U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-K





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





For the
fiscal year ended September 30, 2009





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





For the
transition period from
­­­­­­­­­­­­­_________________
to __________________.­­





Commission
File No. 0-32335





TX
HOLDINGS, INC. (formerly R Wireless, Inc.)


(Name of
small business issuer in its charter)





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





12080
Virginia Blvd.


Ashland,
Kentucky. 41102


(Address
of Principal)





(606)
928-1131


(Registrant's
Telephone Number, Including Area Code)





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





None





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





Common
Stock, No Par Value


(Title of
class)





Check
whether the issuer is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. [  ]





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. [  ] Yes No
[X]





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





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K (paragraph 229.405 of this chapter) contained in this form, and
no disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]





Indicate
by check mark whether the issuer is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company.  See
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in rule 12b-2 of the Exchange Act.




Large
      Accelerated Filer [  ]
              Accelerated
      Filer [  ]
              Non-Accelerated
      Filer [  ]
              Smaller
      Reporting Company [X]





1





The
Registrant had revenues for the fiscal year ended September 30, 2009 of
$6,904





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





The
aggregate market value of the Common Stock held by non-affiliates, based on the
average closing bid and asked price of the Common Stock on January 4, 2010 was $
2,952,807





There are
approximately 42,182,960 shares of common voting stock of the Registrant held by
non-affiliates. On January 4, 2010 the average bid and asked price was
$0.07





As of
January 4, 2010 there were 51,236,897 shares of common stock
outstanding.





Forward-Looking
Statements and Cautionary Words





Included
in this report are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included in this Form 10-K which address activities, events or
developments which we expect or anticipate will or may occur in the future are
forward-looking statements.  These forward-looking statements are only
predictions and involve known and unknown risks, uncertainties including the
risks in the section entitled "Risk Factors" which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements speak only as of the
date of this Form 10-K or the amendment thereto in which they appear, as the
case may be. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based or to reflect the occurrence of unanticipated events except
as required by law.  All statements, other than statements of
historical fact included in this annual report, regarding our strategy, future
operations, financial position, estimated revenues and losses, projected costs,
prospects, plans and objectives of management are forward-looking statements.
When used in this annual report, the words “could,” “believe,” “anticipate,”
“intend,” expect,” “estimate,”  “may,” “will”  “continue,”
“predict,” “potential,” “project” and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain such identifying words. In particular, the factors discussed below and
elsewhere in this annual report could affect our actual results and cause our
actual results to differ materially from expectations, estimates, or assumptions
expressed in, forecasted in, or implied in such forward-looking
statements.





Forward-looking
statements may include statements about our:


•  business
      strategy;
 
 •  estimated
      quantities of oil and natural gas
reserves;
 
 •  technology;
 
 •  financial
      strategy;
 
 •  oil
      and natural gas realized prices;
 
 •  timing
      and amount of future production of oil and natural
  gas;
 
 •  the
      amount, nature and timing of capital
  expenditures;
 
 •  drilling
      of wells;
 
 •  competition
      and government regulations;
 
 •  marketing
      of oil and natural gas;
 
 •  exploitation
      or property acquisitions;
 
 •  costs
      of exploiting and developing our properties and conducting other
      operations;


2
 
 •  general
      economic and business conditions;
 
 •  cash
      flow and anticipated liquidity;
 
 •  uncertainty
      regarding our future operating results;
and
 
 •  plans,
      objectives, expectations and intentions contained in this annual report
      that are not
historical.
  You should
not place undue reliance on these forward-looking statements. All
forward-looking statements speak only as of the date of this annual
report.





Although
we believe that our plans, objectives, expectations and intentions reflected in
or suggested by the forward-looking statements we make in this annual report are
reasonable, we can give no assurance that they will be achieved. These
cautionary statements qualify all forward-looking statements attributable to us
or persons acting on our behalf.





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





CAUTIONARY
NOTE TO U.S. INVESTORS





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





3





FORM
10-K





FOR
THE FISCAL YEAR ENDED SEPTEMBER 30, 2009





TABLE
OF CONTENTS




PART
      I
              5Item
      1 Description of Business
              5Item
      1A Risk Factors
              11Item 2 Description of
      Property
              17Item
      3 Legal Proceedings
              18Item
      4 Submission of Matters to a Vote of Security Holders
              18PART
      II
              19Item
      5 Market for Common Equity,  Related Stockholder Matters and
      Issuer Purchases of EquitySecurities
              19Item
      7 Management's Discussion and Analysis or Plan of
    Operations
              21Item
      8 Financial Statements
              23Item
      9 Changes In and Disagreements with Accountants on Accounting and
      Financial Disclosure
              46Item
      9A Controls and Procedures
              46Item
      9B Other Information
              47PART
      III
              48Item10
      Directors, Executive Officersand Corporate Governance
              48Item
      11 Executive Compensation
              49Item
      12 Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
              52Item
      13 Certain Relationships and Related Transactions, and Directors
      Independence
              52Item 14 Principal Accountant Fees and
      Services
              54Item 15 Exhibits and Reports on
      Form 8-K
              55SIGNATURESGlossary
      of TermsExhibit
      23.1CERTIFICATIONSExhibit
      31.1Exhibit
      31.2Exhibit
      32.1Exhibit
      32.2







4


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





The
Company is actively engaged in the exploration, development, and acquisition of
crude oil and natural gas in the counties of Callahan and Eastland, Texas. The
Company is also pursuing acquisitions in Ohio, Pennsylvania, West Virginia and
Wyoming. In November 2006, the Company
entered into a Purchase and Sale Agreement with Masada Oil & Gas, Inc.
("Masada"). Masada has previously served as the operator on two leases in which
TX Holdings currently holds interest in the counties of Callahan and Eastland,
Texas. TX Holding’s leases and the related working interests are as
follows:





a.
            Contract
      Area # 1, 8.5% Working Interest;


b.
            Park's
      Lease, 75% Working Interest;





The
Contract Area #1 leases include a total of 247 acres and a total of 36 wells. TX
Holdings is the operator of record for 27 of the wells and Masada  is
the operator of record for the remaining 9 wells. The lease has eighteen wells
capable of production although production of the wells is minimal (from 3 to 5
bbls per day). The Company believes it may be able to achieve higher production
rates through the development of an effective water flood program. The water
flood program involves the injection of water into the field through injection
wells to force the oil to the production wells and thereby increase the
production rate.





The Parks
lease covers 320 acres in which the company owns a 75% working interest and
Masada  owns the remaining 25%. The land owners of this lease have a
12.5% royalty interest in the production. TX Holdings is the lease operator of
the lease and there are currently 22 wells with minimal production rates. (2 to
3 bbls per day).





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





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





History
and Corporate Structure





TX
Holdings formerly acted as a holding company whose operations were conducted
through two wholly-owned operating subsidiaries, Direct Lending Inc. and Homes
By Owners, Inc. The Company ceased its former operations in September
2004.  In December 2004, as a result of the Company’s research, the
Company announced that it would pursue acquisition of producing oil and gas
properties operations in the oil and gas industry. In connection with this
decision, the Company effected its name change to "TX Holdings, Inc." on
September 1, 2005. October 1, 2004 was the beginning day for the first quarter
of the determination to pursue operations in the oil and gas industry. The CUSIP
number changed to 873 11R 101 as of September 6, 2005, and the trading symbol
changed to TXHG as of September 19, 2005.





In April
2006 TX Holdings acquired a 75% working interest in the Parks Lease located in
Callahan County, Texas. In February 2006 TX Holdings entered into a Memorandum
of Understanding with Masada Oil and Gas Inc. and subsequently acquired an 8%
working interest in an oil and gas lease known as Contract Area #1 located in
Texas.





On March
28, 2006, TX Holdings appointed to its Board of Directors, Bobby Fellers, who
has worked in the oil and gas business for more than thirty years. Mr. Fellers
has assisted TX Holdings in the acquisition of the above referenced leases and
owns a ninety two 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 the sole owner of Masada Oil & Gas Inc a Texas corporation,
which is the current operator of record of certain wells in Contract Area #1 in
which TX Holdings has an 8% working interest.





5


On or
about May 7, 2007, the Company entered into a Strategic Alliance Agreement with
Hewitt Energy Group, LLC (“Hewitt”), a company owned by Douglas C. Hewitt, a
Director of TX Holdings, Inc. at the time of the transaction.  The
Strategic Alliance Agreement provided that TX Holdings, Inc. would acquire a 50%
working Interest in eight projects in Kansas and Oklahoma. The purchase and
development of all of the prospects were estimated at approximately $15,000,000
in cash and stock to be paid over a 6 month period. Mr. Hewitt resigned as a
director on July, 27, 2007 The Company and Mr. Hewitt mutually agreed to
terminate the Strategic Alliance Agreement and to negotiate the participation in
individual projects. There is currently a dispute between the Company and Mr.
Hewitt as to the extent of the Company’s performance and entitlement under the
new agreement executed in August of 2007.





In July
through September 2006 the Company raised $1,240,000 in a Private Placement
offering. The funds raised were used to purchase interests in three oil and gas
fields located in Texas as described above. Development of the fields began on
November 1, 2006, by way of cleaning up the fields and preparing the wells
located in the fields for testing required by the State of Texas. The testing of
wells located in the Williams Field was completed as of April 30, 2008. In
November 2007, the Company began work on the Parks Lease.





The
Company has experienced substantial costs for engineering and other professional
services during 2005 through 2009 in making the attempt to transition to an oil
and gas exploration and production company from its current development stage
status.





Recent
Developments





On
December 1, 2007, Mark Neuhaus resigned as Chairman of the Board, Director and
CEO of the Company.  On December 24, 2007 the Board accepted Mr.
Neuhaus' resignation and canceled the 1,000 preferred shares of stock held by
Mr. Neuhaus, in exchange for 10,715,789 common shares . The Board determined
that it was in the best interest of the Company to remove Mr. Neuhaus from
voting control of the Company. On November 11, 2008 the Company entered into a
settlement agreement with Mr. Neuhaus and his wife. The agreement was subject to
the condition precedent that the Company finalize a transaction with a third
party involving certain oil and gas properties within 90 days of November 11,
2008 ("Third Party Closing"). Effective as of and when the Third Party Closing
occured, the agreement provided for mutual general releases between the Company
and Mark Neuhaus and Nicole Neuhaus. In connection with the agreement, seven
million shares of the common stock of the Company previously issued to Mark
Neuhaus were to be delivered to the Company to be held pending the Third Party
Closing. If the Third Party Closing occured within the 90 day period, (1) four
million five hundred thousand of the deposited shares would be cancelled and
returned to authorized but unissued shares of the Company,(2) two million five
hundred thousand of the deposited shares would be delivered to Nicole Neuhaus
and (3) certain alleged  claims of Mark Neuhaus against the Company
for compensation and reimbursement for $178,862 of advances and a purported
indebtedness of the Company to Mark Neuhaus of $1,303,875,  including
interest accrued through October 31, 2008 and represented by a convertible note
dated as of September 28, 2007 would be cancelled. If the Third Party Closing
did not occur within 90 days of November 11, 2008 the settlement agreement would
be void and of no force and effect and the deposited shares would be returned.
The Company was not successful in finalizing the transaction with the third
party within the stipulated period resulting in the cancellation of the
settlement agreement between the Company and Mark Neuhaus and Nicole
Neuhaus





On
December 24, 2007, William “Buck” Shrewsbury was appointed as the Chairman of
the Board of Directors and Chief Executive Officer of the Company, replacing
Mark Neuhaus. Mr. Shrewsbury attended the University of Kentucky 1962 -1965 with
a major in Civil Engineering. He served as the IT Manager with a large steel
mill for 19 years. Mr. Shrewsbury owns his own trucking company as well as being
an agent for a major transportation company.





On
December 24, 2007, Martin Lipper was appointed to the Board of Directors of the
Company, replacing Douglas C. Hewitt. Martin Lipper is a Korean War Veteran. He
graduated from N.Y.U. in 1958 with a Bachelor of Science degree in Finance and
Economics. Mr. Lipper began his career on Wall St. as a securities analyst
specializing in bank stock analysis. He Joined the Bank of N.Y. and was the
senior bank insurance and finance analyst. Later he became co-director of
research at Eastman Dillon Union Securities and later Purcell Graham. In 1973,
Mr. Lipper became V.P. and treasurer of APF Electronics. Mr. Lipper currently
service as Senior Vice President and Research Director of Baron Group
U.S.A.




On
December 24, 2007, Rob Hutchings was appointed to the Board of Director and
President of the Company. Mr. Hutchings graduated from the Royal Institute of
Chemistry. He has over 30 years of experience in commercial and industrial
product development and market realization with Vulcan Sun Ltd. This experience
has provided Mr. Hutchings the opportunity to manage and interface between
research, development, production, sales, marketing, and finance strategies to
maximize business objectives.





6


Effective
January 17, 2008 the Articles of Incorporation were amended, pursuant to
shareholder consent, to increase the authorized common shares of the Company
from 50,000,000 to 250,000,000 shares.





In April
2008 the Company completed the work required to receive its own Operators
License from the Texas Railroad Commission. This license permits the Company to
complete and begin the production and sale of oil and gas. The Company has
started by placing 3 wells into operation on the Parks Lease. The initial
production has averaged 2-3 bopd. The Company intends to place an additional 7
wells into production on the Parks Lease over the quarter ending December 31,
2009, and the Company expects the well production to increase to 7 -10 bopd.
Once these wells are in production, the Company will return to each well and
perform work over operations to clean up the wells and attempt to increase
production. For the next year, the Company will concentrate on placing
additional Park lease wells into production. It is managements’ goal to place
sufficient wells into production to achieve profitability and not rely on
continued raising capital and borrowing to continue operations.





On May 12,
2008, Jose Fuentes was named chief financial officer of the Company when Michael
A. Cederstrom tendered his resignation. Mr. Cederstrom represented the Company
as the chief financial officer and general counsel. The legal firm Dexter &
Dexter received a monthly fee of $15,000 for Mr Cederstrom’s services as the
representative of the firm.





On June
11, 2009, Richard “Rick” Novack was appointed to the Board of Directors and
elected president of the Company, replacing Rob Hutchings. Mr. Hutchings
continued to serve as a member of the Board of Directors until August 2009, when
he tendered his resignation.  Rick Novack attended the Indiana
University of Pennsylvania where he majored in Business Administration. Mr.
Novack began his career in finance and subsequently started several business
enterprises, including entities in the printing, vending and real estate
industries.





Background
for Oil and Gas Business Activities





Since
August 2005 oil prices have exceeded $31 per barrel. On December 8, 2009 the
closing price for a barrel of oil was $72.59 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 is financially viable. The current corporate direction is to acquire
through purchase, merger and option, fields with proven reserves and excellent
development prospects. Concurrently, the Company is exploring options for the
acquisition of operational expertise and equipment.





This
strategy is contingent upon the Company's ability to obtain sufficient capital
to fund the high start up costs of testing, analyzing, acquiring capital
equipment and lease acquisition.





Principal
Products or Services and Markets





The
principal markets for our crude oil and natural gas are expected to be refining
companies, pipeline companies, utility companies and private industry end users.
The point of delivery of our crude oil is at tank batteries located at or near
well sites on the leases. We believe that our customers will be based in the
State of Texas and in the industries discussed above. Currently, the wells the
Company operates are only capable of producing oil. Currently, sufficient
quantities of natural gas are not produced to warrant the cost of installing a
collection system.





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





Distribution
Methods of Products or Services





Crude oil
will be stored in tanks at well sites located on our leases, until the purchaser
takes delivery of the crude oil by tanker truck. On May, 2008, TX Holdings
entered into a contract for the sale of its crude with BML, Inc.




7


Competitive
Business Conditions





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





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





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





Dependence
on One or a Few Major Customers





We will be
dependent on local purchasers of hydrocarbons to purchase our products in the
areas where our properties are located. We do not anticipate, that the loss of
one or more of our primary purchasers will have a substantial adverse impact on
our sales and on our ability to operate profitably.





Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts





Royalty
agreements relating to oil and gas production are fairly standardized in the
industry. However, the percentage and amount of royalties paid by producers vary
from lease to lease.





Governmental
Approval and Regulation





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





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





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





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





Research
and Development





During
2009 and 2008 we did not incur any research and development
expenditures.





8





Intellectual
Property





None.




Environmental
Compliance





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





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





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





o
            impose
      substantial liabilities for pollution resulting from our
      operations.





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





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





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





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





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





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





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




9


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.





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.





10


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





Insurance





Our
operations are subject to all the risks inherent in the exploration for, and
development and production of oil and gas including blowouts, fires and other
casualties. Currently the Company does not maintain insurance coverage. Losses
could arise from uninsured risks





Company
Employees and Other Workers





On
September 30, 2009, the Company had three employees. On December 24, 2007,
William Shrewsbury was appointed Chairman of the Board of Director. Jose Fuentes was
promoted to the Chief Financial Position on May 12, 2008 after the resignation
of the interim Chief Financial Officer, Michael Cederstrom. On June 11, 2009
Richard “Rick” Novack was appointed to the Board of Directors and elected
President.  Other specialized functions are provided as necessary
through the engagement of independent consulting contractors.





Item
1A, Risk Factors





Risk
Factors Relating to the Company's Business





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





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





General
Risks Related To Our Business





Brief
Operating History - No Assurance of Profitability





The
Company has a brief operating history. Although we commenced operations in 1997,
prior businesses have been sold or discontinued and original management has been
replaced as previous operations have not been profitable. The Wi-Fi business
contemplated subsequent to the acquisition of a controlling interest in the
Company by MA&N did not materialize. The Company has recently completed the
acquisition of its initial oil and gas leases. However, as of December 8, 2009
the Company has sold only a limited amount of oil and gas production. The
Company has encountered unforeseen costs, expenses, problems, difficulties and
delays frequently associated with new ventures, and these may continue. There is
no assurance that the Company's business ventures will be successful or that the
Company will be able to produce and acquire sufficient productive wells to meet
its goals. The Company anticipates that its operating expenses will increase if
and as its business expands, and it will need to generate revenues sufficient to
meet all of its expenses to achieve profitability.





The
Company Has A History Of Operating Losses And Cannot Guarantee Profitable
Operations In The Future. Any Failure On Our Part To Achieve Profitability May
Cause To Reduce Or Eventually Cease Operations.





We
reported a net loss of $676,123 for the twelve months ending September 30, 2008
and a net loss of $1,276,127 for the twelve months ending September 30, 2009. At
September 30, 2008 and 2009 respectively, we reported accumulated deficits of
$12,030,172 and $13,306,299. Based on current expectations, the Company will
need to find additional sources of financing to meet our general corporate needs
as well as the large capital requirements necessary for the production of the
oil and gas in the wells we currently operate and lease, and the acquisition of
additional oil and gas producing properties.





11


We will
require additional financing to fund ongoing operations, as our current sales
and revenue growth are insufficient to meet our operating costs. At this time
the Company has no material revenue and is unable to meet its current
obligations.  In the past the Company has been able to raise capital
from its stockholders/officers through stock-based compensation and advances.
The Company will need to borrow or raise sufficient equity capitalization to
meet its current obligations.  In addition the Company will need to
raise approximately $200,000 in working capital to complete the refurbishment
and development of the leases it currently operates.  The Company
estimates that it will take from 12 to 24 months to achieve
profitability.  Our inability to obtain necessary capital or financing
to fund these needs will adversely affect our ability to fund operations and
continue as a going concern. Additional financing may not be available when
needed or may not be available on terms acceptable to us. If adequate funds are
not available, we may be required to delay, scale back or eliminate one or more
of our business strategies, which may affect our overall business results of
operations and financial condition





Competition
Could Negatively Affect Revenues





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





Our
Business May Fail If We Do Not Succeed In Our Efforts To Develop and Replace Oil
and Gas Reserves.





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





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.





12


We
May Not Be Able To Compete Successfully In Acquiring Prospective Reserves,
Developing Reserves, Marketing Oil and Natural Gas, Attracting and Retaining
Quality Personnel and Raising Additional Capital.





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





In March
2008, TX Holdings began receiving its first revenue from the production of oil
and gas. The Company’s  revenues could be affected by a substantial or
extended increase or decline in oil and natural gas prices. The price we receive
for future oil and natural gas production will heavily influence our revenue,
profitability, access to capital and rate of growth. Oil and natural gas are
commodities and their prices are subject to wide fluctuations in response to
relatively minor changes in supply and demand. Historically, the markets for oil
and natural gas have been volatile and currently oil and natural gas prices are
significantly above historic levels. These markets will likely continue to be
volatile in the future and current record prices for oil and natural gas may
decline in the future. The prices we may receive for any future production, and
the levels of this production, depend on numerous factors beyond our control.
These factors include the following:





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. The leases in which the Company has a
working interest allow the Company to produce only to a depth of 1000
feet.





Drilling
for and producing oil and natural gas are high risk activities with many
uncertainties that could substantially increase our costs and reduce our
profitability.




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





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





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;




13




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. The Company
currently does not carry insurance to cover any of these risks.





Our
Dependence On Outside Equipment and Service Providers May Hurt Our
Profitability





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





The
Oil and Gas Industry Is Highly Competitive and There Is No Assurance That We
Will Be Successful In Acquiring Any Further Leases





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





Oil
and Gas Operations Are Subject To Comprehensive Regulation Which May Cause
Substantial Delays or Require Capital Outlays In Excess Of Those Anticipated,
Causing An Adverse Effect On Our Company.





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





We
Have Limited Control Over The Activities On Properties That We Do Not
Operate





The
Company operates the Parks Lease in which we have a 75% Working Interest. Masada
Oil and Gas operates the properties and the wells in Contract Area #1 where we
hold an 8% Working Interest. We have limited ability to influence or control the
operation of Contract Area #1, the future development of the property or, the
amount of capital expenditures that we are required to fund this operation. Our
dependence on the operator and other working interest owners for this projects
and our limited ability to influence or control the operation and future
development of this property could have a material adverse effect on the
realization of our targeted returns or lead to unexpected future
costs.





14


We
May Incur Losses As A Result Of Title Deficiencies





We
purchase working and revenue interests in the oil and natural gas leasehold
interests upon which we will perform our exploration activities from third
parties or directly from the mineral fee owners. The existence of a material
title deficiency can render a lease worthless and can adversely affect our
results of operations and financial condition. Title insurance covering mineral
leaseholds is not generally available and often we forego the expense of
retaining lawyers to examine the title to the mineral interest to be placed
under lease or already placed under lease until the drilling block is assembled
and ready to be drilled. As is customary in our industry, we rely upon the
judgment of oil and natural gas lease brokers or independent landmen who perform
field work in examining records in the appropriate governmental offices and
abstract facilities before attempting to acquire or place under lease a specific
mineral interest. Where, despite our efforts, title deficiencies exist, we risk
loss of some or all of our interest in the affected properties or possible
economic adjustment where we may have overpaid or underpaid one or more economic
interest owners.





Limited
Access to Qualified Personnel





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





Legal
and Regulatory Risk





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





Our
Board of Directors Has No Independent Directors and We Have Not Instituted
Corporate Governance Policies or Procedures





Our Board
of Directors has no director who may be considered independent. Further, we do
not have an audit committee, a nominating committee, or any other corporate
governance committee. Thus, our shareholders do not have the benefits or
protections associated with corporate governance controls and other corporate
oversight mechanisms overseen by independent directors





Risks
Related To Our Common Stock





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





The
Issuance of Shares Upon Exercise 0f Outstanding Warrants May Cause Immediate and
Substantial Dilution Of Our Existing Shareholders





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





15


We
Have Never Declared or Paid Cash Dividends On Our Common Stock. We Currently
Intend To Retain Future Earnings, if any, to Finance the Operation, Development
and Expansion Of Our Business





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





Our
Common Stock Is Subject To Penny Stock Rules Which Limit the Market For Our
Common Stock





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





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.





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





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


.


Concentration
of Share Ownership Gives Insiders Control





Our
current management owns a significant amount of the common stock, giving them
influence or control in corporate transactions and other matters, and their
interests could differ from those of other stockholders. The aggregate
percentage of Company stock owned by current directors and executive officers as
well as warrants held by management is 21.5%.





Our former
President, Mark Neuhaus and/or his wife, Nicole B. Neuhaus beneficially control
approximately 19.2% of the existing common stock. In addition Mark Neuhaus
caused the Company to issue to him a convertible note in the principal amount of
$1,199,886 which bears interest at 8% per annum and is convertible into
4,285,306 shares of the Company’s common stock





16


Possibility
That No Public Market or Only a Limited Public Market Will Be Established for
the Common Stock of TX Holdings





In or
about March 2007, NASD Regulation, Inc. cleared a broker's request for an
unpriced quotation on the OTC Bulletin Board for TX Holdings'. Sales from
inception have been sporadic and have ranged from $.04 to $1.05 a share. See
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.





ITEM
2 - DESCRIPTION OF PROPERTY





The
Company has its principal leases in Putnam, Texas. The Company is currently
utilizing space of Masada Oil, a company that Bobby Fellers, a director of the
Company owns and that currently performs some of our field operations. All
research and activities as related to the oil and gas business are being
conducted from this office. The Company's headquarters are located at 12080
Virginia Blvd. Ashland, Kentucky 41102. Our telephone number is (606) 928-1131.
Management believes that these properties will be sufficient for its current and
immediately foreseeable administrative needs. The Company does not hold any
investments or interests in real estate other than the oil and gas Leases it
holds for its operational needs. The Company currently seeks additional oil and
gas leases for operational purposes, which is an essential part of operations of
any oil and gas production company.





We are an
oil and gas exploration and production company that uses the history of old
fields, geophysical exploration and development techniques to identify oil and
gas wells that are now considered to be economical feasible based on the current
and predicted future price of oil and gas. It is the Company's current plan to
re-enter old wells in a confined area and then utilize water flood techniques to
produce the wells. Water flood techniques work well on shallow wells to push the
oil to the producing wells to facilitate recovery. The two leases in which the
company currently owns a working interest allow the Company to produce to a
depth of 1,000 feet from the surface. It is the Company's intention to initially
place these leases into production in the shallow development to produce cash
flow for the Company. Once these wells are in production the Company will then
consider the opportunity for deeper drilling.





We are
presently in the process of raising additional capital to develop  the
leases referred to as the Contract Area # 1 and Parks Lease. Contract Area # 1
consists of four leases containing a total of 247 acres. The Park's Lease is a
single lease containing 320 acres.  The two fields are located in the
counties of Callahan and Eastland, Texas.





Lease
and Royalty Terms





Contract
Area # 1





The
Contract Area # 1 leases include a total of 247 acres and a total of 36 wells.
The Company  has an 8.5% working interest in this lease. The lease has
4 injector wells and 28 wells capable of production although production of the
wells is minimal. Total current production has averaged 3-5 bbls a day. The
Company believes it may be able to achieve higher production rates through the
development of an effective water flood program.  The water flood
program involves the injection of water into the field through wells to force
the oil to the production wells and thereby increasing the production rate. TX
Holdings is currently working with the operator to develop a plan to optimize
the production.  The operator is considering a water-flood method to
increase the production while aggressively planning a 50 well drilling program
for 2010.





Parks
Lease





This lease
includes 320 acres in which we have a 75% working interest. The land owners of
this lease own a 12.5% royalty interest in the production. Masada Oil and Gas
owns a 25 % working interest in the lease. The Company purchased this lease from
Masada Oil and Gas as part of the purchase of Contract Area 1. The Company’s
obligation is to pay for the refurbishment of the wells and the infrastructure
of the lease. There are currently 22 wells on this lease with 10 currently
producing wells. The current production on this lease has averaged between 2 to
3 bbls per day and, the Company anticipates raising the production to 6 to 8
bbls per day with the on-going well rework program. The lease provides that the
Company is limited to production from 1,000 feet and above.





17


Oil
and Gas Reserve Analyses





Currently
the leases that have been acquired have not been developed in a way that allows
our Petroleum Engineers to assign estimated net proved oil and gas reserves and
the present value of estimated cash flows from those reserves. The Company is
currently performing work on the Contract Area #1 and Parks Lease to provide the
required information of logging each well to provide the information to the
Petroleum Engineers. The Company currently has no proved reserves on the leases.
The Company is currently working to establish reserves has had some limited
production to-date.





Item
3 Legal Proceedings





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





TX
Holdings had filled an action in Dade County, Florida in District Circuit #11,
case number 06-14396CA04 entitled TX Holdings, Inc vs. Darren Bloom. The Company
brought an action against Mr. Bloom for breach of contract, damages and for the
cancellation of common stock issued to Mr. Bloom pursuant to a three year
employment contract. Mr. Bloom resigned from the Company on March 17, 2006,
after serving only 9 months. Mr. Bloom owned 2,000,000 shares of TX Holdings
common stock. In 2009, The Company reached an agreement with Mr. Bloom whereby
he retained 700,000 shares and returned 1,300,000 shares to the
Company.





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





Item
4 Submission of Matters to a Vote of Security Holders





None.





18


PART
II





Item
5 Market for Common Equity and Related Stockholder Matters





Market
Information





The common
stock of TX Holdings is currently traded on the OTC Bulletin Board, under the
symbol TXHG.





The
following table sets forth the high and low bid prices of our Common Stock for
the periods indicated. The quotations set forth below reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not represent
actual transactions.





Closing
      Prices ($)Quarter
      Ended
            
            High
            
            
            LowSeptember
      30,2009
            
            
            0.16
            
            
            
            0.05June,
      30,2009
            
            
            0.08
            
            
            
            0.05March,
      31,2009
            
            
            0.13
            
            
            
            0.04December
      31, 2008
            
            
            0.16
            
            
            
            0.09September
      30, 2008
            
            
            0.40
            
            
            
            0.10June
      30, 2008
            
            
            0.40
            
            
            
            0.16March
      31, 2008
            
            
            0.47
            
            
            
            0.07December
      31, 2007
            
            
            0.40
            
            
            
            0.09





As of
September 30, 2009 there were approximately 875 holders of record of our common
stock.





The
ability of an individual shareholder to trade his or her shares in a particular
state may be subject to various rules and regulations of that state. A number of
states require that an issuer's securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. The Company has no present plans to register its securities
in any particular state, although it may take action that will allow it to
receive appropriate exemption.





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





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





19


Dividends





We have
never declared or paid any cash dividends on our common stock. We currently
intend to retain future earnings, if any, to finance the expansion of our
business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.





Holders





As of
September 30, 2009 and 2008, TX Holdings has issued and outstanding 47,636,897 and
43,705,824 shares of common stock respectively.





Of the
total 47,636,897 shares
outstanding as of September 30, 2009, 25,447,222 shares were
deemed "restricted securities," as defined by the Securities Act of 1933 (the
“Act”) when issued to their registered owner and continues to have their
restricted status noted on the books of Company’s transfer agent. Certificates
representing such shares bear an appropriate restrictive legend and their sale
is subject to Rule 144 under the Act.





In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted shares of the
Company for at least six months, is entitled to sell, within any three-month
period, an amount of shares that does not exceed the greater of (i) the average
weekly trading volume in the Company's common stock, as reported through the
automated quotation system of a registered securities association, during the
four calendar weeks preceding such sale or (ii) 1% of the shares then
outstanding. A person who is not deemed to be an "affiliate" of the Company (as
the term "affiliate" is defined in the Act), and has not been an affiliate for
the most recent three months, and who has held restricted shares for at least
two years would be entitled to sell such shares without regard to the resale
limitations of Rule 144.





Recent
Sales of Unregistered Securities





On
February 20, 2008, the Company sold 660,000 shares to private investors for a
cumulative value of $43,000





On
February 20, 2008, the Company issued 150,000 shares to Frank Shafer for
marketing services. The services were valued at $42,000.





