<PAGE>

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

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

                                   FORM 10-KSB

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

For the fiscal year ended September 30, 2006

|_| 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                            (I.R.S. Employer
of Incorporation or Organization)                        Identification No.)

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

                                 (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. [ ]



<PAGE>

The Registrant's did not have revenues for the fiscal year ended September 30,
2006.

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 March 20, 2007
was $7,122,880

There are approximately 13,966,431 shares of common voting stock of the
Registrant held by non-affiliates. On March 20, 2007 the average bid and asked
price was $ 0.51

As of March 20, 2007, there were 27,002,558 shares of common stock outstanding.


FORWARD-LOOKING STATEMENTS AND CAUTIONARY WORDS

This annual report on Form 10-KSB ("Annual Report") for the period ending
September 30, 2006 ("fiscal year 2006"), 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.


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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.

"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.


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"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.


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                                   FORM 10-KSB
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006

                                      INDEX
PART I_________________________________________________________________  6

   Item 1 Description of Business______________________________________  6

   Item 2 Description of Property______________________________________ 23

   Item 3 Legal Proceedings____________________________________________ 25

   Item 4 Submission of Matters to a Vote of Security Holders__________ 26

PART II________________________________________________________________ 27

   Item 5 Market for Common Equity and Related Stockholder Matters_____ 27

   Item 6 Management's Discussion and Analysis or Plan of Operations___ 32

   Item 7 Financial Statements_________________________________________ 34

   Item 8 Changes In and Disagreements with Accountants on Accounting
          and Financial Disclosure_____________________________________ 52

   Item 8A Controls and Procedures_____________________________________ 52

   Item 8B Other Information___________________________________________ 53

PART III_______________________________________________________________ 54

   Item 9 Directors, Executive Officers, Promoters and Control
          Persons; Compliance with Section 16(a) of the
          Exchange Act_________________________________________________ 54

   Item 10 Executive Compensation______________________________________ 56

   Item 11 Security Ownership of Certain Beneficial Owners and
           Management__________________________________________________ 58

   Item 12 Certain Relationships and Related Transactions______________ 59

   Item 13 Exhibits and Reports on Form 8-K____________________________ 60

   Item 14 Principal Accountants Fees and Service______________________ 62


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                                     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 April 11, 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 distributed 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.

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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.

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.


                                       7


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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 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
in which TX Holdings owns an interest.

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.

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

Since August 2005 oil prices have exceeded $50.00 per barrel. On March 19, 2007
the closing price for a barrel of oil was $56.59. 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.


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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 $1,180,000. 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.

In December 2006 Van Gonten requested additional well data on the wells owned by
TX Holdings in order to evaluate the wells. Until this information can be
provided and evaluated Van Gonten is unable to evaluate any proven reserves.

CURRENT OIL AND GAS ACTIVITIES

We are actively engaged in the exploration, development, 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 with Masada Oil & Gas,
Inc. ("Masada") Masada has served as the operating contractor in two of the
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.

Currently TX Holdings is not producing any of its wells. The Company is applying
for its Operator's License in Texas. Upon obtaining the Operator's License TX
Holdings will begin production.

(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. We believe that our customers will be based in the
State of Texas and in the industries discussed above. Currently, the Wells the
Company owns are only capable of producing oil. Sufficient quantities of natural
gas are not produced at this time to warrant the cost of installing a collection
system.

Although we anticipate that any crude oil and natural gas that we produce will
be sold to customers in the State of Texas, no assurance can be given that such
sales will occur, or that if they do, that we will receive a price that is
sufficient to make our operations profitable.


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DISTRIBUTION METHODS OF PRODUCTS OR SERVICES

Crude oil will be stored in tanks at well site located on our leases, until the
purchaser takes delivery of the crude oil by tanker truck. TX Holdings has not
entered into any contracts for the sale of its crude as of March 20, 2007.

COMPETITIVE BUSINESS CONDITIONS

Our oil and gas exploration activities in Texas are undertaken in a highly
competitive and speculative business environment. In seeking any other suitable
oil and gas properties for acquisition, we will be competing with a number of
other companies located in Texas and elsewhere, including large oil and gas
companies and other independent operators, 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. If such an event occurs, it will have a significant adverse impact on
the profitability of our operations.

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

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

We will be dependent on local purchasers of hydrocarbons to purchase our
products in the areas where our properties are located. 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 fairly standardized in
the industry. However, the percentage and amount of royalties paid by producers,
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 products that we expect to offer
require governmental approval, although permits are required for the drilling of
oil and gas wells. Additionally, testing of well integrity is required on a
routine basis.


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<PAGE>

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.

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

RESEARCH AND DEVELOPMENT

During 2005 and 2006 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:


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     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

     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.


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<PAGE>

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.


                                       13


<PAGE>

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.


                                       14


<PAGE>

FORMER BUSINESS OF TX HOLDINGS.

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.

Since May 26, 2005, the operations of New Freedom have not been consolidated
with the financial statements of the Company. In 2005 the company sold a 67.7%
interest in New Freedom and New Freedom is no longer a subsidiary because it is
now controlled by of Jim Evans. 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 now owns a 32.3% interest in New Freedom and TX Holdings' management
has determined that the investment in New Freedom is worthless.

