Item 1 Description of Business
Item 1A
Item 1A Risk Factors
Item 2
ITEM 2 - DESCRIPTION OF PROPERTY
The Company has its principal leases in Putnam, Texas. The Company is currently utilizing space of Masada Oil, a company that Bobby Fellers, a director of the Company owns and that currently performs some of our field operations. All research and activities as related to the oil and gas business are being conducted from this office. 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. The Company does not hold any investments or interests in real estate other than the oil and gas Leases it holds for its operational needs. The Company currently seeks additional oil and gas leases for operational purposes, which is an essential part of operations of any oil and gas production company.
We are an oil and gas exploration and production company that uses the history of old fields, geophysical exploration and development techniques to identify oil and gas wells that are now considered to be economical feasible based on the current and predicted future price of oil and gas. It is the Company's current plan to re-enter old wells in a confined area and then utilize water flood techniques to produce the wells. Water flood techniques work well on shallow wells to push the oil to the producing wells to facilitate recovery. The two leases 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 leases referred to as the Contract Area # 1 and Parks Lease. Contract Area # 1 consists of four leases containing a total of 247 acres. The Park's Lease is a single lease containing 320 acres. The two fields are located in the counties of Callahan and Eastland, Texas.
Lease and Royalty Terms
Contract Area # 1
The Contract Area # 1 leases include a total of 247 acres and a total of 36 wells. The Company has an 8.5% working interest in this lease. The lease has 4 injector wells and 28 wells capable of production although production of the wells is minimal. Total current production has averaged 3-5 bbls a day. The Company believes it may be able to achieve higher production rates through the development of an effective water flood program. The water flood program involves the injection of water into the field through wells to force the oil to the production wells and thereby increasing the production rate. TX Holdings is currently working with the operator to develop a plan to optimize the production. The operator is considering a water-flood method to increase the production while aggressively planning a 50 well drilling program for 2010.
Parks Lease
This lease includes 320 acres in which we have a 75% working interest. The land owners of this lease own a 12.5% royalty interest in the production. Masada Oil and Gas owns a 25 % working interest in the lease. The Company purchased this lease from Masada Oil and Gas as part of the purchase of Contract Area 1. The Company’s obligation is to pay for the refurbishment of the wells and the infrastructure of the lease. There are currently 22 wells on this lease with 10 currently producing wells. The current production on this lease has averaged between 2 to 3 bbls per day and, 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 leases that have been acquired have not been developed in a way that allows our Petroleum Engineers to assign estimated net proved oil and gas reserves and the present value of estimated cash flows from those reserves. The Company is currently performing work on the Contract Area #1 and 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 has had some limited production to-date.
Item 3
Item 3 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.
TX Holdings had filled 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.
Except as disclosed above, the Company has no material legal proceedings in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.
Item 4
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5
Item 5 Market for Common Equity and Related Stockholder Matters
Market Information
The common stock of TX Holdings is currently traded on the OTC Bulletin Board, under the symbol TXHG.
The following table sets forth the high and low bid prices of our Common Stock for the periods indicated. The quotations set forth below reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.
As of September 30, 2009 there were approximately 875 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.
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, 2009 and 2008, TX Holdings has issued and outstanding 47,636,897 and 43,705,824 shares of common stock respectively.
Of the total 47,636,897 shares outstanding as of September 30, 2009, 25,447,222 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 February 20, 2008, the Company sold 660,000 shares to private investors for a cumulative value of $43,000
On February 20, 2008, the Company issued 150,000 shares to Frank Shafer for marketing services. The services were valued at $42,000.
On February 20, 2008, the Company issued 17,500 shares of restricted common stock to Barker Design, Inc. for web design services. The service were valued at $4,900
On February 20, 2008, the Company issued 33,180 shares of restricted common stock to Paul Owens for office relocation services. The services were valued at $9,290.
On March 10, 2008, The Company issued 200,000 shares of restricted common stock to James Stock for investor relations services. The services were valued at $64,000.
On March 10, 2008, The Baron group returned 300,000 shares to the Company upon discontinuation of their consulting services.
