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

                                      FORM 10-KSB

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

For the fiscal year ended September 30, 2008

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

For the transition period from _________________ to __________________.

Commission File No. 0-32335

                  TX HOLDINGS, INC. (formerly R Wireless, Inc.)
                 (Name of small business issuer in its charter)

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

                              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
                                (Title of class)

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

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

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

The Registrant had revenues for the fiscal year ended September 30, 2008 of
$9,308.

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 5, 2009
was $3,028,987

There are approximately 27,536,249 shares of common voting stock of the
Registrant held by non-affiliates. On January 5, 2009 the average bid and asked
price was $0.11

As of January 5,, 2009 there were 43,905,824 shares of common stock outstanding.


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<PAGE>

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-KSB 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-KSB or the amendment
thereto in which they appear, as the case may be. The Company expressly
disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based 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," "expect,"
"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:

     o    business strategy;

     o    estimated quantities of oil and natural gas reserves;

     o    technology;

     o    financial strategy;

     o    oil and natural gas realized prices;

     o    timing and amount of future production of oil and natural gas;

     o    the amount, nature and timing of capital expenditures;

     o    drilling of wells;

     o    competition and government regulations;

     o    marketing of oil and natural gas;

     o    exploitation or property acquisitions;

     o    costs of exploiting and developing our properties and conducting other
          operations;

     o    general economic and business conditions;

     o    cash flow and anticipated liquidity;

     o    uncertainty regarding our future operating results; and

     o    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.


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<PAGE>

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.


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<PAGE>

                                   FORM 10-KSB

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2008

                                TABLE OF CONTENTS

PART I                                                                        5
        Item 1 Description of Business                                        5
        Item 2 Description of Property                                       17
        Item 3 Legal Proceedings                                             18
        Item 4 Submission of Matters to a Vote of Security Holders           18
PART II                                                                      19
        Item 5 Market for Common Equity and Related Stockholder Matters      19
        Item 6 Management's Discussion and Analysis or Plan of Operations    21
        Item 7 Financial Statements                                          23
        Item 8 Changes In and Disagreements with Accountants on Accounting
           and Financial Disclosure                                          46
        Item 8A Controls and Procedures                                      46
        Item 8B Other Information                                            46
PART III                                                                     47
        Item 9 Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act                 47
        Item 10 Executive Compensation                                       49
        Item 11 Security Ownership of Certain Beneficial Owners and
           Management and Related Stockholder Matters                        51
        Item 12 Certain Relationships and Related Transactions               52
        Item 13 Exhibits and Reports on Form 8-K                             54
        Item 14 Principal Accountant Fees and Services
SIGNATURES
Glossary of Terms
Exhibit 23.1
CERTIFICATIONS
        Exhibit 31.1
        Exhibit 31.2
        Exhibit 32.1
        Exhibit 32.2


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<PAGE>

                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

Overview of Business

TX Holdings, Inc. ("TX Holdings" or the "Company"), formerly named R Wireless,
Inc. ("RWLS") and 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. 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
of the leases in which TX Holdings currently holds interest in the counties of
Callahan and Eastland, Texas. THX Holding's leases and the related working
interests are as follows:

     a. Contract Area # 1, 8% Working Interest;
     b. Park's Lease, 75% Working Interest;
     c. Williams Lease, 100% 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 Oil
is the operator of record for the remaining 7 wells. The lease has eighteen
wells capable of production although production of the wells is minimal (from 1
to 2 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 Oil and Gas 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. (1 to 2 bbls per day). During the third quarter, the company completed
fracturing 6 wells and hopes to thereby increase the production rate.

The Company owns a 100% working interest and is the operator of the 843 acre
Williams Lease. There are currently 56 wells on the lease which management
believes are presently capable of producing 1 to 2 bbls per day. There is an
on-going dispute with the land owner of the lease which has prevented the
Company from operating or reporting any production on 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 and
in August 2006 the Company acquired a 100% working interest on the Williams
Lease. Both leases are located in Callahan County, Texas. In February 2006 TX
Holdings entered into a Memorandum of Understanding with Masada Oil and Gas 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 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.


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<PAGE>

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 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 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 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 and 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. As
of April 30, 2008, the testing of wells located in the Williams Field has been
completed. 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 2008 in making the transition to an
oil and gas exploration and production company.

Recent Developments

On December 1, 2007, Mark S. 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 (See Note 7 Preferred Stock,
below). 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 is 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 and when the
Third Party Closing occurs, the agreement provides for mutual general releases
between the Company and Mark and the Company and Nicole Neuhaus. In connection
with the agreement, seven million shares of the common stock of the Company
previously issued to Mark Neuhaus were delivered to the Company to be held
pending the Third Party Closing. If the Third Party Closing occurs within the 90
day period, (1) four million five hundred thousand of the deposited shares will
be cancelled and returned to authorized but unissued shares of the Company,(2)
two million five hundred thousand of the deposited shares will be delivered to
Nicole Neuhaus and (3) certain alleged claims of Mark Neuhaus against the
Company for compensation and reimbursement for $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 will be cancelled. If the Third Party Closing
does not occur within 90 days of November 11, 2008 the settlement agreement will
be void and of no force and effect and the deposited shares will be returned.

On 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.


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<PAGE>

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 bopd. The Company intends to place an
additional 9 wells into production on the Parks Lease over the quarter ending
December 31, 2008. 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. The Company, for the next year will concentrate on
placing into production the three fields it currently owns in Texas. 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.

Background for Oil and Gas Business Activities

Since August 2005 oil prices have exceeded $31 per barrel. On December 26, 2008
the closing price for a barrel of oil was $31.84. 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. On May 11, 2006 the Company announced that it
had entered into a private placement agreement with Brill Securities, Inc.
Pursuant to the private placement agreement the Company completed the sale of
4,133,324 units during the 3rd quarter of 2006 at a price of $0.30 per unit, for
a total of $1,240,000, which after commission and expenses resulted in net
proceeds of approximately $1,180,000. Each unit includes one share of common
stock and a warrant to purchase an additional share at a price of $0.50 per
share. This infusion of capital allowed the Company to pursue its current
strategy of acquiring oil and gas producing properties.

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 owns 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 site 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.

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.


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<PAGE>

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. (See Description of Business - "Current Business" in
this Annual Report.)

Governmental Approval and Regulation

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

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 2008 and 2007 we did not incur any research and development expenditures.

Intellectual Property

None.


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<PAGE>

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:

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


                                       9
<PAGE>

     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.

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.


                                       10
<PAGE>

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, 2008, the Company had three employees. On December 24, 2007,
William Shrewsbury was appointed Chairman of the Board of Director and CEO and
Rob Hutchings was appointed as the President and a Director of the Board. Jose
Fuentes was promoted to the Chief Financial Position on May 12, 2008 after the
resignation of the interim Chief Financial Officer, Michael Cederstrom. Other
specialized functions are provided as necessary through the engagement of
independent consulting contractors.

Risk Factors Relating to the Company's Business

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

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

General Risks Related To Our Business

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 November 4, 2008
the Company has sold only a limited 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 $4,085,033 for the twelve months ending September 30,
2007 and a net loss of $676,123 for the twelve months ending September 30, 2008.
At September 30, 2007and September 30, 2008 respectively, we reported
accumulated deficits of $11,341,049 and $12,030,172. Based on current
expectations, the Company will need to find additional sources of financing to
meet our general corporate needs as well as the large capital requirements
necessary for the production of the oil and gas in the wells we currently own
and lease, and the acquisition of additional oil and gas producing properties.


                                       11
<PAGE>

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
shareholders/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
$500,000 in working capital to complete the refurbishment and development of the
leases it currently owns. The Company estimates that it will take from 18 to 30
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. Our inability to obtain necessary
capital or financing to fund these needs could adversely affect our business,
results of operations and financial condition. 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
<PAGE>

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;

     o    equipment failures or accidents;

     o    adverse weather conditions;


                                       13
<PAGE>

     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

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

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.


                                       14
<PAGE>

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.

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

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


                                       15
<PAGE>

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 18.2%.

Our former President, Mark Neuhaus and/or his wife, Nicole B. Neuhaus
beneficially control approximately 24.5% of the Existing Common Stock. In
addition Mark Neuhaus caused the Company to issue to him a convertible note in
the principal amount of $1,199,885.55 which bears interest at 8% per annum and
is convertible into 4,970,954 shares of the company's common stock. See Note 8
Subsequent Events to the Financial Statements below for a description of the
Settlement agreement entered into between the Company and Mr. and Mrs. Neuhaus.
If the settlement agreement becomes effective Mr. and Mrs. Neuhaus will each own
6.4% of the issued and outstanding common stock of the Company.

