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, 2007

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

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

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

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

                                      None

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

                                  Common Stock
                                (Title of class)

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

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Exchange  Act during the  preceding 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing  requirements for past 90 days.
Yes [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's  did not have revenues for the fiscal year ended September 30,
2007.

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 November 30, 2007
was $4,144,966.


                                       1
<PAGE>

There  are  approximately  13,966,431  shares  of  common  voting  stock  of the
Registrant  held by  non-affiliates.  On  November  30, 2007 the average bid and
asked price was $0.13.

As of  September  30,  2007,  there  were  31,884,355  shares  of  common  stock
outstanding.

Forward-Looking Statements and Cautionary Words

This  annual  report on Form  10-KSB  ("Annual  Report")  for the period  ending
September 30, 2007 ("fiscal year 2007"), contains forward-looking  statements as
that term is defined in the Private Securities Litigation Reform Act of 1995 and
as such may involve  known and unknown  risks,  uncertainties  and other factors
which may cause the actual  results,  performance or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such  forward-looking  statements.  Such forward-looking
statements  speak  only as of the  date of this  Form  10-KSB  or the  amendment
thereto  in  which  they  appear,  as the  case may be.  The  Company  expressly
disclaims  any  obligation  or  undertaking  to release  publicly any updates or
revisions  to any  forward-looking  statements  contained  herein to reflect any
change in the  Company's  expectations  with  regard  thereto  or any  change in
events,  conditions or  circumstances  on which any such statement is based.  In
addition,  particular  attention  is called to  cautionary  words such as "may,"
"will,"  "expect,"  "anticipate,"  "estimate"  and  "intend"  where they  appear
herein.  These  statements  are only  predictions  and involve known and unknown
risks,  uncertainties  and other  factors,  including  the risks in the  section
entitled  "Risk Factors" that may cause our or our  industry's  actual  results,
levels of activity,  performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.

Disclosure Regarding Forward-Looking Statements

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

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


                                       2
<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 barrel or barrels,  used in this annual report to refer to crude oil
or other liquid hydrocarbons.

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

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

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

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

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

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

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

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

"Net" oil and gas wells or "net" acres are determined by multiplying.

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

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

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

"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.


                                       3
<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.


                                       4
<PAGE>

<TABLE>
<CAPTION>

                                   FORM 10-KSB
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007

                                TABLE OF CONTENTS

<S>   <C>           <C>                                                              <C>
PART I ................................................................................6
      Item 1        Description of Business ...........................................6
      Item 2        Description of Property ..........................................20
      Item 3        Legal Proceedings ................................................21
      Item 4        Submission of Matters to a Vote of Security Holders ..............22
PART II ..............................................................................23
      Item 5        Market for Common Equity and Related Stockholder Matters .........23
      Item 6        Management's Discussion and Analysis or Plan of Operations .......27
      Item 7        Financial Statements .............................................29
      Item 8        Changes In and Disagreements with Accountants on
                    Accounting and Financial Disclosure ..............................51

      Item 8A       Controls and Procedures ..........................................51
      Item 8B       Other Information ................................................52
PART III .............................................................................53
      Item 9        Directors, Executive Officers, Promoters and Control
                    Persons; Compliance with Section 16(a) of the Exchange Act .......53
      Item 10       Executive Compensation ...........................................55
      Item 11       Security Ownership of Certain Beneficial Owners and
                    Management and Related Stockholder Matters .......................57
      Item 12       Certain Relationships and Related Transactions ...................59
      Item 13       Exhibits and Reports on Form 8-K .................................61
      Item 14       Principal Accountants Fees and Service ...........................63

</TABLE>


                                       5
<PAGE>

                                     PART I

Item 1 Description of Business

Overview of Business

TX Holdings,  Inc. ("TX Holdings" or the "Company"),  formerly named R Wireless,
Inc.  ("RWLS") and, prior to that, named HOM Corporation  ("HOM"),  is a Georgia
corporation  incorporated  on May 4, 2000. On December 5, 2004 the Company began
to structure itself into an oil and gas production and exploration  company. The
Company  acquired  oil and  gas  leases  and  began  development  of oil and gas
producing  operations as of April 11, 2006. (For a discussion of current oil and
gas activities see sections "Recent  Developments";  "Background for Oil and Gas
Business Activities" and "Current Oil and Gas Activities").