On July 15, 2008, the Company sold 120,000 shares to Richard Novack, a private investor, for the sum of $30,000.
On September 4, 2008, the Company issued 50,000 shares of common stock to Andrew Patzert, valued at $8,250, for consulting services.
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.
On or about September 12, 2008, an agreement was reached with The Investor Relation Group Inc (TIRG) settling pending litigation. As part of the settlement, TIRG received 75,000 shares of restricted stocks from the Company and 75,000 shares of unrestricted stock on behalf of the Company from a third party shareholder. The Company also issued 100,000 shares of restricted stock to the shareholder who acted as the third party facilitator of the settlement.
On October 6, 2008, the Company issued a total of 200,000 shares for services. The shares were issued to several contract personnel and were valued at $24,000 based on the quoted market price of the Company’s common stock on the date of issuance.
On January 9, 2009, the Company issued a total of 1,250,000 shares for services. The shares were issued to several contract personnel and were valued at $125,000 based on the quoted market price of the Company’s common stock on the date of issuance.
On February 5, 2009, Darren Bloom returned 1,300,000 shares to the Company in settlement of legal dispute over compensation.
On February 27, 2009, the Company issued 2,581,073 shares to two shareholders in payment for outstanding cash advances to the Company. The shares were valued at $258,108 based on the quoted market price of the Company’s common stock on the date of issuance.
On February 27, 2009, the Company issued a total of 750,000 shares for services. The shares were issued to several contract personnel and were valued at $75,000 based on the quoted market price of the Company’s common stock on the date of issuance.
On February 27, 2009, the Company sold 100,000 shares to private investors for cash proceeds of $10,000.
On August 12, 2009, the Company issued 250,000 shares of restricted common stock for services. The services were valued at $20,000.
On August 12, 2009 the Company sold 100,000 shares to a private investor for cash proceeds of $10,000.
Share Repurchases-
None.
Item 7
Item 7 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 $13,306,299 as of September 30, 2009. 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 forty nine wells located on the two fields 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
Year Ended September 30, 2009 Compared With Year Ended September 30,
Revenues from Operations- Revenues for the year ended September 30, 2009 and September 30, 2008 were $6,904 and $9,308 respectively. On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has two oil and gas leases in the counties of Eastland and Callahan, Texas and has begun development of oil and gas. The company received its first revenues from oil and gas operations in March, 2008. 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 $1,155,973 for the fiscal year ended September 30,2009; an increase of $387,442 compared to $768,531 for the fiscal year ended September 30, 2008. The significant increase is primarily attributed to impairment on unproved oil and gas properties of $384,088 resulting from management's assessment of the recoverability of capitalized costs based on projected net future cash flows. Outside consultants expenses decreased by $33,180 to $13,795 for the year ended September 30, 2009. The decrease in outside consulting expense was partially offset by higher payroll compensation of $29,140. Higher stock based compensation in 2009 resulted in an unfavorable $124,000 variance when compared to the same period the prior year. Professional fees for the year ended September 30, 2009 were $11,142 lower than the same period the prior year. The lower professional fees resulted from lower marketing expense of $36,000 and lower engineering fees $12,475 offset by higher legal fees of $41,834.
Net Loss - For the fiscal year ended September 30, 2009 the Company incurred a loss of $1,276,127compared to a loss of $676,123 for the fiscal year ended September 30, 2008, a loss increase of $600,004. The major reason for the Company having a higher net loss during the fiscal year ended September 30, 2009 can be attributed to an impairment loss on unproved oil and gas properties as noted in expenses for continuing operations above. In addition, the Company having reached a settlement agreement on a legal claim raised by The Investor Relation Group Inc during the year ended September 30, 2008 resulting in the Company recognizing a gain of $204,000 in 2008.
Net Operating Loss Carry forward for Tax Purposes
The Company has tax net operating loss carry forwards totaling approximately $4,300,000, expiring in 2018 through 2029. 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.