BUSINESS OF DIRECT LENDING, INC.

Direct Lending, Inc. 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. 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.


                                       15


<PAGE>

COMPANY EMPLOYEES AND OTHER WORKERS

As of March 20, 2007 we had four 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. On February 2, 2007 Jose Fuentes was hired as
the Vice President of Finance for the Company. Other specialized functions are
provided as necessary through the engagement of independent consulting
contractors.

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.


                                       16


<PAGE>

Our revenues may be less than expected if our oil and gas reserve estimates are
inaccurate.

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

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

We are implementing a growth strategy which, if successful, will place
significant demands on us and subject us to numerous risks.

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

We may not be able to compete successfully in acquiring prospective reserves,
developing reserves, marketing oil and natural gas, attracting and retaining
quality personnel and raising additional capital.

Our ability to acquire additional prospects and to find and develop reserves in
the future will depend on our ability to 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.


                                       17


<PAGE>

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

     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:


                                       18


<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.


                                       19


<PAGE>

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.

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.


                                       20


<PAGE>

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.

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.


                                       21


<PAGE>

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. However,
as of March 20, 2007 the Company has not sold any of its oil and gas production.
The Company has encountered unforeseen costs, expenses, problems, difficulties
and delays frequently associated with new ventures, and these may continue.
There is no assurance that the Company's business ventures will be successful or
that the Company will be able to produce and acquire sufficient productive wells
to meet its goals. The Company anticipates that its operating expenses will
increase if and as its business expands, and it will need to generate revenues
sufficient to meet all of its expenses to achieve profitability.

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.

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.


                                       22


<PAGE>

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.

Shareholders Voting Control Risk

On May 11, 2006 the Company issued 1,000 shares of preferred stock to Mark
Neuhaus. The preferred shares provide super-voting rights to Mark Neuhaus equal
to 50% of the common stock voting rights. These super-voting rights provide Mark
Neuhaus with control of the Company; This may allow Mr. Neuhaus the ability to
act in a manner contrary to the vote of other shareholders and that may be
detrimental to other shareholders.

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. All
research and activities as related to the oil and gas business are being
conducted from this office. The company's headquarters are located at 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. 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.


                                       23


<PAGE>

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.

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
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 and 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 and Gas'
ability to acquire the additional acreage. If Masada Oil and Gas is unable to
deliver the additional acreage the Purchase and Sale Agreement will be adjusted
to reduce the price of the purchase. The Purchase and Sale Contract for this
field was not completed until November 2006 and the payments we made towards
purchase of the field are presented in the financial statements as a deposit
towards 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%

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


                                       24


<PAGE>

As of November 25, 2006, there were eighteen oil wells capable of producing on
the leases. As of March 20, 2007 these wells are not producing due to the
Company waiting to obtain its Operator's License in Texas. The production of the
wells is minimal, from 1 to 2 bbls per day. The Company has not completed 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. The wells
on this lease are not currently producing.

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. 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.

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 Company currently has no proved reserves on the leases. The
leases were acquired during the third and fourth quarter of 2006. However, the
Company hopes to establish reserves and commence operations on the leases in
2007.

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 2006,
and timely Forms 10-QSB for the quarterly periods in 2005 and 2006. The Company
has recently filed Form 10-KSB for fiscal year end 2005. The Forms 10-QSB for
the quarterly periods in 2005 have been incorporated in the Form 10-KSB 2005
filing as provided in an agreement between the Company and the SEC.


                                       25


<PAGE>

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.



                                       26


<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:

December 31, 2006                     0.87           0.45
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

As of March 20, 2007 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.


                                       27


<PAGE>

The shares of TX Holdings' common stock are subject to the provisions of Section
15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. The Commission
generally defines penny stock to be any equity security that has a market price
less than $5.00 per share, subject to specified exceptions. Section 15(g) sets
forth requirements for transactions in penny stocks and Rule 15g-9(d)(1)
incorporates the definition of penny stock as that used in Rule 3a51-1 of the
Exchange Act. Rule 3a51-1 provides that any equity security is considered to be
a penny stock unless that security is registered and traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for quotation on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at least $5.00 per
share) or the issuer's net tangible assets; or exempted from the definition by
the Commission. As a result, trading in TX Holdings' common stock is subject to
additional sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors, generally
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse.

For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such securities and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker-dealers to
trade and/or maintain a market in TX Holdings' common stock and may affect the
ability of shareholders to sell their shares.

PREFERRED STOCK

The Company has issued 1,000 shares of preferred stock to Mark Neuhaus, the
President and Chairman of the Board of Directors. The preferred stock has no
dividend rights, no registration rights and no conversion rights. The preferred
stock does have a super-voting right equivalent to 50% of the outstanding voting
rights held by the common stock holders. This voting right provides Mr. Neuhaus
with control of the Company.

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.


                                       28


<PAGE>

HOLDERS

As of September 30, 2006, TX Holdings has issued and outstanding 27,002,558
shares of common stock. During the fiscal year 2006 the following warrants were
issued: Douglas C. Hewitt, exercisable for 300,000 shares; Michael A.
Cederstrom, exercisable for 200,000 shares; Bobby Fellers, exercisable for
300,000 shares; W.A. ("Bill") Alexander, exercisable for 250,000 shares; and as
part of the Private Placement exercisable for a total of 4,633,324 shares, none
of which have 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.