This control may delay or prevent a change of control on terms favorable to our
other stockholders.

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

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 have been
sporadic and have ranged from $.07 to $1.05 a share. See MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.


                                       16
<PAGE>

ITEM 2 - DESCRIPTION OF PROPERTY

The Company has its principal leases in Abilene, Texas. The Company is currently
utilizing space of Masada Oil, a company that Bobby Fellers, 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 three
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 developing leases referred to as the Contract Area # 1, Parks
Lease; and the Williams 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 Williams Lease actually consists of 4 leases and a total of 843
acres. All three fields are located in the counties of Callahan and Eastland,
Texas.

Lease and Royalty Terms

Contract Area # 1

The Company owns an 8% working interest in this lease. Located in the counties
of Callahan and Eastland, Texas, this lease includes the development of the
field. The purchase and sale contract with Masada Oil and Gas Ltd. dated
November 1, 2006 provides for a total investment of up to $7,200,000.To reach
this purchase price Masada Oil & Gas will need to procure an additional 1186
acres in Callahan County, Texas which is contiguous to the 247 acres in which
the Company owns an interest. In addition the purchase and sale agreement
contemplates that Masada Oil and Gas will perform all of the work on the field
to put into production a minimum of 121 wells within 21 months. This production
schedule is conditioned upon the Company providing the funds necessary to
complete the work on a timely basis and Masada Oil and Gas' ability to acquire
the additional acreage. TX Holdings and Masada Oil & Gas each operate some of
the lease' wells. If Masada Oil and Gas is unable to deliver the additional
acreage the purchase and sale agreement will be adjusted to reduce the price of
the purchase. The purchase and sale contract for this field was not completed
until November 2006 and the payments we made towards purchase of the field are
presented in the financial statements as a deposit towards the Purchase and Sale
Agreement. The ultimate total price is conditioned upon performance and future
acquisitions. TX Holdings currently own an 8% working interest in the field and
Masada Oil and Gas owns a 92% working interest. The Overriding Royalty Interest
on each lease varies, thus the net revenue interest the Company will receive
from the wells of the respective leases will also vary.

As of November 25, 2006, there were eighteen oil wells capable of producing on
the leases. The production of the wells is minimal, from 1 to 2 bbls per day.
The Company has not completed the development of the water flood program. The
water flood will inject water into the field through injection wells. The water
will force the oil towards the production wells so that it can be recovered. The
Company's wells on this field are considered shallow wells and only produce to a
depth of 1,000 feet.

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 and 3 of
the wells were producing as of September 30, 2008. . The lease provides that the
Company is limited to production from 1,000 feet and above.


                                       17
<PAGE>

Williams Lease

This lease contains 843 acres with a Working Interest of 100% owned by the
Company. The Company's interest in the lease was acquired through a foreclosure
sale on August 1, 2006 for the sum of $68,221. There are no contingencies or
other commitments. The lease carries an ORRI to the land owners of 12.5%-25%.
The Company's Net Revenue interest on the wells contained in this lease is
75%-87.5%. This lease is limited to production from 1,000 feet and above.

Oil and Gas Reserve Analyses

Currently the leases that have been acquired have not been developed in a way
that allows our Petroleum Engineers to assign estimated net proved oil and gas
reserves and the present value of estimated cash flows from those reserves. The
Company is currently performing work on 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 leases were acquired during the third and fourth quarter of 2006.
The Company is currently working to establish reserves and commence operations
on the leases.

Item 3 Legal Proceedings

Management is currently aware of no pending, past or present litigation
involving the Company which management does not believe could have a material
adverse effect on the Company.

TX Holdings has filled an action in Dade County, Florida in District Circuit
#11, case number 06-14396CA04 entitled TX Holdings, Inc vs. Darren Bloom. The
Company has brought an action against Mr. Bloom for breach of contract, damages
and for the cancellation of common stock issued to Mr. Bloom pursuant to a three
year employment contract. Mr. Bloom resigned from the Company on March 17, 2006,
after serving only 9 months. Mr. Bloom currently owns 2,000,000 shares of TX
Holdings common stock. Management believes that this matter can be resolved and
will have no material effect on the Company operations. (The cancellation of
shares, if granted would have a positive effect on Earnings Per Share). Mr.
Bloom has recently reached an agreement with the Company whereby he will retain
700,000 shares and return 1,300,000 shares to the Company.

On December 4, 2007, the Company received a letter from Van Goton and Associates
reporting a past due invoice for services in the approximate amount of $18,000.
If payment is not received a legal action for collection may be brought against
the Company. No further correspondence has been received by the Company related
to the claim.

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
<PAGE>

                                     PART II

Item 5  Market for Common Equity and Related Stockholder Matters

Market Information

The common stock of TX Holdings is currently traded on 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.

                                               Bid Prices ($)
             Quarter Ended                   High          Low
----------------------------------------   ----------   -----------

September 30,2008                            0.40          0.10
June, 30,2008                                0.40          0.16
March, 31,2008                               0.47          0.07
December 31, 2007                            0.40          0.09

September 30, 2007                           0.90          0.22
June 30, 2007                                1.05          0.51
March 31, 2007                               0.83          0.45
December 31, 2006                            0.87          0.45

As of September 30, 2008 there were approximately 259 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
<PAGE>

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, 2008, TX Holdings has issued and outstanding 43,705,824
shares of common stock.

Of the total 43,905,824 shares outstanding as of December 8, 2008, 23,750,755
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

At September 30, 2008 and 2007, TX Holdings has issued and outstanding
43,705,824 and 31,884,355 shares of common stock, respectively.

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 service was 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 25, 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 expire 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.


                                       20
<PAGE>

Share Repurchases-

None.


Item 6 Management's Discussion and Analysis or Plan of Operations

Introduction

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

The Company has never earned a profit, and has incurred an accumulated deficit
of $12,030,172 as of September 30, 2008. 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 [
seventy] wells located on the three fields located in Texas. Each of the wells
will need to be reworked to establish production at a cost of approximately
$7,000 to $10,000 per well. Initial production from each well is estimated to be
between two to five barrels per day. Once initial production has been
established the Company intends to begin a water flood program that injects
water into the oil producing zone through injector wells. The water then forces
the oil towards the producing well and, if successful, may increase production
of each well up to an estimated four to seven barrels per day per well. If the
Company is able to produce its wells upon the re-completion the Company revenues
will exceed current operating expenses if 40 barrels of oil is produced and the
price of oil remains above $55.00 per barrel. The Company's success is dependent
on if and how quickly it can reach these levels of production. The Company plans
to use all revenues for general corporate purposes as well as, future expansion
of its current oil producing properties and the acquisition of other oil and gas
properties. There is no certainty that the Company can achieve profitable levels
of production or that it will be able to raise additional capital through any
means.

Results of Operations

Year Ended September 30, 2008 Compared With Year Ended September 30, 2007

Revenues from Operations- Revenues for the year ended September 30, 2008 and
September 30, 2007 were $9,308 and zero respectively. On December 5, 2004, the
Company began to structure itself into an oil and gas production and exploration
company. The Company has acquired three 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
$768,531 for the fiscal year ended September 30, 2008; a decrease of $3,018,668
compared to $3,787,199 for the fiscal year ended September 30, 2007. The
decrease in operating expenses is primarily related to stock-based compensation
decreasing by $1,871,603 to $190,000 for the year ended September 30, 2008 from
$2,061,603 for the year ended September 30, 2007. The stock based compensation
in 2007 resulted from investor relations efforts by the Company to secure
additional financing. During the year ended September 30, 2008, the Company
introduced a cost reduction initiative which resulted in cost decreases in all
major expense areas. As a result of the initiative, expense reductions were
realized in the following expense categories: personnel compensation, $396,651;
Outside Consultants, $231,525; Legal Fees, $162,119 and Investor Relations,
$188,500.