On
February 20, 2008, the Company issued 17,500 shares of restricted common stock
to Barker Design, Inc. for web design services. The service were valued at
$4,900





On
February 20, 2008, the Company issued 33,180 shares of restricted common stock
to Paul Owens for office relocation services. The services were valued at
$9,290.





On March
10, 2008, The Company issued 200,000 shares of restricted common stock to James
Stock for investor relations services. The services were valued at
$64,000.





On March
10, 2008, The Baron group returned 300,000 shares to the Company upon
discontinuation of their consulting services.





On July
15, 2008, the Company sold 120,000 shares to Richard Novack, a private investor,
for the sum of $30,000.





On
September 4, 2008, the Company issued 50,000 shares of common stock to Andrew
Patzert, valued at $8,250, for consulting services.





On
September 4, 2008 a warrant to purchase 300,000 shares of common stock of TX
Holdings, Inc at an exercise price of $.50 was issued to Andrew Patzert. The
warrants expired on June 22, 2009.





On or
about September 12, 2008, an agreement was reached with The Investor Relation
Group Inc (TIRG) settling pending litigation. As part of the settlement, TIRG
received 75,000 shares of restricted stocks from the Company and 75,000 shares
of unrestricted stock on behalf of the Company from a third party shareholder.
The Company also issued 100,000 shares of restricted stock to the shareholder
who acted as the third party facilitator of the settlement.





On October
6, 2008, the Company issued a total of 200,000 shares for services. The shares
were issued to several contract personnel and were valued at $24,000 based on
the quoted market price of the Company’s common stock on the date of
issuance.





20


On January
9, 2009, the Company issued a total of 1,250,000 shares for services. The shares
were issued to several contract personnel and were valued at $125,000 based on
the quoted market price of the Company’s common stock on the date of
issuance.





On
February 5, 2009, Darren Bloom returned 1,300,000 shares to the Company in
settlement of legal dispute over compensation.





On
February 27, 2009, the Company issued 2,581,073 shares to two shareholders in
payment for outstanding cash advances to the Company. The shares were valued at
$258,108 based on the quoted market price of the Company’s common stock on the
date of issuance.





On
February 27, 2009, the Company issued a total of 750,000 shares for services.
The shares were issued to several contract personnel and were valued at $75,000
based on the quoted market price of the Company’s common stock on the date of
issuance.




On
February 27, 2009, the Company sold 100,000 shares to private investors for cash
proceeds of $10,000.





On August
12, 2009, the Company issued 250,000 shares of restricted common stock for
services. The services were valued at $20,000.





On August
12, 2009 the Company sold 100,000 shares to a private investor for cash proceeds
of $10,000.





Share
Repurchases-





None.





Item
7 Management's Discussion and Analysis or Plan of Operations





Introduction





The
following discussion is intended to facilitate an understanding of our business
and results of operations and includes forward-looking statements that reflect
our plans, estimates and beliefs. It should be read in conjunction with our
audited consolidated financial statements and the accompanying notes to the
consolidated financial statements included herein. Our actual results could
differ materially from those discussed in these forward-looking
statements.





The
Company has never earned a profit, and has incurred an accumulated deficit of
$13,306,299 as of September 30, 2009. As of September 30, 2006, the Company
had raised $1,240,000 in equity. The Company has used these funds to purchase or
place deposits on three oil and gas fields to begin its operations as an oil and
gas exploration and production company. Revenues derived from the planned
production and sale of oil will be based on the evaluation and development of
fields. If our development plan is successful, it is estimated it will take
approximately one year to reach production levels to sufficiently capitalize the
Company on an ongoing basis. During this initial ramp up period, the Company
believes it will need to raise additional funds to fully develop its fields,
purchase equipment and meet general administrative expenses. The Company may
seek both debt and equity financing. The Company currently has in excess of
forty nine wells located on the two fields located in Texas. Each of the wells
will need to be reworked to establish production at a cost of approximately
$7,000 to $10,000 per well. Initial production from each well is estimated to be
between two to five barrels per day. Once initial production has been
established the Company intends to begin a water flood program that injects
water into the oil producing zone through injector wells. The water then forces
the oil towards the producing well and, if successful, may increase production
of each well up to an estimated four to seven barrels per day per well. If the
Company is able to produce its wells upon the re-completion the Company revenues
will exceed current operating expenses if 40 barrels of oil is produced and the
price of oil remains above $55.00 per barrel. The Company's success is dependent
on if and how quickly it can reach these levels of production. The Company plans
to use all revenues for general corporate purposes as well as, future expansion
of its current oil producing properties and the acquisition of other oil and gas
properties. There is no certainty that the Company can achieve profitable levels
of production or that it will be able to raise additional capital through any
means.





21


Results
of Operations





Year
Ended September 30, 2009 Compared With Year Ended September 30,
2008





Revenues from Operations-
Revenues for the year ended September 30, 2009 and September 30, 2008 were
$6,904 and $9,308 respectively. On December 5, 2004, the Company began to
structure itself into an oil and gas production and exploration company. The
Company has two oil and gas leases in the counties of Eastland and Callahan,
Texas and has begun development of oil and gas. The company received its first
revenues from oil and gas operations in March, 2008. In the next fiscal year, it
is the Company’s intent to increase production by placing additional wells into
operation. Since it ceased its former business operations, the Company has
devoted its efforts to research prospective leases and business combinations and
secure financing.





Expenses from Continuing
Operations - The Company incurred operating expenses of $1,155,973 for
the fiscal  year ended September 30,2009; an increase of $387,442
compared to $768,531 for the fiscal year ended September 30, 2008. The
significant increase is primarily attributed to impairment on unproved oil and
gas properties of $384,088 resulting from management's assessment of the
recoverability of capitalized costs based on projected net future cash flows.
Outside consultants expenses decreased by $33,180 to $13,795 for the year ended
September 30, 2009. The decrease in outside consulting expense was partially
offset by higher payroll compensation of $29,140. Higher stock based
compensation in 2009 resulted in an unfavorable $124,000 variance when compared
to the same period the  prior year. Professional fees for the year
ended September 30, 2009 were $11,142 lower than the same period the prior year.
The lower professional fees resulted from lower marketing expense of $36,000 and
lower engineering fees $12,475 offset by higher legal fees of
$41,834.





Net Loss - For the fiscal year
ended September 30, 2009 the Company incurred a loss of $1,276,127compared to a
loss of $676,123 for the fiscal year ended September 30, 2008, a loss increase
of  $600,004.  The major reason for the Company having a
higher net loss during the fiscal year ended September 30, 2009 can be
attributed to an impairment loss on unproved oil and gas properties as noted in
expenses for continuing operations above. In addition, the Company having
reached a settlement agreement on a legal claim raised by The Investor Relation
Group Inc during the year ended September 30, 2008 resulting in the Company
recognizing a gain of $204,000 in 2008.





Net
Operating Loss Carry forward for Tax Purposes





The
Company has tax net operating loss carry forwards totaling approximately
$4,300,000, expiring in 2018 through
2029.  Approximately  $1,200,000  of net
operating  losses was  incurred  prior
to  December  12, 2002 at which date MA&N acquired 51%
of the Company and are consequently  subject to
certain  limitation described in section 382 of the
Internal  Revenue  Code.  The Company estimates
that, due to the limitations and expiration dates, only $424,000 of the net
operating losses incurred prior to December 12, 2002 will be available to offset
future taxable income.





There can
be no assurance that these deferred tax assets can ever be used. A deferred tax
asset can be used only if there is future taxable income, as to which there can
be no assurance in the case of the Company





Liquidity





At
September 30, 2009 the company had a cash balance of $6,588. As of September 30,
2008 the company had a  cash balance of $3,558 and a receivable of
$1,281. This
is a result of work that has been completed in the oil & gas fields and the
purchase of the fields. Property and equipment was $771,752 as of September 30,
2009 compared to   $1,097,783 as of September 30, 2008, a
decrease of $326,031 resulting from an impairment on unproved properties of
$384,088 offset by cost to refurbish wells totaling $58,058. The investment in
the oil and gas fields has caused the Company a liquidity crisis. The Company
has been able to borrow money from William Shrewsbury primarily to resolve the
Company's liquidity needs. The Company completed its testing required by the
Texas Railroad Commission as of December 28, 2007.  This will allow
the Company to increase production on the oil wells on the Parks lease. While
the Company anticipates generating greater revenue beginning in the second
quarter of 2010 the amount of production will not be sufficient to meet all of
the Company's liquidity needs





Historically
the Company has lacked liquidity, a result of insufficient financing
alternatives available to the Company and the lack of a business strategy that
produced significant revenues. Since MA&N took a controlling interest in the
Company in December 2002, Mr. Neuhaus has claimed that he provided loans for
operating purposes to the Company in the amount of $1,199,886 for operating
purposes as of September 30, 2009. Mr. Shrewsbury has also provided the company
with a short term loan of $289,997 as well as advances in the amount of $16,050.
As of September 30, 2009, the Company has a recorded liability of $62,719 owed
to Dexter & Dexter, Attorneys at Law  for attorneys’ fees and the
sum of $155,077 to Jose Fuentes as payment for service.





22


During the
2007 fiscal year Mark Neuhaus caused the Company to issue him a note for
$1,199,885 for advances he made on behalf of the Company and which the Company
disputes. This disputed obligation is set forth in a convertible promissory note
which pays interest at 8% per annum effective September 28, 2007. The conversion
price for common stock is twenty-eight cents per share. The note is for two
years and provides that it may be converted at any time during that
period.





Based on
current expectations, the Company will need to find additional sources of
financing to meet our general corporate needs as well as the large capital
requirements necessary for the production of the oil and gas in the wells we
currently operate and lease, and the acquisition of additional oil and gas
producing properties.





The
Company currently requires operating capital of approximately $30,000 per month
to meet current obligations.  At this time the Company has no material
revenue and is unable to meet its current obligations.  In the past
the Company has been able to raise capital from its shareholders/officers
through stock-based compensation and advances.  The Company will
require the officers of the Company to continue to receive stock-based
compensation and the Company will need to borrow or raise sufficient equity
capitalization to meet its current obligations.  In addition the
Company will need to raise approximately $200,000 in working capital to complete
the refurbishment and development of the leases it currently owns.  If
the Company is unable to raise sufficient capital to refurbish and develop its
fields, it will need to find working interest partners to assist in the
development of its oil and gas leases.  The Company’s primary
challenge is to generate higher revenue from its oil and gas
leases.





Item
8 Financial Statements and Supplementary Data





The
Company's balance sheets as of September 30, 2009 and 2008, and the related
statements of operations, changes in stockholders deficit and cash flows for the
years then ended have been audited by Ham, Langston & Brezina, LLP,
independent registered public accountants. These financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and pursuant to Regulation S-K as promulgated by the
Securities and Exchange Commission and are included herein in response to Part
F/S of this Form 10-K. The financial statements have been prepared assuming the
Company will continue as a going concern.





23




TX
      HOLDINGS, INC.A
      CORPORATION IN THE DEVELOPMENT STAGEFINANCIAL
      STATEMENTS - TABLE OF CONTENTSAs
      of and For the Years  Ended September 30, 2009 and 2008 and for
      the period from inception of the Development Stage, October 1, 2004 to
      September 30, 2009Page(s)Report
      Of Independent Registered Public Accounting Firm
            25Audited
      Financial Statements:Balance
      Sheets at September 30, 2009 and 2008
            26Statements
      of Operations for the years ended September 30, 2009 and 2008,
      andfor
      the period from inception of the development stage, October 1, 2004,
      toSeptember
      30, 2009
            27Statements
      of Changes In Stockholders' Deficit for the years endedSeptember
      30, 2009 and 2008 and for the period from inception of the
      developmentstage,
      October 1, 2004, to September 30, 2009
            28Statements
      of Cash Flows for the years ended September 30, 2009 and 2008,
      andfor
      the period from inception of the development stage, October 1, 2004,
      toSeptember
      30, 2009
            32Notes
      to Financial Statements
            33





24





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








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





We have
audited the accompanying balance sheets of TX Holdings, Inc., a corporation in
the development stage, as of September 30, 2009 and 2008 and the related
statements of operations, stockholders' deficit and cash flows for the years
then ended and for the period from inception of the development stage, October
1, 2004, to September 30, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audits





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of TX Holdings, Inc. as of September
30, 2009 and 2008 and the results of its operations and its cash flows for the
years then ended, and for the period from inception of the development stage,
October 1, 2004, to September 30, 2009 in conformity with accounting principles
generally accepted in the United States of America.





We were
not engaged to examine management’s assertion about the effectiveness of TX
Holdings, Inc.’s internal control over financial reporting as of September 30,
2009 and 2008, accordingly, we do not express an opinion thereon.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the financial statements and
discussed in Note 1, the Company has incurred significant recurring losses from
operations since inception and is dependent on outside sources of financing for
continuation of its operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to this matter are also discussed in Note 1. These financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.








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





Houston,
Texas


January 8,
2009





25
 
  TX
      HOLDINGS, INC,A
      CORPORATION IN THE DEVELOPMENT STAGEBALANCE
      SHEETSSeptember
      30, 2009 and 2008September
      30,
                
                
                September
      30,2009
                
                
                2008ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                6,588
                
                
                $
                3,558Accounts
      Receivable-(Net of Allowance for Doubtful Account)
                
                _
                
                
                
                1,281Total
      current assets
                
                
                6,588
                
                
                
                4,839Unproved
      oil and gas properties-successful efforts, net
                
                
                771,752
                
                
                
                1,097,783Other
                
                
                50,000
                
                
                
                50,000Total
      Assets
                
                $
                828,340
                
                
                $
                1,152,622LIABILITIES AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Notes
      payable to a stockholder
                
                $
                289,997
                
                
                $
                170,000Accounts
      payable and accrued liabilities
                
                
                755,285
                
                
                
                444,304Accounts
      payable-related party
                
                
                158,308
                
                
                
                158,308Advances
      from stockholder/officer
                
                
                49,247
                
                
                
                284,845Convertible
      debt to stockholder/officer
                
                
                1,199,886
                
                
                _Total
      current liabilities
                
                
                2,452,723
                
                
                
                1,057,457Convertible
      debt to stockholder/officer
                
                _
                
                
                
                1,199,886Asset
      Retirement Obligation
                
                
                86,455
                
                
                
                86,455Total
      Liabilities
                
                
                2,539,178
                
                
                
                2,343,798Commitments
      and contingenciesStockholders'
      deficitPreferred
      stock: no par value, 1,000,000 shares authorizedno
      share outstanding as of September 30,2009 and September
      30,2008
                
                _
                
                
                _Common
      stock:no par value, 250,000,000 sharesauthorized,
      47,636,897 and 43,705,824 sharesissued
      and outstanding at September 30, 2009and
      September 30, 2008, respectively
                
                
                10,216,052
                
                
                
                9,693,944Additional
      paid-in capital
                
                
                1,379,409
                
                
                
                1,145,052Accumulated
      deficit
                
                
                (1,803,507
                )
                
                
                (1,803,507
                )Losses
      accumulated in the development stage
                
                
                (11,502,792
                )
                
                
                (10,226,665
                )Total
      stockholders' deficit
                
                
                (1,710,838
                )
                
                
                (1,191,176
                )Total
      liabilities and stockholders' deficit
                
                $
                828,340
                
                
                $
                1,152,622The
      accompanying notes are an integral part of these financial
      statements.


