<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               AMENDED FORM 10-KSB
                              AMENDMENT NUMBER ONE

|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the fiscal year ended September 30, 2005

|_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from _________________ to __________________.

Commission File No. 0-32335

                  TX HOLDINGS, INC. (FORMERLY R WIRELESS, INC.)
                 (Name of small business issuer in its charter)

               Georgia                               58-2558702
     (State or Other Jurisdiction of    (I.R.S. Employer Identification No.)
     Incorporation or Organization)

                        1701 North Judge Ely Blvd. #6420
                              Abilene, Texas 79601
                    (Address of Principal Executive Offices)

                                 (682) 286 3116
              (Registrant's Telephone Number, Including Area Code)

              Securities Registered Under Section 12(b) of the Act:

                                      None

              Securities Registered Under Section 12(g) of the Act:

                                  Common Stock
                                (Title of class)

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for past 90 days. Yes [ ] No
[X]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

The Registrant's did not have revenues for the fiscal year ended September 30,
2005.

Indicate by check mark whether the registered is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

The aggregate market value of the Common Stock held by non-affiliates, based on
the average closing bid and asked price of the Common Stock on January 23, 2007,
was $ 9,776,502

There are approximately 13,966,431 shares of common voting stock of the
Registrant held by non-affiliates. On January 23, 2007 the average bid and asked
price was $ 0.70

As of January 23, 2007, there were 27,002,558 shares of common stock
outstanding.



<PAGE>

FORWARD-LOOKING STATEMENTS AND CAUTIONARY WORDS

This annual report on Form 10-KSB ("Annual Report") for the period ending
September 30, 2005 ("fiscal year 2005"), contains forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995 and
as such may involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such forward-looking
statements speak only as of the date of this Form 10-KSB or the amendment
thereto in which they appear, as the case may be. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based. In
addition, particular attention is called to cautionary words such as "may,"
"will," "expect," "anticipate," "estimate" and "intend" where they appear
herein. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the section
entitled "Risk Factors" that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Included in this report are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-KSB which address
activities, events or developments which we expect or anticipate will or may
occur in the future are forward-looking statements.

As used in this Annual Report, the terms "we", "us", and "our" mean TX Holdings,
Inc.

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 barrel or barrels, used in this annual report to refer to crude oil
or other liquid hydrocarbons.

"Bcf" means billion cubic feet, used in this annual report in reference to
gaseous hydrocarbons.

"BcfE" means billions of 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 thousand barrels, used in this annual report to refer to crude oil
or other liquid hydrocarbons.

"Mcf" means thousand cubic feet, used in this annual report to refer to gaseous
hydrocarbons.

"McfE" means thousands of 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 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


                                       2


<PAGE>

"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.


                                       3


<PAGE>

                                   FORM 10-KSB
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005

                                      INDEX
PART I______________________________________________________________________  5

   Item 1 Description of Business___________________________________________  5

   Item 2 Description of Property___________________________________________ 18

   Item 3 Legal Proceedings_________________________________________________ 20

   Item 4 Submission of Matters to a Vote of Security Holders_______________ 20

PART II_____________________________________________________________________ 21

   Item 5 Market for Common Equity and Related Stockholder Matters__________ 21

   Item 6 Management's Discussion and Analysis or Plan of Operations________ 24

   Item 7 Financial Statements______________________________________________ 28

   Item 8 Changes In and Disagreements with Accountants on Accounting
         and Financial Disclosure___________________________________________ 80

   Item 8A Controls and Procedures__________________________________________ 90

   Item 8B Other Information________________________________________________ 90

PART III____________________________________________________________________ 90

   Item 9 Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act___________________ 90

   Item 10 Executive Compensation___________________________________________ 93

   Item 11 Security Ownership of Certain Beneficial Owners and
        Management__________________________________________________________ 95

   Item 12 Certain Relationships and Related Transactions___________________ 98

   Item 13 Exhibits and Reports on Form 8-K_________________________________ 99

   Item 14 Principal Accountants Fees and Service__________________________ 102


                                       4


<PAGE>

                                     PART I

ITEM 1 DESCRIPTION OF BUSINESS

OVERVIEW OF BUSINESS

TX Holdings, Inc. ("TX Holdings" or the "Company"), formerly named R Wireless,
Inc. ("RWLS") and, prior to that, named HOM Corporation ("HOM"), is a Georgia
corporation incorporated on May 4, 2000. On December 5, 2004 the Company began
to structure itself into an oil and gas production and exploration company. The
Company acquired oil and gas leases and began development of oil and gas
producing operations as of November 5, 2006.

HISTORY AND CORPORATE STRUCTURE

Previously TX Holdings acted as a holding company whose operations were
conducted through two wholly-owned operating subsidiaries, Direct Lending Inc.
("Direct"), a Georgia corporation, and Homes By Owners, Inc. ("Homes"), a
Georgia corporation. Direct was a licensed mortgage broker working with various
financial institutions and underwriters. Homes published and distributes a
monthly magazine, HOMES BY OWNERS, listing residential properties in the
Augusta, Georgia/Aiken, South Carolina metropolitan area for sale by their
owners and containing other advertising material. Homes also listed homes for
sale on its website, www.homesbyowners.net.

Direct, incorporated January 9, 1997, was acquired by Apple Homes, Inc.,
("Apple") a publicly traded company, on October 1, 1998. The stock of Direct was
distributed pro rata to the stockholders of Apple who were of record on March 1,
1999. Homes was incorporated December 6, 1999 as a subsidiary of Direct.
Effective July 5, 2000, the Company, which had been created with a minimal
initial investment, effected a reorganization with Direct and Homes. Direct
shareholders became shareholders of the Company and Direct and Homes became
wholly owned subsidiaries of the Company.

On December 12, 2002, MA&N, LLC ("MA&N") acquired control of the Company through
purchase of 4,647,626 shares of common stock representing 51% of the Company's
9,112,992 outstanding shares of common stock and causing the majority of the
directors of the Company, including the current CEO of the Company, Mark
Neuhaus, and his wife, Nicole B. Neuhaus, to be persons associated with MA&N.
The name of the Company was changed from HOM Corporation to R Wireless, Inc.
effective as of January 22, 2003. The specified consideration from MA&N for this
purchase was (a) causing the provision of Internet Service Provider, or ISP,
wireless service from not less than 5 nodes, (b) provision of consulting
services on financial and management matters to the Company for at least two
years, (c) arranging for personnel to manage the Company, (d) development of a
business plan by MA&N to acquire additional business operations in the ISP
wireless business and the subsequent administration of such plan, and (e)
funding the accounting and legal costs associated with compliance to United
States Securities and Exchange Commission regulations. MA&N fully furnished the
required financial payments and was deemed to satisfy the specified
consideration. Furthermore, the following changes were implemented: CUSIP number
was changed to 74976E 10 4 as of February 4, 2003, and the trading symbol was
changed to RWLS as of February 19, 2003.

In early 2003 the Company contemplated business opportunities in the wireless
fidelity business, more commonly known as Wi-Fi industry (the term is used
generically when referring to any type of 802.11 network, such as 802.11b,
802.11a, or dual-band). Due to the competitive nature of the Wi-Fi business,
resulting from numerous entries of large companies with significant research and
development capabilities, the Company was not able to establish itself in this
industry. Various acquisitions were considered, some of which required extensive
due diligence and research, but none of these was completed.

On December 5, 2004, the Company announced plans to change business direction
based on recent global political and economic developments that drastically
increased the price of energy. The restricted supply of oil and gas from OPEC
member countries and other exporters led to a surge in energy prices. These
trends opened new opportunities for local companies in the oil and gas sector,
and the Company decided to pursue this opportunity. In connection with this
decision, the Company effected its name change to "TX Holdings, Inc." on
September 1, 2005. Management believes the new name reflects the new business
direction of the Company, specifically the acquisition of producing oil and gas
properties. Furthermore, the following changes were implemented: CUSIP number
changed to 873 11R 101 as of September 6, 2005, and the trading symbol changed
to TXHG as of September 19, 2005.

                                       5


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On September 4, 2003, the Company signed an agreement with Jim Evans ("Evans"),
sole owner of Freedom Homes, Inc. ("Old Freedom"), established in Wrens, Georgia
and currently based in Augusta, Georgia, a manufactured housing dealer. The
agreement was for the acquisition of Old Freedom by Homes in exchange for stock
of Homes that gave Evans 70%, and left TX Holdings with 25%, of the outstanding
common stock of Homes. Robert W Wilson ("Wilson") the President and Chief
Executive Officer of the Company prior to the acquisition of control by MA&N,
received 5% of the outstanding common stock of Homes for services in connection
with the transaction and otherwise. (SEE EXHIBIT 2.3). The transaction was
subject to a condition subsequent that a financing for Homes of $500,000 be
completed by March 5, 2004, which subsequently was extended to April 5, 2004
(SEE EXHIBIT 2.5). The condition subsequent was not fulfilled, and consequently
the shares of Old Freedom were returned to Evans, and the shares of Homes held
by Evans were returned to the Company. As a result, TX Holdings owned 95% of the
outstanding common stock of Homes and Wilson owned 5%.

Effective March 25, 2005, Evans (again the owner of all the outstanding common
stock of Old Freedom), Old Freedom, TX Holdings (the owner of 95% of the
outstanding common stock of Homes), Homes and Robert Wilson ("Wilson", the owner
of 5% of the outstanding common stock of Homes) executed an Agreement to Merge
that provided for the merger of Old Freedom into Homes (with Homes taking the
name Freedom Homes, Inc. following the effectiveness of the merger, after which
it is referred to as "New Freedom". (SEE EXHIBIT 10.4)). As a result of the
merger, Evans would own 4,100,000 shares (63.1%), TX Holdings would own
2,100,000 shares (32.3%), and Wilson would own 300,000 shares (4.6%), of the
outstanding common stock of New Freedom. That agreement contemplated that an
additional 500,000 shares of New Freedom common stock would be issued in a
private placement at $1.00 a share for a total of $500,000 (which has not been
accomplished but which TX Holdings, New Freedom and Old Freedom agreed to use
their best efforts to accomplish). TX Holdings, New Freedom, Evans and Old
Freedom also undertook to use their respective best efforts to cause at least
50% (and possibly all) of the 2,100,000 shares of common stock of New Freedom
that TX Holdings held to be spun off to its shareholders (which then could not
be legally done in view of the financial situation of the Company). In
implementation of the Agreement to Merge, Freedom and Old Freedom entered into
an Agreement and Plan of Merger dated as of May 12, 2005, which became effective
May 26, 2005 as a statutory merger under Georgia law and is designed to qualify
as a tax-free reorganization for Federal and Georgia tax purposes. Although
Homes was the surviving corporation the resulting corporation, is named Freedom
Homes, Inc.

RECENT DEVELOPMENTS

In February 2006 TX Holdings entered into a Memorandum of Understanding to
acquire oil and gas Leases located in Texas. The negotiations and due diligence
under the Memorandum of Understanding were concluded on November 1, 2006
resulting in TX Holdings acquiring a turn-key operation for the acquisition of
the prospect known as Contract Area #1 located in the counties of Callahan and
Eastland, Texas. On August 1, 2006 TX Holdings acquired the Williams Lease,
located in Callahan County, Texas. On April 11, 2006 TX Holdings acquired the
Parks Lease, located in Callahan County, Texas.

On March 28, 2006, TX Holdings appointed to its Board of Directors Bobby Fellers
who has worked in the oil and gas business for more than thirty years. Mr.
Fellers has assisted TX Holdings in the acquisition of the above referenced
leases and owns a forty percent working interest position in the Contract Area
#1 lease and a twenty-five percent working interest in the Parks Lease. In
addition Mr. Fellers is employed by Masada Oil & Gas a Texas corporation, which
is the current operator of record on both the Parks and Contract Area 1 leases
that TX Holdings owns.

On March 28, 2006 TX Holdings appointed Douglas C. Hewitt to its Board of
Directors. Mr. Hewitt has in excess of twenty years in the oil and gas business
and more than eighteen years in the organizing and building of energy and
technology businesses. Mr. Hewitt is currently an operator and owner of an
independent oil and gas production and exploration company.

On March 28, 2006 TX Holdings appointed Michael A. Cederstorm as the interim
Chief Financial Officer of TX Holdings while TX Holdings completes its
reorganization as an exploration and production company. Mr. Cederstrom has
served as the Chief Financial Officer for several oil and gas companies over the
past 10 years. Once oil and gas production has been instituted a new Chief
Financial Officer will be sought.

                                       6


<PAGE>

On August 2, 2006 TX Holdings appointed W.A. ("Bill") Alexander as the Chief
Operating Officer. Mr. Alexander is a licensed Petroleum Engineer with over 30
years of experience. Mr. Alexander is experienced in all areas of exploration
and production of oil and gas fields.

BACKGROUND FOR OIL AND GAS BUSINESS ACTIVITIES

On August 30, 2005 oil prices reached a high of $70.85 although since that time
prices have increased some and have subsequently declined. At December 8, 2006
oil closed on the New York Mercantile Exchange at approximately $62.00 a barrel.
At these prices, secondary recovery, or the recovery accomplished by injecting
gas or water into a reservoir to replace produced fluids and thus maintain or
increase the reservoir pressure, becomes financially viable. The current
corporate direction is to acquire through purchase, merger and option, fields
with proven reserves and excellent development prospects. Concurrently, the
Company is exploring options for the acquisition of operational expertise and
equipment.

This strategy is contingent upon the Company's ability to obtain sufficient
capital to fund the high start up costs of testing, analyzing, acquiring capital
equipment and lease acquisition. On May 11, 2006 the Company announced that it
had entered into a private placement agreement with Brill Securities, Inc.
Pursuant to the private placement agreement the Company completed the sale of
4,133,324 units during the 3rd quarter of 2006 at a price of $0.30 per unit, for
a total of $1, 240,000, which after commission and expenses resulted in net
proceeds of approximately $1,179,500. Each unit includes one share of common
stock and a warrant to purchase an additional share at a price of $0.50 per
share. This infusion of capital allowed the Company to pursue its strategy of
acquiring oil and gas producing properties.

On September 1, 2005 TX Holdings announced an agreement whereby W.D. Von Gonten
& Co., of Houston, Texas will advise the Company on economics and future value
projections of prospective wells and producing properties. An essential
component of Von Gonten's service offerings is the provision of certified
reserve reports.

CURRENT OIL AND GAS ACTIVITIES

We are actively engaged in the exploration, development, production and
acquisition of crude oil and natural gas in the counties of Callahan and
Eastland, Texas. In November 2006 we entered into a Purchase Sale Agreement
(PSA) with Masada Oil & Gas, Inc. ("Masada") Masada has served as the contract
operator in the three leases that TX Holdings currently holds in the counties of
Callahan and Eastland, Texas. The leases and the current working interest of TX
Holdings in each lease are as follows:

a. Contract Area # 1, 60% Working Interest;
b. Park's Lease, 75% Working Interest;
c. Williams Lease, 89% Working Interest

(For a discussion of leases see section "Oil and Gas Leases" under Item 2:
Description of property).

PRINCIPAL PRODUCTS OR SERVICES AND MARKETS

The principal markets for our crude oil and natural gas will be refining
companies, pipeline companies, utility companies and private industry end users.
The point of delivery of our crude oil is at tank batteries located at or near
well sites on the leases. Our customers will be found throughout the state of
Texas. Currently the Company is only producing oil. Sufficient quantities of
natural gas are not produced at this time to warrant the cost of installing a
collection system.

We anticipate that our products will continue to be sold to our customers;
however, no assurance can be given of such or that if we do, we will be able to
receive a price that is sufficient to make our operations profitable.

                                       7


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DISTRIBUTION METHODS OF PRODUCTS OR SERVICES

Crude oil is stored in tanks at our well site located on our leases, until the
purchaser takes delivery of the crude oil by tanker truck.

COMPETITIVE BUSINESS CONDITIONS

Our oil and gas exploration activities in Texas are undertaken in a highly
competitive and speculative business environment. In seeking any other suitable
oil and gas properties for acquisition, we compete with a number of other
companies located in Texas and elsewhere, including large oil and gas companies
and other independent operators, many with greater financial resources.

Although, our management generally does not foresee difficulties in procuring
logging of wells, cementing and well treatment services in the area of our
operations, several factors, including increased competition in the area, may
limit the availability of logging equipment, cementing and well treatment
services in the future. If such an event occurs, it may have a significant
adverse impact on the profitability of our operations.

The prices of our products are controlled by the world oil market; thus,
competitive pricing behaviors in this regard are considered unlikely; however,
competition in the oil and gas exploration industry exists in the form of
competition to acquire the most promising acreage blocks and obtaining the most
favorable prices for completion of wells and drilling costs.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

We are dependent on local purchasers of hydrocarbons to purchase our products in
the areas where our properties are located. The loss of one or more of our
primary purchasers may have a substantial adverse impact on our sales and on our
ability to operate profitably.

PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR
LABOR CONTRACTS

Royalty agreements relating to oil and gas production are standard in the
industry. The amounts of the royalty payments which are paid vary from lease to
lease. (See Description of Business - "Current Business" in this Annual Report.)

GOVERNMENTAL APPROVAL AND REGULATION

The production and sale of oil and gas are subject to regulation by federal,
state and local authorities. None of the principal products that we offer
require governmental approval, although permits are required for the drilling of
oil and gas wells. In addition testing of well integrity is required on a
routine basis.

When and if we begin to sell natural gas we will be affected by intrastate and
interstate gas transportation regulation. Beginning in 1985, the Federal Energy
Regulatory Commission ("FERC"), which sets the rates and charges for the
transportation and sale of natural gas, adopted regulatory changes that have
significantly altered the transportation and marketing of natural gas. The
stated purpose of FERC's changes is to promote competition among the various
sectors of the natural gas industry. In 1995, FERC implemented regulations
generally grandfathering all previously approved interstate transportation rates
and establishing an indexing system for those rates by which adjustments are
made annually based on the rate of inflation, subject to certain conditions and
limitations. These regulations may tend to increase the cost of transporting oil
and natural gas by pipeline. Every five years, FERC will examine the
relationship between the change in the applicable index and the actual cost
changes experienced by the industry. We are not able to predict with certainty
what effect, if any, these regulations will have on us.

Texas law requires that we obtain state permits for the drilling of oil and gas
wells and to post a bond with the Texas Railroad Commission (the "RRC") to
ensure that each well is reclaimed and properly plugged when it is abandoned.
The reclamation bond amount is $50,000 for up to ninety-nine wells. The company
is currently arranging for a letter of credit to be issued in the amount of
$50,000 to meet the requirements for the bond.

                                       8


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The state and regulatory burden on the oil and natural gas industry generally
increases our cost of doing business and affects our profitability. While we
believe we are presently in compliance with all applicable federal, state and
local laws, rules and regulations, continued compliance (or failure to comply)
and future legislation may have an adverse impact on our present and
contemplated business operations. Because such federal and state regulation are
amended or reinterpreted frequently, we are unable to predict with certainty the
future cost or impact of complying with these laws.

RESEARCH AND DEVELOPMENT

The company expends funds for the research of and locating potential producing
and previously producing fields to acquire. The research consists of obtaining
production records, reviewing well logs and evaluating geological information on
sites. The information is evaluated by Petroleum Engineers to determine well
locations and potential recoveries.

During 2004 and 2005 we did not incur any research and development expenditures.

INTELLECTUAL PROPERTY

None.

ENVIRONMENTAL COMPLIANCE

We are subject to various federal, state and local laws and regulations
governing the protection of the environment, such as the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), and the Federal Water Pollution Control Act of 1972, as amended (the
"Clean Water Act"), which affect our operations and costs. In particular, our
exploration, development and production operations, our activities in connection
with storage and transportation of oil and other hydrocarbons and our use of
facilities for treating, processing or otherwise handling hydrocarbons and
related wastes may be subject to regulation under these and similar state
legislation. These laws and regulations:

         o        restrict the types, quantities and concentration of various
                  substances that can be released into the environment in
                  connection with drilling and production activities;

         o        limit or prohibit drilling activities on certain lands lying
                  within wilderness, wetlands and other protected areas; and

         o        impose substantial liabilities for pollution resulting from
                  our operations.

Failure to comply with these laws and regulations may result in the assessment
of administrative, civil and criminal fines and penalties or the imposition of
injunctive relief. Changes in environmental laws and regulations occur
regularly, and any changes that result in more stringent and costly waste
handling, storage, transport, disposal or cleanup requirements could materially
adversely affect our operations and financial position, as well as those in the
oil and natural gas industry in general. While we believe that we are in
substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements would not
have a material adverse impact on us, there is no assurance that this trend will
continue in the future.

As with the industry generally, compliance with existing regulations increases
our overall cost of business. The areas affected include:

         o        unit production expenses primarily related to the control and
                  limitation of air emissions and the disposal of produced
                  water;

         o        capital costs to drill exploration and development wells
                  primarily related to the management and disposal of drilling
                  fluids and other oil and natural gas exploration wastes; and

                                       9


<PAGE>

         o        capital costs to construct, maintain and upgrade equipment and
                  facilities.


CERCLA, also known as "Superfund," imposes liability for response costs and
damages to natural resources, without regard to fault or the legality of the
original act, on some classes of persons that contributed to the release of a
"hazardous substance" into the environment. These persons include the "owner" or
"operator" of a disposal site and entities that disposed or arranged for the
disposal of the hazardous substances found at the site. CERCLA also authorizes
the Environmental Protection Agency ("EPA") and, in some instances, third
parties to act in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs they
incur. It is not uncommon for neighboring landowners and other third parties to
file claims for personal injury and property damage allegedly caused by the
hazardous substances released into the environment. In the course of our
ordinary operations, we may generate waste that may fall within CERCLA's
definition of a "hazardous substance." We may be jointly and severally liable
under CERCLA or comparable state statutes for all or part of the costs required
to clean up sites at which these wastes have been disposed.

We currently lease properties that for many years have been used for the
exploration and production of oil and natural gas. Although we and our
predecessors have used operating and disposal practices that were standard in
the industry at the time, hydrocarbons or other wastes may have been disposed or
released on, under or from the properties owned or leased by us or on, under or
from other locations where these wastes have been taken for disposal. In
addition, many of these properties have been operated by third parties whose
actions with respect to the treatment and disposal or release of hydrocarbons or
other wastes were not under our control. These properties and wastes disposed on
these properties may be subject to CERCLA and analogous state laws. Under these
laws, we could be required:

         o        to remove or remediate previously disposed wastes, including
                  wastes disposed or released by prior owners or operators;

         o        to clean up contaminated property, including contaminated
                  groundwater; or to perform remedial operations to prevent
                  future contamination.

         o        to clean up contaminated property, including contaminated
                  groundwater; or to perform remedial operations to prevent
                  future contamination.

At this time, we do not believe that we are associated with any Superfund site
and we have not been notified of any claim, liability or damages under CERCLA.

The Resource Conservation and Recovery Act ("RCRA") is the principal federal
statute governing the treatment, storage and disposal of hazardous wastes. RCRA
imposes stringent operating requirements and liability for failure to meet such
requirements on a person who is either a "generator" or "transporter" of
hazardous waste or an "owner" or "operator" of a hazardous waste treatment,
storage or disposal facility. At present, RCRA includes a statutory exemption
that allows most oil and natural gas exploration and production waste to be
classified as non-hazardous waste. A similar exemption is contained in many of
the state counterparts to RCRA. As a result, we are not required to comply with
a substantial portion of RCRA's requirements because our operations generate
minimal quantities of hazardous wastes. At various times in the past, proposals
have been made to amend RCRA to rescind the exemption that excludes oil and
natural gas exploration and production wastes from regulation as hazardous
waste. Repeal or modification of the exemption by administrative, legislative or
judicial process, or modification of similar exemptions in applicable state
statutes, would increase the volume of hazardous waste we are required to manage
and dispose of and would cause us to incur increased operating expenses.

The Clean Water Act imposes restrictions and controls on the discharge of
produced waters and other wastes into navigable waters. Permits must be obtained
to discharge pollutants into state and federal waters and to conduct
construction activities in waters and wetlands. The Clean Water Act requires us
to construct a fresh water containment barrier between the surface of each
drilling site and the underlying water table. This involves the insertion of a
seven-inch diameter steel casing into each well, with cement on the outside of
the casing. The cost of compliance with this environmental regulation is
approximately $10,000 per well. Certain state regulations and the general
permits issued under the Federal National Pollutant Discharge Elimination System
program prohibit the discharge of produced waters and sand, drilling fluids,
drill cuttings and certain other substances related to the oil and natural gas
industry into certain coastal and offshore waters. Further, the EPA has adopted
regulations requiring certain oil and natural gas exploration and production
facilities to obtain permits for storm water discharges. Costs may be associated
with the treatment of wastewater or developing and implementing storm water
pollution prevention plans.