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.


                                       29


<PAGE>

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.


                                       30


<PAGE>

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.

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 May 11, 2006 the Company entered into an Employment Agreement with Mark
Neuhaus. As part of the Employment Agreement Mr. Neuhaus was provided 1,000
preferred shares of stock. The preferred shares have no dividend rights and no
conversion to common stock rights. The preferred stock does have a super-voting
right equivalent to 50% of the outstanding shares of common stock. The
super-voting right provides Mr. Neuhaus with control of the Company.

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.


                                       31


<PAGE>

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 $7,269,016 as of September 30, 2006. 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 or place deposits on 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 2007. Revenues derived from the planned
production and sale of oil will be based on the evaluation and development of
fields. If our development plan is successful, it is estimated it will take
approximately one year to reach 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. The Company believes that
it 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 could be profitable at approximately 200 bbls of oil
produced per day. The Company's success is dependent on if and how quickly it
can reach these levels of production. The Company plans to use all revenues for
general corporate purposes as well as, future expansion of its current oil
producing properties and the acquisition of other oil and gas properties. There
is no certainty that the Company can achieve profitable levels of production or
that it will be able to raise additional capital through any means.

RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 2006 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2005

REVENUES FROM OPERATIONS - The Company had no Revenues for the years ended
September 30, 2006 and 2005. On December 2004, the company announced plans to
change business direction and began to structure itself into an oil and gas
production and exploration 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 revenues.


                                       32


<PAGE>

EXPENSES FROM CONTINUING OPERATIONS - The Company incurred operating expenses of
$4,998,139 for the fiscal year ended September 30, 2006 an increase of
$4,762,319 compared to $235,820 for the fiscal year ended September 30, 2005.
The increase in operating expenses are primarily related to stock-based
compensation increasing to $4,542,901 for the year ended September 30, 2006 from
$40,000 for the year ended September 30, 2005 and increses in professional fees
as it pursues its business strategy of oil and gas exploration and production.

NET LOSS - For the fiscal year ended September 30, 2006 the Company incurred a
loss of $5,019,715 compared to a loss of $340,900 for the fiscal year ended
September 30, 2005, an increase of $4,678,815. The major reasons for this loss
increase is having no revenue and stock-based compensation and professional fees
for the fiscal year ended September 30, 2006 as the Company shifted its focus to
oil and gas exploration and production.

NET OPERATING LOSS CARRYFORWARD FOR TAX PURPOSES

The Company has tax net operating loss carryforwards totaling approximately
$1,740,000, expiring in 2018 through 2026. Approximately $1,200,000 of net
operating losses was incurred prior to December 12, 2002 at which date MA&N
acquired 51% of the Company and are consequently subject to certain limitation
described in section 382 of the Internal Revenue Code. The Company estimates
that, due to the limitations and expiration dates, only $424,000 of the net
operating losses incurred prior to December 12, 2002 will be available to offset
future taxable income.

Net operating losses after December 12, 2002 through September 30, 2005 were
approximately $1,316,000. The total net operating losses available to the
Company to offset future taxable income is approximately $1,740,000.

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 5 - NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS.)

LIQUIDITY

At September 30, 2006 we had cash or cash equivalents in the amount of $332,546.
As of September 30, 2005 we had no cash, cash equivalents and $10,000 in prepaid
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 $164,385 for operating purposes as of
September 30, 2006. The Company has also made an arrangement with its primary
creditor concerning an Account Payable in the amount of $215,113 to accept
Warrants totaling 1,434,088 warrants to purchase common stock of the Company.
(See Recent Sale of Unregistered Securities)to forebear the collection of the
liability. The $215,113 represents 47% of the Company's outstanding Account
Payable of $455,241.


                                       33


<PAGE>

During the Fourth 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.

ITEM 7 FINANCIAL STATEMENTS

The Company's consolidated balance sheets as of September 30, 2006 and 2005, 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.



                                       34


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
FINANCIAL STATEMENTS - TABLE OF CONTENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005
--------------------------------------------------------------------------------


                                                                        PAGE(S)
                                                                       ---------

Report Of Independent Registered Public Accounting Firm                    36

Audited Financial Statements:

     Balance Sheets at September 30, 2006 and 2005                         37

     Statements Of Operations for the years ended September 30, 2006
         and 2005, and for the period from inception of the
         development stage, October 1, 2004, to September 30, 2006         38

     Statements Of Changes In Stockholders' Deficit for the years
         ended September 30, 2005 and 2006                               39-40

     Statements Of Cash Flows for the years ended September 30, 2006
         and 2005, and for the period from inception of the
         development stage, October 1, 2004, to September 30, 2006         41

Notes to Financial Statements                                            42-53


                                       35


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying balance sheets of TX Holdings, Inc. as of
September 30, 2006 and 2005 and the related 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 financial statements referred to above present fairly, in
all material respects, the financial position of TX Holdings, Inc. as of
September 30, 2006 and 2005, and the 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 financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements
and discussed in Note 1, the Company has incurred significant recurring losses
from operations since inception and is dependent on outside sources of financing
for continuation of its operations. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans with
regard to this matter are also discussed in Note 1. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