26




TX HOLDINGS,
      INC.A
      CORPORATION IN THE DEVELOPMENT STAGESTATEMENTS
      OF OPERATIONSFor
      the Years Ended September 30, 2009 and 2008 and for the Period
      FromInception
      of the Development Stage , October 1, 2004 to September 30,
      2009Inception
      ofDevelopmentStage
      toSeptember
      30,
              
              
              September
      30,
              
              
              September
      30,2009
              
              
              2008
              
              
              
              2009Revenue
              
              $
              6,904
              
              
              $
              9,308
              
              
              
              16,212Operating
      expenses, except items shownseparately
      below
              
              $
              703,820
              
              
              $
              364,728
              
              
              $
              2,457,567Stock-based
      compensation
              
              
              314,000
              
              
              
              254,000
              
              
              
              7,212,504Professional
      fees
              
              
              138,153
              
              
              
              149,295
              
              
              
              1,171,790Lease
      expense
              
              _
              
              
              _
              
              
              
              17,392Depreciation
      expense
              
              _
              
              
              
              508
              
              
              
              3,146Advertising
      expense
              
              _
              
              
              _
              
              
              
              83,265Total
      Operating Expenses
              
              
              1,155,973
              
              
              
              768,531
              
              
              
              10,945,664Loss
      from operations
              
              
              (1,149,069
              )
              
              
              (759,223
              )
              
              
              (10,929,452
              )Other
      income and (expense):Legal
      settlement
              
              _
              
              
              
              204,000
              
              
              
              204,000Other
      income
              
              
              4
              
              
              _
              
              
              
              714Loss
      on Write-off of leases and equipment
              
              _
              
              
              
              (4,202
              )
              
              
              (11,202
              )Forbearance
      agreement costs
              
              _
              
              
              _
              
              
              
              (211,098
              )Interest
      expense
              
              
              (127,062
              )
              
              
              (116,698
              )
              
              
              (555,754
              )Total
      other income and (expenses), net
              
              
              (127,058
              )
              
              
              83,100
              
              
              
              (573,340
              )Net
      loss
              
              $
              (1,276,127
              )
              
              $
              (676,123
              )
              
              $
              (11,502,792
              )Net
      loss per common sharebasic
      and diluted
              
              $
              (0.03
              )
              
              $
              (0.02
              )Weighted
      average number of common sharesoutstanding-basic
      and diluted
              
              
              46,183,593
              
              
              
              42,060,391The
      accompanying notes are an integral part of these financial
      statements.




27







TX
      HOLDINGS, INC.A
      CORPORATION IN THE DEVELOPMENT STAGESTATEMENT
      OF CHANGES IN STOCKHOLDERS' DEFICITFor
      the Period from Inception of the Development Stage, October 1, 2004, to
      September 30, 2009  LossesAccumulatedAdditional
              
              
              
              
              
              in
      thePreferred
      Stock
              
              
              Common
      Stock
              
              
              Paid-In
              
              
              Accumulated
              
              
              Develop-Shares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              ment
      Stage
              
              
              TotalBalance
      at September 30, 2005
              
              
              -
              
              
              $
              -
              
              
              
              16,705,593
              
              
              $
              1,618,305
              
              
              $
              211,098
              
              
              $
              (1,803,507
              )
              
              $
              (449,790
              )
              
              $
              (423,894
              )Common
      stock issued forprofessional
      services
              
              
              -
              
              
              
              -
              
              
              
              4,649,300
              
              
              
              2,318,295
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,318,295Common
      stock issued for cash
              
              
              -
              
              
              
              -
              
              
              
              4,633,324
              
              
              
              1,164,997
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,164,997Common
      stock issued uponexercise
      of warrants
              
              
              -
              
              
              
              -
              
              
              
              294,341
              
              
              
              2,944
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,944Common
      stock surrendered
              
              
              -
              
              
              
              -
              
              
              
              (500,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Warrants
      issued for services
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              376,605
              
              
              
              -
              
              
              
              -
              
              
              
              376,605Preferrd
      stock issued to theCompany's
      chief executiveofficer/stockholder
              
              
              1,000
              
              
              
              1,018,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,018,000Net
      income (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,015,719
              )
              
              
              (5,015,719
              )Balance
      at September 30, 2006
              
              
              1,000
              
              
              $
              1,018,000
              
              
              
              25,782,558
              
              
              $
              5,104,541
              
              
              $
              587,703
              
              
              $
              (1,803,507
              )
              
              $
              (5,465,509
              )
              
              $
              (558,772
              )


The
accompanying notes are an integral part of these financial
statements




28





TX
      HOLDINGS, INC.A
      CORPORATION IN THE DEVELOPMENT STAGESTATEMENT
      OF CHANGES IN STOCKHOLDERS' DEFICITFor
      the Period from Inception of the Development Stage, October 1, 2004, to
      September 30, 2009LossesAccumulatedAdditional
            
            
            
            
            
            in
      thePreferred
      Stock
            
            
            Common
      Stock
            
            
            Paid-In
            
            
            Accumulated
            
            
            Develop-Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            ment
      Stage
            
            
            TotalBalance
      at September 30, 2006
            
            
            1,000
            
            
            $
            1,018,000
            
            
            
            25,782,558
            
            
            $
            5,104,541
            
            
            $
            587,703
            
            
            $
            (1,803,507
            )
            
            $
            (5,465,509
            )
            
            $
            (558,772
            )Common
      stock issued forprofessional
      services
            
            
            -
            
            
            
            -
            
            
            
            3,475,555
            
            
            
            2,501,222
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,501,222Contribution
      by stockholder
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            53,325
            
            
            
            -
            
            
            
            -
            
            
            
            53,325Warrants
      issued for service
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            159,381
            
            
            
            -
            
            
            
            -
            
            
            
            159,381Common
      stock issued uponexercise
      of warrants
            
            
            -
            
            
            
            -
            
            
            
            355,821
            
            
            
            75,461
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            75,461Common
      stock issued in settle-ment
      of notes payable andand
      interest
            
            
            -
            
            
            
            -
            
            
            
            833,333
            
            
            
            546,666
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            546,666Common
      stock issued in settle-of
      accounts payable
            
            
            -
            
            
            
            -
            
            
            
            1,437,088
            
            
            
            215,114
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            215,114Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,085,033
            )
            
            
            (4,085,033
            )Balance
      at September 30, 2007
            
            
            1,000
            
            
            $
            1,018,000
            
            
            
            31,884,355
            
            
            $
            8,443,004
            
            
            $
            800,409
            
            
            $
            (1,803,507
            )
            
            $
            (9,550,542
            )
            
            $
            (1,092,636
            )The
      accompanying notes are an integral part of these financial
      statements






29




TX
      HOLDINGS, INC.A
      CORPORATION IN THE DEVELOPMENT STAGESTATEMENT
      OF CHANGES IN STOCKHOLDERS' DEFICITFor
      the Period from Inception of the Development Stage, October 1, 2004, to
      September 30, 2009LossesAccumulatedAdditional
            
            
            
            
            
            in
      thePreferred
      Stock
            
            
            Common
      Stock
            
            
            Paid-In
            
            
            Accumulated
            
            
            Develop-Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            ment
      Stage
            
            
            TotalBalance
      at September 30, 2007
            
            
            1,000
            
            
            $
            1,018,000
            
            
            
            31,884,355
            
            
            $
            8,443,004
            
            
            $
            800,409
            
            
            $
            (1,803,507
            )
            
            $
            (9,550,542
            )
            
            $
            (1,092,636
            )Common
      stock issued inexchange  of
      preferred stock
            
            
            (1,000
            )
            
            
            (1,018,000
            )
            
            
            10,715,789
            
            
            
            1,018,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Common
      stock issued forprofessional
      services
            
            
            -
            
            
            
            -
            
            
            
            450,680
            
            
            
            128,440
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            128,440Common
      stock issued forcash
            
            
            -
            
            
            
            -
            
            
            
            780,000
            
            
            
            73,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            73,000Common
      stock issued  insettlement
      of legal claim
            
            
            -
            
            
            
            -
            
            
            
            175,000
            
            
            
            31,500
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            31,500Contribution
      by stockholder
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            10,643
            
            
            
            -
            
            
            
            -
            
            
            
            10,643Common
      stock  returnedto
      treasury
            
            
            -
            
            
            
            -
            
            
            
            (300,000
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Accrued
      salary contributed byofficer/stockholder
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            125,000
            
            
            
            -
            
            
            
            -
            
            
            
            125,000Accounting
      for employeestock
      warrants
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            190,000
            
            
            
            -
            
            
            
            -
            
            
            
            190,000Accounting
      for options issuedto a
      consultant
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            19,000
            
            
            
            -
            
            
            
            -
            
            
            
            19,000Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (676,123
            )
            
            
            (676,123
            )Balance
      at September 30, 2008
            
            
            -
            
            
            $
            -
            
            
            
            43,705,824
            
            
            $
            9,693,944
            
            
            $
            1,145,052
            
            
            $
            (1,803,507
            )
            
            $
            (10,226,665
            )
            
            $
            (1,191,176
            )The
      accompanying notes are an integral part of these financial
      statements





30




TX
      HOLDINGS INC.A
      CORPORATION IN THE DEVELOPMENT STAGESTATEMENT
      OF CHANGES IN STOCKHOLDERS' DEFICITFor
      the Period from Inception of the Development Stage , October 1, 2004 to
      September 30, 2009LossesAccumulatedAdditional
              
              
              
              
              
              in
      thePreferred
      Stock
              
              Common
      Stock
              
              
              Paid
      in
              
              
              Accumulated
              
              
              DevelopmentShares
              Amount
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Stage
              
              
              TotalBalance
      atSeptember
      30, 2008
              _
              _
              
              
              43,705,824
              
              
              $
              9,693,944
              
              
              $
              1,145,052
              
              
              $
              (1,803,507
              )
              
              $
              (10,226,665
              )
              
              $
              (1,191,176
              )Common
      stock issuedin
      Payment forShareholders'advances
              _
              _
              
              
              2,581,073
              
              
              
              258,108
              
              
              _
              
              
              _
              
              
              _
              
              
              
              258,108Common
      stock issuedfor
      professionalservices
              _
              _
              
              
              2,450,000
              
              
              
              244,000
              
              
              _
              
              
              _
              
              
              _
              
              
              
              244,000Common
      stock soldto
      private investors
              _
              _
              
              
              200,000
              
              
              
              20,000
              
              
              _
              
              
              _
              
              
              _
              
              
              
              20,000Common
      stock returnedto
      treasury
              _
              _
              
              
              (1,300,000
              )
              
              _
              
              
              _
              
              
              _
              
              
              _
              
              
              _Shareholders'
      advancespreviously
      reported asAdditional
      Paid in Capital
              _
              _
              
              _
              
              
              _
              
              
              
              (10,643
              )
              
              _
              
              
              _
              
              
              
              (10,643
              )Imputed
      salary contributedby
      officer/stockholder
              _
              _
              
              _
              
              
              _
              
              
              
              125,000
              
              
              _
              
              
              _
              
              
              
              125,000Accounting
      for employeestock
      warrant
              _
              _
              
              _
              
              
              _
              
              
              
              120,000
              
              
              _
              
              
              _
              
              
              
              120,000Net
      Loss
              _
              _
              
              _
              
              
              _
              
              
              _
              
              
              _
              
              
              
              (1,276,127
              )
              
              
              (1,276,127
              )Balance
      atSeptember
      30, 2009
              _
              _
              
              
              47,636,897
              
              
              $
              10,216,052
              
              
              $
              1,379,409
              
              
              $
              (1,803,507
              )
              
              $
              (11,502,792
              )
              
              $
              (1,710,838
              )The
      accompanying notes are an integral part of these financial
      statements.




31




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGESTATEMENTS
      OF CASH FLOWSFor
      the Years Ended September 30, 2009 and 2008 and for the Period
      FromInception
      of the Development stage , October 1, 2004 to September 30,
      2009Inception
      ofDevelopmentStage
      to9/30/2009
              
              
              9/30/2008
              
              
              9/30/2009Cash
      flows used by operating activities:Net
      loss
              
              $
              (1,276,127
              )
              
              $
              (676,123
              )
              
              $
              (11,502,792
              )Adjustments
      to reconcile net loss to net cash usedin
      operating activities:Warrants
      issued for forbearance agreement
              
              _
              
              
              _
              
              
              
              211,098Loss
      on disposal of equipment
              
              _
              
              
              
              4,202
              
              
              
              11,202Impairment
      of unproved oil and gas properties
              
              
              384,088
              
              
              
              
              
              
              
              384,088Depreciation
      expense
              
              _
              
              
              
              508
              
              
              
              3,146Bad
      Debt Expense
              
              
              1,729
              
              
              _
              
              
              
              1,729Common
      and preferred stock issued for services
              
              
              244,000
              
              
              
              128,440
              
              
              
              5,820,339Accounting
      for warrants issued to employees anda
      consultant
              
              
              120,000
              
              
              
              209,000
              
              
              
              329,000Warrants
      issued for services
              
              _
              
              
              _
              
              
              
              376,605Common
      stock issued to settle accounts payable
              
              _
              
              
              _
              
              
              
              251,308Common
      stock issued in payment of interest expense
              
              _
              
              
              _
              
              
              
              196,666Common
      stock issued by an officer/stockholder tosatisfy
      expenses of the Company and increasestockholder
      advances
              
              _
              
              
              _
              
              
              
              616,750Common
      stock issued in settlement of legal claim
              
              _
              
              
              
              31,500
              
              
              
              31,500Accrued salary contributed by stockholder/former officer
              
              
              125,000
              
              
              
              125,000
              
              
              
              250,000Changes
      in operating assets and liabilities:Accrued
      stock-based compensation reversalresulting
      from legal claim settlement
              
              _
              
              
              
              (231,000
              )
              
              
              (231,000
              )Prepaid
      expenses and other assets
              
              _
              
              
              
              (45,000
              )
              
              
              (49,750
              )Accounts
      receivable
              
              
              (448
              )
              
              
              (1,281
              )
              
              
              (1,729
              )Accounts
      payable and accrued liabilities
              
              
              310,981
              
              
              
              110,824
              
              
              
              1,660,482Net
      cash used by operating activities
              
              
              (90,777
              )
              
              
              (343,930
              )
              
              
              (1,641,358
              )Cash
      flows used in investing activities:Deposits
      paid for oil and gas property acquisitions
              
              _
              
              
              _
              
              
              
              (378,000
              )Property
      and equipment additions
              
              
              (58,057
              )
              
              
              (21,000
              )
              
              
              (414,613
              )Net
      cash used in investing activities
              
              
              (58,057
              )
              
              
              (21,000
              )
              
              
              (792,613
              )Cash
      flows provided by financing activities:Proceeds
      from stockholder/officer contribution
              
              _
              
              
              
              10,643
              
              
              
              10,643Repayment
      of note payable to a bank
              
              _
              
              
              _
              
              
              
              (20,598
              )Proceeds
      from note payable to stockholder
              
              _
              
              
              _
              
              
              
              520,000Proceeds
      from sale of common stock
              
              
              20,000
              
              
              
              73,000
              
              
              
              1,257,997Proceeds
      from exercise of warrants
              
              _
              
              
              _
              
              
              
              78,404Proceeds
      from stockholder/officer advances
              
              
              131,864
              
              
              
              284,845
              
              
              
              594,113Net
      cash provided by financing activities
              
              
              151,864
              
              
              
              368,488
              
              
              
              2,440,559Increase
      (Decrease) in cash and cash equivalents
              
              
              3,030
              
              
              
              3,558
              
              
              
              6,588Cash
      and cash equivalents at beginning of year
              
              
              3,558
              
              
              _
              
              
              _Cash
      and cash equivalent at June 30, 2009 and 2008
              
              $
              6,588
              
              
              $
              3,558
              
              
              $
              6,588Supplemental
      InformationCash
      paid for interest expense
              
              $ _
              
              
              $
              -Cash
      paid for income taxes
              
              $ _
              
              
              $
              -The
      accompanying notes are an integral part of these financial
      statements.




32




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS








NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES





HISTORICAL
BUSINESS ACTIVITIES





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





CURRENT
BUSINESS ACTIVITIES





Management
seeks to acquire producing oil and gas properties in and around Texas. The Company is
also pursuing acquisitions in Ohio, Pennsylvania, West Virginia and Wyoming. The
acquisition of these properties will define the operational holdings of the
Company. Management has defined a number of criteria for acquisition which
include:





·
            Wells
      should be currently producing


·
            Production
      should be broadly distributed across
lease


·
            Lease
      should show a 24 month payback (or
better)


·
            Wells
      should show upside potential (proved undeveloped reserves of approximately
      20%)





These
criteria were developed in an effort to mitigate risk for TX Holdings, Inc. and
its investors.