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The Clean Water Act and comparable state statutes provide for civil, criminal
and administrative penalties for unauthorized discharges for oil and other
pollutants and impose liability on parties responsible for those discharges for
the costs of cleaning up any environmental damage caused by the release and for
natural resource damages resulting from the release. We believe that our
operations comply in all material respects with the requirements of the Clean
Water Act and state statutes enacted to control water pollution.

Our operations are also subject to laws and regulations requiring removal and
cleanup of environmental damages under certain circumstances. Laws and
regulations protecting the environment have generally become more stringent in
recent years, and may in certain circumstances impose "strict liability,"
rendering a corporation liable for environmental damages without regard to
negligence or fault on the part of such corporation. Such laws and regulations
may expose us to liability for the conduct of operations or conditions caused by
others, or for acts which may have been in compliance with all applicable laws
at the time such acts were performed. The modification of existing laws or
regulations or the adoption of new laws or regulations relating to environmental
matters could have a material adverse effect on our operations.

In addition, our existing and proposed operations could result in liability for
fires, blowouts, oil spills, discharge of hazardous materials into surface and
subsurface aquifers and other environmental damage, any one of which could
result in personal injury, loss of life, property damage or destruction or
suspension of operations. We have an Emergency Action and Environmental Response
Policy Program in place. This program details the appropriate response to any
emergency that management believes to be possible in our area of operations. We
believe we are presently in compliance with all applicable federal and state
environmental laws, rules and regulations; however, continued compliance (or
failure to comply) and future legislation may have an adverse impact on our
present and contemplated business operations.

The foregoing is only a brief summary of some of the existing environmental
laws, rules and regulations to which our business operations are subject, and
there are many others, the effects of which could have an adverse impact on our
business. Future legislation in this area will no doubt be enacted and revisions
will be made in current laws. No assurance can be given as to what effect these
present and future laws, rules and regulations will have on our current future
operations.

INSURANCE

Our operations are subject to all the risks inherent in the exploration for, and
development and production of oil and gas including blowouts, fires and other
casualties. We maintain insurance coverage customary for operations of a similar
nature, but losses could arise from uninsured risks or in amounts in excess of
existing insurance coverage.

FORMER BUSINESS OF TX HOLDINGS, INC.

BUSINESS OF FREEDOM HOMES, INC. ("NEW FREEDOM")

The principal business of New Freedom is the retailing of manufactured homes,
which has been its principal business since the merger of Old Freedom into
Homes, which was renamed "Freedom Homes Inc.", the name of Old Freedom, when
merger became effective on May 26, 2005 ("Freedom Merger"). Prior to the
effective dates of the Freedom Merger, publishing the periodic magazine, FOR
SALE BY OWNER, and maintaining the residential sales web site was the only
business of Homes. Subsequent to the Freedom Merger, the periodic magazine was
discontinued and the web site no longer maintained, although New Freedom has
intermittently issued a magazine in support of a local real estate broker.

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For the periods covered by the financial statements herein and until May 26,
2005, none of the operations of Old Freedom are included in the financial
statements of the Company. From May 26, 2005, the operations of New Freedom are
not consolidated with the financial statements of the Company since New Freedom
no longer is a subsidiary and is under the control of Jim Evans, not TX
Holdings. Old Freedom began to sell pre-owned manufactured homes in the Augusta,
Georgia market in February 2002. In June, 2004, it became a retailer of new
homes manufactured by Horton Homes and subsequently has also sold new homes
manufactured by Southern Energy Homes and Precision Homes. TX Holdings owns a
32.3% interest in New Freedom Homes and TX Holdings management has determined to
value it interest in New Freedom Homes at a value of $0.00. TX Holdings has not
received any revenue, dividends or distributions from Freedom Homes since its
merger on May 26, 2005. New Freedom Homes is a private company that is not
publicly traded with limited investors and no market for its stock. The
liquidation value of Freedom Homes would be difficult to determine and no market
is currently available for the transfer of TX Holdings' shares.

BUSINESS OF DIRECT LENDING, INC.

Direct Lending, Inc. ("Direct") was a mortgage broker. It located sources of
capital willing to grant home mortgage loans to clients of Direct. Direct acted
as a broker and was paid a fee only upon the closing of a loan to a customer.
These fees were typically in the range of $2,000 for each loan closed by Direct
and are the result of origination fees, and yield spread income.

Sources of capital that provided home mortgage loans to clients of Direct
included finance companies, banks and wholesale lenders. When a lending
institution indicated an interest in providing a loan to a Direct client, Direct
provided the appropriate documents and assisted their client's completion of the
documentation and the process to complete the loan. Direct would attend the
closing of the loan, providing value by facilitating the entire loan process.

SALE OF THE ASSETS AND BUSINESS OF DIRECT LENDING, INC.

In Fiscal 2002, in an environment of sharply declining interest rates,
residential housing became more affordable to new home buyers as monthly
mortgage payments fell and existing homeowners made the decision to refinance
their old mortgages with new low rate loans. Direct management increased its
personnel, leased additional space and incurred other additional expenses to
capture a share of the new growth in the mortgage brokerage business. In October
2002 management decided to sell Direct, and on November 25, 2002, completed the
sale of Direct to Stuckey Enterprises, Inc., an unaffiliated entity,
("Stuckey"). The sale included all of the assets of Direct other than its
corporate records, but including the name, Direct Lending. TX Holdings assumed
the past liabilities of Direct. Mortgage transactions originating prior to
October 25, 2002 were for the account of TX Holdings and subsequent transactions
were for the account of Stuckey. Stuckey assumed responsibility for the
employees and premises and equipment costs from October 25, 2002, thus relieving
TX Holdings of these expenses. Stuckey agreed to pay a $5,000 down payment and
484 per month for thirty six months. Following the initial down payment of
$5,000, Stuckey made two payments of $484. In January 2003, the terms of the
original agreement were renegotiated, and on January 14, 2003 Stuckey made a
payment of $10,000 as an agreed upon lump sum payment. The total amount received
from Stuckey was $15,968.

COMPANY EMPLOYEES AND OTHER WORKERS

As of December 20, 2006 we had 3 employees. Mark S. Neuhaus is Chairman of the
Board of Directors and President of TX Holdings. On March 28, 2006 Michael A.
Cederstrom was appointed the interim Chief Financial Officer of TX Holdings. Mr.
Cederstrom works on a part time basis with the understanding that once full
scale oil and gas production is achieved a permanent chief financial officer
will be named. Mr. Cederstrom also provides legal services through his law firm,
Dexter and Dexter. On August 2, 2006 TX Holdings appointed W.A. "Bill" Alexander
as the Chief Operating Officer. Other specialized functions are provided as
necessary through the engagement of independent consulting contractors.

At September 30, 2005 we had 2 employees, Mark Neuhaus as the Chief Executive
Officer and Darren Bloom as the Chief Financial Officer. In March 2006 Mr. Bloom
resigned.

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RISK FACTORS RELATING TO THE COMPANY'S BUSINESS

Due to the competitiveness of the oil and gas industry, the lack of acquisitions
and uncertainty of the present negotiations, and the nature of the Company's
business, it encounters many risk factors. Each of these factors, as well as
matters set forth elsewhere in this Form 10-KSB, could adversely affect the
business, operating results and financial condition of the Company.

Any investment in our Common Stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below and the other
information included in this Annual Report. Although the risks described below
are the risks that we believe are material, they are not the only risks relating
to our business and our Common Stock. Additional risks and uncertainties,
including those that are not yet identified or that we currently believe are
immaterial, may also adversely affect our business, financial condition or
results of operations. If any of the events described below occur, our business
and financial results could be materially and adversely affected. The market
price of our Common Stock could decline due to any of these risks, perhaps
significantly, and you could lose all or part of your investment.

GENERAL RISKS RELATED TO OUR BUSINESS

OUR BUSINESS MAY FAIL IF WE DO NOT SUCCEED IN OUR EFFORTS TO DEVELOP AND REPLACE
OIL AND GAS RESERVES.

Our future success will depend upon our ability to find, acquire and develop
additional economically recoverable oil and gas reserves. Our proved reserves
will generally decline as they are produced, except to the extent that we
conduct revitalization activities, or acquire properties containing proved
reserves, or both. To increase reserves and production, we must continue our
development drilling and completion programs, identify and produce previously
overlooked or bypassed zones in shut-in wells, acquire additional properties or
undertake other replacement activities. Our current strategy is to increase our
reserve base, production and cash flow through the development of our existing
oil and gas fields and selective acquisitions of other promising properties
where we can use new or existing technology. Despite our efforts, our planned
revitalization, development and acquisition activities may not result in
significant additional reserves, and we may not be able to discover and produce
reserves at economical exploration and development costs. If we fail in these
efforts, our business may also fail.

OUR REVENUES MAY BE LESS THAN EXPECTED IF OUR OIL AND GAS RESERVE ESTIMATES ARE
INACCURATE.

Oil and gas reserve estimates and the present values attributed to these
estimates are based on many engineering and geological characteristics as well
as operational assumptions that generally are derived from limited data. Common
assumptions include such matters as the anticipated future production from
existing and future wells, future development and production costs and the
ultimate hydrocarbon recovery percentage. As a result, oil and gas reserve
estimates and present value estimates are frequently revised to reflect
production data obtained after the date of the original estimate. If reserve
estates are inaccurate, production rates may decline more rapidly than
anticipated, and future production revenues may be less than estimated. In
addition, significant downward revisions of reserve estimates may hinder our
ability to borrow funds in the future, or may hinder other financing
arrangements that we may consider.

In addition, any estimates of future net revenues and their present value are
based on period ending prices and on cost assumptions that only represent our
best estimate. If these estimates of quantities, prices and costs prove
inaccurate and we are unsuccessful in expanding our oil and gas reserves base,
or if oil and gas prices decline or become unstable, we may have to write down
the capitalized costs associated with our oil and gas assets. We will also
largely rely on reserve estimates when we acquire producing properties. If we
overestimate the potential oil and gas reserves of a property to be acquired, or
if our subsequent operations on the property are not successful, the acquisition
of the property could result in substantial losses.

WE ARE IMPLEMENTING A GROWTH STRATEGY WHICH, IF SUCCESSFUL, WILL PLACE
SIGNIFICANT DEMANDS ON US AND SUBJECT US TO NUMEROUS RISKS.

Growing businesses often have difficulty managing their growth. If our growth
strategy is successful, significant demands will be placed on our management,
accounting, financial, information and other systems and on our business. We
will have to expand our management and recruit and employ experienced executives
and key employees capable of providing the necessary support. In addition, to
manage our anticipated growth we will need to continue to improve our financial,
accounting, information and other systems in order to effectively manage our
growth, and in doing so could incur substantial additional expenses that could
harm our financial results. We cannot assure you that our management will be
able to manage our growth effectively or successfully, or that our financial,
accounting, information or other systems will be able to successfully
accommodate our external and internal growth. Our failure to meet these
challenges could materially impair our business.

                                       13


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WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN ACQUIRING PROSPECTIVE RESERVES,
DEVELOPING RESERVES, MARKETING OIL AND NATURAL GAS, ATTRACTING AND RETAINING
QUALITY PERSONNEL AND RAISING ADDITIONAL CAPITAL.

Our ability to acquire additional prospects and to find and develop reserves in
the future will depend on our ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. In addition,
there is substantial competition for capital available for investment in the oil
and natural gas industry. Our inability to compete successfully in these areas
could have a material adverse effect on our business, financial condition or
results of operations.

A substantial or extended decline in oil and natural gas prices could reduce our
future revenue and earnings. The price we receive for future oil and natural gas
production will heavily influence our revenue, profitability, access to capital
and rate of growth. Oil and natural gas are commodities and their prices are
subject to wide fluctuations in response to relatively minor changes in supply
and demand. Historically, the markets for oil and natural gas have been volatile
and currently oil and natural gas prices are significantly above historic
levels. These markets will likely continue to be volatile in the future and
current record prices for oil and natural gas may decline in the future. The
prices we may receive for any future production, and the levels of this
production, depend on numerous factors beyond our control. These factors include
the following:

         o        changes in global supply and demand for oil and natural gas;

         o        actions by the Organization of Petroleum Exporting countries,
                  or OPEC;

         o        political conditions, including embargoes, which affect other
                  oil-producing activities;

         o        levels of global oil and natural gas exploration and
                  production activity;

         o        levels of global oil and natural gas inventories;

         o        weather conditions affecting energy consumption;

         o        technological advances affecting energy consumption; and

         o        prices and availability of alternative fuels.

Lower oil and natural gas prices may not only decrease our future revenues but
also may reduce the amount of oil and natural gas that we can produce
economically. A substantial or extended decline in oil or natural gas prices may
reduce our earnings, cash flow and working capital.

DRILLING FOR AND PRODUCING OIL AND NATURAL GAS ARE HIGH RISK ACTIVITIES WITH
MANY UNCERTAINTIES THAT COULD SUBSTANTIALLY INCREASE OUR COSTS AND REDUCE OUR
PROFITABILITY.

Oil and natural gas exploration is subject to numerous risks beyond our control;
including the risk that drilling will not result in any commercially viable oil
or natural gas reserves. Failure to successfully discover oil or natural gas
resources in properties in which we have oil and gas leases may materially
adversely affect our operations and financial condition.

The total cost of drilling, completing and operating wells will be uncertain
before drilling commences. Overruns in budgeted expenditures are common risks
that can make a particular project uneconomical. Further, many factors may
curtail, delay or cancel drilling, including the following:

                                       14


<PAGE>

         o        delays imposed by or resulting from compliance with regulatory
                  requirements;

         o        pressure or irregularities in geological formations;

         o        shortages of or delays in obtaining equipment and qualified
                  personnel;

         o        equipment failures or accidents;

         o        adverse weather conditions;

         o        reductions in oil and natural gas prices;

         o        land title problems; and

         o        limitations in the market for oil and natural gas.

OIL AND GAS OPERATIONS INVOLVE MANY PHYSICAL HAZARDS.

Natural hazards, such as excessive underground pressures, may cause costly and
dangerous blowouts or make further operations on a particular well financially
or physically impractical. Similarly, the testing and completion of oil and gas
wells involves a high degree of risk arising from operational failures, such as
blowouts, fires, pollution, collapsed casing, loss of equipment and numerous
other mechanical and technical problems. Any of these hazards may result in
substantial losses to us or liabilities to third parties. These could include
claims for bodily injuries, reservoir damage, loss of reserves, environmental
damage and other damages to people or property. Any successful claim against us
would probably require us to spend large amounts on legal fees and any
successful claim may make us liable for substantial damages.

Our dependence on outside equipment and service providers may hurt our
profitability. We need to obtain logging equipment and cementing and well
treatment services in the area of our operations. Several factors, including
increased competition in the area, may limit their availability. Longer waits
and higher prices for equipment and services may reduce our profitability.

THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE AND THERE IS NO ASSURANCE THAT WE
WILL BE SUCCESSFUL IN ACQUIRING ANY FURTHER LEASES.

The oil and gas industry is intensely competitive. We compete with numerous
individuals and companies, including major oil and gas companies, which have
substantially greater technical, financial and operational resources and staffs.
Accordingly, there is a high degree of competition for desirable oil and gas
leases, suitable properties for drilling operations and necessary drilling
equipment, as well as access to funds. We cannot predict if the necessary funds
can be raised. There are also other competitors that have operations in our
potential areas of interest and the presence of these competitors could
adversely affect our ability to acquire additional leases.

OIL AND GAS OPERATIONS ARE SUBJECT TO COMPREHENSIVE REGULATION WHICH MAY CAUSE
SUBSTANTIAL DELAYS OR REQUIRE CAPITAL OUTLAYS IN EXCESS OF THOSE ANTICIPATED,
CAUSING AN ADVERSE EFFECT ON OUR COMPANY.

Oil and gas operations are subject to federal, state, and local laws relating to
the protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages. To date we have not been required to spend any material
amount on compliance with environmental regulations. However, we may be required
to do so in future and this may affect our ability to expand or maintain our
operations.

                                       15


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RISKS RELATED TO OUR COMMON STOCK

The limited trading volume in our common stock may depress our stock price. Our
common stock is currently traded on a limited basis on the Pink Sheets ("PS").
The quotation of our common stock on the PS does not assure that a meaningful,
consistent and liquid trading market currently exists. We cannot predict whether
a more active market for our common stock will develop in the future. In the
absence of an active trading market, investors may have difficulty buying and
selling our common stock. Market visibility for our common stock may be limited.
A lack of visibility of our common stock may have a depressive effect on the
market price for our common stock.

THE ISSUANCE OF SHARES UPON EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE
AND SUBSTANTIAL DILUTION OF OUR EXISTING SHAREHOLDERS.

The issuance of shares upon exercise of warrants may result in substantial
dilution to the interests of other shareholders since the selling shareholders
may sell the full amount issuable on exercise. In addition, such shares would
increase the number of shares in the "public float" and could depress the market
price for our Common Stock.

WE HAVE FAILED TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS. WE HAVE BEEN
REMOVED FROM THE OTC BULLETIN BOARD LIMITING THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF SHAREHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.

On February 19, 2004 the Company was delisted from the OTC Bulletin Board due to
failure to file current financial statements with the Securities and Exchange
Commission in an acceptable format. The Company's stock trades are reported on
Pink Sheets.

Companies trading on the OTCBB, must be reporting issuers under Section 12 of
the Securities Exchange Act of 1934, as amended, and must be current in their
reports under Section 13, in order to maintain price quotation privileges on the
OTCBB. We have failed to remain current on our reporting requirements and have
been removed from the OTCBB. As a result, the market liquidity for our
securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of shareholders to sell
their securities in the secondary market.

WE HAVE NEVER DECLARED OR PAID CASH DIVIDENDS ON OUR COMMON STOCK. WE CURRENTLY
INTEND TO RETAIN FUTURE EARNINGS TO FINANCE THE OPERATION, DEVELOPMENT AND
EXPANSION OF OUR BUSINESS.

We do not anticipate paying cash dividends on our Common Stock in the
foreseeable future. Payment of future cash dividends, if any, will be at the
discretion of our board of directors and will depend on our financial condition,
results of operations, contractual restrictions, capital requirements, business
prospects and other factors that our board of directors considers relevant.
Accordingly, investors will only see a return on their investment if the value
of our securities appreciates.

OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:

         o        that a broker or dealer approve a person's account for
                  transactions in penny stocks; and

         o        that broker or dealer receives from the investor a written
                  agreement to the transaction, setting forth the identity and
                  quantity of the penny stock to be purchased.

                                       16


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In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:

         o        obtain financial information and investment experience
                  objectives of the person; and

         o        make a reasonable determination that the transactions in penny
                  stocks are suitable for that person and the person has
                  sufficient knowledge and experience in financial matters to be
                  capable of evaluating the risks of transactions in penny
                  stocks.

The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:

         o        sets forth the basis on which the broker or dealer made the
                  suitability determination; and

         o        that the broker or dealer received a signed, written agreement
                  from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our Common Stock and cause a decline in the market value
of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.

BRIEF OPERATING HISTORY - NO ASSURANCE OF PROFITABILITY

The Company has a brief operating history. Although we commenced operations in
1997, original management has been replaced as previous operations have not been
profitable. The Wi-Fi business contemplated subsequent to the acquisition of a
controlling interest in the Company by MA&N did not materialize. The Company has
recently completed the acquisition of its initial oil and gas leases. The
Company has encountered unforeseen costs, expenses, problems, difficulties and
delays frequently associated with new ventures, and these may continue. There is
no assurance that the Company's business ventures will be successful or that the
Company will be able to produce and acquire sufficient productive wells to meet
its goals. The Company anticipates that its operating expenses will increase if
and as its business expands, and it will need to generate revenues sufficient to
meet all of its expenses to achieve profitability.

COMPETITION COULD NEGATIVELY AFFECT REVENUES

The proposed business of the Company is highly competitive. Additional
competitors may also enter the market and future competition may intensify. Most
of these competitors have substantially greater financial resources than the
Company, and they may be able to accept more financial risk than the Company
feels is prudent.

CONCENTRATION OF SHARE OWNERSHIP GIVES INSIDERS CONTROL

Our management owns a significant amount of the Common Stock, giving them
influence or control in corporate transactions and other matters, and their
interests could differ from those of other stockholders. Our President, Mark
Neuhaus and/or his wife, Nicole B. Neuhaus beneficially controls approximately
28% of the Existing Common Stock and 100% of the Preferred Stock. The Preferred
Stock has voting rights the entitle Mr. Neuhaus to effectively control the
company. As a result, Mr. Neuhaus is in a position to significantly influence or
control the outcome of matters requiring a stockholder vote, including the
election of directors, the adoption of any amendment to the Certificate of
Incorporation and By-Laws, and the approval of significant corporate
transactions. This control may delay or prevent a change of control on terms
favorable to our other stockholders.

                                       17


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POSSIBILITY THAT NO PUBLIC MARKET OR ONLY A LIMITED PUBLIC MARKET WILL BE
ESTABLISHED FOR THE COMMON STOCK OF TX HOLDINGS

On August 14, 2002, NASD Regulation, Inc. cleared a broker's request for an
un-priced quotation on the OTC Bulletin Board for TX Holdings' common stock.
Sales have been sporadic and have ranged from $.05 to $1.08 a share. See MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

On February 19, 2004, the Company was delisted from the OTC Bulletin Board due
to failure to file current financial statements with the Securities and Exchange
Commission in an acceptable format. The Company's stock trades are reported by
Pink Sheets.

LIMITED ACCESS TO QUALIFIED PERSONNEL

To be effective, the Company needs persons with the skills necessary to conduct
the proposed oil and gas business. The Company is continually trying to attract
and retain qualified personnel to conduct the proposed oil and gas business. The
Company has lacked the resources to train personnel, so it needs to find persons
with the required experience, understanding, ability and effectiveness. The
Company's financial position has made this difficult and the inability to
attract and retain appropriate personnel may have a materially adverse effect
upon the Company and its operations.

LEGAL AND REGULATORY RISK

Laws and regulations, including securities laws and regulations, applicable to
the Company's business and operations are extensive and complex. As a start up
business with limited personnel and funding, the Company has taken actions
without being able to fully ascertain their legal effect and potential conflict
with applicable law and regulations. The Company believes that this situation
often pertains to minimally-funded new businesses which are in a financial
position similar to that of the Company. As a result, actions taken by the
Company could subject it to regulatory review and challenge, and involve it in
legal or administrative proceedings, that could have a material adverse affect
on the Company.

ITEM 2 DESCRIPTION OF PROPERTY

The Company has its principal leases in Abilene, Texas. The Company is currently
utilizing space of Masada Oil, a company that Bobby Fellers has a beneficial
interest in and that currently performs some of our field operations. Most
research and field activities as related to the oil and gas business are being
conducted from this office. The company's headquarters are located at 1701 North
Judge Ely Blvd., Suite 6420, Abilene, Texas 79601. Our telephone number is 682 -
286 - 3116. In addition we maintain an office in Miami, Florida. The office in
Miami is provided by Mark Neuhaus. The company has paid the utilities and
improvements only associated with the offices and no rent. 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 leases
currently owned by the Company allow the Company to produce to a depth of 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.

                                       18


<PAGE>

We are presently developing leases referred to as the Contract Area # 1; Parks
Lease; and the Williams Lease. The Contract Area # 1 Lease contains four leases
containing a total of 247 acres. The Park's Lease is a single lease containing
320 acres. The Williams Lease contains 4 leases containing a total of
approximately 843 acres. All three fields are located in the counties of
Callahan and Eastland, Texas.