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

Houston, Texas
March 20, 2007


                                       36


<PAGE>
<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
BALANCE SHEETS
SEPTEMBER 30, 2006 AND 2005
----------------------------------------------------------------------------------------

                                                                2006            2005
                                                            ------------    ------------
<S>                                                         <C>             <C>
ASSETS

Current assets:
    Cash and cash equivalents                               $    332,546    $          -
    Prepaid expenses                                              15,000          10,000
                                                            ------------    ------------

      Total current assets                                       347,546          10,000

Deposits for oil and gas property acquisition                    253,000               -
Property and equipment, net                                      290,318           1,080
                                                            ------------    ------------

           Total assets                                     $    890,864    $     11,080
                                                            ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable and accrued liabilities                $    455,251    $    220,277
    Accrued stock-based compensation                             830,000               -
    Advances from stockholders/officer                           164,385         214,697
                                                            ------------    ------------

      Total current liabilities                               1,449,636         434,974
                                                            ------------    ------------

Commitments and contingencies

Stockholders' deficit:
    Preferred stock: no par value, 1,000,000 shares
      authorized, 1,000 shares issued or outstanding           1,018,000               -
    Common stock: no par value, 50,000,000 shares
      authorized, 25,782,558 and 16,705,593 shares
      issued and outstanding at September 30, 2006
      and 2005, respectively                                   5,104,541       1,618,305
    Additional paid-in capital                                   587,703         211,098
    Accumulated deficit                                       (1,803,507)     (1,803,507)
    Losses accumulated in the development stage               (5,465,509)       (449,790)
                                                            ------------    ------------

      Total stockholders' deficit                               (558,772)       (423,894)
                                                            ------------    ------------

           Total liabilities and stockholders' deficit      $    890,864    $     11,080
                                                            ============    ============


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


                                           37
</TABLE>


<PAGE>
<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO SEPTEMBER 30, 2006
-----------------------------------------------------------------------------------------------

                                                                                   INCEPTION OF
                                                                                   DEVELOPMENT
                                                                                     STAGE TO
                                                                                   SEPTEMBER 30,
                                                       2006            2005            2006
                                                   ------------    ------------    ------------
<S>                                                <C>             <C>             <C>
Operating expenses, except items shown
    separately below                               $    202,177    $     67,250    $    269,427
    Stock-based compensation                          4,542,901          40,000        4582,901
    Professional fees                                   211,624         120,706         332,330
    Lease expense                                        12,392           5,000          17,392
    Depreciation expense                                    780             480           1,260
    Advertising expense                                  28,265           2,384          30,649
                                                   ------------    ------------    ------------

      Total operating expenses                        4,998,139         235,820       5,233,959
                                                   ------------    ------------    ------------

Loss from operations                                 (4,998,139)       (235,820)     (5,233,959)
                                                   ------------    ------------    ------------

Other income and (expenses):
    Other income                                            710               -             710
    Forebearance agreement costs                              -        (211,098)       (211,098)
    Interest expense                                    (18,290)         (2,872)        (21,162)
                                                   ------------    ------------    ------------

      Total other income and (expenses), net            (17,580)       (213,970)       (231,550)
                                                   ------------    ------------    ------------

Loss from continuing operations                      (5,015,719)       (449,790)     (5,465,509)
                                                   ------------    ------------    ------------

Discontinued operations:
    Gain (loss) from disposal of discontinued
      business segment                                        -         108,890               -
                                                   ------------    ------------    ------------

Gain from discontinued operations                             -         108,890               -
                                                   ------------    ------------    ------------

Net loss                                           $ (5,015,719)   $   (340,900)   $ (5,465,509)
                                                   ============    ============    ============

Net loss per common share - basic and diluted
    Continuing operations                          $      (0.25)   $      (0.03)
    Discontinued operations                                   -            0.01
                                                   ------------    ------------

      Total                                        $      (0.25)   $      (0.02)
                                                   ============    ============

Weighted average number of common shares
    outstanding - basic and diluted                  20,192,875      15,958,775
                                                   ============    ============


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


                                              38
</TABLE>


<PAGE>
<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005
----------------------------------------------------------------------------------------------------------------------------------

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

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

Common stock issued for
   professional services            -            -      450,000       40,000            -            -             -        40,000

Common stock issued for
   prepaid services                 -            -      100,000       10,000            -            -             -        10,000

Common stock issued to
   settle accounts
   payable                          -            -      361,942       36,194            -            -             -        36,194

Warrants issued under
   forbearence agreement            -            -            -            -      211,098            -             -       211,098

Net income (loss)                   -            -            -            -            -      108,890      (449,790)     (340,900)
                          -----------  -----------  -----------  -----------  -----------  -----------   -----------   -----------

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

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


                                                                39
</TABLE>


<PAGE>
<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                           LOSSES
                                                                                                         ACCUMULATED
                              PREFERRED STOCK             COMMON STOCK        ADDITIONAL                   IN THE
                          ------------------------  -------------------------   PAID-IN    ACCUMULATED    DEVELOP-
                             SHARES       AMOUNT       SHARES       AMOUNT      CAPITAL      DEFICIT     MENT STAGE       TOTAL
                          -----------  -----------  -----------   -----------  -----------  -----------   -----------   -----------
<S>                             <C>    <C>           <C>          <C>          <C>          <C>           <C>           <C>
Balance at
  September 30, 2005                -  $         -   16,705,593   $ 1,618,305  $   211,098  $(1,803,507)  $  (449,790)  $  (423,894)