Net Loss - For the fiscal year ended September 30, 2008 the Company incurred a
loss of $676,123 compared to a loss of $4,085,033 for the fiscal year ended
September 30, 2007, a decrease of $3,408,910. The major reason for the Company
having the loss reduction during the fiscal year ended September 30, 2008 can be
attributed to a decrease in stock-based compensation versus the prior year.
Also, contributing to the lower expenses in the current fiscal year, was a cost
reduction initiative in all major expense categories introduced by the Company
in 2008. The Company's interest expense also decreased to $116,698 in 2008 from
$290,834 in 2007. During 2008 the Company reached agreement on a prior year
legal claim raised by The Investor Relation Group Inc (TIRGI); as a result of
the settlement with TIRGI, the company reversed prior year estimated claim cost
resulting in a favorable net variance of $204,000.


                                       21
<PAGE>

Net Operating Loss Carry forward for Tax Purposes

The Company has tax net operating loss carry forwards totaling approximately
$3,800,000, expiring in 2018 through 2028. 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. (See NOTE 5 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.)

Liquidity

At September 30, 2008 the company had a cash balance of $3,588 and accounts
receivable of $1,281. As of September 30, 2007 the company had a no cash or cash
equivalent or prepaid current assets. This is a result of work that has been
completed in the oil & gas fields and the purchase of the fields. Property and
equipment increased to $1,097,783 in 2008 from $617,038 in 2007, an increase of
$480,745 or 78%. In addition, other assets increased to $50,000 from $5,000 in
2007. 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 and Mark S. Neuhaus 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 start to
production on the oil wells on the Parks lease. (See" Oil and Gas Leases" under
Item 2 Description of Properties) While the Company anticipates generating
greater revenue beginning in the second quarter of 2009 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, 2008. Mr. Shrewsbury has also
provided the company with a short term loan of $170,000 as well as advances in
the amount of $198,970. As of September 30, 2008, the Company has a recorded
liability of $62,719 owed to Dexter & Dexter, Attorneys at Law for attorneys'
fees and the sum of $101,077 to Jose Fuentes as payment for service.

During the 2007 fiscal year Mark Neuhaus caused the Company to issue him a note
for $1,199,885 for advances he made on behalf of the Company and which the
Company disputes. This disputed obligation is set forth in a convertible
promissory note which pays interest at 8% per annum effective September 28,
2007. The conversion price for common stock is twenty-eight cents per share. The
note is for two years and provides that it may be converted at any time during
that period. See Note 4 to the Notes to Consolidated Financial Statements for
information concerning the settlement agreement entered into in November 11,
2008 with Mr. Mrs. Neuhaus. The agreement is contingent on the closing of a
third party transaction. If the condition is satisfied the convertible note,
other disputed debt to Mr. Neuhaus and 4,500,000 shares of the common stock of
the company will be cancelled in exchange for a general release of Mr. and Mrs.
Neuhaus. There can be no assurance that the Company will be able to satisfy the
condition. If not, the agreement will be void.

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

The Company currently requires operating capital of approximately $75,000 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 $500,000
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.


                                       22
<PAGE>

Item 7 Financial Statements

The Company's consolidated balance sheets as of September 30, 2008 and 2007, and
the related consolidated statements of operations, changes in stockholders
deficit and cash flows for the years then ended have been audited by Ham,
Langston & Brezina, LLP, independent registered public accountants. These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant to Regulation
S-B as promulgated by the Securities and Exchange Commission and are included
herein in response to Part F/S of this Form 10-KSB. The financial statements
have been prepared assuming the Company will continue as a going concern.


                                       23
<PAGE>

                                TX HOLDINGS, INC.
                     A CORPORATION IN THE DEVELOPMENT STAGE
                    FINANCIAL STATEMENTS - TABLE OF CONTENTS
                 For the Years Ended September 30, 2008 and 2007
--------------------------------------------------------------------------------

                                                                        Page(s)
                                                                      ----------

Report Of Independent Registered Public Accounting Firm                   25

Audited Financial Statements:

    Balance Sheets at September 30, 2008 and 2007                         26

    Statements of Operations for the years ended September 30, 2008
       and 2007, and for the period from inception of the development
       stage, October 1, 2004, to September 30, 2008                      27

    Statements of Changes In Stockholders' Equity (Deficit) for the
       years ended September 30, 2008 and 2007 and for the period from
       inception of the development stage, October 1, 2004, to
       September 30, 2008                                                 28

    Statements of Cash Flows for the years ended September 30, 2008 and
       2007, and for the period from inception of the development stage,
       October 1, 2004, to September 30, 2008                             32

Notes to Financial Statements                                             34


                                       24
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying balance sheets of TX Holdings, Inc. as of
September 30, 2008 and 2007 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, 2008.
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, 2008 and 2007, 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, 2008. 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, 2008 and, 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 5, 2009


                                       25
<PAGE>

                                TX HOLDINGS, INC.
                     A CORPORATION IN THE DEVELOPMENT STAGE
                                 BALANCE SHEETS
                           September 30, 2008 and 2007
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                2008            2007
                                                            ------------    ------------
<S>                                                         <C>             <C>
     ASSETS

Current
     Cash and cash equivalents                              $      3,558    $         --
     Accounts receivable                                           1,281              --
                                                            ------------    ------------

        Total current assets                                       4,839              --

Deposits for oil and gas property acquisition                         --         378,000
Unproved oil and gas properties                                1,097,783         617,038
Deposit                                                           50,000           5,000
                                                            ------------    ------------

              Total assets                                  $  1,152,622    $  1,000,038
                                                            ============    ============

            LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Notes payable to a stockholder                         $    170,000    $    170,000
     Accounts payable and accrued liabilities                    602,612         491,788
     Accrued stock-based compensation                                 --         231,000
     Advances from stockholder/officer                           284,845              --
                                                            ------------    ------------

        Total current liabilities                              1,057,457         892,788

Convertible debt to stockholder/officer                        1,199,886       1,199,886
Asset retirement obligation                                       86,455              --
                                                            ------------    ------------

           Total liabilities                                   2,343,798       2,092,674
                                                            ------------    ------------

Commitments and contingencies:

Stockholders' deficit:
     Preferred stock: no par value, 1,000,000 shares
        authorized, no shares and 1,000 shares issued and
        outstanding at September 30, 2008 and
        September 30, 2007 respectively                               --       1,018,000
     Common stock: no par value, 250,000,000 shares
        authorized, 43,705,824 and 31,884,355 shares
        issued and outstanding at September 30, 2008
        and September 30,2007, respectively                    9,693,944       8,443,004
     Additional paid-in capital                                1,145,052         800,409
     Accumulated deficit                                      (1,803,507)     (1,803,507)
     Losses accumulated in the development stage             (10,226,665)     (9,550,542)
                                                            ------------    ------------

           Total stockholders' deficit                        (1,191,176)     (1,092,636)
                                                            ------------    ------------

              Total liabilities and stockholders' deficit   $  1,152,622    $  1,000,038
                                                            ============    ============


 The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                       26
<PAGE>

                                TX HOLDINGS, INC.
                     A CORPORATION IN THE DEVELOPMENT STAGE
                            STATEMENTS OF OPERATIONS
     For the Years Ended September 30, 2008 and 2007 and for the Period From
    Inception of the Development Stage, October 1, 2004 to September 30, 2008
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                      Inception of
                                                                       Development
                                                                         Stage to
                                                                       September 30,
                                           2008           2007            2008
                                       ------------    ------------    ------------
<S>                                    <C>             <C>             <C>
Revenue                                $      9,308    $         --    $      9,308
                                       ------------    ------------    ------------

Operating expenses, except items
  shown separately below:                   428,728       1,119,590       1,817,746
     Stock-based compensation               190,000       2,061,603       6,834,504
     Professional fees                      149,295         552,012       1,033,637
     Lease expense                               --              --          17,392
     Depreciation expense                       508           1,378           3,146
     Advertising expense                         --          52,616          83,265
                                       ------------    ------------    ------------

        Total operating expense             768,531       3,787,199       9,789,690
                                       ------------    ------------    ------------

Loss from operations                       (759,223)     (3,787,199)     (9,780,382)
                                       ------------    ------------    ------------

Other income and (expense):
     Legal settlement                       204,000              --         204,000
     Other Income                                --              --             710
     Loss on disposal of equipment           (4,202)         (7,000)        (11,202)
     Forbearance agreement costs                 --              --        (211,098)
     Interest expense                      (116,698)       (290,834)       (428,693)
                                       ------------    ------------    ------------

        Total other income and
        (expenses), net                      83,100        (297,834)       (446,283)
                                       ------------    ------------    ------------

           Net loss                    $   (676,123)   $ (4,085,033)   $(10,226,665)
                                       ============    ============    ============