LEASE AND ROYALTY TERMS

CONTRACT AREA # 1

Located in the counties of Callahan and Eastland, Texas, this lease includes the
turn key development of the field. The Purchase and Sale Contract provides for a
total investment of up to $7,200,000. To reach this purchase price Masada Oil &
Gas will need to procure an additional 1186 acres in Callahan County, Texas
which is contiguous to the Company's currently owned 247 acres. In addition the
Purchase and Sale agreement contemplates that Masada Oil & Gas will perform all
of the work on the field to put into production a minimum of 121 wells within 21
months. This production schedule is conditioned upon the Company providing the
funds necessary to complete the work on a timely basis and Masada Oil & Gas'
ability to acquire the additional acreage. If Masada Oil & Gas is unable to
deliver the additional acreage the Purchase and Sale Agreement will be adjusted
to reduce the price of the purchase. This field is carried on the financial
statements at the amount that has been paid to date for the field and not at the
price contained in the Purchase and Sale Agreement. The ultimate total price is
conditioned upon performance and future acquisitions. TX Holdings currently own
a 60% working interest in the field and Masada Oil and Gas owns a 40% working
interest. The ORRI on each lease varies, thus the net revenue interest the
Company will receive from the wells of the respective leases will also vary. The
table below sets forth the royalty interest for each lease, the net working
interest and the gross acreage of each lease within Contract Area # 1:

        DESCRIPTION                           ORRI            WORKING INTEREST
        -----------                           ----            ----------------

Roy Adams Lease RRC #01470                   17.97%                 60%

W. Isenhower Lease RRC# 20398                20.00%                 60%

Isenhower Lease RRC# 21474                   26.25                  60%

Isenhower Estate Lease RRC # 30700           20.00%                 60%

As of November 25, 2006, there were eighteen producing oil wells on the leases.
The production of the wells is minimal, from 1 to 2 bbls per day on average. The
Company is in the process of implementing the development of the water flood
program. The water flood will inject water into the field through injection
wells. The water will force the oil towards the production wells so that it can
be recovered. The Company's wells on this field are considered shallow wells and
only produce to a depth of 1000 feet.

PARKS LEASE

This lease includes 320 acres in which we have a 75% working interest and a 63%
net revenue interest in the oil and gas produced from this field. 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. There are currently 30 wells
on this lease and none of the wells are currently producing. The lease provides
that TX Holdings is limited to production from 1,000 feet and above.

WILLIAMS LEASE

This lease contains 843 acres with a working interest of 89% owned by the
Company. The lease was acquired through a foreclosure sale on August 1, 2006 for
the sum of $68,221.56. The lease carries an ORRI to the land owners of 25%. The
Company's net Revenue interest on the wells contained in this lease is 75%. This
lease is limited to production from 1,000 feet and above.

                                       19


<PAGE>

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 each lease to provide the required
information of logging each well to provide the information to the Petroleum
Engineers. The leases were acquired during the third and forth quarter of 2006
and operations on the leases commenced in November 2006.

ITEM 3 LEGAL PROCEEDINGS

Management is currently aware of one pending, past or present litigation
involving the Company which management does not believe could have a material
adverse effect on the Company. Management does not know of any outstanding
bankruptcy or receivership issues and is not aware of any securities law
violations other than the failure to file timely Form 10-KSB for 2005 and timely
Forms 10-QSB for the quarterly periods in 2005 and 2006.

TX Holdings has filled an action in Dade County, Florida in District Circuit
#11, case number 06-14396CA04 entitled TX Holdings, Inc vs. Darren Bloom. The
Company has brought an action against Mr. Bloom for breach of contract, damages
and for the cancellation of common stock issued to Mr. Bloom pursuant to a three
year employment contract. Mr. Bloom resigned from the Company on March 17, 2006
after serving only 9 months. Mr. Bloom currently owns 2,000,000 shares of TX
Holdings common stock. Management believes that this matter can be resolved and
will have no material effect on the Company operations. The cancellation of
shares, if granted, would have a positive effect on Earnings Per Share.

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 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                       20


<PAGE>

                                     PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The common stock of TX Holdings is currently traded on Pink Sheets, 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.

                                         BID PRICES ($)
                                     HIGH              LOW
QUARTER ENDED:

September 30, 2006                   0.99              0.55
June 30, 2006                        1.07              0.33
March 31, 2006                       0.47              0.19

December 30, 2005                    0.37              0.16
September 30 , 2005                  0.55              0.05
June 30, 2005                        0.15              0.06
March 31, 2005                       0.15              0.04

December 31, 2004                    0.12              0.04
September 30, 2004                   0.15              0.035
June 30, 2004                        0.08              0.04
March 31, 2004                       0.18              0.05

As of December 8, 2006 there were approximately 184 holders of record of our
common stock

On January 21, 2005, the company signed a subscription agreement with Pink
Sheets LLC for Real Time Inside Quote and Full Level II Quote Montage on
www.pinksheets.com. The service keeps investors up-to-date by providing real
time quotes of the Company's common stock. All expenses associated with this
service are paid by the Company.

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.

                                       21


<PAGE>

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's 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, 2006, TX Holdings has issued and outstanding 27,002,558
shares of common stock. Warrants were issued to Baker Johnston & Wilson LLP
exercisable for 1,434,088 shares that have been distributed to its two partners,
David R. Baker and J. Brooke Johnston, Jr., so that each now holds warrants
exercisable for 717,044 shares; to Douglas C. Hewitt exercisable for 300,000
shares; to Michael A. Cederstrom exercisable for 200,000 shares; to Bobby
Fellers exercisable for 300,000 shares; to W.A. ("Bill") Alexander exercisable
for 250,000 shares, and to purchasers of units in the Private Placement
exercisable for a total of 4,633,324 shares, all of which have not been
exercised. Of the total 27,002,558 shares outstanding as of December 8, 2006,
16,550,124 were deemed "restricted securities," as defined by the Act when
issued to their registered owner and continues to have their restricted status
noted on the books of TX Holdings' 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 one year, 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

As of September 30, 2006, TX Holdings has issued and outstanding 27,002,558
shares of common stock. As of September 30, 2005, TX Holdings had issued and
outstanding 16,705,593 shares of common stock. On December 12, 2002, MA&N
acquired control of the Company through purchase of 4,647,626 shares of common
stock representing 51% of the 9,112,992 outstanding shares of common stock of
the Company.

Robert S. Wilson was the Chairman and Chief Executive Officer of the Company
since its incorporation on June 16, 2000, until December 12, 2002. He resigned
as a member of the Board of Directors on April 30, 2003. Mr. Wilson had agreed
to accept options to purchase 294,341 shares of the Company's common stock in
lieu of compensation due him for his tenure with the Company. In December 2005,
Mr. Wilson exercised all of his options.

On February 19, 2003, the Company issued to Mark Neuhaus the chief executive
officer of the company, 3,000,000 shares of its common stock as compensation to
Mr. Neuhaus for services provided to the company and were registered under
Securities and Exchange Commission Form S-8 under the Securities Act of 1933.

                                       22


<PAGE>

On February 19, 2003, the Company issued 1,500,000 shares of the Company's
Common Stock to Ned Baramov, Secretary - Treasurer were registered under
Securities and Exchange Commission Form S-8 under the Securities Act of 1933.
Mr. Baramov resigned from the Company on June 24, 2005.

On August 2, 2004, the Company issued 500,000 shares of common stock of the
Company to S2 Consulting, The shares were issued as payment of $35,000 in fees
for past and future advisory services provided to the Company in relation to the
evaluation of potential merger and acquisition targets. Such services include,
but are not limited to advising, evaluating and developing corporate strategy,
providing company guidance, and assisting in developing relationships and
opportunities. S2 Consulting is an accredited investor. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933.

On May 11, 2005 Company issued 100,000 shares of common stock of the Company to
Frank Shafer. The shares were issued as payment of $12,000 in fees for past and
future advisory services provided to the Company in relation to financial
aspects of the Company's plans for expansion, acquisitions, and business
opportunities. Frank Shafer is an accredited investor. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933.

On July 1, 2005, the Company authorized the issuance of 350,000 shares of TX
Holdings common stock to Ned Baramov for services, valued at $28,000, in
relation to the preparation of SEC filings. Mr. Baramov's role included
assisting the Company in record keeping, accounting and data management. Mr.
Baramov is an accredited investor. The sale was exempt pursuant to Section 4 (2)
of the Securities Act of 1933.

On July 21, 2005, a warrant to purchase 1,434,088 shares of TX Holdings stock
("Warrant") was issued to Baker, Johnston & Wilson LLC (now Baker & Johnston LLC
("B & J")) at an exercise price of $.15 a share. The Warrant provided that it
expires June 30, 2010, was callable by the Company on or after February 1, 2006
if the per share market value of TX Holdings common stock has been at least 2
1/2 times the exercise price for 20 consecutive trading days. The Warrant was
issued pursuant to a Forbearance Agreement between B & J and TX Holdings whereby
B & J agreed not to seek collection of $215,113.20 owed to it by TX Holdings for
legal services and expenses until January 21, 2007. The Warrant, if exercised,
provides for a total exercise price of $215,113.30 ($.15 x 1,434,088), exactly
equaling the indebtedness of the Company to B & J and the warrant may be
exercised by application of indebtedness to the exercise price. B & J is an
accredited investor. The sale was exempt pursuant to Section 4(2) of the
Securities Act of 1933. On January 12, 2006 but effective November 1, 2005, (i)
the Warrant was amended to expire December 31, 2010, (ii) to be callable only on
or after August 1, 2006, and (iii) to be exercisable only on or after July 1,
2006 and the Forbearance Agreement was amended to provide for forbearance until
July 21, 2007. On or about May 1, 2006 this Warrant was assigned to David R.
Baker as to 717,041 Warrants and to J. Brooke Johnston, Jr. as to 717,041
Warrants.

On August 5, 2005, 461,942 shares of TX Holdings common stock were issued to
David R. Baker, 361,942 representing settlement of $36,494.20 of legal fees and
expenses of Haskell Slaughter Young & Rediker, LLC that were due to Mr. Baker
(the issuance being 3,000 shares less than required, which additional shares
will be issued in due course) and 100,000 shares representing an accountable
retainer valued at $10,000 for future services and expenses of Haskell Slaughter
Young & Rediker, LLC in assisting the Company (through Mr. Baker) in bringing
all required SEC filings up to date. Mr. Baker is an accredited investor. Such
services exceeding $10,000 in value have been performed. The sale was exempt
pursuant to Section 4(2) of the Securities Act of 1933.

On December 12, 2005, the Company issued 2,000,000 shares of its common stock to
Darren Bloom as his compensation in the role of, CFO, Secretary - Treasurer. Mr.
Bloom is an accredited investor. The sale was exempt pursuant to Section 4 (2)
of the Securities Act of 1933. TX Holdings has filed suit against Mr. Bloom for
the return of the shares for breach of contract. The shares were issued pursuant
to a three year employment contract which Mr. Bloom only served for 9 months.
(SEE Item 3 Litigation, above)

On March 28, 2006 a warrant to purchase 200,000 shares of common stock of TX
Holdings, Inc. at an exercise price of $0.30 was issued to Michael A Cederstrom.
The warrant expires on March 31, 2010 and is callable by the Company on or after
March 27, 2007 if the market value of TX Holding Stock is has been at least 2
1/2 times the exercise price for 20 consecutive trading days.

                                       23


<PAGE>

On March 28, 2006 a warrant to purchase 300,000 shares of TX Holdings, Inc.
common stock at an exercise price of $0.30 was issued to Douglas C. Hewitt. The
warrant expires on March 27, 2010 and is callable by the Company on or after
March 31, 2007 if the market value of TX Holding Stock has been at least 2 1/2
times the exercise price for 20 consecutive trading days.

On March 28 a warrant to purchase 300,000 shares of common stock of TX Holdings,
Inc. at an exercise price of $0.30 was issued to Bobby Fellers. The warrant
expires on March 31, 2010 and is callable by the Company on or after March 31,
2007 if the market value of TX Holding Stock is has been at least 2 1/2 times
the exercise price for 20 consecutive trading days.

On July 1, 2006 a warrant to purchase 250,000 shares of common stock of TX
Holdings, Inc. at an exercise price of $0.30 was issued to W.A. ("Bill")
Alexander. The warrant expires on March 31, 2010 and is callable by the Company
on or after March 31, 2007 if the market value of TX Holding Stock is has been
at least 2 1/2 times the exercise price for 20 consecutive trading days.

During May 2006 the Company entered into a Private Placement Agreement with
Brill Securities, Inc. to act as a financial advisor for the private placement
of shares of common stock of TX Holdings. Pursuant to the Private Placement
Memorandum approximately $1,240,000 of units were placed. The units contained an
aggregate of 4,633,324 shares of the Company's common stock and 4,633,324 common
stock purchase warrants. Each common stock purchase warrant is exercisable for a
period of two years at an exercise price of $.50 per share. In connection with
the offering, the Company paid a placement fee of $70,500 in cash. In addition,
the placing agent was issued warrants to purchase 235,000 shares of common stock
on the same terms and conditions as the investors. The net proceeds of the
offering will be used by the Company to purchase necessary equipment to upgrade,
replace, repair equipment on site at the fields we lease; to search, negotiate
and acquire additional oil and gas leases; and general corporate purposes. All
units placed were sold pursuant to Rule 144 of the act. All purchasers of the
units met the definition of an accredited investor.

SHARE REPURCHASES

None.

ITEM 6 - 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 $2,253,297 as of September 30, 2005. The acquisition of a controlling
interest in the Company by MA&N has given the Company access to additional funds
directly from MA&N, and the business plan developed by MA&N has enabled the
Company to raise additional funds from third parties. As of September 30, 2006
the Company was able to raise $1,240,000 in equity. The Company has used these
funds to purchase three oil and gas fields to begin its operations as an oil and
gas exploration and production company. The Company believes it will begin oil
production in early 2007. Revenues derived from the sale of this oil will be
limited until the fields are in full production. It is estimated it will take
approximately one year to reach full production levels. 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. It is anticipated that the
Company will have in excess of 100 wells in operation, each with estimated
potential to produce 2 to 12 barrels ("bbls") per day once proper techniques are
utilized. The Company believes it should be profitable at approximately 200 bbls
of oil produced per day. The Company's success will be determined by 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 will be able to raise additional capital
through any means.

                                       24


<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 2005 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2004;

REVENUES FROM OPERATIONS - Revenues for the years ended September 30, 2005 and
2004 were zero because $26,605 of revenue for the year ended September 30, 2004,
were reclassified to discontinued operations. During the fiscal year 2005 TX
Holdings sold a 67.7% interest in Freedom Homes and Direct and wrote-off its
remaining 32.3% interest in Freedom Homes. This decision was based on the fact
that management believes that there is no continuing value in Freedom Homes due
to the lack of a market place for the common stock of Freedom Homes, and the
fact that Freedom Homes not paying a dividend and has not demonstrated the
ability to be a profitable Company.

EXPENSES FROM CONTINUING OPERATIONS - The Company incurred operating expenses of
$235,820 for the fiscal year ended September 30, 2005 an increase of $110,031 or
88% compared to $125,789 for the fiscal year ended September 30, 2004. The
increase in these operating expenses are directly associated with the Company's
new business strategy of oil and gas exploration and production.

LOSS FROM CONTINUING OPERATIONS - For the fiscal year ended September 30, 2005
the Company incurred a loss of $449,790 compared to a loss of $129,639 for the
fiscal year ended September 30, 2004, an increase in loss of $320,151 or 247%.
The major reason for this loss was the expense associated with the effort to
bring the Company back into compliance with the reporting requirements of the
SEC and shift its focus to oil and gas exploration and production and, the cost
of obtaining forbearance of certain accounts payable for the amount of $211,098.

NET OPERATING LOSS CARRYFORWARD FOR TAX PURPOSES - As at September 30, 2005, the
Company has tax net operating loss carryforwards of approximately $2,038,000
that expire in 2018 through 2025. Approximately $1,190,000 of the net operating
loss carryforwards were 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.

Net operating losses after December 12, 2002 through September 30, 2005 were
approximately $846,000. The total net operating losses available to the Company
to offset future taxable income are approximately $1,270,000. In view of the
anticipated losses sustained subsequent to September 2005, the net operating
loss carryforwards will have increased. This amount, tax effected (assuming an
estimated net federal and state tax rate of 34%), resulting from differences in
reporting for income tax and financial statement purposes, or a total of
approximately $432,000 as of September 30, 2005 a net deferred tax asset that
may be used against the Company's future income tax. For financial statement
purposes, a valuation allowance of $432,000, or 100%, has been taken against net
deferred taxes as of September 30, 2005. A larger equivalent valuation will be
taken against the larger amount of such assets subsequently. 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. (SEE NOTE 4 - NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS).

LIQUIDITY

At September 30, 2005 we had no cash or cash equivalents. We did have $10,000 of
prepaid assets. As of September 30, 2004 we had no cash, cash equivalents or any
current assets.

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 provided loans to the
Company providing the Company with $161,661 for operating purposes during 2005.
Shareholder Advances increased from $53,036 in 2004 to $214,697 in 2005 for an
increase of 304.8%. The Company has also made an arrangement with its primary
creditor concerning an Account Payable in the amount of $215,113 to accept
1,434,000 warrants to purchase common stock of the Company. (See Recent Sale of
Unregistered Securities). The $215,113 represents 93% of the Company's
outstanding Account Payable of $220,277.

                                       25


<PAGE>

During the Third quarter of 2006 the Company was able to complete a Private
Placement of $1,240,000 of units of common stock and warrants to purchase common
stock to accredited investors. This placement has provided the Company with the
liquidity to enter into the oil and gas business to acquire oil and gas leases.
(See Oil and Gas Business). However, 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 own and lease, and the acquisition of
additional oil and gas producing properties.

THREE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 2003

REVENUES FROM OPERATIONS - Revenues for the three months ended December 31, 2004
and 2003 were zero because $9,334 of revenue for the three months ended December
31, 2003, were reclassified to discontinued operations. During the fiscal year
2005 TX Holdings sold a 67.7% interest in Freedom Homes and Direct and wrote-off
its remaining 32.3% interest in Freedom Homes. This decision was based on the
fact that management believes that there is no continuing value in Freedom Homes
due to the lack of a market place for the common stock of Freedom Homes, and the
fact that Freedom Homes not paying a dividend and has not demonstrated the
ability to be a profitable Company.

EXPENSES FROM CONTINUING OPERATIONS - The Company incurred operating expenses of
$23,681 for the quarter ended December 31, 2004 an increase of $11,590 or 96%
compared to $12,091 for the quarter ended December 31, 2003. The increase in
operating expenses was primarily the result of an increase in miscellaneous
operating expenses of $21,473 due to higher travel expenses, partially offset by
lower professional fees in the amount of $10,478. Miscellaneous expenses were
$21,473 for the quarter ended December 31, 2004 compared to zero for the quarter
ended December 31, 2003 due to the fact that miscellaneous expenses in the 2003
quarter were attributable to discontinued operations. Professional fees during
the quarter ended December 31, 2004 were $1,493 compared to $11,971 for the
quarter ended December 31, 2003. All these changes are directly related to the
change in the Company's main business and are temporary in nature for the
quarter.

NET INCOME/LOSS - For the quarter ended December 31, 2004 the Company had net
income of $84,243 compared to a net loss of $15,163 for the quarter ended
December 31, 2003, a change of $99,406 or 656%. The major reason for the net
income in 2005 is fully attributed to a gain of $108,892 from the sale of
affiliates.

THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004

REVENUES FROM OPERATIONS - Revenues for the three months ended March 31, 2005
and 2004 were zero because $7,526 of revenue for the three months ended March
31, 2004 were reclassified to discontinued operations. During the fiscal year
2005 TX Holdings sold a 67.7% interest in Freedom Homes and Direct and wrote-off
its remaining 32.3% interest in Freedom Homes. This decision was based on the
fact that management believes that there is no continuing value in Freedom Homes
due to the lack of a market place for the common stock of Freedom Homes, and the
fact that Freedom Homes not paying a dividend and has not demonstrated the
ability to be a profitable Company.

EXPENSES FROM CONTINUING OPERATIONS - The Company incurred operating expenses of
$6,972 for the three months ended March 31, 2005 a decrease of $34,221 or 83%
compared to $41,193 for the three months ended March 31, 2004. The decrease in
the operating expenses occurred as the Company was in the initial phases of
entering a new industry (oil and gas) and had not started full operations and
had not engaged the necessary professionals to assist in the selection process
of potential oil and gas producing properties. During the three month period
ended March 31, 2004 professional fees accounted for $41,073 of expense
associated with previous business strategies of the Company. During the three
months ended March 31, 2005 professional fees were $2,689.

LOSS FROM CONTINUING OPERATIONS - For the three months ended March 31, 2005 the
Company incurred a loss of $7,919 compared to a loss of $42,018 for the three
months ended March 31, 2004, a change of $34,099 or 81%. The major reason for
this decrease in loss for the three months ended March 31, 2006 was the decision
to stop previous strategies of the Company and focus on the oil and gas
exploration and production industry, the company had not ramped up full
operations to locate and select oil and gas producing properties.

                                       26


<PAGE>

NET INCOME/LOSS - For the quarter ended March 31, 2005 the Company had a net
loss of $7,919 compared to a net loss of $44,027 for the quarter ended March 31,
2004, a change of $36,108 or 82%. The major reason for the reduction of net loss
was the decision to stop previous strategies of the Company and focus on the oil
and gas exploration and production industry, the company had not ramped up full
operations to locate and select oil and gas producing properties.

SIX MONTHS ENDED MARCH 31, 2005 COMPARED TO SIX MONTHS ENDED MARCH 31, 2004

REVENUES FROM OPERATIONS - Revenues for the six months ended March 31,2005 and
2004 were zero because $16,860 of revenue for the six months ended March 31,
2004, were reclassified to discontinued operations. During the fiscal year 2005
TX Holdings sold a 67.7% interest in Freedom Homes and Direct and wrote-off its
remaining 32.3% interest in Freedom Homes. This decision was based on the fact
that management believes that there is no continuing value in Freedom Homes due
to the lack of a market place for the common stock of Freedom Homes, and the
fact that Freedom Homes not paying a dividend and has not demonstrated the
ability to be a profitable Company.

EXPENSES FROM CONTINUING OPERATIONS - The Company incurred operating expenses of
$30,653 for the six months ended March 31, 2005, a decrease of $22,631 or 42%
compared to $53,284 for the six months ended March 31, 2004. The decrease in the
operating expenses occurred as the Company was starting to enter a new industry
(oil and gas) and had not started full operations and had not engaged the
necessary professionals to assist it in the selection process of potential oil
and gas producing properties. In the six month period ended March 31, 2004
professional fees accounted for $53,044 of expense associated with previous
business strategies of the Company, comparatively, during the six months ended
March 31, 2005 professional fees were $4,182. Although, during this six month
period ended March 31, 2005 the company began to increase miscellaneous expenses
to $25,111 associated with its new business strategy.

LOSS FROM CONTINUING OPERATIONS - For the six months ended March 31, 2005 the
Company incurred a loss of $32,568 compared to a loss of $54,802 for the six
months ended March 31, 2004, a change of $22,234 or 41%. The major reason for
this decrease in loss for the three months ended March 31, 2006 was the decision
to stop previous strategies of the Company and focus on the oil and gas
exploration and production industry, the company had not ramped up full
operations to locate and select oil and gas producing properties.

NET GAIN/LOSS - For the six months ended March 30, 2005 the Company had net
income of $76,324 compared to a loss of $59,190 for the six months ended March
31, 2004, a change of $135,514 or 229%. The major reason for the net income in
2005 is fully attributed to a gain of $108,892 from the sale of affiliates.

THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004

REVENUES FROM OPERATIONS - Revenues for the three months ended June 30, 2005 and
2004 were zero because $5,895 of revenue for the three months ended June 30,
2004, were reclassified to discontinued operations. During the fiscal year 2005
TX Holdings sold a 67.7% interest in Freedom Homes and Direct and wrote-off its
remaining 32.3% interest in Freedom Homes. This decision was based on the fact
that management believes that there is no continuing value in Freedom Homes due
to the lack of a market place for the common stock of Freedom Homes, and the
fact that Freedom Homes not paying a dividend and has not demonstrated the
ability to be a profitable Company.

EXPENSES FROM CONTINUING OPERATIONS - The Company incurred operating expenses of
$62,505 for the three months ended June 30, 2005 an increase of $38,098 or 156%
compared to $24,407 for the three months ended June 30, 2004. The increase in
the operating expenses occurred as the Company was entering the new industry
(oil and gas) and started full operations engaging the necessary professionals
to assist it in the selection process of potential oil and gas producing
properties, the professional fees during the three month period ended June 30,
2005 was $38,383 compared to $22,401 for the three months ended June 30, 2004,
an increase $15,982 or 71%. The Company also incurred $5,000 of lease expense
associated with its oil and gas business during the three month period ended
June 30, 2005 with no similar expense associated with its previous business
activities during the three month period ended June 30, 2004.