Common stock issued for
  professional services             -            -    4,649,300     2,318,296            -            -             -     2,318,296

Common stock issued
  for cash                          -            -    4,633,324     1,164,997            -            -             -     1,164,997

Common stock issued
  upon exercise of
  warrants                                              294,341         2,943                                                 2,943

Common stock surrendered            -            -     (500,000)            -            -            -             -             -

Warrants issued for
  services                          -            -            -             -      376,605            -             -       376,605

Preferred stock issued
  to the Company's
  chief executive
  officer/stockholder           1,000    1,018,000            -             -            -            -             -     1,018,000

Net income (loss)                   -            -            -             -            -            -    (5,015,719)   (5,015,719)
                          -----------  -----------  -----------   -----------  -----------  -----------   -----------   -----------

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


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


                                                                40
</TABLE>


<PAGE>
<TABLE>
TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 AND FOR THE PERIOD FROM
INCEPTION OF THE DEVELOPMENT STAGE, OCTOBER 1, 2004, TO SEPTEMBER 30, 2006
----------------------------------------------------------------------------------------------------------

                                                                                              INCEPTION OF
                                                                                              DEVELOPMENT
                                                                                                STAGE TO
                                                                                              SEPTEMBER 30,
                                                                  2006            2005            2006
                                                              ------------    ------------    ------------
<S>                                                           <C>             <C>             <C>
Cash flows from operating activities:
    Net loss                                                  $ (5,015,719)   $   (340,900)   $ (5,465,509)
    Adjustments to reconcile net loss to net cash used in
      operating activities
      Loss (gain) from discontinued operations                           -        (108,890)              -
      Warrants issued for forbearance agreement                          -         211,098         211,098
      Depreciation expense                                             780             480           1,260
      Common and preferred stock issued for services             3,336,296          50,000       3,386,296
      Warrants issued for services                                 376,605               -         376,605
      Common stock issued to settle accounts payable                     -          36,194          36,194
      Changes in operating assets and liabilities:                                                       -
        Prepaid expenses and other assets                           (5,000)         (9,750)        (14,750)
        Accrued interest added to stockholder advances              18,290               -          18,290
        Accounts payable and accrued liabilities                 1,064,974          20,705       1,085,679
                                                              ------------    ------------    ------------

             Net cash used by operating activities                (223,774)       (141,063)       (364,837)
                                                              ------------    ------------    ------------

Cash flows from investing activities:
    Deposits paid for oil and gas property acquisition            (253,000)                       (253,000)
    Purchase of property and equipment                            (290,018)              -        (290,018)
                                                              ------------    ------------    ------------

             Net cash provided by financing activities            (543,018)              -        (543,018)
                                                              ------------    ------------    ------------

Cash flows from financing activities:
    Repayment of note payable to a bank                                  -         (20,598)        (20,598)
    Proceeds from sale of common stock                           1,164,997               -       1,164,997
    Proceeds from exercise of warrants                               2,943               -           2,943
    Proceeds (repayments) of advances from
    stockholder/officer                                            (68,602)        161,661          93,059
                                                              ------------    ------------    ------------

             Net cash provided by financing activities           1,099,338         141,063       1,240,401
                                                              ------------    ------------    ------------

Increase in cash and cash equivalents                              332,546               -         332,546

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

Cash and cash equivalents at end of year                      $    332,546$              -    $    332,546
                                                              ============    ============    ============

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


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


                                                    41
</TABLE>


<PAGE>

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

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

HISTORICAL BUSINESS ACTIVITIES

TX Holdings, Inc. (formerly R Wireless, Inc. and HOM Corporation) (the
"Company"), incorporated May 4, 2000 in the State of Georgia, is 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.

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.


                                       42


<PAGE>

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

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

GOING CONCERN CONSIDERATIONS

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.

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.

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.


                                       43


<PAGE>

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

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

PROPERTY AND EQUIPMENT, CONTINUED

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.

REVENUE RECOGNITION

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.


                                       44


<PAGE>

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

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

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.

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.

                                                            2006         2005
                                                         ----------   ----------

Options issued to former owner                                    -      294,341
Warrants Issued for forbearance of payable                1,434,088    1,434,088
Warrants issued as compensation                           1,050,000            -
Warrants issued in private placement                      4,368,324            -
                                                         ----------   ----------

       Total                                              6,852,412    1,728,423
                                                         ==========   ==========

RECENTLY ISSUED ACCOUNTING STANDARDS

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.


                                       45


<PAGE>

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

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

RECENTLY ISSUED ACCOUNTING STANDARDS, CONTINUED

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.

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.

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.

NOTE 2 - DEPOSITS FOR OIL AND GAS PROPERTY ACQUISITION

On November 1 2007, the Company entered into a purchase and sale agreement (the
"Agreement") for a 60% interest in certain oil and gas properties located in
Eastland County, Texas. Under the Agreement, the Company is obligated to pay a
total of $7,200,000 for equipment, mineral leases, drilling and reworks, and
various other categories of costs if all provisions of the agreement are met. At
September 30, 2006, the Company had made payments totaling $253,000 to the
seller and those payments are presented as deposits for oil and gas property
acquisition in the accompanying balance sheet.