Net loss per common share-basic and
diluted                                $      (0.02)   $      (0.14)
                                       ============    ============

Weighted average number of common
shares outstanding-basic and diluted     42,060,391      28,750,169
                                       ============    ============


 The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                       27
<PAGE>

<TABLE>
<CAPTION>
                                                            TX HOLDINGS, INC.
                                                 A CORPORATION IN THE DEVELOPMENT STAGE
                                         STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                     For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2008
------------------------------------------------------------------------------------------------------------------------------

                                                                                                        Losses
                                                                                                     Accumulated
                              Preferred Stock         Common Stock        Additional                   in the
                           -------------------   -----------------------    Paid-In    Accumulated    Develop-
                            Shares     Amount      Shares      Amount       Capital      Deficit      ment Stage      Total
                           --------   --------   ----------  -----------  -----------  ------------   ----------   -----------
<S>                              <C>  <C>        <C>         <C>          <C>          <C>            <C>          <C>
Balance at September 30,
2004                             --   $     --   15,793,651  $ 1,532,111  $        --  $ (1,912,397)  $       --    $ (380,286)

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

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

                         The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                            TX HOLDINGS, INC.
                                                 A CORPORATION IN THE DEVELOPMENT STAGE
                                         STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                     For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2008
---------------------------------------------------------------------------------------------------------------------------------

                                                                                                          Losses
                                                                                                       Accumulated
                               Preferred Stock         Common Stock          Additional                   in the
                           ---------------------  -------------------------    Paid-In    Accumulated    Develop-
                            Shares      Amount      Shares        Amount       Capital      Deficit      ment Stage      Total
                           --------  -----------  -----------   -----------  -----------  -----------   -----------   -----------
<S>                           <C>    <C>           <C>          <C>          <C>          <C>           <C>           <C>
Balance at September 30,
2005                             --  $        --   16,705,593   $ 1,618,305  $   211,098  $(1,803,507)  $  (449,790)  $  (423,894)

Common stock issued for
    professional services        --           --    4,649,300     2,318,295           --           --            --     2,318,295
Common stock issued for
    cash                         --           --    4,633,324     1,164,997           --           --            --     1,164,997
Common stock issued upon
    exercise of warrants         --           --      294,341         2,944           --           --            --         2,944
Common stock surrendered         --           --     (500,000)           --           --           --            --            --
Warrants issued for
    services                     --           --           --            --      376,605           --            --       376,605
Preferrd stock issued to
    the Company's chief
    executive
    officer/stockholder       1,000    1,018,000           --            --           --           --            --     1,018,000
Net income (loss)                --           --           --            --           --           --    (5,015,719)   (5,015,719)
                           --------  -----------  -----------   -----------  -----------  -----------   -----------   -----------

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


                          The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                       29
<PAGE>

<TABLE>
<CAPTION>
                                                            TX HOLDINGS, INC.
                                                  A CORPORATION IN THE DEVELOPMENT STAGE
                                          STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                      For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2008
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                                           Losses
                                                                                                         Accumulated
                               Preferred Stock             Common Stock        Additional                  in the
                           ------------------------  ------------------------    Paid-In    Accumulated    Develop-
                             Shares       Amount       Shares       Amount       Capital      Deficit     ment Stage       Total
                           -----------  -----------  -----------  -----------  -----------  -----------   -----------   -----------
<S>                              <C>    <C>           <C>         <C>          <C>          <C>           <C>           <C>
Balance at September 30,
2006                             1,000  $ 1,018,000   25,782,558  $ 5,104,541  $   587,703  $(1,803,507)  $(5,465,509)  $  (558,772)

Common stock issued for
    professional services           --           --    3,475,555    2,501,222           --           --            --     2,501,222
Contribution by
    stockholder                     --           --           --           --       53,325           --            --        53,325
Warrants issued for
    service                         --           --           --           --      159,381           --            --       159,381
Common stock issued upon
    exercise of warrants            --           --      355,821       75,461           --           --            --        75,461
Common stock issued in
    settle-
    ment of notes
    payable and
    and interest                    --           --      833,333      546,666           --           --            --       546,666
Common stock issued in
    settle-
    of accounts payable             --           --    1,437,088      215,114           --           --            --       215,114
Net loss                            --           --           --           --           --           --    (4,085,033)   (4,085,033)
                           -----------  -----------  -----------  -----------  -----------  -----------   -----------   -----------

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


                           The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                       30
<PAGE>

<TABLE>
<CAPTION>
                                                            TX HOLDINGS, INC.
                                                 A CORPORATION IN THE DEVELOPMENT STAGE
                                         STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                     For the Period from Inception of the Development Stage, October 1, 2004, to September 30, 2008
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                                          Losses
                                                                                                        Accumulated
                              Preferred Stock           Common Stock          Additional                  in the
                          ---------------------   --------------------------   Paid-In      Accumulated   Develop-
                           Shares     Amount        Shares        Amount       Capital       Deficit     ment Stage        Total
                          --------  -----------   -----------   ------------  ----------  ------------  ------------   ------------
<S>                         <C>     <C>            <C>          <C>           <C>         <C>           <C>            <C>
Balance at September 30,
2007                         1,000  $ 1,018,000    31,884,355   $  8,443,004  $  800,409  $ (1,803,507) $ (9,550,542) $ (1,092,636)

Common stock issued in
     exchange of
     preferred stock        (1,000)  (1,018,000)   10,715,789      1,018,000          --            --            --             --
Common stock issued for
     professional
     services                   --           --       450,680        128,440          --            --            --        128,440
Common stock issued for
     cash                       --           --       780,000         73,000          --            --            --         73,000
Common stock issued in
     settlement of legal
     claim                      --           --       175,000         31,500          --            --            --         31,500
Contribution by
     stockholder                --           --            --             --      10,643            --            --         10,643
Common stock returned
     to treasury                --           --      (300,000)            --          --            --            --             --
Accrued salary
     contributed by
     officer/stockholder        --           --            --             --     125,000            --            --        125,000
Accounting for employee
     stock warrants             --           --            --             --     190,000            --            --        190,000
Accounting for options
     issued
     to a consultant            --           --            --             --      19,000            --            --         19,000
Net 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 the consolidated financial statements
</TABLE>


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                     TX HOLDINGS, INC
                          A CORPORATION IN THE DEVELOPMENT STAGE
                                 STATEMENTS OF CASH FLOWS
          For the Years Ended September 30, 2008 and 2007 and for the Period From
         Inception of the Development Stage, October 1, 2004 to September 30, 2008
---------------------------------------------------------------------------------------

                                                                       Inception of
                                                                        Development
                                                                         Stage to
                                                                       September, 30
                                            2008            2007           2008
                                        ------------    ------------    ------------
<S>                                     <C>             <C>             <C>
Cash flows from operating activities:
     Net loss                           $   (676,123)   $ (4,085,033)   $(10,226,665)
                                        ------------    ------------    ------------
     Adjustments to reconcile net
        loss to net
        cash used in operating
        activities:
        Warrants issued for
           forbearance
           agreement                              --              --         211,098
        Loss on disposal of equipment          4,202           7,000          11,202
        Impairment of deposit for
           property
        Depreciation expense                     508           1,378           3,146
        Common stock issued for
           services                          128,440       2,061,603       5,576,339
        Accounting for warrants
        issued to
           employees and a
           consultant                        209,000              --         209,000
        Warrants issued for services              --              --         376,605
        Common stock issued to settle
           accounts payable                       --         215,114         251,308
        Common stock issued in
           payment of
           accrued interest                       --         196,666         196,666
        Common stock issued by an
           officer/
           stockholder to satisfy
           expenses of
           the Company and increase
           stockholder advances                   --         616,750         616,750
        Common stock issued in
           settlement of
           legal claim                        31,500              --          31,500
        Accrued salary contributed by
           stockholder/former officer        125,000              --         125,000
        Changes in operating assets
           and liabilities:
           Accrued stock-based
              compensation reversal
              resulting from legal
              claim
              settlement                    (231,000)             --        (231,000)
           Prepaid expenses and other
              assets                         (45,000)         10,000         (49,750)
           Accounts receivable                (1,281)             --          (1,281)
           Accrued interest added to
              stockholder advances           112,990          35,171         148,161
           Accounts payable and
              accrued
              liabilities                     (2,166)         99,537       1,201,340
                                        ------------    ------------    ------------