                                       27


<PAGE>

LOSS FROM CONTINUING OPERATIONS - For the three months ended June 30, 2005 the
Company incurred a loss of $63,462 compared to a loss of $25,472 for the three
months ended June 30, 2004, an increase of $37,990 or 149%. The major reason for
this increase in loss for the three month period ended June 30, 2005 was the
Company's increased activities to locate and select oil and gas producing
properties associated with its new business focus.

NET INCOME/LOSS - For the quarter ended June 30, 2005 the Company had a net loss
of $63,464 compared to a net loss of $27,979 for the quarter ended June 30,
2004, a change of $35,485 or 127%. The major reason for the reduction of net
loss was the decision to stop previous strategies of the Company and focus on
the oil and gas exploration and production industry, the company had not ramped
up full operations to locate and select oil and gas producing properties.

NINE MONTHS ENDED JUNE 30, 2005 COMPARED TO NINE MONTHS ENDED JUNE 30, 2004

REVENUES FROM OPERATIONS - Revenues for the nine months ended June 30, 2005 and
2004 were zero because $22,755 of revenue for the nine months ended June 30,
2004, were reclassified to discontinued operations. During the fiscal year 2005
TX Holdings sold a 67.7% interest in Freedom Homes and Direct and wrote-off its
remaining 32.3% interest in Freedom Homes. This decision was based on the fact
that management believes that there is no continuing value in Freedom Homes due
to the lack of a market place for the common stock of Freedom Homes, and the
fact that Freedom Homes not paying a dividend and has not demonstrated the
ability to be a profitable Company.

EXPENSES FROM CONTINUING OPERATIONS - The Company incurred operating expenses of
$93,158 for the nine months ended June 30, 2005 an increase of $15,467 or 20%
compared to $77,691 for the nine months ended June 30, 2004. The increase in the
operating expenses occurred as the Company decided to enter a new industry (oil
and gas) and to engage the necessary professionals to assist it in the selection
process of potential oil and gas producing properties. During the nine month
period ended June 30, 2004 professional fees accounted for $75,445 of expense
associated with previous business strategies of the Company. During the nine
months ended June 30, 2005 professional fees were $42,565. In addition, the
Company increased miscellaneous expenses during the nine month period ended June
30, 2005 to $44,113 compared to $1,886 for the nine month period ended June 30,
2004. The Company also incurred $5,000 of lease expense associated with its oil
and gas business during the nine month period ended June 30, 2005 with no
similar expense associated with its previous business activities during the nine
month period ended June 30, 2004.

NET GAIN/LOSS - For the nine months ended June 30, 2005 the Company incurred a
gain of $12,860 compared to a loss of $87,169 for the nine months ended June 30,
2004, a change of $100,029 or 115%. The major reason for the net income in 2005
is fully attributed to a gain of $108,892 from the sale of affiliates.

ITEM 7 - FINANCIAL STATEMENTS

The Company's consolidated balance sheets as of September 30, 2005 and 2004, and
the related consolidated 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-B as promulgated by the Securities and Exchange Commission and are included
herein in response to Part F/S of this Form 10-KSB. The financial statements
have been prepared assuming the Company will continue as a going concern.

On February 6, 2006 the Company received permission to file a comprehensive Form
10-KSB which includes the interim financial statements for the quarters ended
December 31, 2004, March 31, 2005 and June 30, 2005 in lieu of filing Forms
10QSB for those quarters. The Company is required to include within its 2005
10-KSB the following information:

         1.       Unaudited condensed financial statements that have reviewed by
                  a PCAOB registered accountant in a level of detail consistent
                  with SX rule 10-01(a)and (b) for the applicable quarters of
                  2004 and 2005.

                                       28


<PAGE>

         2.       Managements Discussion and Analysis, based on the annual and
                  quarterly financial information, explaining operating results,
                  trends and liquidity during each interim and annual period
                  presented. Discussions relative to interim periods may be
                  incorporated into the annual-period discussions or presented
                  separately.

         3.       All material information that would have been available and
                  disclosed in the company's delinquent 2005 periodic reports
                  had they been timely filed.


<TABLE>
TX HOLDINGS, INC. FINANCIAL STATEMENTS
TABLE OF CONTENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2005 AND 2004 AND THE QUARTERS
ENDED DECENBER 31, 2004, MARCH 31, 2005 AND JUNE 30, 2005
---------------------------------------------------------------------------------------------

                                                                                      PAGE(S)
                                                                                      -------

<S>                                                                                     <C>
Report Of Independent Registered Public Accounting Firm                                 31

Audited Financial Statements:

  Consolidated Balance Sheet at September 30, 2005 and 2004                             32

  Consolidated Statements Of Operations for the years ended September 30, 2004 and
    2005, and for the period from inception of the development stage, October 1,
    2004, to September 30, 2005                                                         33

  Consolidated Statements Of Changes In Stockholders' Deficit for the years ended
    September 30, 2004 and 2005                                                         34

  Consolidated Statements Of Cash Flows for the years ended September 30, 2004 and
    2005, and for the period from inception of the development stage, October 1,
    2004, to September 30, 2005                                                         35

  Notes to Financial Statements                                                         36

  Unaudited Consolidated Condensed Financial Statements for the three months ended
    December 31, 2005 and 2004:

  Unaudited Consolidated Condensed Balance Sheet at December 31, 2004 and
    September 30, 2004                                                                  49

  Unaudited Consolidated Condensed Statements Of Operations for the three months
    ended December 31, 2004 and 2003, and for the period from inception of the
    development stage, October 1, 2004, to December 31, 2004                            50

  Unaudited Consolidated Condensed Statement Of Changes In Stockholders' Deficit
    for the three months ended December 31, 2004                                        51

  Unaudited Consolidated Condensed Statements Of Cash Flows for the three months
    ended December 31, 2004 and 2003, and for the period from inception of the
    development stage, October 1, 2004, to December 31, 2004                            52

  Notes to Unaudited Consolidated Condensed Financial Statements                        53

                                            29


<PAGE>

TX HOLDINGS, INC. FINANCIAL STATEMENTS
TABLE OF CONTENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2005 AND 2004 AND THE QUARTERS
ENDED DECENBER 31, 2004, MARCH 31, 2005 AND JUNE 30, 2005

                                                                                      PAGE(S)
                                                                                      -------

  Unaudited Consolidated Condensed Financial Statements for the three months and
    six months ended March 31, 2005 and 2004:

  Unaudited Consolidated Condensed Balance Sheets at March 31, 2005 and September
    30, 2004                                                                            59

  Unaudited Consolidated Condensed Statements Of Operations for the three months
    and six months ended March 31, 2005 and 2004, and for the period from inception
    of the development stage, October 1, 2004, to March 31, 2005                        60

  Unaudited Consolidated Condensed Statement Of Changes In Stockholders' Deficit
    for the six months ended March 31, 2005                                             61

  Unaudited Consolidated Condensed Statements Of Cash Flows for the six months
    ended March 31, 2005 and 2004, and for the period from inception of the
    development stage, October 1, 2004, to March 31, 2005                               62

  Notes to Unaudited Consolidated Condensed Financial Statements                        63

  Unaudited Consolidated Condensed Financial Statements for the three months and
    nine ended June 30, 2005 and 2004

  Unaudited Consolidated Condensed Balance Sheet at June 30, 2005 and September
    30, 2004                                                                            69

  Unaudited Consolidated Condensed Statements Of Operations for the three months
    and nine months ended June 30, 2005 and 2004, and for the period from inception
    the development stage, October 1, 2004, to June 30, 2005                            70

  Unaudited Consolidated Condensed Statement Of Changes In Stockholders' Deficit
    for the nine months ended June 30, 2005                                             71

  Unaudited Consolidated Condensed Statements Of Cash Flows for the nine month
    ended June 30, 2005 and 2004, and for the period from inception of the
    development stage, October 1, 2004, to June 30, 2005                                72

  Notes to Unaudited Consolidated Condensed Financial Statements                        73

                                       30


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Directors of TX Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of TX Holdings,
Inc. and subsidiaries as of September 30, 2005 and 2004 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the years then ended. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TX
Holdings, Inc. and subsidiaries as of September 30, 2005 and 2004, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated 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.

As described in Note 2, the Company previously filed its September 30, 2005
financial statements without audit and those financial statements included
errors in the application of accounting principles generally accepted in the
United States. Accordingly, the accompanying September 30, 2005 financial
statements have been restated.


/s/ Ham, Langston & Brezina, L.L.P.

Houston, Texas
January 23, 2006

                                       31


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2005 AND 2004


                                                                  2005             2004
                                                              -----------      -----------

                                    ASSETS

Current assets:

     Prepaid expenses                                         $    10,000      $        --
                                                              -----------      -----------

        Total current assets                                       10,000               --

Property and equipment, net                                         1,080            3,725

Other assets                                                           --              250
                                                              -----------      -----------

              Total assets                                    $    11,080      $     3,975
                                                              ===========      ===========

                    LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

     Note payable to a bank                                   $        --      $    20,598

     Accounts payable and accrued liabilities                     220,277          310,627

     Advances from a stockholder/officer                          214,697           53,036
                                                              -----------      -----------

        Total current liabilities                                 434,974          384,261
                                                              -----------      -----------

Commitments and contingencies

Stockholders' deficit:
     Preferred stock: no par value, 1,000,000 shares
        authorized, no shares issued or outstanding                    --               --
     Common stock: no par value, 50,000,000 shares
        authorized, 16,705,593 and 15,793,651 shares
        issued and outstanding at September 30, 2005
        and 2004, respectively                                  1,618,305        1,532,111

     Additional paid-in capital                                   211,098               --

     Accumulated deficit                                       (1,803,507)      (1,912,397)

     Losses accumulated in the development stage                 (449,790)              --
                                                              -----------      -----------

        Total stockholders' deficit                              (423,894)        (380,286)
                                                              -----------      -----------


              Total liabilities and stockholders' deficit     $    11,080      $     3,975
                                                              ===========      ===========


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

                                       32


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO SEPTEMBER 30, 2005
---------------------------------------------------------------------------------------------------

                                                                                       INCEPTION OF
                                                                                        DEVELOPMENT
                                                                                          STAGE TO
                                                                                       SEPTEMBER 30,
                                                       2005              2004              2005
                                                   ------------      ------------      ------------
                                                    (RESTATED)
Operating expenses, except items shown
     separately below                              $     67,250      $        501      $     67,250
     Professional fees                                  160,706           124,808           160,706
     Lease expense                                        5,000                --             5,000
     Depreciation expense                                   480               480               480
     Advertising expense                                  2,384                --             2,384
                                                   ------------      ------------      ------------
        Total operating expenses                        235,820           125,789           235,820
                                                   ------------      ------------      ------------
Loss from operations                                   (235,820)         (125,789)         (235,820)
                                                   ------------      ------------      ------------
Other income and (expenses):
     Forbearance agreement costs                       (211,098)               --          (211,098)
     Interest expense                                    (2,872)           (3,850)           (2,872)
                                                   ------------      ------------      ------------
        Total other income and (expenses), net         (213,970)           (3,850)         (213,970)
                                                   ------------      ------------      ------------
Loss from continuing operations                        (449,790)         (129,639)         (449,790)
                                                   ------------      ------------      ------------
Discontinued operations:
     Loss from operation of discontinued
        business segment                                     --            (8,926)               --
     Gain (loss) from disposal of
        discontinued
        business segment                                108,890              (101)               --
                                                   ------------      ------------      ------------
Gain (Loss) from discontinued operations                108,890            (9,027)               --
                                                   ------------      ------------      ------------
Net loss                                           $   (340,900)     $   (138,666)     $   (449,790)
                                                   ============      ============      ============
Net loss per common share - basic and diluted
     Continuing operations                         $      (0.03)     $      (0.01)
     Discontinued operations                               0.01             (0.00)

        Total                                      $      (0.02)     $      (0.01)
                                                   ============      ============
Weighted average number of common shares
     outstanding - basic and diluted                 15,958,775        15,372,163
                                                   ============      ============


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

                                       33


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENT CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                                           LOSSES
                                                              ADDITIONAL                                 ACCUMULATED
                                        COMMON STOCK           PAID-IN     SUBSCRIPTION   ACCUMULATED  IN THE DEVELOP-
                                    SHARES        AMOUNT       CAPITAL      RECEIVABLE      DEFICIT       MENT STAGE       TOTAL
                                 -----------   -----------   -----------   -----------    -----------    -----------    -----------

Balance at September 30, 2003     15,293,651   $ 1,497,111   $        --   $   (92,159)   $(1,773,731)            --    $  (368,779)

Cash and services received
     from a stockholder                   --            --            --        92,159             --             --         92,159
Common stock issued for
     professional services           500,000        35,000            --            --             --             --         35,000
Net loss                                  --            --            --            --       (138,666)            --       (138,666)
                                 -----------   -----------   -----------   -----------    -----------    -----------    -----------

Balance at September 30, 2004     15,793,651     1,532,111            --            --     (1,912,397)            --       (380,286)

Inception of the development
     stage on October 1, 2004             --            --            --            --             --             --             --
Common stock issued for
     professional services           450,000        40,000            --            --             --             --         40,000
Common stock issued for prepaid
     services                        100,000        10,000            --            --             --             --         10,000
Common stock issued to settle
     accounts payable                361,942        36,194            --            --             --             --         36,194
Warrants issued under
     forbearance agreement                --            --       211,098            --             --             --        211,098
Net income (loss), as restated            --            --            --            --        108,890       (449,790)      (340,900)
                                 -----------   -----------   -----------   -----------    -----------    -----------    -----------

Balance at September
  30, 2005, as restated           16,705,593   $ 1,618,305   $   211,098   $        --    $(1,803,507)   $  (449,790)   $  (423,894)
                                 ===========   ===========   ===========   ===========    ===========    ===========    ===========


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

                                                          34


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2005 AND 2004 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO SEPTEMBER 30, 2005
--------------------------------------------------------------------------------------------------

                                                                                      INCEPTION OF
                                                                                      DEVELOPMENT
                                                                                        STAGE TO
                                                                                     SEPTEMBER 30,
                                                                2005         2004         2005
                                                             ---------    ---------    ---------
                                                            (RESTATED)
Cash flows from operating activities:
     Net loss, as restated                                   $(340,900)   $(138,666)   $(340,900)
     Adjustments to reconcile net loss to net cash used in
        operating activities
        Loss (gain) from discontinued operations              (108,890)       9,027     (108,890)
        Warrants issued for forbearance agreement              211,098           --      211,098
        Depreciation expense                                       480          480          480
        Gain on settlement of accounts payable                      --           --
        Common stock issued for services                        50,000       35,000       50,000
        Common stock issued to settle accounts payable          36,194           --       36,194
        Changes in operating assets and liabilities:
           Prepaid expenses and other assets                    (9,750)          --       (9,750)
           Accounts payable and accrued liabilities             20,705        1,920       20,705
                                                             ---------    ---------    ---------
              Net cash used by continuing operations          (141,063)     (92,239)    (141,063)
              Net cash used by discontinued operations              --       (7,002)          --
                                                             ---------    ---------    ---------
                 Net cash used by operating activities        (141,063)     (99,241)    (141,063)
                                                             ---------    ---------    ---------
Cash flows from financing activities:
     Repayment of note payable to a bank                       (20,598)       6,152      (20,598)
     Proceeds from sale of common stock                             --       92,159           --
     Proceeds from stockholder/officer advances                161,661           --      161,661
                                                             ---------    ---------    ---------
                 Net cash provided by financing activities     141,063       98,311      141,063
                                                             ---------    ---------    ---------
Decrease in cash and cash equivalents                               --         (930)          --

Cash and cash equivalents at beginning of year                      --          930           --
                                                             ---------    ---------    ---------

Cash and cash equivalents at end of year                     $      --    $      --    $      --
                                                             =========    =========    =========

Supplemental disclosure of cash flow information
     Cash paid for interest expense                          $   2,872    $   2,000
     Cash paid for income taxes                                     --           --


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

                                           35
</TABLE>


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED 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 transitioning
from a holding company to an oil and gas exploration and production company.
This transition began during 2005 and is discussed below in "CURRENT BUSINESS
ACTIVITIES". Prior to May 26, 2005 the Company operated as a holding company for
its formerly two wholly owned subsidiaries, Homes By Owners, Inc. ("Homes") and
Direct Lending, Inc. ("Direct"). The Company received approval from the
Secretary of State of Georgia for a certificate of merger between Homes and
Freedom Homes, Inc. ("Freedom"). The Company remains the owner of 32.3% of the
common shares of Homes. The remaining common shares of Homes are owned as
follows: 63.1% by Jim Evans, owner of Freedom, and 4.6% by Robert S. Wilson,
operating officer of Homes. In 2005 the company sold a 67.7% interest in Freedom
Home Inc and wrote off its remaining 32.3% investment in Freedom because
management is unable to demonstrate that its equity interest has any future
value. Accordingly, at September 30, 2005 the Company recognized a gain from
discontinued operations of $108,890.

Clarification of Freedom Homes was incorporated in the State of Georgia in
December 1999 and operates in the real estate market as an advertiser of real
estate listed as "for sale by owner" ("FSBO"). Homes has published a periodic
magazine which contains FSBO and other advertising, and Homes offers an Internet
web page that serves as an advertising venue for FSBO residential and commercial
real estate in the Central Savannah River Area.

CURRENT BUSINESS ACTIVITIES

Management seeks to acquire producing oil and gas properties in and around
Texas, Louisiana and Oklahoma that will define the operational holdings of The
Company. Management has defined a number of criteria for acquisition which
include:

         o        Wells should be currently Producing
         o        Production should be broadly distributed across lease
         o        Lease should show a 24 month payback (or better)
         o        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 and 2006 in making the transition to an oil and gas exploration and
production company. The Company plans to continue to use a combination of debt,
and equity finance. 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.


                                       36


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

DEVELOPMENT STAGE COMPANY

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 Statement
of Financial Accounting Standards (SFAS) No. 7, ACCOUNTING AND REPORTING BY
DEVELOPMENT-STAGE ENTERPRISES.

GOING CONCERN CONSIDERATIONS

The Company, with its prior subsidiaries, has suffered recurring losses while
devoting substantially all of its efforts to raising capital, identifying and
pursuing businesses opportunities and 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.

These factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuing operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company's 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
consolidated 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.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries during 2004 and the recognition to the loss on
discontinuation of the Company's investment in subsidiaries in 2005. All
significant intercompany balances and transactions have been eliminated in
consolidation.

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,
valuation of acquired in-process research and development, measurement of
stock-based compensation, and the fair value of the Company's common stock. The
Company bases its estimates on historical experience and various other
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.

PRINCIPLES OF CONSOLIDATION

In 2005 the company sold its majority interest in its wholly owned subsidiaries
and does not report consolidated financial statements. The 2004 financials
statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.

                                       37


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

PROPERTY AND EQUIPMENT

The Company uses the successful efforts method of accounting for oil and gas
producing activities. Under this method, acquisition costs for proved and
unproved properties are capitalized when incurred. Exploration costs, including
geological and geophysical costs, 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 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. ERHC 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.

                                       38


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

REVENUE RECOGNITION

Advertising revenues from commercial advertisers are recognized ratably over the
agreed upon advertising period. Advertising revenues from FSBO advertisers are
recognized ratably over the agreed upon advertising period, unless the FSBO
property is sold prior to the end of the agreed upon advertising period, at
which time the revenue is recognized in full. Mortgage origination revenues were
recognized at loan closing.

Currently the Company has no revenue from oil and gas operations. When the
Company begins to receive 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.

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.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years' consolidated
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 the guidance of SFAS No. 128, EARNINGS
PER SHARE (SFAS 128), 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.

                                       39


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED 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.

                                                             2005       2004
                                                          ----------  ---------

    Warrants issued under forbearance agreement            1,434,088          -

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 2004, the Financial Accounting Standards Board ("FASB") approved the
consensus reached on the Emerging Issues Task Force Issue ("EITF") No. 03-01,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." EITF 03-01 provides guidance on determining when an investment is
considered impaired, whether that impairment is other-than-temporary and the
measurement of an impairment loss. EITF 03-01 also provides new disclosure
requirements for other-than-temporary impairments on debt and equity
investments. In September 2004, the FASB delayed until further notice the
effective date of the measurement and recognition guidance contained in EITF
03-01, however the disclosure requirements of EITF 03-01 are currently
effective. Our adoption of EITF 03-01 is not expected to have a material impact
on our financial position or results of operations.

In December 2004, the FASB issued FAS No. 123R, "Share-Based Payment." The
statement replaces FAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This
statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. The adoption of
the statement will result in the expensing of the fair value of stock options
granted to employees in the basic financial statements. The statement is
effective for the years commencing after January 1, 2006 and management is
currently assessing its impact.

The statement applies to new equity awards and to equity awards modified,
repurchased, or cancelled after the effective date. Additionally, compensation
cost for the portion of awards for which the requisite service has not been
rendered that are outstanding as of the effective date shall be recognized as
the requisite service is rendered on or after the effective date. The
compensation cost for that portion of awards is based on the grant-date fair
value of those awards as calculated from the pro forma disclosures under
Statement No. 123. Changes to the grant-date fair value of equity awards granted
before the effective date of this statement are precluded. The compensation cost
for those earlier awards shall be attributed to periods beginning on or after
the effective date of this statement using the attribution method that was used
under Statement No. 123, except that the method of recognizing forfeitures only
as they occur shall not be continued. Any unearned or deferred compensation
(contra-equity accounts) related to those earlier awards shall be eliminated
against the appropriate equity accounts. Additionally, common stock purchased
pursuant to stock options granted under our employee stock purchase plan is
expensed based upon the fair market value of the stock option.

                                       40


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

RECENTLY ISSUED ACCOUNTING STANDARDS, CONTINUED

The statement also allows for a modified version of retrospective application to
periods before the effective date. Modified retrospective application may be
applied either (a) to all prior years for which Statement No. 123 was effective
or (b) only to prior interim periods in the year of initial adoption. An entity
that chooses to apply the modified retrospective method to all prior years for
which Statement No. 123 was effective shall adjust financial statements for
prior periods to give effect to the fair-value-based method of accounting for
awards granted, modified, or settled in cash in fiscal years beginning after
December 15, 1994, on a basis consistent with the pro forma disclosures required
for those periods by Statement No. 123. Accordingly, compensation cost and the
related tax effects will be recognized in those financial statements as though
they had been accounted for under Statement No. 123. Changes to amounts as
originally measured on a pro forma basis are precluded.

In December 2004, the FASB issued FAS No. 153, "Exchange of Nonmonetary Assets",
which is an amendment to APB Opinion No. 29. The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that opinion, however, included certain
exceptions to that principle. This statement amends APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The adoption of FAS No. 153 is not
expected to have a material impact on our financial position or results of
operations.

Other accounting standards that have been issued or proposed by the Financial
Accounting Standards Board that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.

In May 2005, the FASB issued FAS No. 154, ACCOUNTING CHANGES AND ERROR
CORRECTION ("FAS No. 154"). FAS No. 154 is a replacement of APB Opinion No. 20,
ACCOUNTING CHANGES (APB Opinion No. 20), and FAS No. 3, REPORTING ACCOUNTING
CHANGES IN INTERIM FINANCIAL STATEMENTS. This statement applies to all voluntary
changes in accounting principle, and changes the accounting for, and reporting
of, a change in accounting principle. FAS No. 154 requires retrospective
application to prior periods' financial statements of a voluntary change in
accounting principle unless it is impracticable to do so. APB Opinion No. 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. FAS No. 154 carries forward
many provisions of APB Opinion No. 20 without change, including the provisions
related to the reporting of a change in accounting, a change in the reporting
entity, and the correction of an error. FAS No. 154 does not change the
transition provisions of any existing account pronouncements, including those
that are in a transition phase as of the effective date of the statement. The
Company adopted the provisions of FAS No. 154 on January 1, 2006, and the
adoption of the new standard did not have a material impact on the Company's
consolidated financial position or consolidated statement of operations.