Management
raised $1,240,000 in a Private Placement offering during the months of July
through September 2006 to finance these acquisitions. The funds raised in 2006
were used to purchase an interest in three oil and gas fields located in Texas.
Development of the fields began on November 1, 2006. The Company experienced
substantial costs for engineering and other professional services during 2005,
2006 and 2007 in making the transition to an oil and gas exploration and
production company. During 2007 Mark Neuhaus caused the Company to issue to him
a convertible note in the principal amount of $1,199,886. Mr. Neuhaus claimed
that he advanced funds in that amount on behalf of the Company for operations of
the Company.  The Company plans to continue to use a combination of
debt, and equity financing to fund operations. Currently, management cannot
provide any assurance regarding the successful development of acquired oil and
gas fields, the completion of additional acquisitions or the continued ability
to raise funds, however it is using its best efforts to complete field work on
the fields acquired, acquire additional fields and finance the
operations.





DEVELOPMENT
STAGE COMPANY





The
Company ceased its former operations as of September 30, 2004. During the first
quarter for 2005 beginning on October 1, 2004, the Company commenced researching
of different alternatives for the future development of the Company. In December
2004, as a result of the Company’s research, the Company announced that it would
pursue operations in the oil and gas industry. October 1, 2004 was the beginning
day for the first quarter of the determination to pursue operations in the oil
and gas industry. Therefore October 1, 2004 was identified as the beginning of
the developmental stage.





GOING
CONCERN CONSIDERATIONS





Since it
ceased its former business operations, the Company has devoted its efforts to
research, product development, and securing financing and has not earned
significant revenue from its planned principal operations. Accordingly, the
consolidated financial statements are presented in accordance with FASB
Accounting Standards Codification (“ASC”) Topic 915 Development Stage Entities
(formerly) Statement of Financial Accounting Standards (SFAS) No. 7,
Accounting and Reporting by
Development-Stage Enterprises.





The
Company, with its prior subsidiaries, has suffered recurring losses while
devoting substantially all of its efforts to raising capital and identifying and
pursuing businesses opportunities. Management currently believes its best
opportunities are in the oil and gas business. The Company's total liabilities
exceed its total assets and the Company's liquidity is substantially dependent
on raising capital.





33




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS








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





GOING
CONCERN CONSIDERATIONS, continued





These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying  financial statements have been
prepared on a going concern basis, which contemplates continuing operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company's ability to continue as a going concern is dependent upon
its ability to raise sufficient capital to implement a successful business plan
and to generate profits sufficient to become financially viable. The
accompanying financial statements do not include adjustments relating to the
recoverability of recorded assets or liabilities that might be necessary should
the Company be unable to continue as a going concern.





USE
OF ESTIMATES





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Significant items subject to such estimates and
assumptions include recoverability of long-lived and deferred tax assets,
measurement of stock-based compensation, and the asset retirement obligation on
oil and gas properties.. The Company bases its estimates on historical
experience and various other assumptions that management believes to be
reasonable under the circumstances. Changes in estimates are recorded in the
period in which they become known. Actual results could differ from those
estimates.





ACCOUNTS
RECEIVABLE AND PROVISION FOR BAD DEBTS





The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of customers to make required payments. The
estimate is based on management’s assessment of the collectability of customer
accounts and includes consideration for credit worthiness and financial
condition of those customers. The Company reviews historical experience with
customers, the general economic environment and the aging of receivables to
determine the adequacy of the allowance. The Company records an allowance to
reduce receivables to the amount that can be reasonably expected to be
collectible. The allowance for doubtful accounts was $1,729 and $0 as of
September 30, 2009 and 2008, respectively





PROPERTY
AND EQUIPMENT





The
Company uses the successful efforts method of accounting for oil and gas
producing activities. Under this method, acquisition costs for proved and
unproved properties are capitalized when incurred. Exploration costs, including
geological and geophysical costs, the costs of carrying and retaining unproved
properties and exploratory dry hole drilling costs, are expensed. Development
costs, including the costs to drill and equip development wells, and successful
exploratory drilling costs to locate proved reserves are capitalized.
Exploratory drilling costs are capitalized when incurred pending the
determination of whether a well has found proved reserves. A determination of
whether a well has found proved reserves is made shortly after drilling is
completed. The determination is based on a process that relies on
interpretations of available geologic, geophysic, and engineering data. If a
well is determined to be successful, the capitalized drilling costs will be
reclassified as part of the cost of the well. If a well is determined to be
unsuccessful, the capitalized drilling costs will be charged to expense in the
period the determination is made. If an exploratory well requires a major
capital expenditure before production can begin, the cost of drilling the
exploratory well will continue to be carried as an asset pending determination
of whether proved reserves have been found only as long as: i) the well has
found a sufficient quantity of reserves to justify its completion as a producing
well if the required capital expenditure is made and ii) drilling of the
additional exploratory wells is under way or firmly planned for the near future.
If drilling in the area is not under way or firmly planned, or if the well has
not found a





34





TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS








NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ACTIVITIES-continued





PROPERTY
AND EQUIPMENT-continued





commercially
producible quantity of reserves, the exploratory well is assumed to be impaired,
and its costs are charged to expense.





In the
absence of a determination as to whether the reserves that have been found can
be classified as proved, the costs of drilling such an exploratory well is not
carried as an asset for more than one year following completion of drilling. If,
after that year has passed, a determination that proved reserves exist cannot be
made, the well is assumed to be impaired, and its costs are charged to expense.
Its costs can, however, continue to be capitalized if sufficient quantities of
reserves are discovered in the well to justify its completion as a producing
well and sufficient progress is made in assessing the reserves and the well's
economic and operating feasibility.





The
impairment of unamortized capital costs is measured at a lease level and is
reduced to fair value if it is determined that the sum of expected future net
cash flows is less than the net book value. TX Holdings determines if impairment
has occurred through either adverse changes or as a result of the annual review
of all fields.





Development
costs of proved oil and gas properties, including estimated dismantlement,
restoration and abandonment costs and acquisition costs, are depreciated and
depleted on a field basis by the units-of-production method using proved
developed and proved reserves, respectively. The costs of unproved oil and gas
properties are generally combined and impaired over a period that is based on
the average holding period for such properties and the Company's experience of
successful drilling.





Other
property and equipment are stated at cost. Major renewals and betterments are
capitalized, while maintenance and repairs that do not materially improve or
extend the useful lives of the assets are charged to expense as incurred. Costs
relating to the initial design and implementation of the Internet web page have
been capitalized while the costs of web page maintenance are expensed as
incurred. Assets are depreciated over their estimated useful lives using the
straight-line method. The Company records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets.





ASSET
RETIREMENT OBLIGATION





The
Company follows ASC Topic 410,” Accounting for Asset Retirement Obligations”,
which requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs will
be capitalized as part of the carrying amount of the long-lived asset. The
carrying value of a property associated with the capitalization of an asset
retirement cost is included in unproved oil and gas property in the accompanying
balance sheets. The future cash outflows for oil and gas property associated
with settling the asset retirement obligations is accrued in the balance sheets,
and is excluded from ceiling test calculations. The Company’s asset retirement
obligation consists of costs related to the plugging of wells and removal of
facilities and equipment on its oil and gas properties.





REVENUE
RECOGNITION





Currently
the Company has limited revenue from oil and gas operations.  If and
when the Company begins to receive higher revenue from oil and gas operations it
will be recognized upon the delivery of the oil or gas to the purchaser of the
oil or gas.





35




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS








NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING





POLICIES
AND ACTIVITIES-Continued





INCOME
TAXES





Income
taxes are estimated for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the financial reporting basis and
income tax basis of assets and liabilities. Deferred tax assets and liabilities
represent future tax consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled.





Deferred
taxes may also be recognized for operating losses that are available to offset
future taxable income. Deferred taxes are adjusted for changes in tax laws and
tax rates when those changes are enacted.





In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during periods in which temporary
differences become deductible. Management considers the reversal of any deferred
tax liabilities, projected future taxable income and tax planning strategies in
making this assessment. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.





FINANCIAL
INSTRUMENTS





The
Company includes fair value information in the notes to the financial statements
when the fair value of its financial instruments is different from the book
value. When the book value approximates fair value, no additional disclosure is
made, which is the case for financial instruments outstanding as of September
30, 2009 and 2008. The Company assumes the book value of those financial
instruments that are classified as current approximates fair value because of
the short maturity of these instruments. For non-current financial instruments,
the Company uses quoted market prices or, to the extent that there are no quoted
market prices, market prices for similar instruments.




RECLASSIFICATIONS





Certain
reclassifications have been made to the prior years' financial statements to
conform to the current year presentation. These reclassifications had no effect
on reported net loss or accumulated deficit.




BASIC
NET LOSS PER COMMON SHARE





Net loss
per share is computed based on current accounting guidance requiring companies
to report both basic net loss per common share, which is computed using the
weighted average number of common shares outstanding during the period, and
diluted net loss per common share, which is computed using the weighted average
number of common shares outstanding and the weighted average dilutive potential
common shares outstanding using the treasury stock method. However, for all
periods presented, diluted net loss per share is the same as basic net loss per
share as the inclusion of weighted average shares of common stock issuable upon
the exercise of stock options and warrants and conversion of convertible
preferred stock would be anti-dilutive.





36




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS








NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING





POLICIES
AND ACTIVITIES-Continued





BASIC
NET LOSS PER COMMON SHARE-Continued





The
following table summarizes securities outstanding at each of the periods
presented which were not included in the calculation of diluted net loss per
share since their inclusion would be anti-dilutive.





2009
            
            2008Convertible
      notes
            
            
            4,285,306
            
            4,285,306Warrants
      issued as compensation
            
            
            2,050,000
            
            3,350,000Warrants
      issued in private placement
            
            
            
            
            4,133,324Total
            
            
            6,335,306
            
            11,768,628





RECENTLY
ISSUED ACCOUNTING STANDARDS





On
December 31, 2008, the SEC published the final rules and interpretations
updating its oil and gas reporting requirements. Many of the revisions are
updates to definitions in the existing oil and gas rules to make them consistent
with the petroleum recourse management system, which is a widely accepted
standard for the management of petroleum resources that was developed by several
industry organizations. Key revisions include changes to the pricing used to
estimate reserves utilizing a 12-month average price rather than a single day
spot price which eliminates the ability to utilize subsequent prices to the end
of a reporting period when the full cost ceiling was exceeded and subsequent
pricing exceeds pricing at the end of a reporting period, the ability to include
nontraditional resources in reserves, the use of new technology for determining
reserves, and permitting disclosure of probable and possible reserves. The SEC
will require companies to comply with the amended disclosure requirements for
registration statements filed after January 1, 2010, and for annual reports on
Form 10-K for fiscal years ending on or after December 15, 2009. Early adoption
is not permitted. The Company is currently assessing the impact that the
adoption will have on the Company’s disclosures, operating results, financial
position and cash flows.





In June
2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
168, “The FASB Accounting
Standards Codification TM and the Hierarchy of Generally Accepted Accounting
Principles – a replacement of FASB Statement No. 162”(“SFAS 168”). The
FASB Accounting Standards Codification TM, (“Codification” or “ASC”) became the
source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of SFAS 168, the Codification superseded
all then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
became non-authoritative.





Following
SFAS 168, the FASB will no longer issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will
issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as
authoritative in their own right; rather, these updates will serve only to
update the Codification, provide background information about the guidance, and
provide the bases for conclusions on the change(s) in the Codification. SFAS No.
168 is incorporated in ASC Topic 105, Generally Accepted Accounting
Principles. The Company adopted SFAS No. 168 for the fiscal year-ended
September 30, 2009, and the Company will provide reference to both the
Codification topic reference and the previously authoritative references related
to Codification topics and subtopics, as appropriate.





37





TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS





NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING





POLICIES
AND ACTIVITIES-Continued




RECENTLY
ISSUED ACCOUNTING STANDARDS, continued




In May
2009, the FASB issued ASC Topic 855, Subsequent Events(formerly
SFAS No. 165, Subsequent
Events) which establishes general standards for the evaluation,
recognition and disclosure of events and transactions that occur after the
balance sheet date. Although there is new terminology, the standard is based on
the same principles as those that currently exist in the auditing standards. The
standard, which includes a new required disclosure of the date through which
management has evaluated subsequent events, is effective for interim and annual
periods ending after June 15, 2009. The adoption of ASC 855 did not have a
material effect on the Company’s financial statements.





In
September 2006, the FASB issued ASC Topic 820 Fair Value Measurments and
Disclosures (formerly SFAS No. 157,Fair Value Measurements)
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. ASC Topic 820 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. This
statement was effective for and adopted by the Company beginning the first
quarter of fiscal 2008. Its adoption had no significant impact on our financial
statements.





In June
2006, the FASB issued accounting guidance for uncertainty in income taxes which
is included in ASC Topic 740 Income Taxes (formerly
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An
Interpretation of


FASB
Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with Statement No. 109. ASC Topic 740
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements ASC Topic 740  prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement classification, accounting for interest and
penalties and accounting in interim periods and disclosure. The provisions of
the accounting guidance are effective for fiscal years beginning after
December 15, 2006.   This statement was effective for and adopted
by the Company beginning the first quarter of fiscal 2008. Its adoption had no
significant impact on the Company’s financial condition or results of
operations.





Effective
October 1, 2008, the Company adopted certain aspects of ASC Topic 825. Financial Instruments
(formerly SFAS 159, “The Fair Value Option for Financial Assets & Financial
Liabilities – including an amendment of SFAS No. 115.”).The accounting guidance
created a fair value option under which an entity may irrevocably elect fair
value as the initial and subsequent measurement attribute for certain financial
assets and liabilities on a contract by contract basis, with changes in fair
values recognized in earnings as these changes occur. The adoption of ASC Topic
825 has no significant impact on the Company’s financial condition or results of
operations.





In
December 2007, the FASB issued ASC Topic 805, Business Combinations (
formerly SFAS 141R, “Business Combinations,”) ASC Topic 805 changes how a
reporting enterprise will account for the acquisition of a business. ASC 805
will apply prospectively to business combinations with an acquisition date on or
after November 1, 2009 The adoption of ASC Topic  805 is not expected
to have a material impact on the Company’s financial condition or results of
operations, however future acquisitions would be accounted for under the
guidance.




38




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS





NOTE
2 - PROPERTY AND EQUIPMENT





Property
and equipment consists of the following at September 30, 2009 and
2008:





LifeYears
            
            2009
            
            
            2008Oil
      and gas properties – successful effortsmethod
      - unproved
            
            
            $
            1,155,840
            
            
            $
            1,097,783Less
      allowance for impairment
            
            
            
            (384,088
            )
            
            _Less
      accumulated depreciation, depletion amortization
            
            
            _
            
            
            _771,752
            
            
            
            1,097,783





Depreciation
expense of $0 and $508 was recognized during the years ended September 30, 2009
and 2008, respectively. At September 30, 2009 and 2008, the Company had no
proven oil and gas properties and, accordingly, there was no amortization of oil
and gas properties recorded during the years then ended.The Company unproven oil
and gas properties were reviewed for impairment on a field-by-field basis as of
September 30, 2009 and 2008. As a result of the review, the Company recognized
an impairment loss of $384,088 and $0 for the years ended September 30, 2009 and
2008, respectively. The impairment loss is included in operating expenses on the
accompanying statement of operations





Substantially
all the Company’s reserves can only be produced economically through application
of improved recovery techniques and are excluded from the proved classification
until successful testing by a pilot project, or the operation of an installed
program in the reservoir, provide support for the engineering analysis on which
the project or program is based.