Net cash used by operating activities   $   (343,930)   $   (841,814)   $ (1,550,581)
                                        ------------    ------------    ------------


The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                       32
<PAGE>

<TABLE>
<CAPTION>
                                TX HOLDINGS, INC
                     A CORPORATION IN THE DEVELOPMENT STAGE
                            STATEMENTS OF CASH FLOWS
     For the Years Ended September 30, 2008 and 2007 and for the Period From
    Inception of the Development Stage, October 1, 2004 to September 30, 2008
---------------------------------------------------------------------------------

                                                                     Inception of
                                                                      Development
                                                                       Stage to
                                                                     September, 30
                                            2008           2007          2008
                                        -----------    -----------    -----------
<S>                                     <C>            <C>            <C>
Cash flows from investing activities:
     Payment of deposits for oil and
        gas property acquisitions       $        --    $  (125,000)   $  (378,000)
     Property and equipment additions       (21,000)       (45,538)      (356,556)
                                        -----------    -----------    -----------

Net cash provided by investing
activities                                  (21,000)      (170,538)      (734,556)
                                        -----------    -----------    -----------

Cash flows from financing activities:
     Proceeds from
        stockholder/officer deposits         10,643             --         10,643
     Repayment of note payable to a
        bank                                     --             --        (20,598)
     Proceeds from note payable to
        stockholder                              --        520,000        520,000
     Proceeds from sale of common
        stock                                73,000             --      1,237,997
     Proceeds from warrant exercise                         75,461         78,404
     Proceeds from
        stockholder/officer
        advances                            284,845         84,345        462,249
                                        -----------    -----------    -----------

Net cash provided by financing
   activities                               368,488        679,806      2,288,695
                                        -----------    -----------    -----------

Increase (decrease) in cash and cash
     equivalents                              3,558       (332,546)         3,558
Cash and cash equivalents at
     beginning of year                           --        332,546             --
                                        -----------    -----------    -----------

Cash and cash equivalents at end of
   year                                 $     3,558    $        --    $     3,558
                                        ===========    ===========    ===========

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


 The accompanying notes are an integral part of the consolidated financial statements
</TABLE>


                                       33
<PAGE>

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

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


NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

HISTORICAL BUSINESS ACTIVITIES

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

CURRENT BUSINESS ACTIVITIES

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

     o    Wells should be currently Producing
     o    Production should be broadly distributed across lease
     o    Lease should show a 24 month payback (or better)
     o    Wells should show upside potential (proved undeveloped reserves of
          approximately 20%)

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

Management raised $1,240,000 in a Private Placement offering during the months
of July through September 2006 to finance these acquisitions. The funds raised
in 2006 were used to purchase an interest in three oil and gas fields located in
Texas. Development of the fields began on November 1, 2006. The Company
experienced substantial costs for engineering and other professional services
during 2005, 2006 and 2007 in making the transition to an oil and gas
exploration and production company. During 2007 Mark Neuhaus caused the Company
to issued him a convertible note in the principal amount of $1,199,885.55. Mr.
Neuhaus claimed that he advanced funds in that amount on behalf of the Company
for operations of the Company. See Note 8 regarding a settlement agreement
entered into with Mr. Neuhaus on November 11, 2008. The Company plans to
continue to use a combination of debt, and equity finance. Currently, management
cannot provide any assurance regarding the successful development of acquired
oil and gas fields, the completion of additional acquisitions or the continued
ability to raise funds, however it is using its best efforts to complete field
work on the fields acquired, acquire additional fields and finance the
operations.

DEVELOPMENT STAGE COMPANY

The Company ceased its former operations as of September 30, 2004. During the
first quarter for 2005 beginning on October 1, 2004, the Company researched
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 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, identifying and
pursuing businesses opportunities and management currently believes its best
opportunities are in the oil and gas business. The Company's total liabilities
exceed its total assets and the Company's liquidity is substantially dependent
on raising capital.


                                       34
<PAGE>

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

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


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

GOING CONCERN CONSIDERATIONS, continued

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

USE OF ESTIMATES

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

PROPERTY AND EQUIPMENT

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

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.


                                       35
<PAGE>

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

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


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

PROPERTY AND EQUIPMENT-continued

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.

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.

INCOME TAXES

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

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

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

RECLASSIFICATIONS

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


                                       36
<PAGE>

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

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


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

BASIC NET LOSS PER COMMON SHARE

Net loss per share is computed based on the guidance of SFAS No. 128, Earnings
Per Share (SFAS 128), requiring companies to report both basic net loss per
common share, which is computed using the weighted average number of common
shares outstanding during the period, and diluted net loss per common share,
which is computed using the weighted average number of common shares outstanding
and the weighted average dilutive potential common shares outstanding using the
treasury stock method. However, for all periods presented, diluted net loss per
share is the same as basic net loss per share as the inclusion of weighted
average shares of common stock issuable upon the exercise of stock options and
warrants and conversion of convertible preferred stock would be anti-dilutive.

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

                                                         2008          2007
                                                     ------------- -------------

Convertible notes                                       4,285,306     4,285,306
Warrants issued as compensation                         2,350,000     3,050,000
Warrants issued in private placement                    4,133,324     4,133,324
                                                     ------------- -------------

      Total                                            11,768,630    11,468.630
                                                     ============= =============

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the FASB issued 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. SFAS No. 157 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 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,
"Accounting for Income Taxes." FIN No. 48 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 FIN No. 48 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 our financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 158 (SFAS 158), "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132
(c)." SFAS 158 requires recognition of the overfunded or underfunded status of
pension and other postretirement benefit plans on the balance sheet. The Company
has no defined benefit pension or other post retirement plans and the adoption
of SFAS 158 will not have a material impact on our financial statements.


                                       37
<PAGE>


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

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


RECENTLY ISSUED ACCOUNTING STANDARDS, continued

In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (SFAS 159), "The Fair Value Option for Financial Assets & Financial
Liabilities - including an amendment of SFAS No. 115." SFAS 159 will create 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. SFAS 159 will become effective
for fiscal years beginning after November 15, 2007. The Company will adopt this
new accounting standard on October 1, 2008. This statement is effective for the
Company beginning the first quarter of fiscal 2009, but the Company does not
expect the adoption to have a material impact on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007) (SFAS 141R), "Business Combinations," and No. 160 (SFAS
160), "Non-controlling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51". SFAS 141R requires the acquiring entity in a business
combination to recognize the assets acquired and liabilities assumed. Further,
SFAS 141R also changes the accounting for acquired in-process research and
development assets, contingent consideration, partial acquisitions and
transaction costs. Under SFAS 160, all entities are required to report
non-controlling (minority) interests in subsidiaries as equity in the
consolidated financial statements. In addition, transactions between an entity
and non-controlling interests will be treated as equity transactions. SFAS 141R
and SFAS 160 will become effective for fiscal years beginning after December 15,
2008. The Company will adopt these new accounting standards on October 1, 2009,
but the Company does not expect the adoption to have a material impact on our
financial statements.

NOTE 2 - DEPOSITS FOR OIL AND GAS PROPERTY ACQUISITION

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. At
September 30, 2008, the Company had made payments totaling $378,000 to the
seller, which reduced the working interest to 8%, and those payments are
presented as deposits for oil and gas property acquisition in the accompanying
balance sheet.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at September 30, 2008 and 2007:

                                         Life
                                         Years          2008          2007
                                       -----------  ------------- -------------

Oil and gas properties -
     successful efforts
     method - unproved                              $  1,097,783  $    614,328
Furniture and office equipment         3-5 years              --         6,088
                                                    ------------- -------------

Total                                                  1,097,783       620,416
Less accumulated depreciation,
     depletion amortization                                   --        (3,378)
                                                    ------------- -------------

                                                       1,097,783       617,038
                                                    ============= =============

Depreciation expense of $508 and $1,378 was recognized during the years ended
September 30, 2008 and 2007, respectively. At September 30, 2008, the Company
has no proven oil and gas properties and, accordingly, there is no amortization
of oil and gas properties during the year ended September 30, 2008.


                                       38
<PAGE>

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

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


NOTE 3 - PROPERTY AND EQUIPMENT, continued

Substantially all the Company's reserves can only be produced economically only
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.

Included in oil and gas properties and equipment 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 Officer/Stockholder. See Note 4

NOTE 4 - 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.

The balance in note payable to a stockholder of $170,000 is the remaining
principal due on $270,000 of 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.