In June 2005, the FASB issued FSP 150-5. The FSP clarifies that freestanding
warrants and similar instruments on shares that are redeemable should be
accounted for as liabilities under FAS No. 150, regardless of the timing of the
redemption feature or price, even though the underlying shares may be classified
as permanent or temporary equity. The FSP was effective for the first reporting
period beginning after June 30, 2005. The Company adopted FSP 150-5 in 2006 and
the impact was not material to the Company's consolidated financial position or
consolidated statement of operations.

                                       41


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED

RECENTLY ISSUED ACCOUNTING STANDARDS, CONTINUED

In July 2006, the FASB issued FASB Interpretation No. 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES--AN INTERPRETATION OF FAS 109. This interpretation
clarifies the accounting for uncertainty in income taxes recognized in a
company's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken in a tax return. It also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. Interpretation No. 48 is effective for
fiscal years beginning after December 15, 2006. Earlier application is
encouraged if the company has not yet issued financial statements, including
interim financial statements, in the period Interpretation No. 48 is adopted.
The Company is currently evaluating the impact the adoption of this
interpretation will have on its consolidated results of operations and financial
position.

NOTE 2 - RESTATEMENT

The Company previously filed its September 31, 2005 financial statements without
audit and those financial statements included errors in the application of
accounting principles generally accepted in the United States. Following is an
analysis errors and the effect on the financial statements:

<TABLE>
                                                         YEAR ENDED SEPTEMBER 30, 2005
                                                  ---------------------------------------------
                                                  AS ORIGINALLY
                                                      FILED        RESTATEMENT      AS RESTATED
                                                  -----------      -----------      -----------

<S>                                               <C>              <C>              <C>
Revenue                                           $        --      $        --      $        --

Total operating expenses                              235,820               --          235,820
                                                  -----------      -----------      -----------

Loss from operations                                 (235,820)              --         (235,820)

Total other income and (expenses), net                 (2,872) (A)    (211,098)        (213,970)
                                                  -----------      -----------      -----------

Loss from continuing operations                      (238,692)        (211,098)        (449,790)

Discontinued operations:
     Loss from operation of discontinued
        business segment                                   --               --               --
     Gain (loss) from disposal of
        discontinued business segment                (790,841) (B)     899,731          108,890
                                                  -----------      -----------      -----------

Gain (Loss) from discontinued operations             (790,841)         899,731          108,890
                                                  -----------      -----------      -----------

Net loss                                          $(1,029,533)     $   688,633      $  (340,900)
                                                  ===========      ===========      ===========

Net loss per common share - basic and diluted
     Continuing operations                        $     (0.01)                      $     (0.03)
     Discontinued operations                            (0.05)                             0.01

        Total                                     $     (0.06)                      $     (0.02)
                                                  ===========                       ===========

                                               42


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 2 - RESTATEMENT, CONTINUED

Amounts in the September 30, 2004 financial statements have also been
reclassified for discontinued operations as follows:

                                                                YEAR ENDED SEPTEMBER 30, 2004
                                                  ------------------------------------------------------
                                                  AS ORIGINALLY
                                                      FILED          RECLASSIFICATION       AS RESTATED
                                                  -------------      ----------------      -------------
Revenue                                           $      26,605 (C)  $        (26,605)     $          --

Total operating expenses                                159,298 (C)           (33,509)           125,789
                                                  -------------      ----------------      -------------

Loss from operations                                   (132,693)                6,904           (125,789)

Total other income and (expenses), net                   (5,872)(C)             2,022             (3,850)
                                                  -------------      ----------------      -------------

Loss from continuing operations                        (138,565)                8,926           (129,639)
                                                  -------------      ----------------      -------------

Discontinued operations:
     Loss from operation of discontinued
        business segment                                     -- (C)            (8,926)            (8,926)
     Gain (loss) from disposal of
        discontinued business segment                      (101)                   --               (101)
                                                  -------------      ----------------      -------------

Gain (Loss) from discontinued operations                   (101)               (8,926)            (9,027)
                                                  -------------      ----------------      -------------

Net loss                                          $    (138,666)     $             --      $    (138,666)
                                                  =============      ================      =============

Net loss per common share - basic and diluted

     Continuing operations                        $       (0.01)                           $       (0.01)

     Discontinued operations                              (0.00)                                   (0.00)
                                                  -------------                            -------------

        Total                                     $       (0.01)                           $       (0.01)
                                                  =============                            =============

</TABLE>

         (A)      To properly recognize the compensation expense associated with
                  warrants issued under a forbearance agreement with a vendor.

         (B)      To properly recognize the gain upon sale of a majority
                  interest in Homes. The adjustment eliminates the negative
                  minority as a result of the sale.

         (C)      To reclassify discontinued operations of Homes.

NOTE 3 - DISCONTINUED OPERATIONS

Following is an analysis of the discontinued operations of Homes By Owners, Inc
for the year ended September 30, 2004. The Company sold a majority interest in
Homes by owner and believes Homes has no continuing value. The Company continues
to own a minority interest in Homes and recognized a gain on sale of the
majority interest because the sale resulted in a negative minority interest. The
elimination of the minority interest is based on the assumption of liabilities
by the acquiror.

                                       43


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 -------------------------------------------------------------------------------

NOTE 3 - DISCONTINUED OPERATIONS, CONTINUED

Revenue                                                               $  26,605
                                                                      ---------

Operating expenses, except items shown separately below                  24,776
     Professional fees                                                    4,734
     Lease expense                                                        1,863
     Depreciation expense                                                 2,025
     Advertising expense                                                    111
                                                                      ---------
        Total operating expenses                                         33,509
                                                                      ---------
Loss from operations                                                     (6,904)
                                                                      ---------
Other income and (expenses):
     Gain on settlement of accounts payable                               1,342
     Interest expense                                                    (3,364)
                                                                      ---------
        Total other income and (expenses), net                           (2,022)
                                                                      ---------

Gain (Loss) from discontinued operations                              $  (8,926)
                                                                      =========
Following is analysis of the gain on sale:

Property and equipment                                                $   2,166
Other assets                                                                250
                                                                      ---------
           Total assets surrendered                                       2,416

Accounts payable assumed                                                111,306
                                                                      ---------
           Gain on sale                                               $ 108,890
                                                                      =========

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at September 30, 2004 and 2005:

                                                    LIFE      2005       2004
                                                 ---------  --------   --------

    Software and web page                         3 years   $      -   $ 36,650
    Furniture and office equipment               5-7 years     2,400     13,288
                                                            --------   --------

    Total                                                      2,400     49,938

    Less accumulated depreciation
        and amortization                                       1,320     43,708
                                                            --------   --------


                                                            $  1,080   $  6,230
                                                            ========   ========

                                       44


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 5 - SHORT-TERM NOTES PAYABLE

Short-term notes payable at September 30, 2004 consists of a short term note
payable to Georgia Bank & Trust Company. Interest only payments are due monthly
at prime plus 1.0% per year(5.75% on September 30, 2004). The note is guaranteed
and is secured by the primary residence of a former director and current
stockholder of the Company. On October 13, 2004, a former director and current
stockholder paid off the balance of the loan, including $141 in accrued
interest.

NOTE 6 - INCOME TAXES

The tax effects of temporary differences that give rise to deferred taxes are as
follows at September 30, 2005 and 2004:

                                                           2005        2004
                                                       -----------  ----------

    DEFERRED TAX ASSETS:
      Net operating losses                             $   413,573  $  340,155

      Accrued wages                                         17,149      17,149

      Basis of intangible assets                                 -       5,863
      Valuation allowance                                 (430,722)   (363,167)
                                                       -----------  ----------

    Total deferred tax assets                                    -         281

    DEFERRED TAX LIABILITIES:

      Basis of property and equipment                            -         281
                                                       -----------  ----------

    Net deferred tax asset                             $         -  $        -
                                                       ===========  ==========

The Company has tax net operating loss carryforwards totaling approximately
$2,038,000, expiring in 2018 through 2025. Approximately $1,190,000 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.

Net operating losses after December 12, 2002 through September 30, 2005 were
approximately $792,000. The total net operating losses available to the Company
to offset future taxable income is approximately $1,216,000. Following is a
reconciliation of the tax benefit at the federal statutory rate to the amount
reported in the statement of operations:

<TABLE>
                                                2005                           2004
                                       ----------------------       ----------------------
                                         AMOUNT      PERCENT          AMOUNT      PERCENT
                                       ---------    ---------       ---------    ---------
<S>                                    <C>                 <C>      <C>                 <C>
Benefit for income tax at federal
  statutory rate                       $ 115,906           34%      $  47,146           34%
Change in valuation allowance            (67,555)         (20)        (46,856)         (34)
Non-taxable gain from discontinued
  operations                              37,022           11              --           --
Non-deductible stock-based
  compensation                           (85,373)         (25)             --           --

Other                                                                    (290)          (0)
                                       ---------    ---------       ---------    ---------

                                       $      --           --%      $      --           --%
                                       =========    =========       =========    =========

                                                 45
</TABLE>


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 6 - INCOME TAXES, CONTINUED

There were no income taxes due or receivable from operations for the years ended
September 30, 2005 and 2004, and the Company's reported benefit for income taxes
differs from the amount computed by applying statutory tax rates to loss before
income taxes due to changes in the valuation allowance for financial reporting
purposes. Other differences relate to expense items or portions of items not
deductible, such as meals and entertainment.

NOTE 7 - SEGMENT INFORMATION

In previously issued financial statements, the Company presented segment
information. However, at September 30, 2005, the Company's only operating
activities were as a development stage company planning oil and gas business
activities. Accordingly, no segment information is presented at September 30,
2005.

NOTE 8 - RELATED PARTY TRANSACTIONS

During the years ended September 30, 2005 and 2004, the Company's operations
were funded by Mark S. Neuhaus, Chairman of the Board of Directors and Chief
Executive Officer of the Company. The Company has received advances that
resulted in a liability to Mr. Neuhaus of $214,697 and $53,036 at September 30,
2005 and 2004.

NOTE 9 - UNSUCCESSFUL BUSINESS COMBINATION COSTS

On August 2, 2004 the Company and S2 Consulting executed a Management Consulting
Agreement, pursuant to which the consulting firm agreed for a six-month period
to provide consulting services to the Company in relation to the evaluation of
potential merger and acquisition targets. The services provided under the
agreement include advising, evaluating and developing corporate strategy,
providing company guidance, and assisting in developing relationships and
opportunities. In consideration for the contracted services and services
previously provided, valued at $35,000, the Company agreed to issue 500,000
shares of its common stock to the consulting firm.

The costs incurred during the years ended September 30, 2004 and 2005, on
proposed business combinations are reported as other expense in the statement of
operations.

NOTE 10 - STOCKHOLDERS' EQUITY

COMMON STOCK

During the years ended September 30, 2005 and 2004, the Company issued Common
stock to raise capital, compensate employees and professionals, and to settle
liabilities. Following is a description of stock issuances in 2004 and 2005:

On December 12, 2002, the Company issued MA&N, LLC ("MA&N"), a Nevada limited
liability company, 4,647,626 shares of common stock, representing, at the time
of the transaction, 51% of the total of the Company's 9,112,992 shares issued or
issuable at that date. In exchange for the shares, the Company was to receive
total consideration of $232,000, in the form of payment of current expenses and
past obligations on behalf of the Company and providing certain internet
services and certain management and consulting services for a period of at least
two years. As of September 30, 2004, the Company has received funds, including
payments directly to vendors, of $174,600 and management and consulting services
of $57,400.

                                       46


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 10 - STOCKHOLDERS' EQUITY, CONTINUED

COMMON STOCK, CONTINUED

On August 2, 2004 the Company and S2 Consulting executed a Management Consulting
Agreement, pursuant to which the consulting firm agreed for a six-month period
to provide consulting services to the Company in relation to the evaluation of
potential merger and acquisition targets. The services provided under the
agreement include advising, evaluating and developing corporate strategy,
providing company guidance, and assisting in developing relationships and
opportunities. In consideration for the contracted services and services
previously provided, valued at $35,000, the Company issued 500,000 shares of its
common stock to the consulting firm.

STOCK OPTIONS

In December 2002, the Company awarded 294,341 common stock options to a former
director and current shareholder of the Company that are exercisable at $0.01
per share and expire in five years, as settlement for $73,585 of cash advances
and related accrued interest and unpaid compensation that was recognized prior
to September 30, 2002. The options are exercisable at $0.01 per share and expire
in five years. No options have been exercised as of September 30, 2004.

NOTE 11 - SUBSEQUENT EVENTS

On December 12, 2002, the award of 5-year options to purchase 294,341 shares of
TX Holdings Common Stock at $0.01 per share to Robert Wilson, then Chairman and
Chief Executive Officer of the Company was authorized in lieu of $54,000 in
compensation earned during calendar year 2001, and cash advances and accrued
interest of $19,585 for a total of $73,585. The options were exercised in
December 2005. Mr. Wilson was an accredited investor. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933

On March 28, 2006 the Company entered into a Contract with Michael A. Cederstrom
for services as the part time interim Chief Financial Officer. 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 warrants will expire on March 27,
2010. In addition, Mr. Cederstrom performs legal services for the Company
through his law firm, Dexter and Dexter. The company pays to Dexter and Dexter
the sum of $15,000 per month for legal representation.

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.

On March 28, 2006 the Company entered into a consulting agreement with Bobby
Fellers to provide technical support and advice in setting up the oil and gas
operations. Mr. Fellers was granted warrants to purchase 300,000 shares of
common stock at an exercise price of $0.30 per share. The warrants will expire
on March 27, 2010.

In May 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus bonus based
on oil and gas production. In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred stock with no rights of conversion to common
stock. The preferred stock documents provide Mr. Neuhaus with voting rights
equivalent to 50% of the common shares of issued by company. During the fiscal
year 2006 Mr. Neuhaus waived his monthly salary

                                       47


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 11 - SUBSEQUENT EVENTS, CONTINUED

In September 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.

                                       48


<PAGE>

<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 2004 AND SEPTEMBER 30, 2004

-------------------------------------------------------------------------------------------

                                                              DECEMBER 31,    SEPTEMBER 30,
                                                                 2004             2004
                                                              -----------      -----------
<S>                                                           <C>              <C>
   ASSETS

Current assets:
     Cash and cash equivalents                                $     7,498      $        --
                                                              -----------      -----------

        Total current assets                                        7,498               --

Property and equipment, net                                         1,440            3,725
Other assets                                                           --              250
                                                              -----------      -----------
              Total assets                                    $     8,938      $     3,975
                                                              ===========      ===========

                    LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Note payable to a bank                                   $        --      $    20,598
     Accounts payable and accrued liabilities                     218,440          310,627
     Advances from a stockholder/officer                           86,541           53,036
                                                              -----------      -----------
        Total current liabilities                                 304,981          384,261
                                                              -----------      -----------

Commitments and contingencies

Stockholders' deficit:
     Preferred stock: no par value, 1,000,000 shares
        authorized, no shares issued or outstanding                    --               --
     Common stock: no par value, 50,000,000 shares
        authorized, 15,793,651 shares issued and
        outstanding at December 31, 2004 and
        September 30, 2004                                      1,532,111        1,532,111
     Accumulated deficit                                       (1,803,505)      (1,912,397)
     Losses accumulated in the development stage                  (24,649)              --
                                                              -----------      -----------
        Total stockholders' deficit                              (296,043)        (380,286)
                                                              -----------      -----------
              Total liabilities and stockholders' deficit     $     8,938      $     3,975
                                                              ===========      ===========

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

                                         49


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO DECEMBER 31, 2004
---------------------------------------------------------------------------------------------------

                                                                                      INCEPTION OF
                                                                                       DEVELOPMENT
                                                                                        STAGE TO
                                                                                       DECEMBER 31,
                                                       2004              2003              2004
                                                   ------------      ------------      ------------
                                                                                        (RESTATED)
Operating expenses, except items shown
   separately below                                $     21,473      $         --      $     21,473
     Professional fees                                    1,493            11,971             1,493
     Lease expense                                           --                --                --
     Depreciation expense                                   120               120               120
     Advertising expense                                    595                --               595
                                                   ------------      ------------      ------------
        Total operating expenses                         23,681            12,091            23,681
                                                   ------------      ------------      ------------

Loss from operations                                    (23,681)          (12,091)          (23,681)
                                                   ------------      ------------      ------------

Other income and (expenses):
     Interest expense                                      (968)             (693)             (968)
                                                   ------------      ------------      ------------

        Total other income and (expenses),
          net                                              (968)             (693)             (968)
                                                   ------------      ------------      ------------

Loss from continuing operations                         (24,649)          (12,784)          (24,649)
                                                   ------------      ------------      ------------

Discontinued operations:
     Loss from operation of discontinued
        business segment                                     --            (2,379)               --
     Gain (loss) from disposal of
        discontinued
        business segment                                108,892                --                --
                                                   ------------      ------------      ------------

Gain (Loss) from discontinued operations                108,892            (2,379)               --
                                                   ------------      ------------      ------------

Net income (loss)                                  $     84,243      $    (15,163)     $    (24,649)
                                                   ============      ============      ============

Net income (loss) per common share - basic and
  diluted
     Continuing operations                         $      (0.00)     $      (0.00)
     Discontinued operations                               0.01             (0.00)
                                                   ------------      ------------
        Total                                      $       0.01      $      (0.00)
                                                   ------------      ------------

Weighted average number of common shares
     outstanding - basic and diluted                 15,793,651        15,293,651
                                                   ============      ============


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

                                       50


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENT CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004

------------------------------------------------------------------------------------------------------------------------------------

                                                                                                            LOSSES
                                      COMMON STOCK           ADDITIONAL                                  ACCUMULATED
                                 -------------------------     PAID-IN     SUBSCRIPTION   ACCUMULATED  IN THE DEVELOP-
                                   SHARES        AMOUNT        CAPITAL      RECEIVABLE      DEFICIT      MENT STAGE        TOTAL
                                 -----------   -----------   ----------   -------------   -----------    -----------    -----------
Balance at September 30, 2004     15,793,651   $ 1,532,111   $       --   $          --   $(1,912,397)   $        --    $  (380,286)

Inception of the development
     stage on October 1, 2004             --            --           --              --            --             --             --

Net income (loss), as restated            --            --           --              --       108,892        (24,649)        84,243
                                 -----------   -----------   ----------   -------------   -----------    -----------    -----------

Balance at December 31, 2004      15,793,651   $ 1,532,111   $       --   $          --   $(1,803,505)   $   (24,649)   $  (296,043)
                                 ===========   ===========   ==========   =============   ===========    ===========    ===========


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

                                                                       51


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO DECEMBER 31, 2004
------------------------------------------------------------------------------------------------------------

                                                                                               INCEPTION OF
                                                                                               DEVELOPMENT
                                                                                                 STAGE TO
                                                                                               DECEMBER 31,
                                                                 2004              2003            2004
                                                             -------------    -------------    -------------
                                                              (RESTATED)
Cash flows from operating activities:

     Net income (loss)                                       $      84,243    $     (15,163)   $     (24,649)
     Adjustments to reconcile net loss to net cash used in
        operating activities
        Loss (gain) from discontinued operations                  (108,892)              --               --
        Depreciation expense                                           120              120              120
        Common stock issued for services                                --            8,100               --
        Common stock issued to settle accounts payable                  --               --               --
        Changes in operating assets and liabilities:
           Prepaid expenses and other assets                           250               --              250
           Accounts payable and accrued liabilities                 18,870             (588)          18,870
                                                             -------------    -------------    -------------

              Net cash used by continuing operations                (5,409)          (7,531)          (5,409)
              Net cash used by discontinued operations                  --               --               --
                                                             -------------    -------------    -------------

                 Net cash used by operating activities              (5,409)          (7,531)          (5,409)
                                                             -------------    -------------    -------------

Cash flows from financing activities:
     Repayment of note payable to a bank                           (20,598)            (500)         (20,598)
     Proceeds from sale of common stock                                 --            6,595               --
     Proceeds from stockholder/officer advances                     33,505               --           33,505
                                                             -------------    -------------    -------------

                 Net cash provided by financing activities          12,907            6,095           12,907
                                                             -------------    -------------    -------------

Decrease in cash and cash equivalents                                7,498           (1,436)           7,498

Cash and cash equivalents at beginning of year                          --              930               --
                                                             -------------    -------------    -------------

Cash and cash equivalents at end of year                     $       7,498    $        (506)   $       7,498
                                                             =============    =============    =============

Supplemental disclosure of cash flow information
     Cash paid for interest expense                          $         968    $         560
     Cash paid for income taxes                                         --               --


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

                                                          52
</TABLE>


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

HISTORICAL BUSINESS ACTIVITIES

TX Holdings, Inc. (formerly R Wireless, Inc. and HOM Corporation) (the
"Company"), incorporated May 4, 2000 in the State of Georgia, is transitioning
from a holding company to an oil and gas exploration and production company.
This transition began during 2005 and is discussed below in "CURRENT BUSINESS
ACTIVITIES". Prior to May 26, 2005 the Company operated as a holding company for
its formerly two wholly owned subsidiaries, Homes By Owners, Inc. ("Homes") and
Direct Lending, Inc. ("Direct"). The Company received approval from the
Secretary of State of Georgia for a certificate of merger between Homes and
Freedom Homes, Inc. ("Freedom"). The Company remains the owner of 32.3% of the
common shares of Homes. The remaining common shares of Homes are owned as
follows: 63.1% by Jim Evans, owner of Freedom, and 4.6% by Robert S. Wilson,
operating officer of Homes. In 2005 the company sold a 67.7% interest in Freedom
Home Inc and wrote off its remaining 32.3% investment in Freedom because
management is unable to demonstrate that its equity interest has any future
value. Accordingly, at September 30, 2005 the Company recognized a gain from
discontinued operations of $_108,890...

CURRENT BUSINESS ACTIVITIES

Management seeks to acquire producing oil and gas properties in and around
Texas, Louisiana and Oklahoma that will define the operational holdings of The
Company.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of TX
Holdings, Inc. and subsidiaries (the "Company" or "TX Holdings") have been
prepared in accordance with generally accepted accounting principles in the
United States of America for interim financial information and the instructions
to Form 10-QSB and the rules of the Securities and Exchange Commission. The
results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the full fiscal year ending
September 30, 2005. In the opinion of the Company's management, the information
contained herein reflects all adjustments necessary for a fair presentation of
the Company's results of operations, financial position and cash flows. All such
adjustments are of a normal recurring nature. The unaudited interim condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements in the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 2004.

DEVELOPMENT STAGE COMPANY

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 Statement
of Financial Accounting Standards (SFAS) No. 7, ACCOUNTING AND REPORTING BY
DEVELOPMENT-STAGE ENTERPRISES.

GOING CONCERN CONSIDERATIONS

The Company, with its prior subsidiaries, has suffered recurring losses while
devoting substantially all of its efforts to raising capital, identifying and
pursuing businesses opportunities and 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.

                                       53


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

GOING CONCERN CONSIDERATIONS, CONTINUED

These factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuing operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company's 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
consolidated 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.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries during 2004 and the recognition to the loss on
discontinuation of the Company's investment in subsidiaries in 2005. All
significant intercompany balances and transactions have been eliminated in
consolidation.

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,
valuation of acquired in-process research and development, measurement of
stock-based compensation, and the fair value of the Company's common stock. The
Company bases its estimates on historical experience and various other
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.

STOCK-BASED COMPENSATION

The Company has adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
123R), which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors, including
employee stock options and employee stock purchases, based on estimated fair
values. Prior to the adoption of SFAS 123R, the Company recognized stock-based
compensation expense in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees.

Also, upon adoption of SFAS 123R, the Company adopted the Black-Scholes
("Black-Scholes") option-pricing model, which was previously used for the
Company's pro forma information disclosures of stock-based compensation expense
as required under SFAS 123.

SFAS 123R requires that the cash flows resulting from excess tax benefits
related to stock compensation be classified as cash flows from financing
activities.

In March 2005, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 107 (SAB 107) regarding the SEC's interpretation of SFAS
123R and the valuation of share-based payments for public companies. The Company
has applied the provisions of SAB 107 in its adoption of SFAS 123R.