                                       46


<PAGE>

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

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at September 30, 2006 and 2005:

<TABLE>
                                                LIFE
                                                YEARS           2006           2005
                                             ------------   ------------   ------------
<S>                                            <C>          <C>            <C>
      Oil and gas properties and equipment                  $    289,248   $          -
      Furniture and office equipment           3-5 years           3,070          2,400
                                                            ------------   ------------

      Total                                                      292,318          2,400
      Less accumulated depreciation,
         depletion and amortization                               (2,000)        (1,320)
                                                            ------------   ------------

                                                                 290,318          1,080
                                                            ============   ============
</TABLE>

Depreciation expense of $780 and $480 was recognized during the years ended
September 30, 2006 and 2005, respectively. At September 30, 2006, the Company
has no proven oil and gas properties and, accordingly, there is no amortization
of oil and gas properties during the year ended September 30, 2006.

NOTE 4 - DISCONTINUED OPERATIONS

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.

NOTE 5 - INCOME TAXES

The tax effects of temporary differences that give rise to deferred taxes are as
follows at September 30, 2006 and 2005:

                                                     2006           2005
                                                 ------------   ------------

      DEFERRED TAX ASSETS:
        Net operating losses                     $    591,580   $    413,573
        Accrued wages                                       -         17,149
        Valuation allowance                          (591,480)      (430,722)
                                                 ------------   ------------

      Total deferred tax assets                           100              -

      DEFERRED TAX LIABILITIES:
        Basis of property and equipment                   100              -
                                                 ------------   ------------

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

The Company has tax net operating loss carryforwards totaling approximately
$1,740,000, expiring in 2018 through 2026. Approximately $1,200,000 of net
operating losses was incurred prior to December 12, 2002 at which date MA&N
acquired 51% of the Company and are consequently subject to certain limitation
described in section 382 of the Internal Revenue Code. The Company estimates
that, due to the limitations and expiration dates, only $424,000 of the net
operating losses incurred prior to December 12, 2002 will be available to offset
future taxable income.

Net operating losses after December 12, 2002 through September 30, 2005 were
approximately $1,316,000. The total net operating losses available to the
Company to offset future taxable income is approximately $1,740,000. Following
is a reconciliation of the tax benefit at the federal statutory rate to the
amount reported in the statement of operations:


                                       47


<PAGE>

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

NOTE 5 - INCOME TAXES, CONTINUED

<TABLE>
                                                   2006                             2005
                                       ----------------------------     ----------------------------
                                          AMOUNT         PERCENT           AMOUNT          PERCENT
                                       ------------    ------------     ------------    ------------
<S>                                    <C>                       <C>    <C>                       <C>
Benefit for income tax at federal
  statutory rate                       $  1,705,344              34%    $    115,906              34%
Change in valuation allowance              (160,758)             (3)         (67,555)            (20)
Non-taxable gain from discontinued
  operations                                      -               -           37,022              11
Non-deductible stock-based
  compensation                           (1,544,586)            (31)         (85,373)            (25)
                                       ------------    ------------     ------------    ------------

                                       $          -               -%    $          -               -%
                                       ============    ============     ============    ============
</TABLE>

There were no income taxes due or receivable from operations for the years ended
September 30, 2006 and 2005, 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.

NOTE 6 - SEGMENT INFORMATION

As of September 30, 2006 the Company's only operation were in the oil and gas
operations.

NOTE 7 - STOCKHOLDERS' EQUITY

PREFERRED STOCK

In May 2006 an employment agreement was entered into with Mr. Neuhaus the
president, CEO and chairman of the Board. The agreement provides that Mr.
Neuhaus shall be compensated at the rate of $25,000 per month plus 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 salary; however, the preferred stock he was
issued was valued at $1,018,000 due to the fact that the shares give Mr. Neuhaus
complete control over every decision made by the Company.

COMMON STOCK

During the years ended September 30, 2006 and 2005, the Company issued Common
stock to raise capital, compensate employees and professionals, and to settle
liabilities. Following is a description of stock issuances in 2006 and 2005:

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. On April 18, 2006, June 9, 2006 and July 31, 2006, Frank Shafer
received additional shares of 100,000, 20,000 and 300,000, respectively, for his
services. The shares issued to Frank Shaffer during the years ended September
30, 2006 and 2005 were valued at $338,400 and $12,000, respectively.

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.


                                       48


<PAGE>

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

NOTE 7 - STOCKHOLDERS' EQUITY, CONTINUED

COMMON STOCK, CONTINUED

On August 5, 2005, 461,942 shares of TX Holdings common stock were issued to
David R. Baker, 361,942 representing settlement of $36,194 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.

On October 19, 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. The
Company 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.

On February 22, 2006, the company issued 200,000 shares of common stock to The
Research Works for consulting services, valued at $70,000.