Mark Neuhaus, the former Chairman of the Board of Directors and former Chief
Executive Officer of the Company caused the Company in September 2007 the
Company 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 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.

NOTE 5 - INCOME TAXES

The tax effects of temporary differences that give rise to deferred taxes are as
follows at September 30, 2008 and 2007:


                                       39
<PAGE>

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

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


NOTE 5 - INCOME TAXES, continued

                                                      2008             2007
                                                  -----------       -----------

Deferred tax assets:
  Net operating losses                            $ 1,289,096       $ 1,051,207
  Accrued expenses                                    142,955           221,653
  Valuation allowance                              (1,432,051)       (1,272,720)
                                                  -----------       -----------

Total deferred tax assets                                  --               100

Deferred tax liabilities:
  Basis of property and equipment                          --               100
                                                  -----------       -----------

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

Net operating losses after December 12, 2002 through September 30, 2008 were
approximately $2,600,000. The Company has total net operating losses available
to the Company to offset future taxable income of approximately $3,800,000.
Following is a reconciliation of the tax benefit at the federal statutory rate
to the amount reported in the statement of operations:

<TABLE>
<CAPTION>
                                               2008                             2007
                                    -------------------------      ----------------------------
                                      Amount         Percent           Amount          Percent
                                    ----------      ---------      -------------      ---------
<S>                                 <C>                    <C>     <C>                       <C>
       Benefit for income tax
            at federal
            statutory rate          $  230,391             34 %    $   1,705,344             34 %
       Change in valuation
       allowance                      (159,331)           (24)          (160,758)            (3)
       Non-deductible
            stock-based
            compensation               (71,060)           (10)        (1,544,586)           (31)
                                    ----------      ---------      -------------      ---------

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

The Company has tax net operating loss carry forwards totaling approximately
$3,800,000, expiring in 2018 through 2028. 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, 2008 the Company's only operation were in the oil and gas
operations.

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 Mr. Neuhaus 1,000
shares of preferred stock. The preferred stock which Mr. Neuhaus caused to be
issued to himself had the following rights and privileges:


                                       40
<PAGE>

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

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


NOTE 7 - STOCKHOLDERS' EQUITY-continued

PREFERRED STOCK-continued

     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 at $1,018,000. On December 24, 2007, and in
connection with Mr. Neuhaus' resignation, the 1,000 preferred shares were
exchanged 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, 2007 and 2008, the Company issued Common
stock to raise capital, compensate employees and professionals, and to settle
liabilities as follows:

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 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 the shares
provided for collateral.

On July 21, 2007, a warrant to purchase 1,434,088 shares of TX Holdings stock
(the "Warrants") was issued to Baker, Johnston & Wilson LLC (now Baker &
Johnston LLC ("B & J")) at an exercise price of $0.15 a share. In May 2006, the
Warrants were assigned to David R. Baker and J. Brooke Johnston, Jr. In April
2007, the Warrants were exercised and 1,434,088 shares of common stock were
issued in full satisfaction of the $215,113 of payables for services owed to
Baker, Johnson and Wilson.

On April 25, 2007, the Company issued 500,000 shares to the Baron Group, Ltd. to
provide investment banking services to the Company.

On May 17, 2007, the Company issued 100,000 shares to Skye Consulting, Ltd for
investor relation services.

On June 13, 2007, Phoenix Capital Partners exercised 335,821 warrants for
consulting services. The Company received $74,968 for the exercise of the
warrants.

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.

On June 15, 2007, the Company hired a public relations firm to represent the
Company. Mercantile Ascendency Inc. will perform public relations work for the
period of one year. The Company issued to Mercantile Ascendency restricted
common shares totaling 1,300,000 at a price of $0.77 per share for total
consideration of $1,001,000.


                                       41
<PAGE>

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

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


NOTE 7 - STOCKHOLDERS' EQUITY-continued

COMMON STOCK-continued

On June 19, 2007, the Company issued 100,000 shares of restricted common shares
to Frank Shafer for marketing services valued at $86,000.

On June 21, 2007, the Company issued 200,000 shares of restricted common shares
to Sea Coast Advisors for investor relations the services were valued at
$200,000.

On February 20, 2008, the Company sold 810,000 shares to private investors for
cash proceeds of $99,500

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.

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 by 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.

STOCK OPTIONS AND WARRANTS

On July 21, 2005, a warrant to purchase 1,434,088 shares of TX Holdings stock
was issued to Baker, Johnston & Wilson LLC ((now Baker & Johnston LLC ("B &
J"))at an exercise price of $.15 a share pursuant to a forbearance agreement
between B & J and the Company. Under the forbearance agreement B & J agreed not
to seek collection of $215,113 owed to it by TX Holdings for legal services and
expenses until January 21, 2007. In 2007 the warrant was exercised in exchange
for the $215,113 owed by the Company.

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 Stock is has been at
least 2 1/2 times the exercise price for 20 consecutive trading days.


                                       42
<PAGE>

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

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


NOTE 7 - STOCKHOLDERS' EQUITY-continued

STOCK OPTIONS AND WARRANTS, continued

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 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
$190,000 was recorded during the years ended September 30, 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. See Note 8 regarding Settlement Agreement between the Company
and Mark Neuhaus.

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 expire on June 22, 2009.

Following is a summary of outstanding stock warrants at September 30, 2008 and
2007 and activity during the years then ended:

<TABLE>
<CAPTION>
                                                                                    Weighted
                                                        Number of      Exercise      Average
                                                         Shares         Price         Price
                                                       -----------  ------------- -------------
<S>                                                     <C>         <C>      <C>    <C>
     Warrants at September 30, 2006                     6,617,412   $ 0.15 - 0.50   $      0.40
     Issued                                             2,000,000            0.28          0.28
     Exercised                                         (1,434,088)           0.15          0.15
                                                       -----------
     Warrants at September 30, 2007                     7,183,324      0.28 - 050          0.43
     Issued                                               300,000            0.50          0.50
                                                       -----------

     Warrants at September 30,2008                      7,483,324     0.28 - 0.50          0.43
                                                       ===========
</TABLE>

A summary of outstanding warrants at September 30, 2008, follows:

<TABLE>
<CAPTION>
                                                                                  Contractual
                                                                                   Remaining
                                                       Number of      Exercise        Life
             Expiration Date                             Shares        Price        (Years)
     --------------------------------                  -----------  ------------- -------------
<S>                                                     <C>              <C>           <C>
     February, 2009                                     4,133,324        0.50          0.3
     June, 2009                                           300,000        0.50          0.9
     March, 2010                                          800,000        0.50          1.5
     March 2010                                           250,000        0.30          1.5
     September 2011                                     2,000,000        0.28          3.0
                                                       -----------

                                                        7,483,324
                                                       ===========
</TABLE>


                                       43
<PAGE>

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

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


NOTE 8 - SUBSEQUENT EVENTS

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 is 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 and when the Third Party Closing occurs, the agreement
provides for mutual general releases between each of the Company and Mark and
the Company and Nicole Neuhaus. In connection with the agreement, seven million
shares of the common stock of the Company previously issued to Mark Neuhaus were
delivered to the Company to be held pending the Third Party Closing. If the
Third Party Closing occurs within the 90 day period, (1) four million five
hundred thousand of the deposited shares will be cancelled and returned to
authorized but unissued shares of the Company,(2) two million five hundred
thousand of the deposited shares will be delivered to Nicole Neuhaus and (3)
certain alleged claims of Mark Neuhaus against the Company for compensation and
reimbursement for advances of $178,862 and a purported indebtedness of the
Company to Mark Neuhaus of $1,303.876, including interest accrued through
October 31, 2008 and represented by a convertible note dated as of September 28,
2007 will be cancelled. If the Third Party Closing does not occur within 90 days
of November 11, 2008 the settlement agreement will be void and of no force and
effect and the deposited shares will be returned.

In 2006 the Company, pursuant to the Private Placement Memorandum the Company
sold approximately $1,240,000 of units consisting of an aggregate of 4,633,324
shares of the Company's common stock and 4,633,324 common stock purchase
warrants. Each common stock purchase warrant, as subsequently amended is
exercisable for a period of two years at an exercise price of $.50 per share. In
addition, the placement agent was issued warrants to purchase 235,000 shares of
common stock on the same terms and conditions as the investors. On December 10,
2008, the Company's Board of Directors approved an amendment to the warrants to
extend the period during which the warrants are exercisable until February 27,
2009.