On
November 1, 2006, the Company entered into a purchase and sale agreement (the
“Agreement”) for a 60% interest in certain oil and gas properties located in
Eastland County, Texas. Under the Agreement, the Company is obligated to pay a
total of $7,200,000 for equipment, mineral leases, drilling and reworks, and
various other categories of costs if all provisions of the agreement are met.
The Company has made payments totaling $378,000 to the seller, which reduced the
working interest to 8%. These payments are included in unproved oil and gas
properties – successful efforts on the accompanying balance sheet as of
September 30, 2009 and 2008.





Included
in unproved oil and gas  properties is $352,560 of 2007 additions that
were  acquired  in  exchange  for  shares
of the  Company's common  stock that the
Company's  former  Chief  Executive  Officer
who is a major stockholder of the Company advised he transferred on behalf of
the Company.  This amount is included in Convertible Debt to
Stockholder/Officer.





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





On  February  14,  2007
the  Company  obtained a
$250,000  bridge  loan from Rob Hutchings, convertible to
common stock at $0.525 per share, the closing price of
the  Company's  common stock at that date.  The
beneficial  conversion feature associated  with the debt was
valued at $35,000.  The note bore interest of 10% per year with the
principal due in 60 days.  The terms of the loan required that the
Company issue 500,000 shares of restricted common stock as security for the
loan. On June 29, 2007, Mr. Hutchings elected to convert his note for shares
provided as collateral.  The sum of $250,000 was applied toward the
principal repayment; the beneficial conversion value of $35,000 was charged to
interest expense.





39




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS





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





The
balance in note payable to a stockholder of $289,997 is the principal due on
advances from William Shrewsbury.  The note bears interest at 10% per
year and due on demand. On June 15, 2007, the Company issued William Shrewsbury
333,333 shares of common stock at a market price of $0.77 per share for a total
consideration of $256,666.  The proceeds were issued for a $100,000
reduction of a $270,000 loan owed to Mr.  Shrewsbury and the remaining
$156,666 was treated as interest expense. During February 2009, the Company and
Mr. Shrewsbury agreed to add $119,997 to shareholder advances to the outstanding
note payable.





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





NOTE
4 – ASSET RETIREMENT OBLIGATION





In the
period in which an asset retirement obligation is incurred or becomes reasonably
estimable, the Company recognizes the fair value of the liability if there is a
legal obligation to dismantle the asset and reclaim or remediate the property at
the end of its useful life. The Company estimates the timing of the asset
retirement based on an economic life determine by reference to similar
properties and/or reserve reports. The liability amounts are based on future
retirement cost estimates and incorporate many assumptions such as expected
economic recoveries of oil and gas, time to abandonment, future inflation rates
and the adjusted risk-free rate of interest. When the liability is initially
recorded, the Company capitalizes the cost by increasing the related property
balances. This initial cost is depreciated or depleted over the useful life of
the asset.





The
Company has identified potential retirement obligations related to the Parks
Lease and Contract Area #1 Lease. These retirement obligations are determined
based on estimated costs to comply with abandonment regulations established by
the Texas Railroad Commission and the State of Texas. Management has estimated
the cost in today’s dollars, to comply with these regulations. These estimates
have been projected out to the anticipated retirement date 10 years in the
future. The anticipated future cost of remediation efforts is $186,650. The
anticipated future cost of remediation efforts were discounted back at an
assumed interest rate of 10 percent, to arrive at a net present value of the
obligation. The asset retirement obligation is $86,455 at September 30, 2009 and
2008. The Company has not recorded accretion on the asset retirement obligation
due to minimal revenues.





40




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS





NOTE
5 - INCOME TAXES





The tax
effects of temporary differences that give rise to deferred taxes are as follows
at September 30, 2009 and 2008:








2009
            
            
            2008Deferred
      tax assets:Net
      operating losses
            
            $
            1,450,986
            
            
            $
            1,289,096Accrued
      expenses
            
            
            256,797
            
            
            
            151,013Valuation
      allowance
            
            
            (1,707,783
            )
            
            
            (1,440,109
            )Total
      deferred tax assets
            
            
            -
            
            
            
            -Deferred
      tax liabilities:Basis
      of property and equipment
            
            
            -
            
            
            
            -Net
      deferred tax asset
            
            $
            -
            
            
            $
            -





Net
operating losses after December 12, 2002 through September 30, 2009 were
approximately $3,100,000.  The Company has total net operating losses
available to the Company to offset future taxable income of approximately
$4,300,000. Following is a reconciliation of the tax benefit at the federal
statutory rate to the amount reported in the statement of
operations:





2009
            
            2008Amount
            
            Percent
            
            Amount
            
            PercentBenefits
      for Income Tax at federal statutory rate
            
            
            433,883
            
            34
            %
            
            230,391
            
            34
            %Change
      in valuation allowance
            
            
            (267,623)
            
            (21)
            
            
            (159,331)
            
            (24)Non-deductible
      stock-basedCompensation
            
            
            (166,260)
            
            (13)
            
            
            (71,060)
            
            (10)$
            -
            
            -
            %
            $
            -
            
            -
            %





The
Company has tax net operating loss carry forwards totaling approximately
$4,300,000, expiring in 2018 through
2029.  Approximately  $1,200,000  of net
operating  losses was  incurred  prior
to  December  12, 2002 at which date MA&N acquired 51%
of the Company and are consequently  subject to
certain  limitation described in section 382 of the
Internal  Revenue  Code.  The Company estimates
that, due to the limitations and expiration dates, only $424,000 of the net
operating losses incurred prior to December 12, 2002 will be available to offset
future taxable income.





NOTE
6 - SEGMENT INFORMATION





As of
September 30, 2009 and 2008 the Company’s only operating segment was in oil and
gas operations.





41




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS





NOTE
7 - STOCKHOLDERS' EQUITY





PREFERRED
STOCK





Mr.
Neuhaus has represented that in May 2006 an employment agreement was entered
into with Mr. Neuhaus the then president, CEO and Chairman of the
Board.  Mr. Neuhaus claims that the agreement provided that he was to
be compensated at the rate of $25,000 per month plus bonus based on oil and gas
production. In addition he claims that the employment agreement granted to him
1,000 shares of preferred stock. The preferred stock which Mr. Neuhaus caused to
be issued to himself had the following rights and privileges:





1.
            Super
      voting rights: The preferred stock has the right to vote on any item of
      business submitted to the common shareholders for a vote the equivalent
      number of votes representing 50% of the outstanding common shares then
      issued by the Company.





2.
            No
      other rights: The preferred shares have no other rights, including but not
      limited to no conversion rights; no dividend rights; and no liquidation
      priority rights.





During the
fiscal year 2006, Mr. Neuhaus waived his salary.  However, Mr. Neuhaus
obtained a letter from Baron Capital Group, Inc. stating that value of the
preferred stock was no greater than $1,018,000. On December 24, 2007, and in
connection with Mr. Neuhaus’ resignation, the 1,000 preferred shares were
exchanged for 10,715,789 common shares, which exchange assumed that the
preferred stock had a value of $1,018,000.  Current management of the
Company has not seen documentation establishing that an employment agreement
existed between Mr. Neuhaus and the Company; that any such agreement was
authorized in accordance with Georgia law or that the preferred stock was
duly  authorized or validly issued in accordance with
law.





COMMON
STOCK





During the
years ended September 30, 2008 and 2009, the Company issued Common stock to
raise capital, compensate employees and professionals, and to settle liabilities
as follows:





On
February 20, 2008, the Company sold 660,000 shares to private investors for cash
proceeds of $43,000


On
February 20,2008, the Company issued 150,000 shares to Frank Shafer for
marketing services. The services were valued at $42,000





On
February 20, 2008, the Company issued 17,500 shares of restricted common shares
to Barker Design, Inc for Web design services valued at $4,900





On
February 20, 2008, the Company issued 33,180 shares of restricted common shares
to Paul Owens for office relocation services valued at $9,290.





On March
10, 2008, the Company issued 200,000 shares of restricted common stock to James
Stock for investor relation services valued at $64,000.





On March
10, 2008, The Baron Group returned 300,000 shares to the Company upon
discontinuation of their consulting services.





On July
15, 2008, the Company sold 120,000 shares to Richard Novack, a private investor,
for the sum of $30,000.





On
September 4, 2008, the Company issued 50,000 shares to Andrew Patzert, at a
value of $8,250, for consulting services.





42




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS








NOTE
7 - STOCKHOLDERS' EQUITY-continued





COMMON
STOCK-continued





On or
about September 12, 2008, an agreement was reached with The Investor Relation
Group Inc (“TIRG”) settling pending litigation. As part of the settlement, TIRG
received 75,000 shares of restricted common stock from the Company and 75,000
shares of unrestricted common stock on behalf of the Company by a third party
shareholder. The Company also issued 100,000 shares of restricted common stock
to the shareholder who acted as the third party facilitator of the
settlement.





On October
6, 2008, the Company issued a total of 200,000 shares for services. The shares
were issued to several contract personnel and were valued at $24,000 based on
the quoted market price of the Company’s common stock on the date of
issuance.





On January
9, 2009, the Company issued a total of 1,250,000 shares for services. The shares
were issued to several contract personnel and were valued at $125,000 based on
the quoted market price of the Company’s common stock on the date of
issuance.





On
February 5, 2009, Darren Bloom returned 1,300,000 shares to the Company in
settlement of a legal dispute over compensation.





On
February 27, 2009, the Company issued 2,581,073 shares to two shareholders in
payment for outstanding cash advances to the Company. The shares were valued at
$258,108 based on the quoted market price of the Company’s common stock on the
date of issuance.





On
February 27, 2009, the Company issued a total of 750,000 shares for services.
The shares were issued to several contract personnel and were valued at $75,000
based on the quoted market price of the Company’s common stock on the date of
issuance.





On
February 27, 2009, the Company sold 100,000 shares to private investors for cash
proceeds of $10,000.





On August
12, 2009, the Company issued 250,000 shares of restricted common stock for
services. The services were valued at $20,000 based on the quoted market price
of the Company’s common stock on the date of issuance.





On August
12, 2009 the Company sold 100,000 shares to a private investor for cash proceeds
of $10,000


STOCK
OPTIONS AND WARRANTS





On
March  28,  2006,  warrants  to  purchase  a
total of  800,000  shares of the
Company's  common  stock at an exercise  price of
$0.30 were issued to Michael A
Cederstrom  (200,000  shares),  Douglas
C.  Hewitt (300,000 shares) and Bobby Fellers (300,000
shares).  The  warrants  expires  on
March  27,  2010 and are callable by the Company if the
market  value of TX Holding common stock has been at least 2 1/2 times
the exercise price ($0.75) for 20 consecutive trading days.





On
September 28, 2007,  warrants to purchase a total of
2,000,000  shares of the Company's  common  stock
at an exercise  price of $0.28 were issued to Michael A Cederstrom
(1,000,000 shares) and Jose Fuentes (1,000,000 shares). The warrants expire
on  September  30,  2011 and  vest over
a two year period  with 1,000,000 shares vesting  September
28, 2008 and 1,000,000  shares  vesting  September
28, 2009. Fair value of $480,000 was





43


TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS





NOTE
7 - STOCKHOLDERS' EQUITY-continued





STOCK
OPTIONS AND WARRANTS, continued





calculated
using the Black-Scholes Model. Variables used in the Black-Scholes
option-pricing model during the year ended September 30, 2007, include (1) 4.75%
discount rate, (2) warrant life is the expected remaining life of the options as
of each year end, (3) expected volatility of 141.90%, and (4) zero expected
dividends. Warrant expense of $120,000 and $190,000 was recorded during the
years ended September 30, 2009 and 2008, related to these options.





On
September 28, 2007, a convertible promissory note was issued to Mark Neuhaus in
the amount of $1,199,886 which bears interest at 8% per year. The note is for a
period of two years and contains an automatic conversion at the end of the
period.  The Company has the right to pay the note in full at any time
prior to the maturity of the note. The total shares to be held for conversion is
4,970,954 shares.





On
September 4, 2008 a warrant to purchase 300,000 shares of common stock of TX
Holdings, Inc at an exercise price of $.50 was issued to Andrew Patzert. The
warrants expired on June 22, 2009.





Following
is a summary of outstanding stock warrants at September 30, 2009 and 2008 and
activity during the years then ended:





WeightedNumber
      of
            
            
            Exercise
            
            
            AverageShares
            
            
            Price
            
            
            PriceWarrants
      at September 30, 2007
            
            
            7,183,324
            
            
            $
            0.28
      – 0.50
            
            
            $
            0.43Issued
            
            
            300,000
            
            
            
            0.50
            
            
            
            0.50ExercisedWarrants
      at September 30, 2008
            
            
            7,483,324
            
            
            
            0.28
      – 050
            
            
            
            0.43Forfeitures
            
            
            (1,000,000
            )
            
            
            0.28
            
            
            
            0.28Expired
            
            
            (4,433,324
            )
            
            
            0.50
            
            
            
            0.50Warrants
      at September 30,2009
            
            
            2,050,000
            
            
            
            0.28
      - 0.30
            
            
            
            0.29





A summary
of outstanding warrants at September 30, 2009, follows:





ContractualNumber
      of
            
            Exercise
            
            Remaining
      LifeExpiration
      Date
            
            
            
            
            
            Shares
            
            Price
            
            (Years)March
      2010
            
            
            
            
            
            1,050,000
            
            
            0.30
            
            
            .5September
      2011
            
            
            
            
            
            1,000,000
            
            
            0.28
            
            
            2.02,050,000





44




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS








NOTE
8 – SUBSEQUENT EVENTS





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





Management
has evaluated subsequent events through January 8, 2010, the date the financial
statements were issued.





NOTE
9 – RELATED PARTY TRANSACTIONS





As
described in Note 3, Mark Neuhaus caused the Company to issue a convertible
promissory note in the amount of $1,199,886 bearing interest at 8% per year and
due and payable within two years. The conversion price is $0.28 per common share
which will automatically convert on the two-year anniversary of the note if not
paid in full by the Company.  Mr. Neuhaus claims that this convertible
promissory note is the result of the consolidation of stockholder advances made
by him and entities he controls.





Included
in the financial statements as of  September 30, 2009 and 2008 are
advances from stockholder/officer of $49,247 and $284,845, respectively
..





In June
2007 the Company  entered  into
a  strategic  alliance  agreement  with
Hewitt Energy Group,  LLC to identify  reserves and
prospects,  and to establish production from the
projects  mutually owned or contemplated to be jointly owned by the
entities in states of Texas,  Kansas
and  Oklahoma.  Hewitt Energy Group, LLC is controlled by a
former member of the Company's board of directors. During 2007 the Company's
former Chief Executive Officer,  who is a major stockholder, claimed
that he transferred stock on behalf of the Company with a market value of
$352,560 to Hewitt Energy Group, LLC to acquire an interest in the Perth field
in Kansas. There is currently a dispute as to the extent of the Company’s
performance under the leases and agreement with Hewitt Energy.





2009
            
            
            2008Beginning
      balance
            
            $
            284,845
            
            
            $
            -Expenses
      paid and added to note/advance
            
            
            131,863
            
            
            
            284,845Interest
      accrued
            
            __
            
            
            __Common
      stock issued at fair market value for servicesand
      added to advances
            
            __
            
            
            __Stockholder’s
      advances previously reported as additionalpaid-in
      capital
            
            
            10,643
            
            
            __Advances
      repaid in Common Stock
            
            
            (258,107
            )
            
            __Converted
      to convertible promissory note
            
            
            (119,997
            )
            
            __Ending
      Balance
            
            $
            49,247
            
            
            $
            284,845-





45




TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS





NOTE
10 - NON CASH INVESTING AND FINANCING ACTIVITIES





Following
is an analysis of non cash investing and financing activities during the years
ended September 30, 2008 and 2009:





2009
            
            
            2008Advances
      from stockholders converted tocommon
      stock
            
            $
            258,107
            
            
            $
            -Stockholder
      advances previously reported asadditional
      paid-in capital
            
            
            (10,643
            )
            
            
            -Common
      stock issued by the Company'sFormer
      Chief Executive Officer andChairman
      for oil and gas propertyacquisitions
      and an increase in advancesfrom  officer/stockholder
            
            
            -
            
            
            
            -Advances
      from officer/stockholder converted tonotes
      payable to a stockholder
            
            
            119,997
            
            
            
            -Increase
      in property and equipment upon recognitionof
      asset retirement obligation
            
            
            
            
            
            
            86,455





Note
11 – COMMITMENTS AND CONTINGENCIES





None





Item
9 Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure





There has
been no changes or disagreements with accountants on accounting and financial
disclosure.