                                       54


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

STOCK-BASED COMPENSATION, CONTINUED

The Company's determination of the fair value of share-based payment awards on
the date of grant using an option-pricing model is affected by the Company's
stock price as well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to, the
Company's expected stock price volatility over the term of the awards and actual
and projected employee stock option exercise behaviors. Option-pricing models
were developed for use in estimating the value of traded options that have no
vesting or hedging restrictions and are fully transferable. Because the
Company's employee stock options have certain characteristics that are
significantly different from traded options, and because changes in the
subjective assumptions can materially affect the estimated value, in
management's opinion, the existing valuation models may not provide an accurate
measure of the fair value of the Company's employee stock options. Although the
fair value of employee stock options is determined in accordance with SFAS 123R
and SAB 107 using an option-pricing model, that value may not be indicative of
the fair value observed in a willing buyer/willing seller market transaction.

SFAS 123R requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those
estimates in order to derive the Company's best estimate of awards ultimately
expected to vest. The Company estimated forfeitures based on its historical
experience.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with SFAS 109. It
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and
disclosures. It will be effective for fiscal years beginning after December 15,
2006.

The provisions of FIN 48 apply to all tax positions upon initial adoption of FIN
48. Only tax positions that meet the recognition threshold criteria at the
effective date may be recognized or continue to be recognized upon adoption of
FIN 48. The cumulative effect of applying the provisions of FIN 48 will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The Company is currently evaluating the accounting and disclosure
requirements of FIN 48 and will adopt it as required at the beginning of its
fiscal year 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 does not require any new fair value measurements but clarifies
the fair value definition, establishes a fair value hierarchy that prioritizes
the information used to develop assumptions used for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 clarifies that the
fair value is the exchange price in an orderly transaction between market
participants to sell the asset or transfer the liability in the market. The fair
value hierarchy gives the highest priority to quoted prices in active markets
and the lowest priority to unobservable data for example, the reporting entity's
own data. It emphasizes that fair value is a market-based measurement, not an
entity-specific measurement and a fair value measurement should therefore be
based on the assumptions that market participants would use in pricing the asset
or liability.

                                       55


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED

SFAS 157 expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition,
including the inputs used to measure fair value and the effect of such
measurements on earnings for the period. It will be effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years with earlier application encouraged. The
Company is currently evaluating the accounting and disclosure requirements of
SFAS 157 and plans to adopt it as required at the beginning of its fiscal year
2008.

NOTE 2 - RESTATEMENT

The Company previously filed its December 31, 2004 financial statements without
review and those financial statements included errors in the application of
accounting principles generally accepted in the United States. Following is an
analysis errors and the effect on the financial statements:

<TABLE>
                                                     THREE MONTHS ENDED DECEMBER 31, 2004
                                                ------------------------------------------------
                                                AS ORIGINALLY
                                                    FILED           RESTATEMENT      AS RESTATED
                                                ------------      --------------    ------------
<S>                                             <C>               <C>               <C>
Revenue                                         $     23,681      $           --    $     23,681

Loss from operations                                 (23,681)                 --         (23,681)

Total other income and (expenses), net                  (968)                 --            (968)
                                                ------------      --------------    ------------

Loss from continuing operations                      (26,649)                 --         (26,649)

Discontinued operations:
     Loss from operation of discontinued
        business segment                                  --                  --              --
     Gain (loss) from disposal of
        discontinued
        business segment                                  --  (A)        108,892         108,892
                                                ------------      --------------    ------------

Gain (Loss) from discontinued operations                  --             108,892         108,892
                                                ------------      --------------    ------------

Net Gain(Loss)                                  $    (26,649)     $      108,892    $     84,243
                                                ============      ==============    ============

Net loss per common share - basic and diluted

     Continuing operations                      $        (0.00)                     $      (0.00)
     Discontinued operations                              0.00                              0.01
                                                --------------                      ------------

        Total                                   $        (0.00)                     $       0.01
                                                ==============                      ============
</TABLE>

         (A)      To properly recognize the gain upon sale of a majority
                  interest in Homes. The adjustment eliminates the negative
                  investment as a result of the sale.

The Company also made reclassification entries to the December 31, 2003
financial statements to properly segregate discontinued operations. The amounts
reclassified are shown in the following footnote.

                                       56


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 3 - DISCONTINUED OPERATIONS

Following is an analysis of the discontinued operations of Freedom Home, Inc.
for the three months ended December 31, 2003. The Company sold a 67.7% interest
and wrote-off the remaining 32.3% in Freedom because management believes Freedom
has no continuing value. The Company continues to own a minority interest in
Freedom and recognized a gain on sale of the majority interest because the sale
resulted in a negative investment.

Revenue                                                                $  9,334
                                                                       --------

Operating expenses, except items shown
     separately below                                                     8,049
     Professional fees                                                    1,680
     Lease expense                                                          650
     Depreciation expense                                                   506
     Advertising expense                                                    360
                                                                       --------
        Total operating expenses                                         11,245
                                                                       --------

Loss from operations                                                     (1,911)
                                                                       --------

Other income and (expenses):
     Gain on settlement of accounts payable                                 373
     Interest expense                                                      (841)
                                                                       --------

        Total other income and (expenses), net                             (468)
                                                                       --------

Gain (Loss) from discontinued operations                               $ (2,379)
                                                                       ========

NOTE 4 - INCOME TAXES

The Company has tax net operating loss carryforwards totaling approximately
$1,716,000, expiring in 2018 through 2024. Approximately $1,190,000 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.

Net operating losses after December 12, 2002 through December 31, 2004 were
approximately $632,000. The total net operating losses available to the Company
to offset future taxable income is approximately $1,056,000. The difference
between the tax provision at the federal statutory rate to the amount reported
in the statement of operations relates primarily to the change in the valuation
allowance offset against deferred tax assets.

                                       57


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 5 - SUBSEQUENT EVENTS

On December 12, 2002, the award of 5-year options to purchase 294,341 shares of
TX Holdings Common Stock at $0.01 per share to Robert Wilson, then Chairman and
Chief Executive Officer of the Company was authorized in lieu of $54,000 in
compensation earned during calendar year 2001, and cash advances and accrued
interest of $19,585 for a total of $73,585. The options were exercised in
December 2005. Mr. Wilson was an accredited investor. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933

On March 28, 2006 the Company entered into a Contract with Michael A. Cederstrom
for services as the part time interim Chief Financial Officer. 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 warrants will expire on March 27,
2010. In addition, Mr. Cederstrom performs legal services for the Company
through his law firm, Dexter and Dexter. The company pays to Dexter and Dexter
the sum of $15,000 per month for legal representation.

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.

On March 28, 2006 the Company entered into a consulting agreement with Bobby
Fellers to provide technical support and advice in setting up the oil and gas
operations. Mr. Fellers was granted warrants to purchase 300,000 shares of
common stock at an exercise price of $0.30 per share. The warrants will expire
on March 27, 2010.

In May 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus bonus based
on oil and gas production. In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred stock with no rights of conversion to common
stock. The preferred stock documents provide Mr. Neuhaus with voting rights
equivalent to 50% of the common shares of issued by company. During the fiscal
year 2006 Mr. Neuhaus waived his monthly salary.

In September 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.

                                       58


<PAGE>

<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 2005 AND SEPTEMBER 30, 2004

----------------------------------------------------------------------------------------

                                                             MARCH 31,     SEPTEMBER 30,
                                                               2005            2004
                                                            -----------    -----------
   ASSETS

Current assets:
<S>                                                         <C>            <C>
     Cash and cash equivalents                              $     6,123    $        --
                                                            -----------    -----------

        Total current assets                                      6,123             --
                                                            -----------    -----------

Property and equipment, net                                       1,320          3,725
Other assets                                                         --            250
                                                            -----------    -----------

              Total assets                                  $     7,443    $     3,975
                                                            ===========    ===========

                    LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Note payable to a bank                                 $        --    $    20,598
     Accounts payable and accrued liabilities                   221,526        310,627
     Advances from a stockholder/officer                         89,879         53,036
                                                            -----------    -----------

        Total current liabilities                               311,405        384,261
                                                            -----------    -----------

Commitments and contingencies

Stockholders' deficit:
     Preferred stock: no par value, 1,000,000 shares
        authorized, no shares issued or outstanding                  --             --
     Common stock: no par value, 50,000,000 shares
        authorized, 15,793,651 shares issued and
        outstanding at March 31, 2005 and
        September 30, 2004                                    1,532,111      1,532,111
     Accumulated deficit                                     (1,803,505)    (1,912,397)
     Losses accumulated in the development stage                (32,568)            --
                                                            -----------    -----------

        Total stockholders' deficit                            (303,962)      (380,286)
                                                            -----------    -----------

              Total liabilities and stockholders' deficit   $     7,443    $     3,975
                                                            ===========    ===========


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

                                         59


<PAGE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2005 AND 2004 AND FOR THE PERIOD
FROM INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO MARCH 31, 2005
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                 INCEPTION OF
                                                                                                                 DEVELOPMENT
                                                THREE MONTHS ENDED MARCH 31,    SIX MONTHS ENDED MARCH 31,         STAGE TO
                                                ----------------------------    ---------------------------       MARCH 31,
                                                    2005            2004            2005            2004            2005
                                                ------------    ------------    ------------    ------------    ------------
                                                                                 (RESTATED)
Operating expenses, except items shown
     separately below                           $      3,638    $         --    $     25,111    $         --    $     25,111
     Professional fees                                 2,689          41,073           4,182          53,044           4,182
     Lease expense                                        --              --              --              --              --
     Depreciation expense                                120             120             240             240             240
     Advertising expense                                 525              --           1,120              --           1,120
                                                ------------    ------------    ------------    ------------    ------------

        Total operating expenses                       6,972          41,193          30,653          53,284          30,653
                                                ------------    ------------    ------------    ------------    ------------

Loss from operations                                  (6,972)        (41,193)        (30,653)        (53,284)        (30,653)
                                                ------------    ------------    ------------    ------------    ------------

Other income and (expenses):
     Interest expense                                   (947)           (825)         (1,915)         (1,518)         (1,915)
                                                ------------    ------------    ------------    ------------    ------------

        Total other income and expenses, net            (947)           (825)         (1,915)         (1,518)         (1,915)
                                                ------------    ------------    ------------    ------------    ------------
Loss from continuing operations                       (7,919)        (42,018)        (32,568)        (54,802)        (32,568)
                                                ------------    ------------    ------------    ------------    ------------
Discontinued operations:
     Loss from operation of discontinued
        business segment                                  --          (2,009)             --          (4,388)             --
     Gain (loss) from disposal of
        discontinued
        business segment                                  --              --         108,892              --              --
                                                ------------    ------------    ------------    ------------    ------------

Gain (Loss) from discontinued operations                  --          (2,009)        108,892          (4,388)             --
                                                ------------    ------------    ------------    ------------    ------------

Net Gain(loss)                                  $     (7,919)   $    (44,027)   $     76,324         (59,190)   $    (32,568)
                                                ============    ============    ============    ============    ============

Net Gain(loss) per common share - basic and diluted
     Continuing operations                      $      (0.00)   $      (0.00)   $      (0.00)   $      (0.00)
     Discontinued operations                              --           (0.00)           0.01           (0.00)

        Total                                   $      (0.00)   $      (0.00)   $       0.00    $      (0.00)
                                                ============    ============    ============    ============

Weighted average number of common shares
     outstanding - basic and diluted              15,793,651      15,293,651      15,793,651      15,293,651
                                                ============    ============    ============    ============

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

                                                            60


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENT CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED MARCH 31, 2005

-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                            LOSSES
                                         COMMON STOCK         ADDITIONAL                                 ACCUMULATED
                                 -------------------------     PAID-IN      SUBSCRIPTION   ACCUMULATED   IN THE DEVELOP-
                                    SHARES        AMOUNT       CAPITAL       RECEIVABLE      DEFICIT      MENT STAGE        TOTAL
                                 -----------   -----------   ------------   -----------   -----------    -----------    -----------
Balance at September 30, 2004     15,793,651   $ 1,532,111   $         --   $        --   $(1,912,397)   $        --    $  (380,286)

Inception of the development
     stage on October 1, 2004             --            --             --            --            --             --             --

Net income (loss), as restated            --            --             --            --       108,892        (32,568)        76,324
                                 -----------   -----------   ------------   -----------   -----------    -----------    -----------

Balance at March 31, 2005         15,793,651   $ 1,532,111   $         --   $        --   $(1,803,505)   $   (32,568)   $  (303,962)
                                 ===========   ===========   ============   ===========   ===========    ===========    ===========

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

                                                              61


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2005 AND 2004 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO MARCH 31, 2005
------------------------------------------------------------------------------------------------------------

                                                                                                INCEPTION OF
                                                                                                DEVELOPMENT
                                                                                                  STAGE TO
                                                                                                 MARCH 31,
                                                                 2005              2004            2005
                                                             -------------    -------------    -------------
                                                               (RESTATED)
Cash flows from operating activities:
     Net loss                                                $      76,324    $     (59,190)   $     (32,568)
     Adjustments to reconcile net loss to net cash used in
        operating activities
        Loss (gain) from discontinued operations                  (108,892)              --               --
        Depreciation expense                                           240            1,252              240
        Common stock issued for services                                --           12,000               --
        Common stock issued to settle accounts payable                  --               --               --
        Changes in operating assets and liabilities:
           Prepaid expenses and other assets                           250               --              250
           Accounts payable and accrued liabilities                 21,956           (2,045)          21,956
                                                             -------------    -------------    -------------

              Net cash used by continuing operations               (10,122)         (47,983)         (10,122)
              Net cash used by discontinued operations                  --               --               --
                                                             -------------    -------------    -------------

                 Net cash used by operating activities             (10,122)         (47,983)         (10,122)
                                                             -------------    -------------    -------------

Cash flows from financing activities:
     Repayment of note payable to a bank                           (20,598)           6,152          (20,598)
     Proceeds from sale of common stock                                 --           40,901               --
     Proceeds from stockholder/officer advances                     36,843               --           36,843
                                                             -------------    -------------    -------------

                 Net cash provided by financing activities          16,245           47,053           16,245
                                                             -------------    -------------    -------------

Increase (decrease) in cash and cash equivalents                     6,123             (930)           6,123

Cash and cash equivalents at beginning of year                          --              930               --
                                                             -------------    -------------    -------------
Cash and cash equivalents at end of year                     $       6,123    $          --    $    (102,769)
                                                             =============    =============    =============

Supplemental disclosure of cash flow information
     Cash paid for interest expense                          $       3,589    $       2,000
     Cash paid for income taxes                                         --               --


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

                                                         62
</TABLE>


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

HISTORICAL BUSINESS ACTIVITIES

TX Holdings, Inc. (formerly R Wireless, Inc. and HOM Corporation) (the
"Company"), incorporated May 4, 2000 in the State of Georgia, is transitioning
from a holding company to an oil and gas exploration and production company.
This transition began during 2005 and is discussed below in "CURRENT BUSINESS
ACTIVITIES". Prior to May 26, 2005 the Company operated as a holding company for
its formerly two wholly owned subsidiaries, Homes By Owners, Inc. ("Homes") and
Direct Lending, Inc. ("Direct"). The Company received approval from the
Secretary of State of Georgia for a certificate of merger between Homes and
Freedom Homes, Inc. ("Freedom"). The Company remains the owner of 32.3% of the
common shares of Homes. The remaining common shares of Homes are owned as
follows: 63.1% by Jim Evans, owner of Freedom, and 4.6% by Robert S. Wilson,
operating officer of Homes. In 2005 the company sold a 67.7% interest in Freedom
Home Inc and wrote off its remaining 32.3% investment in Freedom because
management is unable to demonstrate that its equity interest has any future
value. Accordingly, at September 30, 2005 the Company recognized a gain from
discontinued operations of $_108,890...

CURRENT BUSINESS ACTIVITIES

Management seeks to acquire producing oil and gas properties in and around
Texas, Louisiana and Oklahoma that will define the operational holdings of The
Company.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of TX
Holdings, Inc. and subsidiaries (the "Company" or "TX Holdings") have been
prepared in accordance with generally accepted accounting principles in the
United States of America for interim financial information and the instructions
to Form 10-QSB and the rules of the Securities and Exchange Commission. The
results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the full fiscal year ending
September 30, 2005. In the opinion of the Company's management, the information
contained herein reflects all adjustments necessary for a fair presentation of
the Company's results of operations, financial position and cash flows. All such
adjustments are of a normal recurring nature. The unaudited interim condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements in the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 2004.

DEVELOPMENT STAGE COMPANY

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 Statement
of Financial Accounting Standards (SFAS) No. 7, ACCOUNTING AND REPORTING BY
DEVELOPMENT-STAGE ENTERPRISES.

GOING CONCERN CONSIDERATIONS

The Company, with its prior subsidiaries, has suffered recurring losses while
devoting substantially all of its efforts to raising capital, identifying and
pursuing businesses opportunities and 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.

                                       63


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

GOING CONCERN CONSIDERATIONS, CONTINUED

These factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuing operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company's 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
consolidated 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.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries during 2004 and the recognition to the loss on
discontinuation of the Company's investment in subsidiaries in 2005. All
significant intercompany balances and transactions have been eliminated in
consolidation.

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,
valuation of acquired in-process research and development, measurement of
stock-based compensation, and the fair value of the Company's common stock. The
Company bases its estimates on historical experience and various other
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.

STOCK-BASED COMPENSATION

The Company has adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
123R), which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors, including
employee stock options and employee stock purchases, based on estimated fair
values. Prior to the adoption of SFAS 123R, the Company recognized stock-based
compensation expense in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees.

Also, upon adoption of SFAS 123R, the Company adopted the Black-Scholes
("Black-Scholes") option-pricing model, which was previously used for the
Company's pro forma information disclosures of stock-based compensation expense
as required under SFAS 123.

SFAS 123R requires that the cash flows resulting from excess tax benefits
related to stock compensation be classified as cash flows from financing
activities.

In March 2005, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 107 (SAB 107) regarding the SEC's interpretation of SFAS
123R and the valuation of share-based payments for public companies. The Company
has applied the provisions of SAB 107 in its adoption of SFAS 123R.

                                       64


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

STOCK-BASED COMPENSATION, CONTINUED

The Company's determination of the fair value of share-based payment awards on
the date of grant using an option-pricing model is affected by the Company's
stock price as well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to, the
Company's expected stock price volatility over the term of the awards and actual
and projected employee stock option exercise behaviors. Option-pricing models
were developed for use in estimating the value of traded options that have no
vesting or hedging restrictions and are fully transferable. Because the
Company's employee stock options have certain characteristics that are
significantly different from traded options, and because changes in the
subjective assumptions can materially affect the estimated value, in
management's opinion, the existing valuation models may not provide an accurate
measure of the fair value of the Company's employee stock options. Although the
fair value of employee stock options is determined in accordance with SFAS 123R
and SAB 107 using an option-pricing model, that value may not be indicative of
the fair value observed in a willing buyer/willing seller market transaction.

SFAS 123R requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those
estimates in order to derive the Company's best estimate of awards ultimately
expected to vest. The Company estimated forfeitures based on its historical
experience.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with SFAS 109. It
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and
disclosures. It will be effective for fiscal years beginning after December 15,
2006.

The provisions of FIN 48 apply to all tax positions upon initial adoption of FIN
48. Only tax positions that meet the recognition threshold criteria at the
effective date may be recognized or continue to be recognized upon adoption of
FIN 48. The cumulative effect of applying the provisions of FIN 48 will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The Company is currently evaluating the accounting and disclosure
requirements of FIN 48 and will adopt it as required at the beginning of its
fiscal year 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 does not require any new fair value measurements but clarifies
the fair value definition, establishes a fair value hierarchy that prioritizes
the information used to develop assumptions used for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 clarifies that the
fair value is the exchange price in an orderly transaction between market
participants to sell the asset or transfer the liability in the market. The fair
value hierarchy gives the highest priority to quoted prices in active markets
and the lowest priority to unobservable data for example, the reporting entity's
own data. It emphasizes that fair value is a market-based measurement, not an
entity-specific measurement and a fair value measurement should therefore be
based on the assumptions that market participants would use in pricing the asset
or liability.

                                       65


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED

SFAS 157 expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition,
including the inputs used to measure fair value and the effect of such
measurements on earnings for the period. It will be effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years with earlier application encouraged. The
Company is currently evaluating the accounting and disclosure requirements of
SFAS 157 and plans to adopt it as required at the beginning of its fiscal year
2008.

 NOTE 2 - RESTATEMENT

The Company previously filed its March 31, 2005 financial statements without
review and those financial statements included errors in the application of
accounting principles generally accepted in the United States. Following is an
analysis errors and the effect on the financial statements for the six months
ended March 31, 2005:

<TABLE>
                                                       SIX MONTHS ENDED MARCH 31, 2005
                                                ----------------------------------------------
                                                AS ORIGINALLY
                                                    FILED          RESTATEMENT     AS RESTATED
                                                -------------    -------------    ------------
<S>                                             <C>              <C>              <C>
Total operating expenses                        $      30,653    $          --    $     30,653
                                                -------------    -------------    ------------

Loss from operations                                  (30,653)              --         (30,653)

Total other income and (expenses), net                 (1,918)              --          (1,918)
                                                -------------    -------------    ------------

Loss from continuing operations                       (32,568)              --         (32,568)
                                                -------------    -------------    ------------

Discontinued operations:
     Gain from disposal of discontinued
        business segment                                   --          108,892         108,892
                                                -------------    -------------    ------------

Gain from discontinued operations                          --          108,892         108,892
                                                -------------    -------------    ------------

Net income (loss)                                     (32,568)         899,731          76,324
                                                -------------    -------------    ------------

Net Gain(loss) per common share - basic and diluted
     Continuing operations                      $         (0.00)                  $      (0.00)
     Discontinued operations                               0.00                           0.01
                                                ---------------                   ------------

        Total                                   $         (0.00)                  $       0.01
                                                ===============                   ============
</TABLE>

         (A)      To properly recognize the gain upon sale of a majority
                  interest in Homes. The adjustment eliminates the negative
                  investment as a result of the sale.

There was no impact of this restatement on the three months ended March 31,
2006. The Company also made reclassification entries to the March 31, 2005
financial statements to properly segregate discontinued operations. The amounts
reclassified are shown in the following footnote.

                                       66


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 3 - DISCONTINUED OPERATIONS

Following is an analysis of the discontinued operations of Freedom Home, Inc.
for the three and six months ended March 31, 2004. The Company sold a 67.7%
interest and wrote-off the remaining 32.3% in Freedom because management
believes Freedom has no continuing value. The Company continues to own a
minority interest in Freedom and recognized a gain on sale of the majority
interest because the sale resulted in a negative investment.

                                                   THREE MONTHS     SIX MONTHS
                                                       ENDED           ENDED
                                                     MARCH 31,       MARCH 31,
                                                       2004            2004
                                                    -----------     -----------
Revenue                                             $     7,526     $    16,860
                                                    -----------     -----------

Operating expenses, except items shown
     separately below                                     6,421          14,470
     Professional fees                                    1,355           3,035
     Lease expense                                          412           1,062
     Depreciation expense                                   506           1,012
     Advertising expense                                     --             360
                                                    -----------     -----------

        Total operating expenses                          8,694          19,939
                                                    -----------     -----------

Loss from operations                                     (1,168)         (3,079)
                                                    -----------     -----------

Other income and (expenses):
     Gain on settlement of accounts
     payable                                                 --             373

     Interest expense                                      (841)         (1,682)
                                                    -----------     -----------

        Total other income and (expenses), net             (841)         (1,309)
                                                    -----------     -----------

Gain (Loss) from discontinued operations            $    (2,009)    $    (4,388)
                                                    ===========     ===========

NOTE 3 - INCOME TAXES

The Company has tax net operating loss carryforwards totaling approximately
$1,832,000, expiring in 2018 through 2024. Approximately $1,190,000 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.

Net operating losses after December 12, 2002 through December 31, 2004 were
approximately $640,000. The total net operating losses available to the Company
to offset future taxable income is approximately $1,064,000. The difference
between the tax provision at the federal statutory rate to the amount reported
in the statement of operations relates primarily to the change in the valuation
allowance offset against deferred tax assets.

                                       67


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 4 - SUBSEQUENT EVENTS

On December 12, 2002, the award of 5-year options to purchase 294,341 shares of
TX Holdings Common Stock at $0.01 per share to Robert Wilson, then Chairman and
Chief Executive Officer of the Company was authorized in lieu of $54,000 in
compensation earned during calendar year 2001, and cash advances and accrued
interest of $19,585 for a total of $73,585. The options were exercised in
December 2005. Mr. Wilson was an accredited investor. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933

On March 28, 2006 the Company entered into a Contract with Michael A. Cederstrom
for services as the part time interim Chief Financial Officer. 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 warrants will expire on March 27,
2010. In addition, Mr. Cederstrom performs legal services for the Company
through his law firm, Dexter and Dexter. The company pays to Dexter and Dexter
the sum of $15,000 per month for legal representation.