History and Corporate Structure

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

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

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

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

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


                                       6
<PAGE>

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

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

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

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

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

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


                                       7
<PAGE>

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

Recent Developments

On August 1, 2007, the Company retained the services of Energy Capital Solutions
to  advise  the  Company  regarding  acquisitions  and  funding  of oil  and gas
properties.  The contract is for the advising of the  acquisition  of leases and
currently  operating oil and gas Companies  located in the Louisiana  area.  The
Company is paying the sum of $30,000 and a 4.5 percent  success fee for all debt
or equity raised in addition to 4.5 percent in warrants for all equity raised.

On August 10, 2007, Douglas C. Hewitt resigned as a Director of the Company. Mr.
Hewitt is pursuing  the funding of oil and gas projects  owned by Hewitt  Energy
Group,  LLC and the pursuit of lenders in competition  with the Company may lead
to conflicts of interest.

On December 1, 2007, Mark S. Neuhaus provided his resignation as the Chairman of
the Board,  Director and CEO of the Company.  The Board  accepted Mr.  Neuhaus's
resignation  on December 24, 2007.  The  resignation  was  terminated due to the
signing  of a  consent  decree  in two  cases  filed  by  the  SEC.  (See  Legal
Proceedings). Mr. Neuhaus will remain a consultant and advisor to the Company.

On December 24, 2007, William "Buck" Shrewsbury was appointed as the CEO and the
Chairman of the Board of Directors 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 as the Interim  President of
the Company and a Director.  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.

On December 24, 2007, the Company  changed the  authorized  common shares of the
Company from 50,000,000 common shares to 250,000,000 common shares.

On December 24, 2007, the Board of Directors canceled the 1,000 preferred shares
of stock issued to Mark Neuhaus.  The Company issued 10,715,789 common shares to
Mr. Neuhaus to replace the preferred  shares of stock. The Board determined that
this was in the best interest of the Company to remove Mr. Neuhaus from complete
voting control of the Company.

Background for Oil and Gas Business Activities

Since August 2005 oil prices have exceeded $50.00 per barrel.  On March 19, 2007
the closing  price for a barrel of oil was $56.59.  At these  prices,  secondary
recovery,  or  the  recovery  accomplished  by  injecting  gas or  water  into a
reservoir to replace produced fluids and thus maintain or increase the reservoir
pressure,  becomes  financially  viable.  The current corporate  direction is to
acquire  through  purchase,  merger and option,  fields with proven reserves and
excellent development prospects.  Concurrently, the Company is exploring options
for the acquisition of operational expertise and equipment.


                                       8
<PAGE>

This strategy is  contingent  upon the  Company's  ability to obtain  sufficient
capital to fund the high start up costs of testing, analyzing, acquiring capital
equipment and lease  acquisition.  On May 11, 2006 the Company announced that it
had entered  into a private  placement  agreement  with Brill  Securities,  Inc.
Pursuant to the private  placement  agreement the Company  completed the sale of
4,133,324 units during the 3rd quarter of 2006 at a price of $0.30 per unit, for
a total of  $1,240,000,  which after  commission  and  expenses  resulted in net
proceeds of  approximately  $1,180,000.  Each unit  includes one share of common
stock and a warrant  to  purchase  an  additional  share at a price of $0.50 per
share.  This  infusion of capital  allowed the Company to pursue its strategy of
acquiring oil and gas producing properties.

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

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

Current Oil and Gas Activities

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

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

Currently,  TX  Holdings  is not  producing  any of its  wells.  The  Company is
applying  for  its  Operator's  License  in  Texas.  The  Company  is  currently
refurbishing the William's Lease by repairing  electrical lines, flow lines, and
testing well  integrity.  Upon the completion of the well integrity  testing and
approval by the Texas Railroad  Commission,  the Company will receive its permit
to produce the wells.  Upon obtaining the Operator's  License,  TX Holdings will
begin  production.  Once the wells are in production with sufficient  production
data the information required by the reserve engineer to complete its evaluation
of  the  reserves  will  be  provided  and a  reserve  report  produced.  (For a
discussion of leases see section "Oil and Gas Leases" under Item 2:  Description
of property).