Item
9A Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





The
Company’s Chief Executive Officer and Chief Financial Officer has evaluated
the effectiveness of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the
fiscal period ending September 30, 2009 covered by this Annual Report on
Form 10-KSB.  Based upon such evaluation, the Chief Executive Officer and
Chief Financial Officer has concluded that, as of the end of such period, the
Company’s disclosure controls and procedures were not effective as required
under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.  This
conclusion is based upon the number and magnitude of the year end adjusting
entries.





Management’s
Report on Internal Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) of the Company. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of
America.





46
 
  TX
      HOLDINGS, INCA
      CORPORATION IN THE DEVELOPMENT STAGENOTES
      TO FINANCIAL STATEMENTS
 The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and
directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial
statements.





Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Management,
under the supervision of the Company’s Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of internal
control over financial reporting based on the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on that evaluation, management concluded that
the Company’s internal control over financial reporting were not effective as of
September 30, 2009, under the criteria set forth in the in Internal
Control—Integrated Framework. The determination was made partially due to the
small size of the company and a lack of segregation of duties.  The Company
continues to implement control processes to mitigate the control weaknesses that
are present in a small Company with very few employees.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report on Form 10-K.





Changes
in Internal Control Over Financial Reporting





No change
in the Company’s internal control over financial reporting occurred during the
quarter ended September 30, 2009, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.




Item
9B Other Information





None




47





PART
III





Item
10 Directors, Executive Officers, Promoters and Control Persons and Corporate
Governance:





The
following table shows the names, ages and positions held by our executive
officers, directors and significant employees during the year ended September
30, 2009:




Name
              
              Age
              
              PositionWilliam
      Shrewsbury
              
              65
              
              Chairman
      of the Board of Directors/CEORichard
      Novack
              
              51
              
              Director/PresidentJose
      Fuentes
              
              62
              
              Chief
      Financial OfficerMartin
      Lipper
              
              75
              
              DirectorBobby
      S. Fellers
              
              59
              
              Director


Business
Experience of Executive Officers and Directors





William
“Buck” Shrewsbury, Chairman of the Board/CEO, age 65. Mr. Shrewsbury attended
the University of Kentucky 1962 -1965 with a major in Civil Engineering. He
served as the IT Manager with a large steel mill for 19 years. Mr. Shrewsbury
owns his own trucking company as well as being an agent for a major
transportation company.





Richard
Novack attended the Indiana University of Pennsylvania where he majored in
Business Administration. Mr. Novack began his career in finance and subsequently
started several business enterprises, including entities in the printing,
vending and real estate industries.





Martin
Lipper, Director, age 75, is a Korean War Veteran. Mr. Lipper graduated from
N.Y.U. in 1958 with a Bachelor of Science degree in Finance and Economics. Mr.
Lipper began his career on Wall St. as a securities analyst specializing in bank
stock analysis. He Joined the Bank of N.Y. and was the senior bank insurance and
finance analyst. Later he became co-director of research at Eastman Dillon Union
Securities and later Purcell Graham. In 1973, Mr. Lipper became V.P. and
treasurer of APF Electronics. Mr. Lipper currently service as Senior Vice
President and Research Director of Baron Group U.S.A.





Bobby S.
Fellers, Directors - Mr. Fellers Joined TX Holdings on March 28, 2006 as a
member of the board of directors. Mr. Fellers has over 30 years experience in
the oil and gas industry in both field and offshore operations. Currently, Mr.
Fellers is the principal of the Masada Family of Companies which includes Masada
Oil and Gas Company, Ltd.





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




Term
of Office





All
directors hold office until the next annual meeting of shareholders and until
their successors have been duly elected and qualified. Directors will be elected
at the annual meetings to serve for one-year terms. The Company does not know of
any agreements with respect to the election of directors. The Company has not
compensated its directors for service on the Board of Directors of TX Holdings
or any of its subsidiaries or any committee thereof. Any non-employee director
of TX Holdings or its subsidiaries is reimbursed for expenses incurred for
attendance at meetings of the Board of Directors and any committee of the Board
of Directors, although no such committee has been established. Each executive
officer of TX Holdings is appointed by and serves at the discretion of the Board
of Directors.





48





None of
the officers or directors of TX Holdings is currently an officer or director of
a company required to file reports with the Securities and Exchange Commission,
other than TX Holdings.





Audit
Committee





The
Company's Board of Directors has determined that TX Holdings does not currently
have a separately-designated standing audit committee established or a committee
performing similar functions, nor an audit committee financial
expert.





Compliance
with Section 16(a)





Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own beneficiary more than ten percent of our
common stock, to file reports of ownership and changes of ownership with the
Securities and Exchange Commission Based solely upon a review of Forms 3 and 4
(furnished to the Company during the year ended September 30, 2006 and two Forms
5 (no other Forms 5 nor written representations furnished to the Company having
been furnished with respect to such year)  each of the current
directors failed to file a Form 3 on a timely basis. Mr. Shrewsbury timely filed
a Form 5 reporting the failure to file the Form 3 and 9 acquisitions that should
have been reported on a Form 4 and which took place in February and March of
2008.  Mr. Lipper  filed a form 5 on November 14, 2008
reflecting his ownership of shares of the common stock of the
Company  which should have been reported on a Form 3
including  7 acquisitions that took place in November and September of
2007 prior to his becoming a director and one in March of 2008. Timely filings
were made for the period ended September 30, 2009.





Code
of Ethics





On
February 24, 2004, the Company adopted a Code of Ethics that applies to all
officers, directors and employees of the Company. See exhibit 33.1 for the full
text of the Company's Code of Ethics. The Company will provide to any person,
without charge, a copy of its code of ethics upon request to:





TX
Holdings, Inc.


12080
Virginia Blvd.


Ashland,
Kentucky 41102





Item
11 Executive Compensation





The
following table sets forth all compensation accrued or  paid in
respect of our Chief Executive Officer and those individuals who received
compensation in excess of $100,000 per year (collectively, the "Named Executive
Officers") for our last two completed fiscal years:




SUMMARY
COMPENSATION TABLE





Name
      and Principal Position
            Year
            Salary
              ($)
            Bonus
              ($)
            Stock
              Awards
              ($) (1)
            Option
              Awards
              ($)
            Non-Equity
              Incentive
      Plan
              Compensation
              ($)
            Change
              in
      Pension
              Value and
              Nonqualified
              Deferred
              Compensation
              Earnings
              ($)
            All
      Other
              Compensation
              ($)
            Total
              ($)William
      Shrewsbury
              Chairman
      and Chief Executive Officer
            2009
              2008
            __
              __
              
              —
            __
              
              —
            __
              
              —
            __
              
              —
            __
              
              —
            __
              
              —
            __
              
              —
            __
              
              —Mark
      Neuhaus (1)
              Former
      Chairman and Chief Executive Officer
            2009
              2008
            __
              75,000
            —
              —
            —
              —
            —
              —
            —
              —
            —
              —
            —
              —
            __
              75,000MichaelA.
      Cederstrom (2)
              Former
      Chief Financial Officer
            2009
              2008
            —
              —
            —
              __
            —
              —
            —
              —
            —
              —
            —
              —
            108,680
            108,680Jose
      Fuentes (2)
              Chief
      Financial Officer
            2009
              2008
            104,000
              104,000
            —
              ----
            —
              ---
            —
              ---
            —
              ---
            —
              ---
            —
              ---
            104,000
              104,000





(1)
            During
      the year ended September 30, 2007, Mr. Neuhaus caused the Company to issue
      to him 1,000 shares of preferred stock. The stock was non convertible, but
      provided for 50% of the voting rights in the Company. On December 24,
      2007, the preferred shares were canceled in exchange for 10,715,789 shares
      of the common stock of the Company.





(2)
            On
      September 28, 2008 the Company granted Jose Fuentes and Michael A.
      Cederstrom warrants for their services, for each to purchase 1,000,000
      shares of TX Holdings, Inc common stock at an exercise price of $0.28. The
      warrants expire on September 30,
2011





49


The
preceding table does not include any amounts for non-cash compensation,
including personal benefits, paid to any of the foregoing officers during the
periods covered herein. [The Company believes that the value of such non-cash
benefits and compensation paid during the periods presented did not exceed the
lesser of $50,000 or 10% of the annual salary reported for them.]





GRANTS
OF PLAN-BASED AWARDS





The
following table sets forth the information about grants made to the Company’s
named executive officers in 2008 pursuant to the 2004 Plan.





Equity
Compensation Plan Information - Employment Agreements





On
December 12, 2005, the Company issued 2,000,000 shares of the Company's Common
Stock for the compensation of Darren Bloom, CFO, Secretary/Treasurer and member
of the Board of Directors. The shares were issued pursuant to a three year
employment contract which Mr. Bloom only served for 9 months. TX Holdings filed
suit against Mr. Bloom for the return of the shares for breach of contract. The
Company reached an agreement with Mr. Bloom whereby he  retained
700,000 shares and returned 1,300,000 shares to the Company





Mr.
Neuhaus, the former president, CEO and chairman of the Board claims that an
employment agreement was entered into between him and the Company in May 2006
which provided that Mr. Neuhaus was to be paid at the rate of $25,000 per month
plus bonus based on oil and gas production. Mr. Neuhaus also claimed that the
agreement provided that the Company issue to Mr. Neuhaus 1000 shares of
preferred stock with no right of conversion to common stock. The preferred stock
provided Mr. Neuhaus with voting rights equivalent to 50% of the common shares
issued by the Company. During the fiscal year 2006 Mr. Neuhaus waived his
monthly salary.  On December 24th,
2007, Mark Neuhaus resigned all his positions with the Company and the preferred
stock was canceled in exchange for 10,715,789 shares of common
stock.





On March
28, 2006, the Company entered into a contract with Michael A. Cederstrom for
legal services and as the part time interim Chief Financial Officer. The
retainer amount was $10,000 and in addition Mr. Cederstrom was granted warrants
to purchase 200,000 shares of TX Holdings Company Stock at an exercise price of
$0.30 per share. The September 28, 2007 warrants will expire on March 27, 2010.
In addition, Mr. Cederstrom also rendered legal services to the Company through
his law firm, Dexter and Dexter. The Company paid to Dexter and Dexter the sum
of $15,000 per month for legal representation. The contract with Michael
Cederstrom was terminated on May 2, 2008





Mark
Neuhaus has advised that on July 1, 2006, the Company entered into a consulting
agreement with W.A. ("Bill") Alexander to provide technical support and advice
in setting up the oil and gas operations. Mr. Alexander was granted warrants to
purchase 250,000 shares of TX Holdings Common Stock at an exercise price of
$0.30 per share. The warrants will expire on March 27, 2010.





Mark
Neuhaus has advised that on September 28, 2007, the Company granted Michael A.
Cederstrom warrants, for his services, to purchase 1,000,000 shares of TX
Holdings, Inc. common stock at an exercise price of $0.28. The warrants expire
on September 30, 2011.





On
September 28, 2007, the Company granted Jose Fuentes warrants, for his services,
to purchase 1,000,000 shares of TX Holdings, Inc. common stock at an exercise
price of $0.28. The Warrants expire on September 30, 2011. Mr. Fuentes replaced
Mr. Cederstrom to the CFO position on May 2, 2008.





Option
Warrant Grants During 2009 and 2008 Fiscal Years





There were
no options or warrants granted to executive officers or directors during the
2009 and 2008 fiscal years.





Aggregated
Option Exercises During 2009 Fiscal Year and Fiscal Year-End Option
Values





The
following table provides information related to employee options exercised by
the named executive officers during the 2009 fiscal year and number and value of
such options held at fiscal year-end.





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END





The
following table reflects all outstanding equity awards held by the Company’s
named executive officers as of September 30, 2009.





50





Number
      of Securities Underlying Unexercised
              Options
      at Fiscal Year-End
      (#)
            
            Value
      of Unexercised In-the-Money
              Options
      at Fiscal Year-End
      ($) (1)Shares AcquiredName
            on Exercise (#)
            Value Realized
            Exercisable
            Unexercisable
            
            Exercisable
            UnexercisableW.A.
      Alexander
            N/A
            N/A
            250,000
            -0-
            
            -0-
            -0-Michael
      A Cederstrom
            N/A
            N/A
            200,000
            -0-
            
            -0-
            -0-Jose
      Fuentes
            N/A
            N/A
            1,000,000
            -0-
            
            -0-
            -0-Bobby
      S. Fellers
            N/A
            N/A
            300,000
            -0-
            
            -0-
            -0-Douglas
      C. Hewitt
            N/A
            N/A
            300,000
            -0-
            
            -0-
            -0-





(1)
            Based
      on the closing price of $0.065 at September 30,
  2009





Director’s
Compensation





The
following table sets forth all fees and compensation paid or earned by the
Company’ directors for the fiscal years 2009, 2008.




DIRECTORS'
      COMPENSATION TABLEFeesearned
      in
            
            
            
            
            
            Non-equityName
      and
            
            
            
            paid
      in
            
            Stock
            
            Option
            
            Incentive
      plan
            
            All
      otherPrincipal
            
            
            
            cash
            
            Awards
            
            Awards
            
            compensation
            
            compensation
            
            TotalPosition
            
            Year
            
            $
            
            $
            
            $
            
            $
            
            $
            
            $Bobby
      Fellers
            
            2009
            
            0
            
            0
            
            n/a
            
            n/a
            
            n/a
            
            n/a2008
            
            0
            
            0
            
            n/a
            
            n/a
            
            n/a
            
            n/aMartin
      Lipper
            
            2009
            
            0
            
            0
            
            n/a
            
            n/a
            
            n/a
            
            n/a2008
            
            0
            
            0
            
            n/a
            
            n/a
            
            n/a
            
            n/aRob
      Hutchings
            
            2009
            
            0
            
            0
            
            n/a
            
            n/a
            
            n/a
            
            n/a2008
            
            0
            
            0
            
            n/a
            
            n/a
            
            n/a
            
            n/a





Mark
Neuhaus has represented that on March 28, 2006, the Company entered into a
consulting agreement with Douglas C. Hewitt to provide technical support and
advice in setting up the oil and gas operations. Mr. Hewitt was granted warrants
to purchase 300,000 shares of TX Holdings Common Stock at an exercise price of
$0.30 per share. The warrants will expire on March 27, 2010.





Mr. Hewitt
was appointed a director of the company March 28, 2006 and he resigned from the
Board on July 27, 2007.





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





51


On
December 12, 2008 Mr. Martin Lipper was appointed director of the Company. Mr.
Lipper has not received any compensation since his Board
appointment.





On
December 24, 2007 Mr. Hutchings was appointed director and president of the
Company. Mr. Hutchings has not received any compensation as president or
director. Mr. Hutchings resigned as director and president on August 4,
2009.





Item
12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters





The
following table sets forth information, to the best of the Company's knowledge,
as of December 8, 2008 with respect beneficially ownership (as such term is
defined in Item 403 of Regulation S-B under the Securities Exchange Act of 1934)
of the outstanding TX Holdings common stock by (i) each person to own more than
5%, (ii) each director, each executive officer and (iii) all directors and
officers as a group.





