891	)		(64,207	)		(64,179	)		(754,490	)

Net loss	$	(79,333	)	$	(142,755	)	$	(155,326	)	$	(401,264	)	$	(12,799,421	)

Net loss per common share
basic and diluted	$	_		$	_		$	_		$	(0.01	)

Weighted average number of common shares
outstanding-basic and diluted		53,041,897			51,851,342			53,041,897			48,824,405

The accompanying notes are an integral part of the financial statements.

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period from Develop,ment Stage through March 31, 2011

													Losses
								Additional					Accumulated
	Preferred Stock			Common Stock				Paid-In		Accumulated			Develop-
	Shares		Amount	Shares		Amount		Captial		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 the financial statements

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

															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
Preferrd stock issued to the
Company's chief executive
officer/stockholder		1,000		1,018,000		-			-		-		-			-			1,018,000
Net income (loss)		-		-		-			-		-		-			(5,015,719	)		(5,015,719	)

Balance at September 30, 2006		1,000	$	1,018,000		25,782,558		$	5,104,541	$	587,703	$	(1,803,507	)	$	(5,465,509	)	$	(558,772	)

The accompanying notes are an integral part of the financial statements

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

Losses

Additional

Accumulated

Preferred Stock

Common Stock

Paid-In

Accumulated

in the Develop-

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 settle-
ment of notes payable and
and interest	-		-	833,333		546,666		-		-						546,666
Common stock issued in settle-
of accounts payable	-		-	1,437,088		215,114		-		-						215,114
	-		-	-		-		-		-			(4,085,033	)		(4,085,033	)

Balance at June 30, 2007	1,000	$	1,018,000	31,884,355	$	8,443,004	$	800,409	$	(1,803,507	)	$	(9,550,542	)	$	(1,092,636	)

The accompanying notes are an integral part of the financial statements

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

Losses

Additional

Accumulated

Preferred Stock

Common Stock

Paid-In

Accumulated

in the Develop-

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
	-		-		-			-		-		-			(676,123	)		(676,123	)

Balance at September 30, 2008	-	$	-		43,705,824		$	9,693,944	$	1,145,052	$	(1,803,507	)	$	(10,226,665	)	$	(1,191,176	)

The accompanying notes are an integral part of the financial statements

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

Losses

Accumulated

Additional

in the

Preferred Stock

Common Stock

Paid in

Accumulated

Development

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

Common stock issued

for professional services

2,450,000

244,000

Common stock sold

to private investors

200,000

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

Accounting for employee

stock warrant

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 the financial statements

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

													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 the financial statements

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

UNAUDITED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

												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	)


Net Loss	_	_	_		_		_		_				(155,326	)		(155,326	)


Balance at March 31, 2011	_	_		53,041,897	$	10,558,437	$	1,379,409	$	(1,803,507	)	$	(12,799,421	)	$	(2,665,082	)

The accompanying notes are an integral part of the financial statements

TX HOLDINGS, INC.

UNAUDITED STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31, 2011 and 2010 and for the Period From

Inception of the Development Stage, October 1, 2004 to March 31, 2011

							Inception of
							Development
	THREE MONTHS ENDED						Stage to
	3/31/2011			3/31/2010			3/31/2011
Cash flows used by operating activities:
Net loss	$	(155,326	)	$	(401,264	)	$	(12,799,421	)
Adjustments to reconcile net loss to net cash used
in operating activities:
Warrants issued for forbearance agreement	_			_				211,098
Loss on disposal of equipment	_			_				263,383
Impairment of unproved oil and gas properties								686,648
Depreciation expense		2,123			1,389			8,820
Bad Debt Expense	_			_				1,729
Common and preferred stock issued for services	_				239,885			6,060,224
Accounting for Warrants issued to employees and
a consultant	_			_				329,000
Warrants issued for services	_			_				376,605
Common stock issued to settle accounts payable	_			_				251,308
Common stock issued in payment of interest expense	_			_				196,666
Common stock issued by an officer/stockholder to
satisfy expenses of the Company and increase
stockholder advances	_			_				616,750
Common stock issued in settlement of legal claim	_			_				31,500
Accrued salary contributed by stockholder/former officer	_			_				250,000
Changes in operating assets and liabilities:
Accrued stock-based compensation reversal
resulting from legal claim settlement	_			_				(231,000	)
Prepaid expenses and other assets	_				(2,000	)		(49,750	)
Accounts receivable	_			_				(1,729	)
Accounts payable and accrued liabilities		119,109			91,848			2,028,043
Net cash used in operating activities	$	(34,094	)		(70,142	)		(1,770,126	)