On March 1, 2006 the Company entered into a contract with Global Investment
Holdings, LLC ("Global"). Global acts as a consultant and provides advice in the
areas of paper-based stock and internet-based stock information publishers who
are in compliance with the federal securities laws, etc. For their services,
Global will receive 400,000 restricted shares of common stock each month for a
period of six months commencing March 1, 2006. The Company used the services of
Global for seven months in 2006 and issued Global a total of 1,600,000 shares in
2006 with a value of $1,300,000. An additional 1,220,000 shares were issued to
Global subsequent to September 30, 2006, with a value of $830,000. The liability
for the services performed for which shares were not issued in 2006 is presented
as accrued stock-based compensation in the accompanying balance sheet.

On March 14, 2006, the company issued 400,000 shares of common stock to Security
Pacific Holdings LLC for consulting services, valued at $100,000.

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 $1,240,000 of units were placed. The units contained an aggregate of
4,133,324 shares of the Company's common stock and 4,133,324 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.

On June 9, 2006, the company issued 17,900 shares of common stock to Michael
Pisani for consulting services in assisting with investor relations efforts,
valued at $18,079.

On June 9, 2006, the Company issued 11,400 shares of common stock to Barker
Design Inc. for website design services valued at $11,514.


                                       49


<PAGE>

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

NOTE 7 - STOCKHOLDERS' EQUITY, CONTINUED

STOCK OPTIONS AND WARRANTS

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.

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 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.

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, 2006, 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.

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.

Following is a summary of outstanding stock warrants at September 30, 2006 and
2005 and activity during the years then ended:


                                       50


<PAGE>

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

NOTE 7 - STOCKHOLDERS' EQUITY, CONTINUED

STOCK OPTIONS AND WARRANTS, CONTINUED

<TABLE>
                                                    NUMBER OF      EXERCISE       WEIGHTED
                                                     SHARES         PRICE       AVERAGE PRICE
                                                  ------------   ------------   -------------
<S>                                                  <C>         <C>            <C>
      Warrants at September 30, 2004                   294,341   $       0.01   $       0.01

      Issued                                         1,434,082           0.15           0.15
                                                  ------------

      Warrants at September 30, 2005                 1,728,423    0.01 - 0.15           0.13

      Issued                                         5,418,324   0.30  - 0.50           0.46
      Exercised                                       (294,341)          0.01           0.01
                                                  ------------

      Warrants at September 30, 2006                 6,852,406   $0.15 - 0.50   $       0.40
                                                  ============
</TABLE>

A summary of outstanding warrants at September 30, 2006, follows:

<TABLE>
                                                                                 CONTRACTUAL
                                                    NUMBER OF      EXERCISE     REMAINING LIFE
              Expiration Date                        SHARES         PRICE          (YEARS)
      -------------------------------             ------------   ------------   --------------
<S>                                                  <C>           <C>                <C>
      March 2007                                       800,000     $  0.30            0.5
      October 2008                                   4,368,324        0.50            2.0
      March 2010                                       250,000        0.30            3.5
      December 2010                                  1,434,082        0.15            4.3
                                                  ------------

      Warrants at September 30, 2006                 6,852,406
                                                  ============
</TABLE>

NOTE 8 - RELATED PARTY TRANSACTIONS

Mark Neuhaus, Chairman of the Board of Directors and Chief Executive Officer of
the Company and entities he controls have provided much of the support of the
Company in the development stage. As described in Note 7, the Company issued
preferred stock to Mr. Neuhaus in 2007 and that preferred stock includes
provisions that give Mr. Neuhaus voting control over the actions of the Company.

Included in the financial statements at September 30, 2006 and 2005 are advances
from stockholders and officers of $164,385 and $214,697, respectively. Interest
has been accrued on these advances at rates ranging from 8% to 10% in 2006 and
substantially all interest expense in the accompanying statement of operations
relates to those advances.


                                       51


<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 09, 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

EFFECTIVENESS OF DISCLOSURE AND PROCEDURES

The management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. The Company's
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles in the United States of America. The Company's
internal control over financial reporting includes those policies and procedures
that:(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the Company; (ii) provide reasonable assurance that transactions are recorded as


                                       52


<PAGE>


necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of
management and directors of the Company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. Management assessed the
effectiveness of the Company's internal control over financial reporting as of
September 30, 2005. In making this assessment, management used the criteria Set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.

Based on our assessment and those criteria, management has concluded that the
Company did not maintain effective internal control over financial reporting as
of September 30, 2006 as a result of material weaknesses in internal controls
surrounding the accounting for common stock and preferred stock issuances that
resulted in significant adjustments to the financial statements and weakness in
financial statement disclosures.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.

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. On February 21, 2007 the United States District Court Southern
District of New York granted a motion for summary judgment against Mr. Neuhaus
as to Section 5 liability only. The summary judgment motion was denied as to all
other issues pending against Mr. Neuhaus. 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.


                                       53


<PAGE>

                                    PART III


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

The following table shows the names, ages and positions held by our executive
officers, directors and significant employees at February 23, 2007:

Name                      Age       Position
----                      ----      --------
Mark Neuhaus               52       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

Jose Fuentes               59       Vice President of Finance

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.

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.

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.