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, 2009 the company had a cash balance of $6,588. As of September 30, 2008 the company had a cash balance of $3,558 and a receivable of $1,281. This is a result of work that has been completed in the oil & gas fields and the purchase of the fields. Property and equipment was $771,752 as of September 30, 2009 compared to $1,097,783 as of September 30, 2008, a decrease of $326,031 resulting from an impairment on unproved properties of $384,088 offset by cost to refurbish wells totaling $58,058. 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 2010 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, 2009. Mr. Shrewsbury has also provided the company with a short term loan of $289,997 as well as advances in the amount of $16,050. As of September 30, 2009, the Company has a recorded liability of $62,719 owed to Dexter & Dexter, Attorneys at Law for attorneys’ fees and the sum of $155,077 to Jose Fuentes as payment for service.
During the 2007 fiscal year Mark Neuhaus caused the Company to issue him a note for $1,199,885 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.
Item 8
Item 8 Financial Statements and Supplementary Data
The Company's balance sheets as of September 30, 2009 and 2008, and the related statements of operations, changes in stockholders deficit and cash flows for the years then ended have been audited by Ham, Langston & Brezina, LLP, independent registered public accountants. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to Regulation S-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.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Directors of TX Holdings, Inc.:
We have audited the accompanying balance sheets of TX Holdings, Inc., a corporation in the development stage, as of September 30, 2009 and 2008 and the related statements of operations, stockholders' deficit and cash flows for the years then ended and for the period from inception of the development stage, October 1, 2004, to September 30, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TX Holdings, Inc. as of September 30, 2009 and 2008 and the results of its operations and its cash flows for the years then ended, and for the period from inception of the development stage, October 1, 2004, to September 30, 2009 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, 2009 and 2008, 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 shown in the financial statements and discussed in Note 1, the Company has incurred significant recurring losses from operations since inception and is dependent on outside sources of financing for continuation of its operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to this matter are also discussed in Note 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Ham, Langston & Brezina, L.L.P.
Houston, Texas
January 8,
The accompanying notes are an integral part of these financial statements
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 Company is also pursuing acquisitions in Ohio, Pennsylvania, West Virginia and Wyoming. 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 (formerly) Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development-Stage Enterprises.
The Company, with its prior subsidiaries, has suffered recurring losses while devoting substantially all of its efforts to raising capital and identifying and pursuing businesses opportunities. Management currently believes its best opportunities are in the oil and gas business. The Company's total liabilities exceed its total assets and the Company's liquidity is substantially dependent on raising capital.
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, realization of assets and liquidation of liabilities in the ordinary course of business. The Company's ability to continue as a going concern is dependent upon its ability to raise sufficient capital to implement a successful business plan and to generate profits sufficient to become financially viable. The accompanying financial statements do not include adjustments relating to the recoverability of recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include recoverability of long-lived and deferred tax assets, 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 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.
ACCOUNTS RECEIVABLE AND PROVISION FOR BAD DEBTS
The Company maintains 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 $1,729 and $0 as of September 30, 2009 and 2008, 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 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
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
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,” Accounting for Asset Retirement 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.
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.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ACTIVITIES-Continued
INCOME TAXES
Income taxes are estimated for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the financial reporting basis and income tax basis of assets and liabilities. Deferred tax assets and liabilities represent future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes may also be recognized for operating losses that are available to offset future taxable income. Deferred taxes are adjusted for changes in tax laws and tax rates when those changes are enacted.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible. Management considers the reversal of any deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
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, 2009 and 2008. The Company assumes 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. These reclassifications had no effect on reported net loss or accumulated deficit.
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.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ACTIVITIES-Continued
BASIC NET LOSS PER COMMON SHARE-Continued
The following table summarizes securities outstanding at each of the periods presented which were not included in the calculation of diluted net loss per share since their inclusion would be anti-dilutive.