Principal Products or Services and Markets

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

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

Distribution Methods of Products or Services

Crude oil will be stored in tanks at well site located on our leases,  until the
purchaser  takes delivery of the crude oil by tanker truck.  TX Holdings has not
entered into any contracts for the sale of its crude as of September 30, 2007.


                                       9
<PAGE>

Competitive Business Conditions

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

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

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

Dependence on One or a Few Major Customers

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

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

Royalty agreements relating to oil and gas production are fairly standardized in
the industry. However, the percentage and amount of royalties paid by producers,
vary from lease to lease.  (See Description of Business - "Current  Business" in
this Annual Report.)

Governmental Approval and Regulation

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

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 a bond arrangement in the amount of $50,000, through IPACT.

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.


                                       10
<PAGE>

Research and Development

During 2006 and 2007 we did not incur any research and development expenditures.


Intellectual Property

None.

Environmental Compliance

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

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

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

     o    impose  substantial  liabilities  for  pollution  resulting  from  our
          operations.

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

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

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

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

     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.


                                       11
<PAGE>

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

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

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

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

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

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

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

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.


                                       12
<PAGE>

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

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

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

Insurance

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

Former Business of TX Holdings

Business of Freedom Homes, Inc. ("New Freedom")

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

Since May 26, 2005,  the  operations  of New Freedom have not been  consolidated
with the financial  statements of the Company. In 2005, the Company sold a 67.7%
interest in New Freedom and New Freedom is no longer a subsidiary  because it is
now controlled by of Jim Evans. Old Freedom began to sell pre-owned manufactured
homes in the Augusta,  Georgia market in February 2002. In June, 2004, it became
a retailer of new homes  manufactured by Horton Homes and  subsequently has also
sold new homes  manufactured  by Southern  Energy Homes and Precision  Homes. TX
Holdings now owns a 32.3%  interest in New Freedom and TX  Holdings'  management
has determined that the investment in New Freedom is worthless.

Business of Direct Lending, Inc.


                                       13
<PAGE>

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

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

Sale of the Assets and Business of Direct Lending, Inc.

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

Company Employees and Other Workers

As of September 30, 2007 we had four  employees.  Mark S. Neuhaus is Chairman of
the Board of Directors and President of TX Holdings.  On March 28, 2006, Michael
A. Cederstrom was appointed the interim Chief Financial  Officer of TX Holdings.
Mr. Cederstrom works on a part time basis with the understanding  that once full
scale oil and gas  production is achieved a permanent  chief  financial  officer
will be named. Mr. Cederstrom also provides legal services through his law firm,
Dexter  and  Dexter.  On August 2,  2006,  TX  Holdings  appointed  W.A.  "Bill"
Alexander as the Chief Operating Officer.  On February 2, 2007, Jose Fuentes was
hired as the Vice  President  of  Finance  for the  Company.  Other  specialized
functions  are  provided as  necessary  through the  engagement  of  independent
consulting  contractors.  On December  10,  2007,  Mark S.  Neuhaus  resigned as
Chairman of the Board of Directors and President of TX Holdings. On December 11,
2007, William "Buck" Shrewsbury was appointed as the CEO and the Chairman of the
Board of  Directors,  Martin  Lipper was appointed to the Board of Directors and
Rob  Hutchings  was  appointed  as the Interim  President  and a Director of the
Company.

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


                                       14
<PAGE>

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.

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

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


                                       15
<PAGE>

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

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

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

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

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

     o    levels of global oil and natural gas inventories;

     o    weather conditions affecting energy consumption;

     o    technological advances affecting energy consumption; and

     o    prices and availability of alternative fuels.

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

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

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

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

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

     o    pressure or irregularities in geological formations;

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

     o    equipment failures or accidents;

     o    adverse weather conditions;

     o    reductions in oil and natural gas prices;

     o    land title problems; and

     o    limitations in the market for oil and natural gas.


                                       16
<PAGE>

Oil and gas operations involve many physical hazards.

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

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

The oil and gas industry is highly competitive and there is no assurance that we
will be successful in acquiring any further leases.

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

Oil and gas operations are subject to  comprehensive  regulation which may cause
substantial  delays or require capital  outlays in excess of those  anticipated,
causing an adverse effect on our Company.

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

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 of outstanding warrants may cause immediate
and substantial dilution of our existing shareholders.