Title
            Name
      of beneficial owner
              (A)
            Beneficial
      Ownership
              Number
      of shares
              (B)
            Percent
      of classFormer
      CEO/Chairman
            Mark
      Neuhaus
            9,323,813
            19.2
      (C)Chairman/CEO
            William
      Shrewsbury
            7,251,184
            15.1Director
            Martin
      Lipper
            286,166
            .6President/Director
            Richard
      Novack
            1,016,587
            2.1Director
            Bobby
      Fellers
            300,000
            .6(D)CFO
            Jose
      Fuentes
            1,500,000
            3.1(E)All
      Officers and Directors
              As a
      group (5)
            
            10,353,937
            21.5(F)





(A) Unless
otherwise indicated, the Company has been advised that each person above has
sole investment and voting power over the shares indicated above. The address of
each beneficial owner is c/o TX Holdings, 12080 Virginia Blvd. Ashland Kentucky
41102.





(B) Based
upon shares of common stock outstanding as of December 8, 2009, together with
securities exercisable or convertible into shares of common stock within 60 days
of December 8, 2009 for each stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. Shares
of common stock that are currently exercisable or exercisable within 60 days of
December, 2009 are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.





(C) Of
which 2,323,813 shares are owned by MA&N.





(D)
Represents 300,000 warrants issued during fiscal year to Mr. Fellers for his
role as a Company Director.





(E)
Represents 1,000,000 warrants issued to Jose Fuentes for his specific role with
the Company during the fiscal year 2007 and, 500,000 shares of common
stock.





(F) Total
number of shares and % ownership includes all directors and officers as of
December 8, 2009





No
Director, executive officer, affiliate or any owner of record or beneficial
owner of more than 5% of any class of voting securities of the Company is a
party adverse to the Company or has a material interest adverse to the
Company.





Item
13 Certain Relationships and Related Transactions





Particular
Transactions





There have
been no transactions since the beginning of the last fiscal year, or any
currently proposed transaction, between the Company and any officer, director,
nominee for election as director, or any shareholder owning more than 5% of the
Company's outstanding shares, or any member of any such individual's immediate
family, as to which the amount involved in the transaction or a series of
similar transactions exceeded the lesser of $120,000, or one percent of the
average of the company’s total assets at year-end for the last three completed
fiscal years except as set forth below:





52


In
November, 2006, the Company entered into agreements to purchase, from Masada Oil
and Gas, Inc. a company beneficially owned a 100% by Bobby S. Fellers, two
fields for the amount of $221,426. Mr. Fellers is a Member of the Board of
Directors of the Company.  Mr. Fellers through his company has
retained a 40% working interest in the Contract Area #1 field and a 25% working
interest in the Park's Lease. The Management believes that the agreements were
entered at arms length and upon terms that would be common for the industry and
location of the fields.





On March
28, 2006 the Company entered into a consulting agreement with Mr. Bobby S.
Fellers, a Member of the Company's Board of Directors, to provide technical
support and advice in organizing the Company's oil and gas operations. Mr.
Fellers received warrants to purchase 300,000 shares of the Company's common
stock at an exercise price of $0.30 per share.





On
December 24, 2007, the 1,000 shares of preferred stock owned by Mark Neuhaus
were canceled and exchanged with 10,715,789 shares of common
stock.  The cancellation of the preferred stock released Mr. Neuhaus'
total voting control of the Company. Mr. Neuhaus still has substantial control
of the Company via his common stock ownership.





The law
firm of Dexter and Dexter, located in the state of Utah, had previously been
engaged by the Company when Mark Neuhaus was the CEO and Chairman of the Board,.
The firm was paid $15,000 per month for legal services. Mr. Michael A.
Cederstrom, the Company's former part time interim Chief Financial Officer was a
partner with Dexter and Dexter at the time. The services with Dexter and Dexter
and Mr. Cederstrom were terminated on May 2, 2008.





As of
September 30, 2009, the Company has an outstanding note payable to Mr.
Shrewsbury, the Company’s Chairman and CEO, for the amount of $289,997, the note
bears a 10% interest and is payable on demand. Mr. Shrewsbury has also provided
the Company with a cash advance of $16,050 which was used for operating
expenses.





On
November 11, 2008 the Company entered into a settlement agreement with Mark
Neuhaus and Nicole Neuhaus. Mark Neuhaus is the former Chief Executive Officer
and a former director of the Company. The agreement was subject to the Company
finalizing a transaction with a third party involving certain oil and gas
properties within 90 days of November 11, 2008 ("Third Party Closing"). If the
third party transaction closes, the agreement provided for mutual general
releases between the Company, Mark Neuhaus and Nicole Neuhaus. In connection
with the agreement, seven million shares of the common stock of the Company
previously issued to Mark Neuhaus were delivered to the Company to be held
pending the Third Party Closing. If the Third Party Closing occured within the
90 day period, (1) four million five hundred thousand of the deposited shares
were to be cancelled and returned to authorized but unissued shares of the
Company,(2) two million five hundred thousand of the deposited shares would be
delivered to Nicole Neuhaus and (3) certain alleged claims of Mark Neuhaus
against the Company for compensation and reimbursement for advances in the
aggregate amount of $178,862 and a purported indebtedness of the Company to Mark
Neuhaus in the amount of $1,303.876,including interest
accrued  through October 31, 2008 and represented by a convertible
note dated as of September 28, 2007 would be cancelled. If the Third Party
Closing did not occured within 90 days of November 11, 2008 the settlement
agreement would be void and of no force and effect and the deposited shares will
be returned.. The Company was not successful in finalizing the transaction with
the third party within the stipulated period resulting in the cancellation of
the settlement agreement between the Company and Mark Neuhaus and Nicole
Neuhaus





Controlling
Persons





During the
time that Mark S. Neuhaus, was a director and Chief Executive Officer of TX
Holdings he caused the Company to issue to him 1000 shares of preferred stock
with voting rights equal to 50% of the outstanding common stock. In addition
during that time he caused the company to issue to him a $1,303,876 convertible
note which bears interest at 8% per annum, dated as of September 28, 2007. Mark
Neuhaus and his wife Nicole B. Neuhaus, may be deemed to be controlling persons
of TX Holdings. The company is not aware of any agreements or understandings
between any of the foregoing that they will act as a group, although from time
to time they have acted in concert.





53


Director
Independence





Our board
of directors consists of Messrs. Shrewsbury, Novack, Fellers and Lipper. No
board member is considered to be “independent” as defined by Section 803A of the
American Stock Exchange Listing Standards. The board considers all relevant
facts and circumstances in its determination of independence of all members of
the board (including any relationships set forth in this Form 10-KSB under the
heading “Certain Related Person Transactions”).





Item
14 Principal Accounting Fees and Services





The
following table sets forth the aggregate fees paid or accrued for professional
services rendered by Ham, Langston & Brezina, L.L.P. for the audit of our
annual financial statements for fiscal year 2009 and fiscal year 2008 and the
aggregate fees paid or accrued for audit-related services and all other services
rendered by Ham, Langston & Brezina, L.L.P. for fiscal year 2009 and fiscal
year 2008:





2009
            
            
            2008Audit
      fees
            
            $
            39,000
            
            
            $
            40,000Audit-related
      fees
            
            
            -
            
            
            
            1,500Tax
      fees
            
            
            -
            
            
            
            -All
      other fees
            
            
            -
            
            
            
            -Total
            
            $
            39,000
            
            
            $
            41,500





The
category of “Audit fees” includes fees for our annual audit, quarterly reviews
and services rendered in connection with regulatory filings with the SEC, such
as the issuance of comfort letters and consents.





The
Category of “Audit-related fees” includes employee benefit plan audits, internal
control reviews and accounting consultation.





All above
audit services and audit-related services were pre-approved by the Board of
Directors, which concluded that the provision of such services by Ham, Langston
& Brezina, L.L.P. was compatible with the maintenance of that firm’s
independence in the conduct of its audits.





54


Item
15 Exhibits and Reports on Form 8-K





The
exhibit numbers preceded by an asterisk (*) indicate exhibits that are filed
herewith.  All other exhibit numbers indicate exhibits filed by
incorporation by reference.





Exhibit
      No.
            
            Description2.1
            
            Stock
      Acquisition Agreement for 51% of the outstanding and issuable Common Stock
      of R Wireless Corporation dated December 12, 2002 by and between MA&N
      LLC and R Wireless Corporation (Exhibit B omitted, to be furnished upon
      request of the Commission)(1)2.2
            
            Sale
      of Assets Agreement dated November 15, 2002 between HOM Corporation and
      Stuckey Enterprises (list of assets omitted, to be furnished upon request
      of the Commission) (1)2.3
            
            Stock
      Acquisition Agreement dated September 4, 2003 between Jim Evans, R
      Wireless, Inc. and Homes by Owner, Inc.(7)2.4
            
            Escrow
      Agreement dated September 4, 2003 between Jim Evans, R Wireless, Inc.,
      Homes by Owner, Inc. and David Baker. (7)2.5
            
            Extension
      Agreement dated March 5, 2004 between Jim Evans, R Wireless, Inc., and
      Homes by Owner, Inc.(7)3.1a
            
            Composite
      Articles of Incorporation of R Wireless, Inc, as amended to reflect the
      change of name from HOM Corporation, effective January 22, 2003(3)3.2
            
            By-Laws
      of HOM Corporation as adopted December 12, 2002 (12)4
            
            Instrument
      defining rights of holders (See Exhibit No. 3.1a, Articles of
      Incorporation - Article Four)4.2
            
            Warrant
      to Purchase Shares of Common Stock of R Wireless, Inc. issued to Baker,
      Johnston and Wilson LLP, dated July 21, 2005(10)10.4
            
            Agreement
      to Merge - Freedom Homes, Inc. - Homes By Owners, Inc., dated March 24,
      2005 (6)10.5
            
            Forbearance
      Agreement between David R. Baker, Baker, Johnston & Wilson LLP, and R
      Wireless, Inc., dated as of July 21, 2005 Services Settlement Agreement
      between David. Baker and R Wireless, Inc., dated August 1, 2005(10)10.6
            
            Amendment
      to Forbearance Agreement and Warrant between Baker & Johnston LLP, and
      TX
              Holdings,
      Inc., dated as of November 1, 2005(10)10.8
            
            Convertible
      Promissory Note between Mark Neuhaus and TX Holdings Inc dated September
      28, 2007(11)16.1
            
            Letter
      of Elliott Davis LLC (8)21.1
            
            List
      of Subsidiaries of R Wireless, Inc. (2)*31.1
            
            Certification
      of Mark Neuhaus, CEO of TX Holdings, Inc.*31.2
            
            Certification
      of Michael A. Cederstorm, Esq., CFO of TX Holdings,
Inc.*32.1
            
            Certification
      of Mark Neuhaus pursuant to Section 1350*32.2
            
            Certification
      of Michael A, Cederstrom, Esq., pursuant to Section
135033.1
            
            R
      Wireless, Inc. Code of Ethics adopted February 24, 2004 (7)99.7
            
            Employment
      Agreement between Registrant and Ned Baramov dated January 15, 2003 (5)99.8
            
            Employment
      Agreement between Registrant and Mark Neuhaus dated January 15, 2003 (5)99.9
            
            Employment
      Agreement between Registrant and Darren Bloom dated August, 2005 (9)99.10
            
            Settlement
      Agreement between Registrant and David R. Baker (10)*99.12
            
            Settlement
      Agreement between the SEC and Mark Neuhaus regarding the SEC vs Universal
      Express*99.13
            
            Settlement
      agreement between Registrant and the Investor Relation Group,
      Inc.*99.14
            
            Settlement
      agreement between Registrant and Mark Neuhaus and Nicole
      Neuhaus





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





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





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





55


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





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





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





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





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





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





(10)
            Incorporated
      by reference to the exhibit as filed with Form 10KSB of R Wireless, Inc.
      with Securities and Exchange Commission filing date of January 20,
      2006.





(11)
            Incorporated
      by reference to the exhibit as filed with Form 10KSB of R Wireless, Inc.
      with Securities and Exchange Commission filing date of December 31,
      2007.





(12)
            Incorporated
      by reference to the exhibit as filed with Form 10KSB of R Wireless, Inc.,
      with Securities and Exchange Commission filing date of January 14,
      2003.





56





SIGNATURES





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




TX
      HOLDINGS, INC.By:
              /s/
      William “Buck” ShrewsburyWilliam
      “Buck” ShrewsburyChief
      Executive Officer





Dated:
January 8, 2010








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




/s/
      William “Buck” Shrewsbury
              
              Chairman
      of the Board of Directors,William
      “Buck” Shrewsbury
              
              and
      Chief Executive Officer:
      January 8, 2010/s/Richard
      Novack
              
              PresidentRichard
      Novack:
      January 8, 2010/s/Jose
      Fuentes
              
              Chief
      Financial OfficerJose
      Fuentes:
      January 8, 2010/s/Bobby
      S. Fellers
              
              DirectorBobby
      S. Fellers:
      January 8, 2010/s/
      Martin  Lipper
              
              DirectorMartin
      Lipper:
      January 8, 2010


57




Glossary
of Terms





We are
engaged in the business of exploring for and producing oil and natural gas. Oil
and gas exploration is a specialized industry. Many of the terms used to
describe our business are unique to the oil and gas industry. The following
glossary clarifies certain of these terms that may be encountered while reading
this report:




"Bbl"
means one stock tank barrel, of 42 U.S. gallons liquid volume, used herein in
reference to crude oil, condensate or natural gas liquids..





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





"BcfE"
means one billion cubic feet of gas equivalent, determined using the ratio of
six thousand cubic feet of gas to one barrel of oil, condensate or gas
liquids.





"Farmout"
involves an entity's assignment of all or a part of its interest in or lease of
a property in exchange for consideration such as a royalty.




"Gross"
oil or gas well or "gross" acre is a well or acre in which we have a working
interest.





"MBbl"
means one thousand barrels, used in this annual report to refer to crude oil or
other liquid hydrocarbons.





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





"McfE"
means one thousand cubic feet of gas equivalent, determined using the ratio of
six thousand cubic feet of gas to one barrel of oil, condensate or gas
liquids.




"MMcf"
means one million cubic feet, used in this annual report to refer to gaseous
hydrocarbons.





"Net" oil
and gas wells or "net" acres are determined by multiplying gross wells or
acreage by our working interest therein. Unless otherwise specified, all
references to wells and acres are gross.





"Oil and
gas lease" or "Lease" means an agreement between a mineral owner, the lessor,
and a lessee which conveys the right to the lessee to explore for and produce
oil and gas from the leased lands. Oil and gas leases usually have a primary
term during which the lessee must establish production of oil and or gas. If
production is established within the primary term, the term of the lease
generally continues in effect so long as production occurs on the lease. Leases
generally provide for a royalty to be paid to the lessor from the gross proceeds
from the sale of production.





58


"Prospect"
means a location where both geological and economical conditions favor drilling
a well.





"Proved
oil and gas reserves" are the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e. prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Reservoirs are considered proved if
economic recovery by production is supported by either actual production or
conclusive formation test. The area of a reservoir considered proved includes
(A) that portion delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any, and (B) the immediately adjoining portions not yet drilled,
but which can reasonably be judged as economically productive on the basis of
available geological and engineering data. In the absence of information on
fluid contacts the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.





"Proved
developed oil and gas reserves" are those proved reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas reserves expected to be obtained through the
application of fluid injection or other improved secondary or tertiary recovery
techniques for supplementing the natural forces and mechanisms of primary
recovery are included as "proved developed reserves" only after testing by a
pilot project or after the operation of an installed recovery program has
confirmed through production response that increased recovery will be
achieved.





"Proved
undeveloped oil and gas reserves" are those proved reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required. Reserves on undrilled acreage are
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled units
are claimed only where it can be demonstrated with reasonable certainty that
there is continuity of production from the existing productive formation.
Estimates for proved undeveloped reserves attributable to any acreage do not
include production for which an application of fluid injection or other improved
recovery technique is required or contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same
reservoir.





"Royalty
interest" is a right to oil, gas, or other minerals that are not burdened by the
costs to develop or operate the related property.





"Working
interest" is an interest in an oil and gas property that is burdened with the
costs of development and operation of the property.






59


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