Convertible notes
4,285,306
4,285,306
Warrants issued as compensation
2,050,000
3,350,000
Warrants issued in private placement
4,133,324
Total
6,335,306
11,768,628
RECENTLY ISSUED ACCOUNTING STANDARDS
On December 31, 2008, the SEC published the final rules and interpretations updating its oil and gas reporting requirements. Many of the revisions are updates to definitions in the existing oil and gas rules to make them consistent with the petroleum recourse management system, which is a widely accepted standard for the management of petroleum resources that was developed by several industry organizations. Key revisions include changes to the pricing used to estimate reserves utilizing a 12-month average price rather than a single day spot price which eliminates the ability to utilize subsequent prices to the end of a reporting period when the full cost ceiling was exceeded and subsequent pricing exceeds pricing at the end of a reporting period, the ability to include nontraditional resources in reserves, the use of new technology for determining reserves, and permitting disclosure of probable and possible reserves. The SEC will require companies to comply with the amended disclosure requirements for registration statements filed after January 1, 2010, and for annual reports on Form 10-K for fiscal years ending on or after December 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact that the adoption will have on the Company’s disclosures, operating results, financial position and cash flows.
In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (“SFAS 168”). The FASB Accounting Standards Codification TM, (“Codification” or “ASC”) became the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.
Following SFAS 168, the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as authoritative in their own right; rather, these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification. SFAS No. 168 is incorporated in ASC Topic 105, Generally Accepted Accounting Principles. The Company adopted SFAS No. 168 for the fiscal year-ended September 30, 2009, and the Company will provide reference to both the Codification topic reference and the previously authoritative references related to Codification topics and subtopics, as appropriate.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ACTIVITIES-Continued
RECENTLY ISSUED ACCOUNTING STANDARDS, continued
In May 2009, the FASB issued ASC Topic 855, Subsequent Events (formerly SFAS No. 165, Subsequent Events) which establishes general standards for the evaluation, recognition and disclosure of events and transactions that occur after the balance sheet date. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard, which includes a new required disclosure of the date through which management has evaluated subsequent events, is effective for interim and annual periods ending after June 15, 2009. The adoption of ASC 855 did not have a material effect on the Company’s financial statements.
In September 2006, the FASB issued ASC Topic 820 Fair Value Measurments and Disclosures (formerly SFAS No. 157, Fair Value Measurements) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC Topic 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement was effective for and adopted by the Company beginning the first quarter of fiscal 2008. Its adoption had no significant impact on our financial statements.
In June 2006, the FASB issued accounting guidance for uncertainty in income taxes which is included in ASC Topic 740 Income Taxes (formerly Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of
FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement No. 109. ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement classification, accounting for interest and penalties and accounting in interim periods and disclosure. The provisions of the accounting guidance are effective for fiscal years beginning after December 15, 2006. This statement was effective for and adopted by the Company beginning the first quarter of fiscal 2008. Its adoption had no significant impact on the Company’s financial condition or results of operations.
Effective October 1, 2008, the Company adopted certain aspects of ASC Topic 825. Financial Instruments (formerly SFAS 159, “The Fair Value Option for Financial Assets & Financial Liabilities - including an amendment of SFAS No. 115.”).The accounting guidance created a fair value option under which an entity may irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities on a contract by contract basis, with changes in fair values recognized in earnings as these changes occur. The adoption of ASC Topic 825 has no significant impact on the Company’s financial condition or results of operations.
In December 2007, the FASB issued ASC Topic 805, Business Combinations ( formerly SFAS 141R, “Business Combinations,”) ASC Topic 805 changes how a reporting enterprise will account for the acquisition of a business. ASC 805 will apply prospectively to business combinations with an acquisition date on or after November 1, 2009 The adoption of ASC Topic 805 is not expected to have a material impact on the Company’s financial condition or results of operations, however future acquisitions would be accounted for under the guidance.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at September 30, 2009 and 2008:
Depreciation expense of $0 and $508 was recognized during the years ended September 30, 2009 and 2008, respectively. At September 30, 2009 and 2008, 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, 2009 and 2008. As a result of the review, the Company recognized an impairment loss of $384,088 and $0 for the years ended September 30, 2009 and 2008, 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.