                                       17
<PAGE>

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

We have 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.

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

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

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

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

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

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


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

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

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

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

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

Brief Operating History - No Assurance of Profitability

The Company has a brief operating history.  Although we commenced  operations in
1997, original management has been replaced as previous operations have not been
profitable.  The Wi-Fi business contemplated  subsequent to the acquisition of a
controlling interest in the Company by MA&N did not materialize. The Company has
recently  completed the acquisition of its initial oil and gas leases.  However,
as of  December  10,  2007  the  Company  has  not  sold  any of its oil and gas
production.  The Company has encountered unforeseen costs,  expenses,  problems,
difficulties and delays frequently  associated with new ventures,  and these may
continue.  There is no assurance  that the Company's  business  ventures will be
successful  or that the Company  will be able to produce and acquire  sufficient
productive wells to meet its goals.  The Company  anticipates that its operating
expenses  will  increase  if and as its  business  expands,  and it will need to
generate   revenues   sufficient   to  meet  all  of  its  expenses  to  achieve
profitability.


                                       18
<PAGE>

Competition Could Negatively Affect Revenues

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

Concentration of Share Ownership Gives Insiders Control

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

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

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

On February 19, 2004,  the Company was delisted from the OTC Bulletin  Board due
to failure to file current financial statements with the Securities and Exchange
Commission in an acceptable format.

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 ranged
from  $0.09  to  $1.05 a  share.  See  MARKET  FOR  COMMON  EQUITY  AND  RELATED
STOCKHOLDER MATTERS.

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.


                                       19
<PAGE>

Shareholders Voting Control Risk

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

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's total voting control
of the Company. Mr. Neuhaus still has substantial control of the Company via his
common stock ownership.

Item 2 Description of Property

The Company has its principal leases in Abilene, Texas. The Company is currently
utilizing  space of Masada Oil, a company  that Bobby  Fellers has a  beneficial
interest  in and that  currently  performs  some of our  field  operations.  The
Company's  headquarters  are located at 1701 North Judge Ely Blvd.,  Suite 6420,
Abilene,  Texas 79601.  Our telephone number is 682 - 286 - 3116. In addition we
maintain  an office in Miami,  Florida.  The office in Miami is provided by Mark
Neuhaus.  Management  believes that these  properties will be sufficient for its
current and immediately  foreseeable  administrative needs. The Company does not
hold any  investments  or  interests  in real estate  other than the Oil and Gas
Leases  it  holds  for  its  operational  needs.  The  Company  currently  seeks
additional oil and gas leases for  operational  purposes,  which is an essential
part of operations of any oil and gas production company.

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

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

Lease and Royalty Terms

Contract Area # 1

Located in the counties of Callahan and Eastland, Texas, this lease includes the
development  of the field.  The Purchase and Sale Contract  provides for a total
investment of up to  $7,200,000.  To reach this purchase  price Masada Oil & Gas
will need to procure an additional 1186 acres in Callahan County, Texas which is
contiguous to the Company's  currently owned 247 acres. In addition the Purchase
and Sale agreement  contemplates that Masada Oil and Gas will perform all of the
work on the  field to put into  production  a  minimum  of 121  wells  within 21
months.  This production  schedule is conditioned upon the Company providing the
funds  necessary  to complete the work on a timely basis and Masada Oil and Gas'
ability to acquire the  additional  acreage.  If Masada Oil and Gas is unable to
deliver the additional  acreage the Purchase and Sale Agreement will be adjusted
to reduce the price of the  purchase.  The Purchase  and Sale  Contract for this
field was not  completed  until  November 2006 and the payments  wemade  towards
purchase of the field are  presented in the  financial  statements  as a deposit
towards the Purchase and Sale Agreement. The ultimate total price is conditioned
upon  performance  and future  acquisitions.  TX  Holdings  currently  own a 60%
working  interest  in the  field  and  Masada  Oil  and Gas  owns a 40%  working
interest.  The ORRI on each lease  varies,  thus the net  revenue  interest  the
Company will receive from the wells of the respective leases will also vary. The
table below sets forth the  royalty  interest  for each  lease,  the net working
interest and the gross acreage of each lease within Contract Area # 1:


                                       20
<PAGE>

              Description                      ORRI         Working Interest
              -----------                      ----         ----------------
                                              17.97%               60%
Roy Adams Lease RRC #01470
                                              20.00%               60%
W. Isenhower Lease RRC# 20398
                                              26.25%               60%
Isenhower Lease RRC# 21474
                                              20.00%               60%
Isenhower Estate Lease RRC # 30700


As of November 25, 2006,  there were  eighteen oil wells capable of producing on
the  leases.  As of March 20,  2007,  these wells are not  producing  due to the
Company waiting to obtain its Operator's License in Texas. The production of the
wells is minimal,  from 1 to 2 bbls per day. The Company has not  completed  the
development of the water flood  program.  The water flood will inject water into
the field  through  injection  wells.  The water will force the oil  towards the
production wells so that it can be recovered.  The Company's wells on this field
are considered shallow wells and only produce to a depth of 1,000 feet.

Parks Lease

This lease includes 320 acres in which we have a 75% working  interest and a 63%
net revenue  interest  in the oil and gas  produced  from this  field.  The land
owners of this lease own a 12.5% royalty interest in the production.  Masada Oil
and Gas owns a 25 % working  interest in the lease.  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 30 wells on this lease and none
of the wells are  currently  producing.  The lease  provides that TX Holdings is
limited to production from 1,000 feet and above. The wells on this lease are not
currently producing.

Williams Lease

This  lease  contains  843  acres  with a working  interest  of 89% owned by the
Company. The lease was acquired through a foreclosure sale on August 1, 2006 for
the sum of $68,221.  There are no contingencies or other commitments.  The lease
carries an ORRI to the land owners of 25%. The Company's net Revenue interest on
the wells  contained in this lease is 75%.  This lease is limited to  production
from 1,000 feet and above.

Oil and Gas Reserve Analyses

Currently the leases that have been  acquired  have not been  developed in a way
that allows our Petroleum  Engineers to assign  estimated net proved oil and gas
reserves and the present value of estimated cash flows from those reserves.  The
Company is  currently  performing  work on each lease to  provide  the  required
information  of logging each well to provide the  information  to the  Petroleum
Engineers.  The Company  currently  has no proved  reserves  on the leases.  The
leases were acquired during the third and fourth quarter of 2006. The Company is
currently working to establish reserves and commence operations on the leases.

Item 3 Legal Proceedings

Management  is  currently  aware  of one  pending,  past or  present  litigation
involving  the Company which  management  does not believe could have a material
adverse  effect  on the  Company.  Management  does not know of any  outstanding
bankruptcy  or  receivership  issues  and is not  aware  of any  securities  law
violations  other than the failure to file timely Form 10-KSB for 2005 and 2006,
and timely Forms 10-QSB for the quarterly  periods in 2005 and 2006. The Company
has  recently  filed Form 10-KSB for fiscal year end 2005.  The Forms 10-QSB for
the  quarterly  periods in 2005 have been  incorporated  in the Form 10-KSB 2005
filing as provided in an agreement between the Company and the SEC.


                                       21
<PAGE>

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

Mr.  Neuhaus  has been cited for  Sections 5  violations  and is alleged to have
violated  Sections  5(b)  and  (c)  and  Sections  17(a)(1),  (2) and (3) of the
Securities Act of 1933 and Section 10(b) of the Securities  Exchange Act of 1934
and Rule 10b-5 thereunder. Mr. Neuhaus denies violation of any applicable law in
connection  with his resale of Universal  common stock. On February 21, 2007 the
United States District Court Southern  District of New York granted a motion for
summary judgment against Mr. Neuhaus as to Section 5 liability only. The summary
judgment  motion was denied as to all other issues pending  against Mr. Neuhaus.
The Company  believes  there is no connection  between the Company and Universal
other than Mr. Neuhaus'  position with the Company and the fact that Mr. Neuhaus
was a  consultant  to Universal  and  received  and resold  shares of its common
stock.

On November 21, 2007,  TX Holdings Inc.  reported  that Mark  Neuhaus,  Chairman
settled  his  involvement  in the case of SEC VS  Universal  Express,  Inc.  Mr.
Neuhaus  consented  to an order  to not  violate  securities  laws and not to be
involved in the raising of money for penny stock companies.  Mr. Neuhaus did not
admit or deny any liability.  A copy of the statement is attached to this report
as Exhibit 99.10.