Cash flows used in investing activities:
Deposits paid for oil and gas property acquisitions	_			_				(378,000	)
Purchase of oil and gas properties		(27,400	)		(8,400	)		(452,729	)
Net cash used in investing activities	_				(8,400	)		(830,729	)

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	_				92,500			1,360,497
Proceeds from exercise of warrants	_			_				78,404
Proceeds from stockholder/officer advances		56,300		_				659,463
Payments of stockholders advances	_				(6,900	)		(6,900	)
Net cash provided by financing activities		56,300			85,600			2,601,509

Increase (decrease) in cash and cash equivalents		(5,194	)		7,058			654
Cash and cash equivalents at beginning of period		5,848			6,588		_

Cash and Cash Equivalent at end of period	$	654		$	13,646		$	654

Non-cash investing and financing activities:
Common stock issued in payment of shareholder's activities	_			_			$	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

The accompanying notes are an integral part of the financial statements

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND CRITICAL ACCOUNTING POLICIES

INTERIM FINANCIAL STATEMENTS

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

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

CAUTIONARY NOTE TO U.S. INVESTORS

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

OVERVIEW OF BUSINESS

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

The Company is actively engaged in the development, and acquisition of crude oil and natural gas in the counties of Callahan and Eastland, Texas. In November 2006, the Company entered into a Purchase and Sale Agreement with Masada Oil & Gas, Inc. ("Masada"). Masada has previously served as the operator on the Park’s Lease in which TX Holdings 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 with 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, 2010, the Company recorded an impairment loss of $302,560.

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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

OVERVIEW OF BUSINESS-CONT’D

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

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

The Company has experienced substantial costs for engineering and other professional services during 2005 through 2011 in making the attempt to transition to an oil and gas exploration and production company from its current development stage status.

GOING CONCERN CONSIDERATIONS

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

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

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

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 2 - NOTES PAYABLE TO A STOCKHOLDER AND CONVERTIBLE DEBT TO OFFICER/

STOCKHOLDER

Mark Neuhaus, the former Chairman of the Board of Directors and former Chief Executive Officer of the Company caused the Company in September 2007 to issue to him a convertible promissory note in the amount of $1,199,886 bearing interest at 8% per annum and due and payable within two years for payments in cash and common stock made on behalf of the Company through that date. The conversion price is $0.28 per common share (the market price of the Company's common stock on the date of the note) which will automatically convert on the two-year anniversary of the note if not paid in full by the Company. The conversion price is subject to adjustments for anti-dilution. The Company disputed that the note was not supported by consideration or that it was properly authorized under Georgia law and on November 11, 2008 the Company entered into a settlement agreement with Mr. Neuhaus and his wife which included provisions cancelling the indebtedness represented by the note contingent on the closing of a third party transaction within 90 days of November 11, 2008. The Company was not

successful in finalizing the transaction with the third party within the stipulated period resulting in the cancellation of the settlement agreement between the Company and Mark Neuhaus and his wife.

NOTE 3 – STOCKHOLDERS’ EQUITY

No stock issuance or changes

POTENTIALLY DILUTIVE OPTIONS AND WARRANTS

At March 31, 2011, the Company has outstanding 1,000,000 warrants which were not included in the calculation of diluted net loss per share since their inclusion would be anti-dilutive.

NOTE 4 – RELATED PARTY TRANSACTIONS

Beginning with the quarter ended March 31, 2008 to the present, the Company recognized crude oil sales from a lease for which the operator is company owned by a stockholder/director of the Company. These sales account for 100% of our oil and gas revenue for the six months ended March 31, 2011.

As of March 31, 2011, 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. Interest has been accrued on the notes payables at rates ranging from 8% to 10%.

Included in the financial statements at March 31, 2011 are advances from stockholder/officer of $107,697.

In the six months ended March 31, 2011 interest expense of $62,324, in the accompanying statement of operations, relates to the promissory notes.

In June 2007, the Company entered into a strategic alliance agreement with Hewitt Energy Group, LLC (“Hewitt Energy”) to identify reserves and prospects, and to establish production from the projects mutually owned or contemplated to be jointly owned by the entities in states of Texas, Kansas and Oklahoma. Hewitt Energy is controlled by a former member of the Company's board of directors. During 2007, the Company's former

TX HOLDINGS, INC.