On November 1, 2006, the Company entered into a purchase and sale agreement (the “Agreement”) for a 60% interest in certain oil and gas properties located in Eastland County, Texas. Under the Agreement, the Company is obligated to pay a total of $7,200,000 for equipment, mineral leases, drilling and reworks, and various other categories of costs if all provisions of the agreement are met. The Company has made payments totaling $378,000 to the seller, which reduced the working interest to 8%. These payments are included in unproved oil and gas properties - successful efforts on the accompanying balance sheet as of September 30, 2009 and 2008.
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.
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.
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
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 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 and Contract Area #1 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 10 years in the future. The anticipated future cost of remediation efforts is $186,650. The anticipated future cost of remediation efforts were discounted back at an assumed interest rate of 10 percent, to arrive at a net present value of the obligation. The asset retirement obligation is $86,455 at September 30, 2009 and 2008. The Company has not recorded accretion on the asset retirement obligation due to minimal revenues.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES
The tax effects of temporary differences that give rise to deferred taxes are as follows at September 30, 2009 and 2008:
Net operating losses after December 12, 2002 through September 30, 2009 were approximately $3,100,000. 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:
The Company has tax net operating loss carry forwards totaling approximately $4,300,000, expiring in 2018 through 2029. 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.
NOTE 6 - SEGMENT INFORMATION
As of September 30, 2009 and 2008 the Company’s only operating segment was in oil and gas operations.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
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.
COMMON STOCK
During the years ended September 30, 2008 and 2009, the Company issued Common stock to raise capital, compensate employees and professionals, and to settle liabilities as follows:
On February 20, 2008, the Company sold 660,000 shares to private investors for cash proceeds of $43,000
On February 20,2008, the Company issued 150,000 shares to Frank Shafer for marketing services. The services were valued at $42,000
On February 20, 2008, the Company issued 17,500 shares of restricted common shares to Barker Design, Inc for Web design services valued at $4,900
On February 20, 2008, the Company issued 33,180 shares of restricted common shares to Paul Owens for office relocation services valued at $9,290.
On March 10, 2008, the Company issued 200,000 shares of restricted common stock to James Stock for investor relation services valued at $64,000.
On March 10, 2008, The Baron Group returned 300,000 shares to the Company upon discontinuation of their consulting services.
On July 15, 2008, the Company sold 120,000 shares to Richard Novack, a private investor, for the sum of $30,000.
On September 4, 2008, the Company issued 50,000 shares to Andrew Patzert, at a value of $8,250, for consulting services.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY-continued
COMMON STOCK-continued
On or about September 12, 2008, an agreement was reached with The Investor Relation Group Inc (“TIRG”) settling pending litigation. As part of the settlement, TIRG received 75,000 shares of restricted common stock from the Company and 75,000 shares of unrestricted common stock on behalf of the Company by a third party shareholder. The Company also issued 100,000 shares of restricted common stock to the shareholder who acted as the third party facilitator of the settlement.
On October 6, 2008, the Company issued a total of 200,000 shares for services. The shares were issued to several contract personnel and were valued at $24,000 based on the quoted market price of the Company’s common stock on the date of issuance.
On January 9, 2009, the Company issued a total of 1,250,000 shares for services. The shares were issued to several contract personnel and were valued at $125,000 based on the quoted market price of the Company’s common stock on the date of issuance.
On February 5, 2009, Darren Bloom returned 1,300,000 shares to the Company in settlement of a legal dispute over compensation.
On February 27, 2009, the Company issued 2,581,073 shares to two shareholders in payment for outstanding cash advances to the Company. The shares were valued at $258,108 based on the quoted market price of the Company’s common stock on the date of issuance.
On February 27, 2009, the Company issued a total of 750,000 shares for services. The shares were issued to several contract personnel and were valued at $75,000 based on the quoted market price of the Company’s common stock on the date of issuance.
On February 27, 2009, the Company sold 100,000 shares to private investors for cash proceeds of $10,000.
On August 12, 2009, the Company issued 250,000 shares of restricted common stock for services. The services were valued at $20,000 based on the quoted market price of the Company’s common stock on the date of issuance.