NOTE 9 - RELATED PARTY TRANSACTIONS

As described in Note 7, 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 at September 30, 2008 are advances from
stockholder/officer of $284,845. Interest has been accrued on the these advances
at rates ranging from 8% to 10% in 2008 interest expense of $112,990, in the
accompanying statement of operations, relates to those advances and the
promissory note.

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.


                                       44
<PAGE>

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

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


NOTE 9 - RELATED PARTY TRANSACTIONS, continued

                                                        2008            2007
                                                     -----------    -----------

Beginning balance                                    $        --    $   164,385

Expenses paid and added to
   note/advance                                          284,845         84,345
Interest accrued                                         112,990         35,171
Common stock issued at fair market value for
   services and added to advances                             --        616,750
Common stock issued at fair market value for
   oil and gas property acquisition                           --        352,560
Contributions to stockholders' equity                         --        (53,325)
Converted to convertible promissory note                      --     (1,199,886)
                                                     -----------    -----------

Ending Balance                                       $   397,835    $        --
                                                     ===========    ===========

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, 2007 and 2008:

                                                         2008          2007
                                                     -----------    -----------
Notes payable to stockholders converted to
  common stock                                       $       --    $  350,000
Stockholder advances contributed to the
  Company                                                    --        53,325
Common stock issued by the Company's
  Former Chief Executive Officer and
  Chairman for oil and gas property
  acquisitions and an increase in advances
  from officer/stockholder                                   --       352,560
Advances from officer/stockholder converted to
  long-term convertible debt                                 --     1,199,886
Increase in property and equipment upon
  recognition of asset retirement obligation             86,455            --


                                       45
<PAGE>

Item 8 Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure

Effective August 9, 2005, the Company engaged Ham Langston & Brezina L.L.P.,
11550 Fuqua, Suite 475, Houston, Texas as its auditors. There has been no
disagreements with the auditors on accounting and financial disclosure.

Item 8A 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, 2008 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.

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, 2008, 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 is still in the process of evaluating its internal controls.

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-KSB.

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, 2008, that materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.

Item 8B Other Information

None


                                       46
<PAGE>

                                    PART III

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

The following table shows the names, ages and positions held by our executive
officers, directors and significant employees during the year ended September
30, 2008:

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

William Shrewsbury           64     Chairman of the Board of Directors/CEO

Rob Hutchings                66     Director/President

Mark Neuhaus                 53     Former Chairman of the Board of Directors
                                        and President (Chief Executive Officer)
                                        (resigned December 10, 2007)

Michael A. Cederstrom        55     Interim Chief Financial Officer
                                        (resigned May 2, 2008)

Jose Fuentes                 61     Chief Financial Officer
                                        (effective May 2, 2008)

Martin Lipper                74     Director

Bobby S. Fellers             58     Director

Business Experience of Executive Officers and Directors

William "Buck" Shrewsbury, Chairman of the Board/CEO, age 64. 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.

Rob Hutchings, Director and President, 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.

Martin Lipper, Director, age 74, 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.


                                       47
<PAGE>

Mr. Neuhaus served as Chairman and Chief Executive Officer from December 12,
2002 until December 10, 2007. Mr. Neuhaus and his wife, Nicole B. Neuhaus, own
100% of MA&N, LLC and other investment funds specializing in small cap public
companies, which Mr. Neuhaus manages and had been his principal occupation since
1995 until his involvement in TX Holdings. Prior to 1995, Mr. Neuhaus founded
several startup companies including Solar Engineering in 1987, which later
became US Electric Car. Mr. Neuhaus was also one of the founding shareholders of
Interactive Motorsports and Entertainment. In November of 2007 the U.S. District
Court for the Southern District of New York an order of Permanent Injunction and
other Relief (the "Order") was entered against Mark Neuhaus. The court found Mr.
Neuhaus liable for violation of Section 5 of the Securities Act of 1933. Mr.
Neuhaus consented to the entry of the Order which among other restrictions,
restrained and enjoined Mr. Neuhaus from participating in an offering of penny
stock, including engaging in activities with a broker, dealer, or issuer for
purposes of issuing, trading or inducing or attempting to induce the purchase of
sale of any penny stock.

Michael A Cederstrom, Esq., Previous Chief Financial Officer - Mr. Cederstrom
joined TX Holdings as part time interim Chief Financial Officer on March 28,
2006 to assist the Company with its reorganization as an oil and gas company.
Mr. Cederstrom has served as the Chief Financial Officer for several oil and gas
companies over the past 10 years. Mr. Cederstrom received his Bachelor of
Science degree in finance with honors from the University of Utah. In addition
he received his Juris Doctorate degree from Southwestern University. Mr.
Cederstrom resigned on May 2, 2008.

Term of Office

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

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

Audit Committee

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

Compliance with Section 16(a)

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 as provided in paragraph (b)(2)(i) of
Item 405 of Form 10-KSB, 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.

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


                                       48
<PAGE>

Item 10 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:


<TABLE>
<CAPTION>
                                                      SUMMARY COMPENSATION TABLE

-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Change
                                                                                               in Pension
                                                                                                Value and
                                                                                              Nonqualified
                                                                                 Non-Equity      Deferred
                                                            Stock      Option  Incentive Plan   Compensation   All Other
                                         Salary    Bonus    Awards     Awards  Compensation     Earnings      Compensation   Total
Name and Principal Position       Year     ($)      ($)     ($) (1)       ($)         ($)           ($)           ($)         ($)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>     <C>      <C>          <C>      <C>         <C>             <C>      <C>          <C>
William Shrewsbury
Chairman and Chief
Executive Officer                 2008         --      --       --       --          --              --            --           --
-----------------------------------------------------------------------------------------------------------------------------------
Mark Neuhaus (1)
Former Chairman and
Chief Executive Officer           2008     75,000      --       --       --          --              --            --       75,000
                                  2007    300,000      --       --       --          --              --            --      300,000
-----------------------------------------------------------------------------------------------------------------------------------
Michael A. Cederstrom (2)
Former Chief Financial Officer    2008         --      --       --       --          --              --       108,680      108,680
                                  2007         --  44,500       --       --          --              --       180,000      224,500
-----------------------------------------------------------------------------------------------------------------------------------

Jose Fuentes (2)                  2008    104,000      --       --       --          --              --            --      104,000
Chief Financial Officer           2007    150,000      --       --       --          --              --            --      150,000
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

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
has filed suit against Mr. Bloom for the return of the shares for breach of
contract. The Company has reached a preliminary agreement with Mr. Bloom whereby
he will retain 700,000 shares and return 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.


                                       49
<PAGE>

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 2007 and 2008 Fiscal Years

The following table provides information related to options and warrants granted
to the named executive officers and directors during the 2007 and 2008 fiscal
year. The Company does not have any outstanding stock appreciation rights.

                            No. of Securities     % of Total Options    Exercise
Name                        Underlying Options    Granted to Employees  Price
Expiration Date             Granted (#)           in Fiscal 2008        ($/Sh)
------------------------    ------------------    --------------------  --------
Jose Fuentes                    1,000,000               100%              $0.28
September 28, 2011

Michael A. Cederstrom
September 28, 2011              1,000,000               100%              $0.28

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

Aggregated Option Exercises During 2008 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 2008 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, 2008.

<TABLE>
<CAPTION>
                                                                                        Value of Unexercised In-the-Money Options at
     Number of Securities Underlying Unexercised Options at Fiscal Year-                               Fiscal Year-
                                   End (#)                                                             End ($) (1)
               Shares Acquired
               ---------------
                                                   Value
   Name                      on Exercise (#)     Realized    Exercisable      Unexercisable    Exercisable      Unexercisable
------------                 ----------------    ---------   ------------     -------------    ------------------------------
<S>                                  <C>            <C>         <C>                     <C>        <C>                <C>
W.A. Alexander                       N/A            N/A           250,000               -0-         47,500            -0-
Michael A Cederstrom                 N/A            N/A         1,200,000               -0-        228,000            -0-
Jose Fuentes                         N/A            N/A         1,000,000               -0-        190,000
Bobby S. Fellers                     N/A            N/A           300,000               -0-         57,000            -0-
Douglas C. Hewitt                    N/A            N/A           300,000               -0-         57,000            -0-
</TABLE>

(1)  Based on the closing price of $0.19 at September 29, 2008


                                       50
<PAGE>

Director's Compensation

The following table sets forth all fees and compensation paid or earned by the
Company' directors for the fiscal years 2007, 2008.