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 andgas
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.

On March 28, 2006 the Company entered into a consulting agreement with Bobby
Fellers to provide technical support and advice in setting up the oil and gas
operations. Mr. Fellers was granted warrants to purchase 300,000 shares of
common stock at an exercise price of $0.30 per share. The warrants will expire
on March 27, 2010.

In May 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus bonus based
on oil and gas production. In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred stock with no rights of conversion to common
stock. The preferred stock documents provide Mr. Neuhaus with voting rights
equivalent to 50% of the common shares of issued by company. During the fiscal
year 2006 Mr. Neuhaus waived his monthly salary.

In September 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.

                                       68


<PAGE>

<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 2005 AND SEPTEMBER 30, 2004

----------------------------------------------------------------------------------------------

                                                                 JUNE 30,        SEPTEMBER 30,
                                                                   2005               2004
                                                              -------------      -------------
   ASSETS

Current assets:
<S>                                                           <C>                <C>
     Cash and cash equivalents                                $       6,022      $          --
                                                              -------------      -------------

        Total current assets                                          6,022                 --

Property and equipment, net                                           1,200              3,725
Other assets                                                             --                250
                                                              -------------      -------------

              Total assets                                    $       7,222      $       3,975
                                                              =============      =============

                    LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Note payable to a bank                                   $          --      $      20,598
     Accounts payable and accrued liabilities                       229,507            310,627
     Advances from a stockholder/officer                            133,141             53,036
                                                              -------------      -------------
        Total current liabilities                                   362,648            384,261
                                                              -------------      -------------

Commitments and contingencies

Stockholders' deficit:
     Preferred stock: no par value, 1,000,000 shares
        authorized, no shares issued or outstanding                      --                 --
     Common stock: no par value, 50,000,000 shares
        authorized, 15,803,651 and 15,793,651 shares
        issued and outstanding at June 30, 2005 and
        September 30, 2004, respectively                          1,544,111          1,532,111
     Accumulated deficit                                         (1,803,507)        (1,912,397)
     Losses accumulated in the development stage                    (96,030)                --
                                                              -------------      -------------

        Total stockholders' deficit                                (355,426)          (380,286)
                                                              -------------      -------------

              Total liabilities and stockholders' deficit     $       7,222      $       3,975
                                                              =============      =============


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

                                       69


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2005 AND 2004 AND FOR THE PERIOD
FROM INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO JUNE 30, 2005
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                        INCEPTION OF
                                                                                                                        DEVELOPMENT
                                                  THREE MONTHS ENDED JUNE 30,         NINE MONTHS ENDED JUNE 30,          STAGE TO
                                                 -----------------------------     ------------------------------         JUNE 30,
                                                   2005              2004              2005               2004              2005
                                                 ------------     ------------     ------------      ------------      ------------
Operating expenses, except items shown
     separately below                                  19,002            1,886           44,113             1,886            44,113
     Professional fees                                 38,383           22,401           42,565            75,445            42,565
     Lease expense                                      5,000               --            5,000                --             5,000
     Depreciation expense                                 120              120              360               360               360
     Advertising expense                                   --               --            1,120                --             1,120
                                                 ------------     ------------     ------------      ------------      ------------

        Total operating expenses                       62,505           24,407           93,158            77,691            93,158
                                                 ------------     ------------     ------------      ------------      ------------

Loss from operations                                  (62,505)         (24,407)         (93,158)          (77,691)          (93,158)
                                                 ------------     ------------     ------------      ------------      ------------

Other income and (expenses):
     Interest expense                                    (957)          (1,065)          (2,872)           (2,583)           (2,872)
                                                 ------------     ------------     ------------      ------------      ------------

        Total other income and (expenses),
        net                                              (957)          (1,065)          (2,872)           (2,583)           (2,872)
                                                 ------------     ------------     ------------      ------------      ------------

Loss from continuing operations                       (63,462)         (25,472)         (96,030)          (80,274)          (96,030)
                                                 ------------     ------------     ------------      ------------      ------------

Discontinued operations:
     Loss from operation of discontinued
        business segment                                   --           (2,507)              --            (6,895)               --
     Gain (loss) from disposal of
        discontinued
        business segment                                   (2)              --          108,890                --                --

Income (loss) from discontinued operations                 (2)          (2,507)         108,890            (6,895)               --
                                                 ------------     ------------     ------------      ------------      ------------

Net income (loss)                                $    (63,464)    $    (27,979)    $     12,860      $    (87,169)     $    (96,030)
                                                 ============     ============     ============      ============      ============

Net Gain(loss) per common share - basic and diluted

     Continuing operations                       $      (0.00)    $      (0.00)    $      (0.01)     $      (0.01)
     Discontinued operations                            (0.00)           (0.00)            0.01             (0.00)
                                                 ------------     ------------     ------------      ------------

        Total                                    $      (0.00)    $      (0.00)    $       0.00      $      (0.01)
                                                 ============     ============     ============      ============

Weighted average number of common shares
     outstanding - basic and diluted               15,814,530       15,293,651       15,798,856        15,293,651
                                                 ============     ============     ============      ============


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

                                                                     70


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENT CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED JUNE 30, 2005

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            LOSSES
                                                              ADDITIONAL                                 ACCUMULATED
                                      COMMON STOCK             PAID-IN     SUBSCRIPTION   ACCUMULATED  IN THE DEVELOP-
                                    SHARES       AMOUNT        CAPITAL      RECEIVABLE      DEFICIT       MENT STAGE       TOTAL
                                 -----------   -----------   ----------    ------------   -----------    -----------    -----------
Balance at September 30, 2004     15,793,651   $ 1,532,111   $       --    $         --   $(1,912,397)   $        --    $  (380,286)

Inception of the development
     stage on October 1, 2004             --            --           --              --            --             --             --

Common stock issued for
     professional services            10,000        12,000           --              --            --             --         12,000

Net income (loss)                         --            --           --              --       108,890        (96,030)        12,860
                                 -----------   -----------   ----------    ------------   -----------    -----------    -----------

Balance at June 30, 2005          15,803,651   $ 1,544,111   $       --    $         --   $(1,803,507)   $   (96,030)   $  (355,426)
                                 ===========   ===========   ==========    ============   ===========    ===========    ===========


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

                                                                  71


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2005 AND 2004 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO JUNE 30, 2005
--------------------------------------------------------------------------------------------------------------------

                                                                                                       INCEPTION OF
                                                                                                       DEVELOPMENT
                                                                                                         STAGE TO
                                                                                                         JUNE 30,
                                                                    2005               2004                2005
                                                                -------------      -------------      -------------
                                                                 (RESTATED)
Cash flows from operating activities:

     Net income (loss)                                          $      12,860      $     (87,169)     $     (96,030)
     Adjustments to reconcile net income (loss) to net cash
     used in operating activities
        Gain from discontinued operations                            (108,890)                --                 --
        Depreciation expense                                              360              1,878                360
        Common stock issued for services                               12,000                320             12,000
        Common stock issued to settle accounts payable                     --                 --                 --
        Changes in operating assets and liabilities:
           Prepaid expenses and other assets                              250                 --                250
           Accounts payable and accrued liabilities                    29,935              8,916             29,935
                                                                -------------      -------------      -------------
              Net cash used by continuing operations                  (53,485)           (76,055)           (53,485)
              Net cash used by discontinued operations                     --             (6,996)                --
                                                                -------------      -------------      -------------

                 Net cash used by operating activities                (53,485)           (83,051)           (53,485)
                                                                -------------      -------------      -------------

Cash flows from financing activities:
     Repayment of note payable to a bank                              (20,598)             6,152            (20,598)
     Proceeds from sale of common stock                                    --             92,159                 --
     Proceeds from stockholder/officer advances                        80,105                 --             80,105
                                                                -------------      -------------      -------------

                 Net cash provided by financing activities             59,507             98,311             59,507
                                                                -------------      -------------      -------------

Increase in cash and cash equivalents                                   6,022             15,260              6,022

Cash and cash equivalents at beginning of period                           --                930                 --
                                                                -------------      -------------      -------------

Cash and cash equivalents at end of period                      $       6,022      $      16,190      $    (102,868)
                                                                =============      =============      =============

Supplemental disclosure of cash flow information
                                                                -------------      -------------      -------------
     Cash paid for interest expense                             $       2,872      $       2,000      $       2,872
     Cash paid for income taxes                                            --                 --                 --


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

                                                            72
</TABLE>


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

HISTORICAL BUSINESS ACTIVITIES

TX Holdings, Inc. (formerly R Wireless, Inc. and HOM Corporation) (the
"Company"), incorporated May 4, 2000 in the State of Georgia, is transitioning
from a holding company to an oil and gas exploration and production company.
This transition began during 2005 and is discussed below in "CURRENT BUSINESS
ACTIVITIES". Prior to May 26, 2005 the Company operated as a holding company for
its formerly two wholly owned subsidiaries, Homes By Owners, Inc. ("Homes") and
Direct Lending, Inc. ("Direct"). The Company received approval from the
Secretary of State of Georgia for a certificate of merger between Homes and
Freedom Homes, Inc. ("Freedom"). The Company remains the owner of 32.3% of the
common shares of Homes. The remaining common shares of Homes are owned as
follows: 63.1% by Jim Evans, owner of Freedom, and 4.6% by Robert S. Wilson,
operating officer of Homes. In 2005 the company sold a 67.7% interest in Freedom
Home Inc and wrote off its remaining 32.3% investment in Freedom because
management is unable to demonstrate that its equity interest has any future
value. Accordingly, at September 30, 2005 the Company recognized a gain from
discontinued operations of $108,890...

CURRENT BUSINESS ACTIVITIES

Management seeks to acquire additional producing oil and gas properties in and
Around Texas, Louisiana and Oklahoma that will continue to define the
operational holdings of The Company.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of TX
Holdings, Inc. and subsidiaries (the "Company" or "TX Holdings") have been
prepared in accordance with generally accepted accounting principles in the
United States of America for interim financial information and the instructions
to Form 10-QSB and the rules of the Securities and Exchange Commission. The
results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the full fiscal year ending
September 30, 2005. In the opinion of the Company's management, the information
contained herein reflects all adjustments necessary for a fair presentation of
the Company's results of operations, financial position and cash flows. All such
adjustments are of a normal recurring nature. The unaudited interim condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements in the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 2004.

DEVELOPMENT STAGE COMPANY

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 Statement
of Financial Accounting Standards (SFAS) No. 7, ACCOUNTING AND REPORTING BY
DEVELOPMENT-STAGE ENTERPRISES.

GOING CONCERN CONSIDERATIONS

The Company, with its prior subsidiaries, has suffered recurring losses while
devoting substantially all of its efforts to raising capital, identifying and
pursuing businesses opportunities and 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.

                                       73


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

GOING CONCERN CONSIDERATIONS, CONTINUED

These factors raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuing operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company's 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
consolidated 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.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries during 2004 and the recognition to the loss on
discontinuation of the Company's investment in subsidiaries in 2005. All
significant intercompany balances and transactions have been eliminated in
consolidation.

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,
valuation of acquired in-process research and development, measurement of
stock-based compensation, and the fair value of the Company's common stock. The
Company bases its estimates on historical experience and various other
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.

STOCK-BASED COMPENSATION

The Company has adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
123R), which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors, including
employee stock options and employee stock purchases, based on estimated fair
values. Prior to the adoption of SFAS 123R, the Company recognized stock-based
compensation expense in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees.

Also, upon adoption of SFAS 123R, the Company adopted the Black-Scholes
("Black-Scholes") option-pricing model, which was previously used for the
Company's pro forma information disclosures of stock-based compensation expense
as required under SFAS 123.

SFAS 123R requires that the cash flows resulting from excess tax benefits
related to stock compensation be classified as cash flows from financing
activities.

In March 2005, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 107 (SAB 107) regarding the SEC's interpretation of SFAS
123R and the valuation of share-based payments for public companies. The Company
has applied the provisions of SAB 107 in its adoption of SFAS 123R.

                                       74


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

STOCK-BASED COMPENSATION, CONTINUED

The Company's determination of the fair value of share-based payment awards on
the date of grant using an option-pricing model is affected by the Company's
stock price as well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to, the
Company's expected stock price volatility over the term of the awards and actual
and projected employee stock option exercise behaviors. Option-pricing models
were developed for use in estimating the value of traded options that have no
vesting or hedging restrictions and are fully transferable. Because the
Company's employee stock options have certain characteristics that are
significantly different from traded options, and because changes in the
subjective assumptions can materially affect the estimated value, in
management's opinion, the existing valuation models may not provide an accurate
measure of the fair value of the Company's employee stock options. Although the
fair value of employee stock options is determined in accordance with SFAS 123R
and SAB 107 using an option-pricing model, that value may not be indicative of
the fair value observed in a willing buyer/willing seller market transaction.

SFAS 123R requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those
estimates in order to derive the Company's best estimate of awards ultimately
expected to vest. The Company estimated forfeitures based on its historical
experience.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with SFAS 109. It
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and
disclosures. It will be effective for fiscal years beginning after December 15,
2006.

The provisions of FIN 48 apply to all tax positions upon initial adoption of FIN
48. Only tax positions that meet the recognition threshold criteria at the
effective date may be recognized or continue to be recognized upon adoption of
FIN 48. The cumulative effect of applying the provisions of FIN 48 will be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year. The Company is currently evaluating the accounting and disclosure
requirements of FIN 48 and will adopt it as required at the beginning of its
fiscal year 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157). SFAS 157 does not require any new fair value measurements but clarifies
the fair value definition, establishes a fair value hierarchy that prioritizes
the information used to develop assumptions used for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 clarifies that the
fair value is the exchange price in an orderly transaction between market
participants to sell the asset or transfer the liability in the market. The fair
value hierarchy gives the highest priority to quoted prices in active markets
and the lowest priority to unobservable data for example, the reporting entity's
own data. It emphasizes that fair value is a market-based measurement, not an
entity-specific measurement and a fair value measurement should therefore be
based on the assumptions that market participants would use in pricing the asset
or liability.

                                       75


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED

SFAS 157 expands disclosures about the use of fair value to measure assets and
liabilities in interim and annual periods subsequent to initial recognition,
including the inputs used to measure fair value and the effect of such
measurements on earnings for the period. It will be effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years with earlier application encouraged. The
Company is currently evaluating the accounting and disclosure requirements of
SFAS 157 and plans to adopt it as required at the beginning of its fiscal year
2008.

 NOTE 2 - RESTATEMENT

The Company previously filed its June 30, 2005 financial statements without
review and those financial statements included errors in the application of
accounting principles generally accepted in the United States. Following is an
analysis errors and the effect on the financial statements:

<TABLE>
                                                           THREE MONTHS ENDED JUNE 30, 2004
                                                  --------------------------------------------------
                                                  AS ORIGINALLY
                                                      FILED           RESTATEMENT        AS RESTATED
                                                  ------------      --------------      ------------
<S>                                                     <C>                                   <C>
Revenue                                                 62,505                  --            62,505

Loss from operations                                   (62,505)                 --           (62,505
                                                  ------------      --------------      ------------

Total other income and (expenses), net                    (957)                 --              (957)
                                                  ------------      --------------      ------------

Loss from continuing operations                        (63,462)                 --           (63,462)
                                                  ------------      --------------      ------------

Discontinued operations:
     Gain (loss) from disposal of
     discontinued

        business segment                              (743,762)            743,760                (2)
                                                  ------------      --------------      ------------

Gain (Loss) from discontinued operations              (743,762)            743,760                (2)
                                                  ------------      --------------      ------------

Net loss                                          $   (807,224)  $         743,760      $    (63,464)
                                                  ============      ==============      ============

Net loss per common share - basic and diluted

     Continuing operations                        $      (0.00)                         $      (0.00)

     Discontinued operations                             (0.05)                                (0.00)
                                                  ------------                          ------------

        Total                                     $      (0.05)                         $      (0.00)
                                                  ============                          ============

                                                 76


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - RESTATEMENT, CONTINUED

                                                  NINE MONTHS ENDED JUNE 30, 2004
                                            ----------------------------------------------
                                            AS ORIGINALLY
                                                 FILED        RESTATEMENT      AS RESTATED
                                             -----------      -----------      -----------

Total operating expenses                          93,158               --           93,158
                                             -----------      -----------      -----------

Loss from operations                             (93,158)              --          (93,158)

Total other income and (expenses), net            (2,872)              --           (2,872)
                                             -----------      -----------      -----------

Loss from continuing operations                  (96,030)              --          (96,030)
                                             -----------      -----------      -----------

Discontinued operations:
     Loss from disposal of discontinued
        business segment                        (743,762)         852,652          108,890
                                             -----------      -----------      -----------

Gain (Loss) from discontinued operations        (743,762)         852,652          108,890
                                             -----------      -----------      -----------

Net Gain(loss)                                 (839,792)         852,652           12,860
                                             -----------      -----------      -----------
Net Gain(loss) per common share -
     basic and diluted                       -----------      -----------      -----------
     Continuing operations                   $     (0.00)                      $     (0.01)
     Discontinued operations                       (0.05)                             0.01
                                             -----------                       -----------
        Total                                $     (0.05)                      $      0.00
                                             ===========                       ===========

         (A)      To properly recognize the gain upon sale of a majority
                  interest in Homes. The adjustment eliminates the negative
                  investment as a result of the sale.
</TABLE>

The Company also made reclassification entries to the March 31, 2005 financial
statements to properly segregate discontinued operations. The amounts
reclassified are shown in the following footnote.

NOTE 3 - DISCONTINUED OPERATIONS

Following is an analysis of the discontinued operations of Freedom Home, Inc.
for the three and six months ended March 31, 2004. The Company sold a 67.7%
interest and wrote-off the remaining 32.3% in Freedom because management
believes Freedom has no continuing value. The Company continues to own a
minority interest in Freedom and recognized a gain on sale of the majority
interest because the sale resulted in a negative investment.

                                       77


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 3 - DISCONTINUED OPERATIONS, CONTINUED

                                                 THREE MONTHS      NINE MONTHS
                                                    ENDED             ENDED
                                                   JUNE 30,          JUNE 30,
                                                     2004              2004
                                                 ------------      ------------
Revenue                                          $      5,895      $     22,755
                                                 ------------      ------------

Operating expenses, except items shown
     separately below                                   5,482            19,952

     Professional fees                                  1,061             4,096

     Lease expense                                        401             1,463

     Depreciation expense                                 506             1,518

     Advertising expense                                  111               471
                                                 ------------      ------------

        Total operating expenses                        7,561            27,500
                                                 ------------      ------------

Loss from operations                                   (1,666)           (4,745)
                                                 ------------      ------------

Other income and (expenses):
     Gain on settlement of  accounts
     payable                                               --               373

     Interest expense                                    (841)           (2,523)
                                                 ------------      ------------

        Total other income and (expenses),
        net                                              (841)           (2,150)
                                                 ------------      ------------

Gain (Loss) from discontinued operations         $     (2,507)     $     (6,895)
                                                 ============      ============

NOTE 4 - INCOME TAXES

The Company has tax net operating loss carryforwards totaling approximately
$1,895,000, expiring in 2018 through 2025. Approximately $1,190,000 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.

Net operating losses after December 12, 2002 through December 31, 2004 were
approximately $704,000. The total net operating losses available to the Company
to offset future taxable income is approximately $1,128,000. The difference
between the tax provision at the federal statutory rate to the amount reported
in the statement of operations relates primarily to the change in the valuation
allowance offset against deferred tax assets.

                                       78


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
NOTES TO UNAUDITED CONSOLIDATED CONDENSEDFINANCIAL
STATEMENTS
--------------------------------------------------------------------------------

NOTE 5 - SUBSEQUENT EVENTS

On December 12, 2002, the award of 5-year options to purchase 294,341 shares of
TX Holdings Common Stock at $0.01 per share to Robert Wilson, then Chairman and
Chief Executive Officer of the Company was authorized in lieu of $54,000 in
compensation earned during calendar year 2001, and cash advances and accrued
interest of $19,585 for a total of $73,585. The options were exercised in
December 2005. Mr. Wilson was an accredited investor. The sale was exempt
pursuant to Section 4 (2) of the Securities Act of 1933

On March 28, 2006 the Company entered into a Contract with Michael A. Cederstrom
for services as the part time interim Chief Financial Officer. 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 warrants will expire on March 27,
2010. In addition, Mr. Cederstrom performs legal services for the Company
through his law firm, Dexter and Dexter. The company pays to Dexter and Dexter
the sum of $15,000 per month for legal representation.

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.

On March 28, 2006 the Company entered into a consulting agreement with Bobby
Fellers to provide technical support and advice in setting up the oil and gas
operations. Mr. Fellers was granted warrants to purchase 300,000 shares of
common stock at an exercise price of $0.30 per share. The warrants will expire
on March 27, 2010.

In May 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus bonus based
on oil and gas production. In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred stock with no rights of conversion to common
stock. The preferred stock documents provide Mr. Neuhaus with voting rights
equivalent to 50% of the common shares of issued by company. During the fiscal
year 2006 Mr. Neuhaus waived his monthly salary.

In September 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.

                                       79


<PAGE>

ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Effective August 9, 2005, the Registrant engaged Ham Langston & Brezina L.L.P.,
11550 Fuqua, Suite 475, Houston Texas 77034 as its auditors to replace its
former auditors, Elliott Davis LLC. The former auditor was notified of their
dismissal on August 9, 2005.

Elliott Davis, LLC audited the financial statements for the Company for the
fiscal years ending September 30, 2002, and September 30, 2003. The audit report
of Elliott Davis, LLC for the year ended September 30, 2003 did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles, except the audit report
prepared by Elliott Davis LLC did contain a going concern qualification; such
financial statements did not contain any adjustments for uncertainties stated
therein.

In connection with the audit for the fiscal years ended September 30, 2002,
September 30, 2003 and the subsequent interim period ended August 9, 2005, there
were no disagreements with Elliott Davis, LLC on any matter of accounting
principles or practices, financial statement disclosures or auditing scope or
procedure, which if not resolved to the satisfaction of Elliott Davis LLC, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports except that Elliott Davis advised the Company's
board of directors that internal controls necessary to develop reliable
financial statements did not exist.

During the fiscal years ended September 30, 2002, September 30, 2003 and the
subsequent interim period ended August 9, 2005, there were no "Reportable
Events" as defined in Regulations S-K Item 304 (a)(1)(v) other than the advice
referred to in the previous paragraph that internal controls necessary to
develop reliable financial statements did not exist.

The Registrant has complied with the requirements of Item 304(a)(3) of
Regulation SB with regard to providing the former accountant with a copy of the
disclosure it is making in response to this Item and has requested the former
accountant to furnish a letter addressed to the Commission stating whether it
agrees with the statements made by the registrant and, if not, stating the
respects in which it does not agree.

The change in accountants was approved by the board of directors.

During the registrant's two most recent fiscal years and the subsequent interim
period prior to the August 9, 2005 appointment of Ham Langston & Brezina L.L.P,
neither the company nor anyone on its behalf consulted with Ham Langston &
Brezina L.L.P regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the company's financial statements, and
neither a written report nor oral advice was provided to the company by Ham
Langston & Brezina L.L.P that was an important factor considered by the company
in reaching a decision as to any accounting, auditing or financial reporting
issue; or (ii) any matter that was either the subject of a disagreement, as that
term is defined to Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to 304 of Regulation S-K, or a reportable event, as that term is
defined in Item (a)(1)(v) of Regulation S-K.

There were no disagreements with accountants on accounting and financial
disclosure.

ITEM 8A - CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our Chief Executive
Officer and Principal Financial Officer, after evaluating the effectiveness of
our "disclosure controls and procedures" (as defined in the Securities Exchange
Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this Annual Report on Form 10-KSB (the "Evaluation Date"), have concluded
that as of the Evaluation Date, our disclosure controls and procedures were not
effective to provide reasonable assurance that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Our controls were not effective, as we failed to
timely file our Quarterly Reports on Form 10-QSB and we failed to timely file
this Annual Report on Form 10-KSB. Moving forward, our management believes that
as we become more familiar and gain more experience in completing our periodic
filings and providing our outside auditors with the required financial
information, that we will be able to file our periodic reports within the time
periods set forth by the Securities and Exchange Commission.