On August 12, 2009 the Company sold 100,000 shares to a private investor for cash proceeds of $10,000
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 expires on March 27, 2010 and are callable by the Company if the market value of TX Holding common stock has been at least 2 1/2 times the exercise price ($0.75) for 20 consecutive trading days.
On September 28, 2007, warrants to purchase a total of 2,000,000 shares of the Company's common stock at an exercise price of $0.28 were issued to Michael A Cederstrom (1,000,000 shares) and Jose Fuentes (1,000,000 shares). The warrants expire on September 30, 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
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY-continued
STOCK OPTIONS AND WARRANTS, continued
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 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, 2009 and 2008 and activity during the years then ended:
A summary of outstanding warrants at September 30, 2009, follows:
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - SUBSEQUENT EVENTS
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.
Management has evaluated subsequent events through January 8, 2010, the date the financial statements were issued.
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.
Included in the financial statements as of September 30, 2009 and 2008 are advances from stockholder/officer of $49,247 and $284,845, 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. There is currently a dispute as to the extent of the Company’s performance under the leases and agreement with Hewitt Energy.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
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, 2008 and 2009:
Note 11 - COMMITMENTS AND CONTINGENCIES
None
Item 9
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
There has been no changes or disagreements with accountants on accounting and financial disclosure.
Item 9A
Item 9A Controls and Procedures
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, 2009 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.
TX HOLDINGS, INC
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO FINANCIAL STATEMENTS
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, 2009, 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, 2009, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B
Item 9B Other Information
None
PART III
Item 10
Item 10 Directors, Executive Officers, Promoters and Control Persons and Corporate Governance:
The following table shows the names, ages and positions held by our executive officers, directors and significant employees during the year ended September 30, 2009:
Name
Age
Position
William Shrewsbury
Chairman of the Board of Directors/CEO
Richard Novack
Director/President
Jose Fuentes
Chief Financial Officer
Martin Lipper
Director
Bobby S. Fellers
Director
Business Experience of Executive Officers and Directors
William “Buck” Shrewsbury, Chairman of the Board/CEO, age 65. 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 75, 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.
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, 2009.
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.
Virginia Blvd.
Ashland, Kentucky 41102
Item 11
Item 11 Executive Compensation
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
(1)
During the year ended September 30, 2007, Mr. Neuhaus caused the Company to issue to him 1,000 shares of preferred stock. The stock was non convertible, but provided for 50% of the voting rights in the Company. On December 24, 2007, the preferred shares were canceled in exchange for 10,715,789 shares of the common stock of the Company.
(2)
On September 28, 2008 the Company granted Jose Fuentes and Michael A. Cederstrom warrants for their services, for each to purchase 1,000,000 shares of TX Holdings, Inc common stock at an exercise price of $0.28. The warrants expire on September 30,
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
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 will expire 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 will expire 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 expire on September 30, 2011.
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 expire on September 30, 2011. Mr. Fuentes replaced Mr. Cederstrom to the CFO position on May 2, 2008.
Option Warrant Grants During 2009 and 2008 Fiscal Years
There were no options or warrants granted to executive officers or directors during the 2009 and 2008 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 2009 fiscal year and number and value of such options held at fiscal year-end.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table reflects all outstanding equity awards held by the Company’s named executive officers as of September 30, 2009.
(1)
Based on the closing price of $0.065 at September 30,
Director’s Compensation
The following table sets forth all fees and compensation paid or earned by the Company’ directors for the fiscal years 2009, 2008.
Mark Neuhaus has represented that on March 28, 2006, the Company entered into a consulting agreement with Douglas C. Hewitt to provide technical support and advice in setting up the oil and gas operations. Mr. Hewitt was granted warrants to purchase 300,000 shares of TX Holdings Common Stock at an exercise price of $0.30 per share. The warrants will expire on March 27, 2010.
Mr. Hewitt was appointed a director of the company March 28, 2006 and he resigned from the Board on July 27, 2007.
On March 28, 2006, the Company entered into an agreement with Bobby Fellers to provide technical support and advice in setting up the oil and gas operations. Mr. Fellers was 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 will expire 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.