A CORPORATION IN THE DEVELOPMENT STAGE

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE 4 – RELATED PARTY TRANSACTIONS-CON’TD

Chief Executive Officer, who is a major stockholder, claimed that he transferred stock on behalf of the Company with a market value of $352,560 to Hewitt Energy Group, LLC to acquire an interest in the Perth field in Kansas. There is currently a dispute as to the extent of the Company’s performance under the leases and agreement with Hewitt Energy.

On November 11, 2008, the Company entered into a settlement agreement with Mark Neuhaus and Nicole Neuhaus. The agreement was subject to the Company finalizing a transaction with a third party involving certain oil and gas properties within 90 days of November 11, 2008 ("Third Party Closing"). If the third party transaction closes, the agreement provides for mutual general releases between the Company, Mark Neuhaus and Nicole Neuhaus. In connection with the agreement, seven million shares of the common stock of the Company previously issued to Mark Neuhaus were delivered to the Company to be held pending the Third Party Closing. If the Third Party Closing occurs within the 90 day period, (1) four million five hundred thousand of the deposited shares will be cancelled and returned to authorized but unissued shares of the Company,(2) two million five hundred thousand of the deposited shares will be delivered to Nicole Neuhaus and (3) certain alleged claims of Mark Neuhaus against the Company for compensation and reimbursement for advances in the aggregate amount of $178,862 and a purported indebtedness of the Company to Mark Neuhaus in the amount of $1,320,071,including interest accrued through December 31, 2008 and represented by a convertible note dated as of September 28, 2007 will be cancelled. If the

Third Party Closing does not occur within 90 days of November 11, 2008, the settlement agreement will be void and of no force and effect and the deposited shares will be returned. On February 6, 2009, an amendment to the settlement agreement was signed by all parties. The amendment extends the period of time provided in paragraph 10 of the settlement agreement by an additional 30 days so that the agreement would remain in full force and effect until March 11, 2009. The Company was not successful in finalizing the transaction with the third party within the stipulated period resulting in the cancellation of the settlement agreement between the Company and Mark Neuhaus and Nicole Neuhaus.

On January 28, 2011 TX Holdings, Inc. entered into an agreement with Masada Oil & Gas Inc. to acquire the remaining 25% working interest in the Park’s lease which the Company currently owns a 75% working interest. As part of the agreement, the Company also acquired a storage building and approximately two acres of land. In return, the Company will relinquish an 8.5% working interest which it currently holds in the Contract Area 1 lease, pay the sum of $10,000 and, assume the current 25% lease owners’ liability in the amount of $17,000.

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

INTRODUCTION

The following discussion is intended to facilitate an understanding of our business and results of operations and includes forward-looking statements that reflect our plans, estimates and beliefs. It should be read in conjunction with our 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 $14,602,928 as of March 31, 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 twenty two wells located on one field located in Texas. Each of the wells will need to be reworked to establish production at a cost of approximately $7,000 to $10,000 per well. Initial production from each well is estimated to be between two to five barrels per day. Once initial production has been established the Company intends to begin a water flood program that injects water into the oil producing zone through injector wells. The water then forces the oil towards the producing well and, if successful, may increase production of each well up to an estimated four to seven barrels per day per well. If the Company is able to produce its wells upon the re-completion the Company revenues will exceed current operating expenses if 40 barrels of oil is produced and the price of oil remains above $55.00 per barrel. The Company's success is dependent on if and how quickly it can reach these levels of production. The Company plans to use all revenues for general corporate purposes as well as, future expansion of its current oil producing properties and the acquisition of other oil and gas properties. There is no certainty that the Company can achieve profitable levels of production or that it will be able to raise additional capital through any means.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THREE MONTHS ENDED MARCH 31, 2010

REVENUES FROM OPERATIONS

Revenues for the three months ended March 31, 2011 and 2010 were $9,086 and $592 respectively. During the quarter ended March 31, 2011, the Company realized higher revenue as a result of well workover performed during the prior quarters and additional revenue from the purchase of a 25% working interest in the Parks lease. On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has acquired one oil and gas lease in the counties of Eastland and Callahan, Texas and has begun development of oil and gas. The Company received its first revenues from oil and gas operations in March 2008. The Company believes that it will place additional wells into operation during the current fiscal year. Since it ceased its former business operations, the Company has devoted its efforts to research prospective leases and business combinations and secure financing.