<TABLE>
<CAPTION>
                                                  DIRECTORS' COMPENSATION TABLE
                                                  -----------------------------

                                                             Non-equity
    Name and                    Fees earned or       Stock     Option      Incentive plan        All other
   Principal                     paid in cash        Awards    Awards      Compensation       Compensation           Total
    Position          Year            ($)              ($)       ($)             ($)                 ($)               ($)
------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>               <C>              <C>     <C>            <C>              <C>                 <C>
Bobby Fellers         2008             -0-              -0-      N/A            N/A                  N/A                N/A
                      2007             -0-              -0-      N/A            N/A                  N/A                N/A
------------------------------------------------------------------------------------------------------------------------------
Douglass C
Hewitt                2008             -0-              -0-      N/A            N/A                  N/A                  NA
                      2007             -0-              -0-      N/A            N/A              178,000             178,000
------------------------------------------------------------------------------------------------------------------------------
Martin Lipper         2008             -0-              -0-      N/A            N/A                  N/A                 N/A
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Mark Neuhaus has represented that on March 28, 2006, the Company entered into a
consulting agreement with Douglas C. Hewitt to provide technical support and
advice in setting up the oil and gas operations. Mr. Hewitt was granted warrants
to purchase 300,000 shares of TX Holdings Common Stock at an exercise price of
$0.30 per share. The warrants will expire on March 27, 2010. Mr. Hewitt was
appointed a director of the company March 28, 2006 and he resigned from the
Board on July 27,, 2007.

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

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

Item 11 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

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

<TABLE>
<CAPTION>
          Title                                         Beneficial Ownership  Percent of class
                            Name of beneficial owner      Number of shares
                                       (A)                      (B)
-------------------------  -------------------------    ---------------------  ---------------
<S>                        <C>                                      <C>              <C>
Former CEO/Chairman        Mark Neuhaus                             9,700,000        22.1(C)
Chairman/CEO               William Shrewsbury                       5,783,409        13.2
Director                   Martin Lipper                              286,166          .7
President/Director         Rob Hutchings                              600,000         1.4
Director                   Bobby Fellers                              300,000         2.3(D)
CFO                        Jose Fuentes                             1,000,000         2.3(E)
All Officers and Directors
As a group (5)                                                      7,969,775        18.2(F)
</TABLE>


                                       51
<PAGE>

(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, 2006,
together with securities exercisable or convertible into shares of common stock
within 60 days of December 8, 2006 for each stockholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Shares of common stock that are currently exercisable or exercisable
within 60 days of December, 2008 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 warrants issued to Jose Fuentes for his specific role with the
Company during the fiscal year 2007.

(F) Total number of shares and % ownership includes all directors and officers
as of December 7, 2008

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

Item 12 Certain Relationships and Related Transactions

Particular Transactions

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

In November, 2006, the Company entered into agreements to purchase, from Masada
Oil and Gas,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, 2008, the Company has an outstanding note payable to Mr.
Shrewsbury, the Company's Chairman and CEO, for the amount of $170,000, the note
bears a 10% interest and is payable on demand. Mr. Shrewsbury has also provided
the Company with a cash advance of $198,971 which was used for operating
expenses.


                                       52
<PAGE>

Mr. Rob Hutchings, the Company's President and Director, has also provided cash
advances to the Company as of September 30, 2008 for the amount of $65,320. The
advances were used by the Company to cover 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 is subject to the Company
finalizing a transaction with a third party involving certain oil and gas
properties within 90 days of November 11, 2008 ("Third Party Closing"). If the
third party transaction closes, the agreement provides for mutual general
releases between the Company, Mark Neuhaus and Nicole Neuhaus. In connection
with the agreement, seven million shares of the common stock of the Company
previously issued to Mark Neuhaus were delivered to the Company to be held
pending the Third Party Closing. If the Third Party Closing occurs within the 90
day period, (1) four million five hundred thousand of the deposited shares will
be cancelled and returned to authorized but unissued shares of the Company,(2)
two million five hundred thousand of the deposited shares will be delivered to
Nicole Neuhaus and (3) certain alleged claims of Mark Neuhaus against the
Company for compensation and reimbursement for advances in the aggregate amount
of $178,862 and a purported indebtedness of the Company to Mark Neuhaus in the
amount of $1,303.876,including interest accrued through October 31, 2008 and
represented by a convertible note dated as of September 28, 2007 will be
cancelled. If the Third Party Closing does not occur within 90 days of November
11, 2008 the settlement agreement will be void and of no force and effect and
the deposited shares will be returned.

Controlling Persons

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

Director Independence

Our board of directors consists of Messrs. Shrewsbury, Hutchinson, 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").


                                       53
<PAGE>

Item 13 Exhibits and Reports on Form 8-K

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

Exhibit
   No.                                Description
--------  ----------------------------------------------------------------------
2.1       Stock Acquisition Agreement for 51% of the outstanding and issuable
          Common Stock of R Wireless Corporation dated December 12, 2002 by and
          between MA&N LLC and R Wireless Corporation (Exhibit B omitted, to be
          furnished upon request of the Commission) (1)
2.2       Sale of Assets Agreement dated November 15, 2002 between HOM
          Corporation and Stuckey Enterprises (list of assets omitted, to be
          furnished upon request of the Commission) (1)
2.3       Stock Acquisition Agreement dated September 4, 2003 between Jim Evans,
          R Wireless, Inc. and Homes by Owner, Inc. (7)
2.4       Escrow Agreement dated September 4, 2003 between Jim Evans, R
          Wireless, Inc., Homes by Owner, Inc. and David Baker. (7)
2.5       Extension Agreement dated March 5, 2004 between Jim Evans, R Wireless,
          Inc., and Homes by Owner, Inc. (7)
3.1a      Composite Articles of Incorporation of R Wireless, Inc, as amended to
          reflect the change of name from HOM Corporation, effective January 22,
          2003 (3)
3.2       By-Laws of HOM Corporation as adopted December 12, 2002 (12)
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
          1350
33.1      R Wireless, Inc. Code of Ethics adopted February 24, 2004 (7)
99.7      Employment Agreement between Registrant and Ned Baramov dated January
          15, 2003 (5)
99.8      Employment Agreement between Registrant and Mark Neuhaus dated January
          15, 2003 (5)
99.9      Employment Agreement between Registrant and Darren Bloom dated August,
          2005 (9)
99.10     Settlement Agreement between Registrant and David R. Baker (10)
*99.12    Settlement Agreement between the SEC and Mark Neuhaus regarding the
          SEC vs Universal Express
*99.13    Settlement agreement between Registrant and the Investor Relation
          Group, Inc.
*99.14    Settlement agreement between Registrant and Mark Neuhaus and Nicole
          Neuhaus

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

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

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

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

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

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


                                       54
<PAGE>

(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.

Item 14 Principal Accountants Fees and Service

The aggregate fees we paid to Ham Langston & Brezina, LLP for the years ended
September 30, 2007 and 2008 were as follows:

                                    2007     2008
                                  -------   -------

Audit Fees                        $35,000   $40,000
Audit-Related Fees                            1,500
                                  -------   -------

Total  Audit and  Audit-Related    35,000    41,500
Fees

Tax Fees                               --        --
All Other Fees                         --        --
                                  -------   -------

Total                             $35,000   $41,500
                                  =======   =======


                                       55
<PAGE>

                                   SIGNATURES

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

                                        TX HOLDINGS, INC.


                                        By:  /s/ William "Buck" Shrewsbury
                                             William "Buck" Shrewsbury
                                             Chief Executive Officer

Dated: January 6, 2009


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

        /s/ William "Buck" Shrewsbury      Chairman of the Board of Directors,
        -----------------------------      and Chief Executive Officer
        William "Buck" Shrewsbury
        January 6,, 2009

        /s/Rob Hutchings                   President
        ----------------
        Rob Hutchings
        January 6, 2009

        /s/Jose Fuentes                    Chief Financial Officer
        ---------------
        Jose Fuentes
        January 6, 2009

        /s/Bobby S. Fellers                Director
        -------------------
        Bobby S. Fellers
        January 6,2009

        /s/ Martin Lipper                  Director
        -----------------
        Martin Lipper
        January 6, 2009


                                       56
<PAGE>

Glossary of Terms

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       57
<PAGE>

"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.


                                       58