Jose Fuentes, Vice President of Finance - Mr. Fuentes has over thirty-five years
of financial related experience in the energy sector. The majority of his early
career, after leaving public accounting, was spent at Atlantic Richfield Co.,
where he held several progressive financial roles including his most recent
position as Vice President of Finance, Planning and Control for Arco Indonesia.
From there, Mr. Fuentes served as Vice President of Finance and CFO at PJM
Interconnection, LLC. Mr. Fuentes received a Bachelor of Science degree in
accounting from Saint John's University in New York and is a Certified Public
Accountant.

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.


                                       54


<PAGE>

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



                                       55


<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
three 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>             <C>          <C>      <C>        <C>
Mark                 2006      -0-      -0-         -0-             N/A          N/A      N/A        (1)
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
Officer and
Chairman
---------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)   During the year ended September 30, 2007, Mr. Neuhaus received 1,000
           shares of preferred stock. The stock is non convertible, but provides
           for 50% of the voting rights in the Company.

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.

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 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.

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 an 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.


                                       56


<PAGE>

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.

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>
Name                       No. of Securities Underlying     % of Total Options Granted     Exercise
Expiration Date            Options Granted (#)              to Employees in Fiscal         Price ($/Sh)
-------------------------------------------------------------------------------------------------------
<S>                                   <C>                                <C>                 <C>
W.A. Alexander                        250,000                            23.8                $0.30
March 27, 2010
Michael A. Cederstrom
March 27, 2010                        200,000                            19.0                $0.30
Bobby S. Fellers
March 27, 2010                        300,000                            28.6                $0.30
Douglas C. Hewitt
March 27, 2010                        300,000                            28.6                $0.30
</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 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
                                                Underlying Unexercised      Value of Unexercised In-the-
                                                Options at Fiscal Year-     Money Options at Fiscal Year-
                                                        End (#)                      End ($) (1)
                                             ----------------------------   -----------------------------
                         Shares
                        Acquired
                      on Exercise    Value
       Name               (#)       Realized  Exercisable   Unexercisable    Exercisable   Unexercisable
---------------------------------------------------------------------------------------------------------
<S>                       <C>         <C>       <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.


                                       57


<PAGE>

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 January 22, 2007 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.

Name of Beneficial Owner (1)                       Amount and Nature of
Percent of Class                                   Beneficial Ownership
--------------------------------------------------------------------------------
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)
6.0%
Ned Baramov                                               940,000
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)        8,712,626

          * 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 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 , 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.

     (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.

                                       58


<PAGE>

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 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.

     (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.


                                       59


<PAGE>

     (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 1,500,000 shares of the
          Company's Common Stock to Ned Baramov, Secretary - Treasurer (SEE
          EXHIBIT 99.). 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)
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. 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


                                       60


<PAGE>

33.1      R Wireless, Inc. Code of Ethics adopted February 24, 2004 (7)
99.7      Employment Agreement between Registrant and Ned Baramov dated January
          15, 2003 (5)
99.8      Employment Agreement between Registrant and Mark Neuhaus dated January
          15, 2003 (5)
99.9      Employment Agreement between Registrant and Darren Bloom dated August,
          2005 (9)

     (1)  Incorporated by reference to the exhibit as filed with Form 8-K of R
          Wireless, Inc., with Securities and Exchange Commission filing date of
          December 27, 2002.

     (2)  Incorporated by reference to the exhibit as filed with Form 10-SB of R
          Wireless, Inc., with Securities and Exchange Commission filing date of
          February 9, 2001.

     (3)  Incorporated by reference to the exhibit as filed with Form 10-QSB of
          R Wireless, Inc., with Securities and Exchange Commission filing date
          of February 19, 2003.

     (4)  Incorporated by reference to the exhibit as filed with Form 10-SB/A2
          of R Wireless, Inc., with Securities and Exchange Commission filing
          date of August 31, 2001.

     (5)  Incorporated by reference to the exhibit as filed with Form S-8 of R
          Wireless, Inc., with Securities and Exchange Commission filing date of
          February 19, 2003.

     (6)  Incorporated by reference to the exhibit as filed with Form 8-K of R
          Wireless, Inc., with Securities and Exchange Commission filing date of
          March 31, 2005.

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

     (8)  Incorporated by reference to the exhibit as filed with Form 8-K of R
          Wireless, Inc., with Securities and Exchange Commission filing date of
          August 19, 2005.

     (9)  Incorporated by reference to the exhibit as filed with Form 13D of
          Darren Bloom with Securities and Exchange Commission filing date of
          December 14, 2005.

     (10) Incorporated by reference to the exhibit as filed with Form 10KSB/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.


                                       61


<PAGE>

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.

Hiring of Jose Fuentes as Vice President-Finance of TX Holdings, Inc.; filed
with the Security and Exchange Commission on February 2, 2007.

ITEM 14 PRINCIPAL ACCOUNTANTS FEES AND SERVICE

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

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

Tax Fees
All Other Fees
Total


                                       62


<PAGE>

                                   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: March 21, 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 Chief Executive Officer
         Mark Neuhaus
         March 21, 2007

         /s/ Michael A. Cederstrom      Chief Financial Officer
         -------------------------
         Michael A. Cederstrom
         March 21, 2007

         /s/ Douglas C. Hewitt          Director
         ---------------------
         Douglas C. Hewitt
         March 21, 2007

         /s/ Bobby S. Fellers           Director
         --------------------
         Bobby S. Fellers
         March 21, 2007


                                       63