EXPENSES FROM CONTINUING OPERATIONS

The Company operating expenses for the three months ended March 31, 2011 were $56,902. The current quarter operating expenses represent a positive variance of $54,554 when compared to operating expenses of $111,456 for the quarter ended March 31, 2010. Lower stock based compensation for services, in the current quarter, account for a favorable variance in the amount of $62,385 when compared to the same quarter the prior year. Higher auditing fee of $8,262 were partially offset by lower travel expenses.

NET INCOME/LOSS

For the quarter March 31, 2011, the Company had a net loss of $79,333 representing a positive variance of $63,422 when compared to a net loss of $142,755 for the quarter ended March 31, 2010. The favorable variance in the current quarter as noted above in “Total Operating Expenses” resulted primarily from lower stock based compensation in the amount of $62,385.

SIX MONTHS ENDED MARCH 31, 2011 COMPARED TO SIX MONTHS ENDED MARCH 31, 2010

REVENUES FROM OPERATIONS

Revenues for the six months ended March 31, 2011 and 2010 were $9,245 and $6,998 respectively. On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has acquired an oil and gas lease in the counties of Eastland and Callahan, Texas and has begun development of oil and gas. The Company received its first revenues from oil and gas operations in March 2008. The Company believes that it will place additional wells into operation during the current fiscal year. Since it ceased its former business operations, the Company has devoted its efforts to research prospective leases and business combinations and secure financing.

EXPENSES FROM CONTINUING OPERATIONS

The Company operating expenses for the six months ended March 31, 2011 were $100,364. The current period operating expenses represent a positive variance of $243,719 when compared to operating expenses of $344,083 for the six months ended March 31, 2010. Lower stock based compensation in the current period resulting from lower outside consultants and investor relations expenses account for a favorable variance of $239,885 when compared to the same period the prior year. Lower contract labor expenses and lower equipment rental for the current quarter account for an additional favorable variance of $6,215.

NET LOSS

For the six months ended March 31, 2011, the Company had a net loss of $155,326 representing a favorable variance of $245,938 when compared to a net loss of $401,264 for the six months ended March 31, 2010. The favorable variance was primarily the result of higher revenue of $2,247 and lower operating expenses amounting to $243,719 during the six months ended March 31, 2011, as compared with the same period the prior year. The lower operating expense during the current period resulted from lower stock-based compensation.

LIQUIDITY

At March 31, 2011 the Company had a cash balance of $654. As of September 30, 2010 the Company had a cash balance of $5,848. Property and equipment was $186,010 as of March 31, 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. In January, 2011 the Company purchased an additional 25% working interest in the Parks lease. 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 third quarter of 2011 the amount of production will not be sufficient to meet all of the Company's liquidity needs.

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.

ITEM 4 CONTROLS AND PROCEDURES

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 March 31, 2011, under the criteria set forth in the Internal Control—Integrated Framework. The determination was made partially due to the small size of the company and a lack of segregation of duties. The Company continues to implement control processes to mitigate the control weaknesses that are present in a small Company with very few employees.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

PART II - OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

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

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

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

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5 OTHER INFORMATION

None.

ITEM 6 EXHIBITS

Exhibit 31.1	Section 302 Certification of Chief Executive Officer

Exhibit 31.2	Section 302 Certification of Chief Financial Officer

Exhibit 32.1	Section 906 Certification of Chief Executive Officer

Exhibit 32.2	Section 906 Certification of Chief Financial Officer

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TX HOLDINGS, INC.

By: /s/ William “Buck” Shrewsbury

William “Buck” Shrewsbury

Chief Executive Officer

Dated: April 28, 2011

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


	/s/ William “Buck” Shrewsbury			Chairman of the Board of Directors and
	William “Buck” Shrewsbury			Chief Executive Officer
	April 28, 2011


	/s/ Richard (Rick) Novack			President and Director
	Richard (Rick) Novack
	April 28, 2011


	/s/ Jose Fuentes			Chief Financial Officer
	Jose Fuentes
	April 28, 2011


	/s/ Bobby S. Fellers			Director
	Bobby S. Fellers
	April 28, 2011


	/s/ Martin Lipper			Director
	Martin Lipper
	April 28, 2011