Item 12
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information, to the best of the Company's knowledge, as of December 8, 2008 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
19.2 (C)
Chairman/CEO
William Shrewsbury
7,251,184
15.1
Director
Martin Lipper
286,166
.6
President/Director
Richard Novack
1,016,587
2.1
Director
Bobby Fellers
300,000
.6(D)
CFO
Jose Fuentes
1,500,000
3.1(E)
All Officers and Directors
As a group (5)
10,353,937
21.5(F)
(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 8, 2009, together with securities exercisable or convertible into shares of common stock within 60 days of December 8, 2009 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, 2009 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) Represents 300,000 warrants issued during fiscal year to Mr. Fellers for his role as a Company Director.
(E) Represents 1,000,000 warrants issued to Jose Fuentes for his specific role with the Company during the fiscal year 2007 and, 500,000 shares of common stock.
(F) Total number of shares and % ownership includes all directors and officers as of December 8, 2009
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.
Item 13
Item 13 Certain Relationships and Related Transactions
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 has retained a 40% working interest in the Contract Area #1 field and a 25% working interest in the Park's Lease. The Management believes that the agreements were entered at arms length and upon terms that would be common for the industry and location of the fields.
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.
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 $16,050 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”).
Item 14
Item 14 Principal Accounting Fees and Services
The following table sets forth the aggregate fees paid or accrued for professional services rendered by Ham, Langston & Brezina, L.L.P. for the audit of our annual financial statements for fiscal year 2009 and fiscal year 2008 and the aggregate fees paid or accrued for audit-related services and all other services rendered by Ham, Langston & Brezina, L.L.P. for fiscal year 2009 and fiscal year 2008:
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 Ham, Langston & Brezina, L.L.P. was compatible with the maintenance of that firm’s independence in the conduct of its audits.
Item 15
Item 15 Exhibits and Reports on Form 8-K
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)
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
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)
Incorporated by reference to the exhibit as filed with Form 10-SB of R Wireless, Inc., with Securities and Exchange Commission filing date of February 9, 2001.
(3)
Incorporated by reference to the exhibit as filed with Form 10-QSB of R Wireless, Inc., with Securities and Exchange Commission filing date of February 19, 2003.
(4)
Incorporated by reference to the exhibit as filed with Form 10-SB/A2 of R Wireless, Inc., with Securities and Exchange Commission filing date of August 31, 2001.
(5)
Incorporated by reference to the exhibit as filed with Form S-8 of R Wireless, Inc., with Securities and Exchange Commission filing date of February 19, 2003.
(6)
Incorporated by reference to the exhibit as filed with Form 8-K of R Wireless, Inc., with Securities and Exchange Commission filing date of March 31, 2005.
(7)
Incorporated by reference to the exhibit as filed with Form 10-KSB of R Wireless, Inc., with Securities and Exchange Commission filing date of March 12, 2004.
(8)
Incorporated by reference to the exhibit as filed with Form 8-K of R Wireless, Inc., with Securities and Exchange Commission filing date of August 19, 2005.
(9)
Incorporated by reference to the exhibit as filed with Form 13D of Darren Bloom with Securities and Exchange Commission filing date of December 14, 2005.
(10)
Incorporated by reference to the exhibit as filed with Form 10KSB of R Wireless, Inc. with Securities and Exchange Commission filing date of January 20, 2006.
(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.
(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.
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.
Dated: January 8, 2010
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,
William “Buck” Shrewsbury
and Chief Executive Officer
: January 8, 2010
/s/Richard Novack
President
Richard Novack
: January 8, 2010
/s/Jose Fuentes
Chief Financial Officer
Jose Fuentes
: January 8, 2010
/s/Bobby S. Fellers
Director
Bobby S. Fellers
: January 8, 2010
/s/ Martin Lipper
Director
Martin Lipper
: January 8, 2010
Glossary of Terms
We are engaged in the business of exploring for and producing oil and natural gas. Oil and gas exploration is a specialized industry. Many of the terms used to describe our business are unique to the oil and gas industry. The following glossary clarifies certain of these terms that may be encountered while reading this report:
"Bbl" means 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.
"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.