                                       80


<PAGE>

(b) Changes in internal control over financial reporting. Subsequent to the year
ended December 31, 2006, our management plans to make a concerted effort to
spend the appropriate time and resources to complete our financial statements
and disclosures in our periodic and annual reports within the time periods set
forth by the Commission. Our management hopes to accomplish this goal by putting
in place stricter controls and procedures and beginning management's dialogue
with our inside and outside accountants regarding our periodic filings at an
earlier stage in the review and/or audit process, which our management believes
will allow us to timely file our periodic reports moving forward.

ITEM 8B - OTHER INFORMATION

On March 24, 2004, the SEC filed a civil complaint seeking a temporary
restraining order ("TRO") and other relief, alleging an illegal distribution to
the public of common stock of Universal Express, Inc. ("Universal"), an
unaffiliated organization, by Universal's chief executive officer, its general
counsel and four others, including Mark Neuhaus, the Company's Chairman and
Chief Executive Officer.

Mr. Neuhaus is alleged to have violated Sections 5(b) and (c) and Sections
17(a)(1), (2) and (3) of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Mr. Neuhaus denies
violation of any applicable law in connection with his resale of Universal
common stock. The Company believes there is no connection between the Company
and Universal other than Mr. Neuhaus' position with the Company and the fact
that Mr. Neuhaus was a consultant to Universal and received and resold shares of
its common stock.

                                       81


<PAGE>

                                    PART III

ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

The following table shows the names, ages and positions held by our executive
officers, directors and significant employees at September 30, 2005

        Name                  Age                           Position
        ----                  ---                           --------

        Mark Neuhaus          50          Chairman of the Board of Directors and
                                          President (Chief Executive Officer)

The following table shows the names, ages and positions held by our executive
officers, directors and significant employees at December 19, 2006

        Name                    Age              Position
        ----                    ---              --------

        Mark Neuhaus            51        Chairman of the Board of Directors and
                                          President (Chief Executive Officer)

        Michael A. Cederstrom   54        Interim Chief Financial Officer

        W.A. Alexander          70        Chief Operating Officer

        Bobby S. Fellers        57        Director

        Douglas C. Hewitt       49        Director


BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS AND DIRECTORS

Mark S. Neuhaus, Chairman of the Board of Directors and Chief Executive Officer.

Mr. Neuhaus has served as Chairman and Chief Executive Officer since December
12, 2002 when MA&N acquired a controlling interest in TX Holdings. Mr. Neuhaus
and his wife, Nicole B. Neuhaus, own 100% of MA&N, LLC and other investment
funds specializing in small cap public companies, which Mr. Neuhaus manages and
had been his principal occupation since 1995 until his involvement in TX
Holdings. Prior to 1995, Mr. Neuhaus founded several startup companies including
Solar Engineering in 1987, which later became US Electric Car. Mr. Neuhaus was
also one of the founding shareholders of Interactive Motorsports and
Entertainment.

W. A. "Bill" Alexander, PE, Chief Operating Officer - Mr. Alexander joined TX
Holdings on August 2, 2006 as Chief Operating Officer. Mr. Alexander has worked
at Shell Oil, Inc and Kirby Exploration, as well consulting in his own practice,
Alexander Engineering. Mr. Alexander received his Bachelor of Science degree in
Mining Engineering from the University of Wisconsin.

Michael A Cederstrom, Esq., Chief Financial Officer - Mr. Cederstrom joined TX
Holdings as part time interim Chief Financial Officer on March 28, 2006 and will
assist the company with its reorganization as an oil and gas company. Mr.
Cederstrom has served as the Chief Financial Officer for several oil and gas
companies over the past 10 years. Mr. Cederstrom received his Bachelor of
Science degree in finance with honors from the University of Utah. In addition
he received his Juris Doctorate degree from Southwestern University.

                                       82


<PAGE>

Douglas C. Hewitt, Member Board of Directors - Mr. Hewitt joined TX Holdings as
a member of the board of directors on March 28, 2006. Mr. Hewitt has
approximately 20 years experience in the energy and technology industries
holding various positions including chief executive officer at public companies.

Bobby S. Fellers, Member Board of 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.

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.

Ned Baramov, a former director, resigned on June 24, 2005. Mr. Baramov received
1,500,000 shares for his services as Secretary Treasurer, for the period January
15, 2003 - June 24, 2005.

Darren Bloom, former director, Chief Financial Officer, Secretary and Treasurer
resigned on March 17, 2006. Mr. Bloom received 2,000,000 shares of stock. The
Company is seeking the return of the shares.

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)

Based solely upon a review of Forms 3 and 4 (there have been no amendments)
furnished to the Company during the year ended September 30, 2006 (no Forms 5
having been furnished with respect to such year) and written representation
furnished to the Company as provided in paragraph (b)(2)(i) of Item 405 of Form
10-KSB, there are no persons who need to be identified under this Item as having
failed to file on a timely basis reports required by Section 16(a) of the
Securities Exchange Act of 1934 during the fiscal years ended September 2005 and
2004, except that Darren Bloom, a former Secretary-Treasurer and past member of
the Board of Directors, and former Chief Financial Officer failed to make timely
filing of a Form 3, which filing he has since made.

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.
                  1701 North Judge Ely Blvd. #6420
                  Abilene, Texas 79601

                                       83


<PAGE>

ITEM 10 EXECUTIVE COMPENSATION

The following table sets forth all compensation 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
four completed fiscal years.

<TABLE>
                                                SUMMARY COMPENSATION TABLE
                                                --------------------------

                                                                                 LONG TERM COMPENSATION
                                                                         -------------------------------------------
                                  ANNUAL COMPENSATION                         AWARDS                PAYOUTS
                  --------------------------------------------------------------------------------------------------
                                                                                   Securities
                                                         Other         Restricted    Under-
  Name And                                              Annual           Stock       Lying     LTIP    All Other
 Principal                     Salary     Bonus      Compensation     Compensation  Options/ Payouts  Compensation
  Position           Year       ($)        ($)            ($)             ($)       SARs (#)   ($)        ($)
--------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------
<S>                  <C>         <C>        <C>            <C>
Mark                 2006       -0-        -0-            -0-             N/A         N/A      N/A        N/A
Neuhaus,             2005       -0-        -0-            -0-             N/A         N/A      N/A        N/A
Chief                2004       -0-        -0-            -0-             N/A         N/A      N/A        N/A
Executive            2003       -0-        -0-            -0-             N/A         N/A      N/A        N/A
Officer and
Chairman
--------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------
</TABLE>

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. Mark Neuhaus
entered into an employment agreement on January 15, 2003 for a specified monthly
salary. However, said salary was rescinded by the board of directors on December
23, 2003. No amounts were paid to Mr. Neuhaus.

EQUITY COMPENSATION PLAN INFORMATION - EMPLOYMENT AGREEMENTS

In May, 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus bonus based
on oil & gas production. In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred stock with no rights of conversion to common
stock. The preferred stock documents provide Mr. Neuhaus with voting rights
equivalent to 50% of the common shares of issued by company. During the fiscal
year 2006 Mr. Neuhaus waived his monthly salary.

On January 15, 2003, the Company issued 3,000,000 shares of the Company's Common
Stock for the compensation of Mark Neuhaus, Chief Executive Officer The basis
per share used in the estimation of salary expense for the two executives was
$0.05, management's estimate of the fair value, which estimate considered the
stock price on January 15, 2003. Mark Neuhaus was also authorized a salary of
$25,000 per month, which the Company was to pay when cash flow is sufficient,
according to an employment agreement signed on January 15, 2003. No amount was
paid under this authorization and on December 23, 2003, the Company's Board
unanimously resolved to rescind Mr. Neuhaus' salary.

                                       84


<PAGE>

On March 28, 2006 the Company entered into a Contract with Michael A. Cederstrom
for services as the part time interim Chief Financial Officer. 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 warrants will expire on March 27,
2010. In addition, Mr. Cederstrom performs legal services for the Company
through his law firm, Dexter and Dexter. The company pays to Dexter and Dexter
the sum of $15,000 per month for legal representation.

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.

On March 28, 2006 the Company entered into a consulting agreement with Bobby
Fellers to provide technical support and advice in setting up the oil and gas
operations. 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 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.

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
has filed suit against Mr. Bloom for the return of the shares for breach of
contract and a stop transfer has been placed on the share certificate.

OPTION GRANTS DURING 2005 FISCAL YEAR

The Company did not grant any options during Fiscal Year 2005.

OPTION WARRANT GRANTS DURING 2006 FISCAL YEAR

The following table provides information related to options and warrants granted
to the named executive officers and directors during the 2006 fiscal year. The
Company does not have any outstanding stock appreciation rights.

<TABLE>
                              No. of           % of Total
                              Securities       Options
                              Underlying       Granted to
                              Options          Employees       Exercise
                              Granted          in Fiscal        Price         Expiration
Name                          (#)              Year             ($/Sh)            Date
-------------------------------------------------------------------------------------------
<S>                           <C>              <C>              <C>                <C>
W.A. Alexander                250,000          23.8             $0.30        March 27, 2010
Michael A. Cederstrom         200,000            19             $0.30        March 27, 2010
Bobby S. Fellers              300,000          28.6             $0.30        March 27, 2010
Douglas C. Hewitt             300,000          28.6             $0.30        March 27, 2010
</TABLE>

Messer Fellers and Hewitt were granted warrants to purchase securities of the
company for consulting services provided to the company.

AGGREGATED OPTION EXERCISES DURING 2005 FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

During the fiscal year 2005 no executive officers or director exercised options
or held such options at fiscal year end.

                                       85


<PAGE>

AGGREGATED OPTION EXERCISES DURING 2006 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 2006 fiscal year and number and value
of such options held at fiscal year-end.
<TABLE>
                                                Number of Securities        Value of Unexercised In-the-Money
                                               Underlying Unexercised
                                               Options at Fiscal Year-           Options at Fiscal Year-
                                                       End (#)                         End ($) (1)
                                            ------------------------------ ----------------------------------
                       Shares
                      Acquired
                     on Exercise    Value
       Name              (#)       Realized Exercisable   Unexercisable      Exercisable      Unexercisable
-----------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>           <C>                  <C>
W.A. Alexander            N/A         N/A     250,000           -0-            100,000             -0-
Michael
A.Cederstrom              N/A         N/A     200,000           -0-             80,000             -0-
Bobby S. Fellers          N/A         N/A     300,000           -0-            120,000             -0-
Douglas C. Hewitt         N/A         N/A     300,000           -0-            120,000             -0-
</TABLE>

         (1)      Based on the closing price of $0.70 at September 30, 2006.

ITEM 11 - 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 30, 2005 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.

<TABLE>
                                                     Amount and Nature of
Name and Address of Beneficial Owner (1)             Beneficial Ownership               Percent of Class(2)
-----------------------------------------------------------------------------------------------------------
<S>                                                      <C>                                   <C>
Mark Neuhaus                                             7,662,626(3)                          19.7%

Darren Bloom                                             2,000,000                              7.4%

Nicole B. Neuhaus                                        4,647,626(4)                           8.6%

MA&N LLC                                                 4,647,626                             17.2%

Ned Baramov                                                940,100                              3.5%

All directors and executive officers (2 persons)         10,587,726                            39.2%
</TABLE>

     * Represents less than 1% of our outstanding common stock.

(1)      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, 1701 North Judge Ely Blvd., #6480, Abilene, Texas 79601.
(2)      Based upon 18,999,934 shares of common stock outstanding as of December
         31, 2005, together with securities exercisable or convertible into
         shares of common stock within 60 days of December 8, 2006 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

                                       86


<PAGE>

         stock that are currently exercisable or exercisable within 60 days of
         December 8, 2006 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.
(3)      Of which 4,647,626, shares are owned by MA&N. Mr. Neuhaus has a 50%
         equity interest in MA&N.15,000 shares were acquired in the open market
         Mr. Neuhaus disclaims any beneficial interest in the 2,323,813 shares
         allocable to his wife's beneficial interest.
(4)      Represents shares held by MA&N in which Mrs. Neuhaus has a 50% equity
         interest and her husband, Mark S. Neuhaus, also has a 50% equity
         interest. Mrs. Neuhaus disclaims any beneficial interest in the
         2,323,813 shares allocable to her husband's beneficial interest.

The following table sets forth information, to the best of the Company's
knowledge, as of December 8, 2006 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.

<TABLE>
                                                 Amount and Nature of
Name and Address of Beneficial Owner (1)         Beneficial Ownership       Percent of Class
--------------------------------------------------------------------------------------------
<S>                                                   <C>                         <C>
Mark Neuhaus                                          7,662,626(3)                19.7%

Darren Bloom                                          2,000,000                    7.4%

Nicole B. Neuhaus                                     4,647,626(4)                 8.6%

MA&N LLC                                              4,647,626                   17.2%

David R. Baker                                        1,632,669(5)                 5.9%

Ned Baramov                                             940,100                    3.5%

Michael A. Cederstrom*                                   200,000(6)

Bobby S. Fellers*                                        300,000(6)
Douglas C. Hewitt*                                       300,000(6)
W.A. Alexander*                                          250,000(6)

All directors and executive officers (5 persons)     10,587,726
---------
</TABLE>

     * Represents less than 1% of our outstanding common stock.

(1)      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, 1701 North Judge Ely Blvd., #6480, Abilene, Texas 79601.

(2)      Based upon 27,002,558 shares of common stock outstanding as of December
         8, 2006, together with securities exercisable or convertible into
         shares of common stock within 60 days of December 8, 2006 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 8, 2006 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.

                                       87


<PAGE>

(3)      Of which 4,647,626, shares are owned by MA&N. Mr. Neuhaus has a 50%
         equity interest in MA&N.15,000 shares were acquired in the open market
         Mr. Neuhaus disclaims any beneficial interest in the 2,323,813 shares
         allocable to his wife's beneficial interest.

(4)      Represents shares held by MA&N in which Mrs. Neuhaus has a 50% equity
         interest and her husband, Mark S. Neuhaus, also has a 50% equity
         interest. Mrs. Neuhaus disclaims any beneficial interest in the
         2,323,813 shares allocable to her husband's beneficial interest.

(5)      Represents 915,625 shares owned by Mr. Baker and 717,044 shares subject
         to warrants currently exercisable.

(6)      Represents warrants issued to each individual for their specific role
         with the company during fiscal year 2006.

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 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PARTICULAR TRANSACTIONS

There have been no transactions during the last two years 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 $60,000, except as set
forth below:

(1)      During 2006 the Company entered into agreements to purchase from a
         company beneficially owned by Bobby S. Fellers two fields. Mr. Fellers
         is a Member of the Board of Directors of the Company. The Contract Area
         #1 field and the Park's Lease field. 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.

(2)      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.

(3)      On December 12, 2005 the Company issued 2,000,000 shares of TX Holdings
         Common Stock to Darren Bloom, Mr. Bloom was Secretary-Treasurer, Chief
         Financial Officer and member of the Board of Directors. The shares
         represented $100,000 of stock compensation for 2005. Mr. Bloom is the
         brother of Nicole B. Neuhaus, the wife of Mark Neuhaus, the Company
         Chief Executive Officer and Chairman of the Board of Directors.
         Subsequently, Mr. Bloom resigned from all positions with the Company.
         The Company has filed suit for return all of the shares of Company
         Common Stock.

(4)      The law firm of Dexter and Dexter, located in the state of Utah, has
         been engaged by the Company and is paid $15,000 per month for legal
         services. Mr. Michael A. Cederstrom, the Company's part time interim
         Chief Financial Officer is a partner with Dexter and Dexter.

(5)      On March 28, 2006 the Company entered into a consulting agreement with
         Mr. Douglas C. Hewitt, 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. Hewitt received warrants to purchase 300,000
         shares of the Company's common stock at an exercise price of $0.30 per
         share.

                                       88


<PAGE>

(6)      As of August 1, 2005, TX Holdings and David R. Baker ("Baker") executed
         the Services Settlement Agreement whereby TX Holdings agreed to issue,
         and Baker agreed on behalf of himself and his firm, Haskell Slaughter
         Young & Rediker, LLC, to accept $6,888.22 in cash and 464,942 in shares
         of TX Holdings common stock in full satisfaction of statements for
         legal services and expenses of that firm (for which Baker had full
         benefit and responsibility) aggregating $43,382.43 and an accountable
         retainer for future legal services and expenses of $10,000, which
         payment and stock issuances have been made except that the stock
         issuance was 3,000 shares less than the Services Settlement Agreement
         provided.

(7)      As of July 21, 2005, TX Holdings and Baker & Johnston LLP ("BJ," then
         called Baker, Johnston & Wilson LLP) executed the Forbearance Agreement
         whereby BJ agreed to forbear collection of the indebtedness to it of TX
         Holdings of $215,113.20 until January 21, 2007 in consideration of a
         warrant (which has been issued to BJ) to purchase 1,434,088 shares of
         TX Wireless common stock exercisable from January 1, 2006 at $0.15 a
         share and callable at $.001 per underlying share from February 1, 2006
         if on 20 consecutive trading days ending within 5 trading days of the
         call the per share market value of TX Holdings common stock is at least
         2 1/2 times the then exercise price. If the warrants are fully
         exercised, the aggregate exercise price would equal the indebtedness of
         TX Holdings to BJ for the past legal services. On January 12, 2006,
         effective November 1, 2005, Baker and Johnson agreed to forbear
         collection of the indebtedness of the company to it until July 21, 2007
         and the Warrant was amended to delay the exercise date until July 1,
         2006 and the call date to August 1, 2006.

(8)      On February 19, 2003, the Company issued 3,000,000 shares of the
         Company's Common Stock to Mark Neuhaus, Chairman and CEO of the Company
         (SEE EXHIBIT 99.8). The shares represent $150,000 of stock compensation
         for 2003, and were registered under an S-8 Registration Statement under
         the Securities Act of 1933.

(9)      On February 19, 2003, the Company issued 1,500,000 shares of the
         Company's Common Stock to Ned Baramov, Secretary - Treasurer (SEE
         EXHIBIT 99.7). The shares represent $75,000 of stock compensation for
         2003, and were registered under an S-8 Registration Statement under the
         Securities Act of 1933.

CONTROLLING PERSONS

Mark S. Neuhaus, as a director and Chief Executive Officer of TX Holdings, the
owner of a 50% interest in MA&N LLC and the owner of shares of TX Holdings, all
as reflected in Items 9 and 11 hereof; Nicole B. Neuhaus as the owner of a 50%
interest in MA&N LLC as reflected in Item 11 hereof, and MA&N LLC as the owner
of shares of TX Holdings as reflected in Item 11 hereof, may all be deemed to be
controlling persons of TX Holdings. There are no agreements or understandings
between any of the foregoing that they will act as a group, although from time
to time they may act in concert.

ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K

     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.
      2.4         Escrow Agreement dated September 4, 2003 between Jim Evans, R
                  Wireless, Inc., Homes by Owner, Inc. and David Baker. (11)


                                       89


<PAGE>

      2.5         Extension Agreement dated March 5, 2004 between Jim Evans, R
                  Wireless, Inc., and Homes by Owner, Inc. (12)
      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 (13)
      4           Instrument defining rights of holders (See Exhibit No. 3.1a,
                  Articles of Incorporation - Article Four)
      4.2         Warrant to Purchase Shares of Common Stock of R Wireless, Inc.
                  issued to Baker, Johnston and Wilson LLP, dated July 21, 2005
      10.4        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 R. Baker and R
                  Wireless, Inc., dated August 1, 2005
      10.6        Amendment to Forbearance Agreement and Warrant between Baker &
                  Johnston LLP, and TX Holdings, Inc., dated as of November 1,
                  2005
      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. Cederstrom, Esq., CFO of TX
                  Holdings, Inc.
      32.1        Certification of Mark Neuhaus pursuant to Section 1350
      32.2        Certification of Michael A, Cederstrom, Esq., pursuant to
                  Section 1350
      33.1        R Wireless, Inc. Code of Ethics adopted February 24, 2004(7)
      99.7        Employment Agreement between Registrant and Ned Baramov dated
                  January 15, 2003 (5)
      98.8        Employment Agreement between Registrant and Mark Neuhaus dated
                  January 15, 2003 (5)
      99.9        Retainer Agreement between Registrant and Donald N. Rizzuto,
                  Attorney and Counselor at Law dated January 15, 2003 (5)
      99.10       Employment Agreement between Registrant and Darren Bloom dated
                  August, 2005(9)

         (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.


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<PAGE>

         (10)     Incorporated by reference to the exhibit as filed with Form
                  10KSB/A of R Wireless, Inc., with Securities and Exchange
                  Commission filing date of March 12, 2004.

         (11)     Incorporated by reference to the exhibit as filed with Form
                  10KSB/A of R Wireless, Inc., with Securities and Exchange
                  Commission filing date of March 12, 2004.

         (12)     Incorporated by reference to the exhibit as filed with Form
                  10KSB/A of R Wireless, Inc., with Securities and Exchange
                  Commission filing date of March 12, 2004.

         (13)     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.

REPORTS ON FORM 8-K

Nicole B. Neuhaus' resignation from the Board of Directors as of November 4,
2003, filed with the Security and Exchange Commission on December 12, 2003.

Agreement to Merge between Homes and Freedom as of March 25, 2005, filed with
the Security and Exchange Commission on March 31, 2005.

Changes in R Wireless' Certifying Accountant as of August 9, 2005 - Elliott
Davis LLC dismissed and Ham, Langston & Brezina LLP engaged; filed with the
Security and Exchange Commission on July 19, 2005.

Forbearance Agreement with Baker, Johnston & Wilson LLP as of July 21, 2005;
Resignation of Ned Baramov as of June 24, 2005, and appointment of Darren Bloom
as member of the Board and Chief Financial Officer; filed with the Security and
Exchange Commission on July 25, 2005.

Appointment of Mr. Douglas Hewitt of Hewitt Energy Group and Mr. Bobby Fellers
of The Masada Oil and Gas Companies as a member of the Board; Appointment of Mr.
Michael Cederstrom as Chief Financial Officer; Resignation of Darren Bloom from
positions as Director, Secretary/Treasurer and Chief Financial Officer; filed
with the Security and Exchange Commission on March 28, 2006.

Acquired first producing oil and gas lease. TX Holdings acquired a 75% working
interest in the "Parks" Lease for 320 acres with approximately 22 existing wells
and estimated reserves of 12M to 13M barrels; filed with the Security and
Exchange Commission on April 11, 2006.

Private Placement Agreement with Brill Securities, Inc. Under the terms of the
agreement, Brill Securities will act as financial advisors for the Company's
private placement offering; filed with the Security and Exchange Commission on
May 16, 2006.

Commencement of legal proceedings against former CFO Darren Bloom in TX
Holdings, Inc. v. Darren Bloom, Case No. 06-14396CA04, 11th Judicial Circuit
Court, Dade County, Florida; filed with the Security and Exchange Commission on
July 31, 2006.

Hiring of W.A. "Bill" Alexander as Chief Operating Officer of TX Holdings, Inc.;
filed with the Security and Exchange Commission on August, 2, 2006.


ITEM 14 PRINCIPAL ACCOUNTANTS FEES AND SERVICE

The aggregate fees we paid to Ham Langston & Brezina, LLP for the years ended
September 30, 2006, 2005 and 2004 were as follows:


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<PAGE>

                                            2006          2005         2004
- ---------------------------------------------------------------------------
Audit Fees                                $30,000        $20,000     36,010
Audit-Related Fees
Total Audit and Audit-Related Fees

Tax Fees                                       --             --        731
All Other Fees
Total                                                              $ 36,741

                                   SIGNATURES

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

                                    TX HOLDINGS, INC.


                                    By: /s/ Mark Neuhaus
                                        Mark Neuhaus
                                        Chief Executive Officer

Dated: January 23, 2007

         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/ Mark Neuhaus                Chairman of the Board of Directors, and
         January 23, 2007                Chief Executive Officer
         ----------------
         Mark Neuhaus

         /s/ Michael A. Cederstrom       Chief Financial Officer
         January 23, 2007
         -------------------------
         Michael A. Cederstrom

         /s/Douglas C. Hewitt            Director
         January 23, 2007
         --------------------
         Douglas C. Hewitt

         /s/Bobby S. Fellers             Director
         January 23, 2007
         -------------------
         Bobby S. Fellers


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