TX Holdings has filed 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).

On July  26,  2007,  the  Company  received  a letter  from  the SEC  requesting
clarification  of certain  disclosures  contained in its 2006 10KSB and its Form
10QSB for the Interim  Period Ended March 31, 2007.  The Company is working with
its auditors to respond to the letter.

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.

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.


                                       22
<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
          --------------                 ----                   ---

      December 31, 2007        0.40                 0.09
      September 30, 2007       0.95                 0.22
      June 30, 2007            1.05                 0.51[
      March 31, 2007           0.83                 0.45

      December 31, 2006        0.87                 0.45
      September 30, 2006       0.99                 0.55
      June 30, 2006            1.07                 0.33
      March 31, 2006           0.47                 0.19

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

As of September 30, 2007 there were  approximately  253 holders of record of our
common stock.

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

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

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


                                       23
<PAGE>

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

Preferred Stock

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

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's total voting control
of the Company. Mr. Neuhaus still has substantial control of the Company via his
common stock ownership.

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, 2007,  TX Holdings  has issued and  outstanding  31,884,355
shares of common stock.  During the fiscal year 2007 the following warrants were
issued: Michael A. Cederstrom, exercisable for 1,000,000 shares and Jose Fuentes
exercisable for 1,000,000.

Of the total 31,884,355  shares  outstanding as of December 7, 2007,  18,377,580
were deemed "restricted  securities," as defined by the Act when issued to their
registered  owner and  continues  to have their  restricted  status noted on the
books of TX Holdings' transfer agent. Certificates representing such shares bear
an  appropriate  restrictive  legend and their sale is subject to Rule 144 under
the Act.

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

Recent Sales of Unregistered Securities

As of September  30, 2007,  TX Holdings  has issued and  outstanding  31,884,355
shares of common  stock.  As of September  30, 2006,  TX Holdings had issued and
outstanding  25,782,558  shares of common  stock.  On December  12,  2002,  MA&N
acquired  control of the Company through  purchase of 4,647,626 shares of common
stock  representing 51% of the 9,112,992  outstanding  shares of common stock of
the Company.


                                       24
<PAGE>

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

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

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

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

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

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

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

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

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


                                       25
<PAGE>

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

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

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

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

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

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

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

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.  The sum of $250,000 was applied  toward the principal
repayment;  interest  and the  balance in the amount of $35,000  was  treated as
interest expense.

On July 21, 2005, 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.


                                       26
<PAGE>

On April 25, 2007, the Company  issued  500,000 shares to the Baron Group,  LTD.
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.

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 September 28, 2007, a warrant to purchase 1,000,000 shares of common stock of
TX  Holdings,  Inc.  at an  exercise  price  of  $0.28  was  issued  to  Michael
Cederstrom. The warrant expires on September 28, 2011.

On September 28, 2007, a warrant to purchase 1,000,000 shares of common stock of
TX Holdings,  Inc. at an exercise price of $0.28 was issued to Jose Fuentes. The
warrant expires on September 28, 2011.

On September 28, 2007, a convertible  promissory note was issued to Mark Neuhaus
in the amount of $1,199,885.55 which bears interest at 8% per annum. The note is
for a period of two years and contains an automatic conversion at the end of the
period.  The Company may 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.  A
copy of the note is attached as Exhibited 10.8 and incorporated herein.

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  $11,345,049  as of September  30, 2007.  The  acquisition  of a  controlling
interest in the Company by MA&N has given the Company access to additional funds
directly  from MA&N,  and the  business  plan  developed by MA&N has enabled the
Company to raise additional funds from third parties.  As of September 30, 2006,
the Company 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.  In addition the Company
has entered into  negotiations to purchase  additional  fields of operation that
are scheduled to close during the fourth quarter of 2007. The Company will begin
oil  production  upon the  completion  of well  integrity  tests  required to be
performed by the Texas Railroad  Commission on the wells located in the Williams
Lease.  Upon the  successful  completion  of the test  the  Company  may be in a
position  to start the  recompletion  of the 30 wells  located  on the  Williams
Brothers leases.  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  $5,000 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 will 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 may
increase  production of each well up to an estimated eight to twelve barrels per
day per well. If the Company is able to produce its wells upon the  recompletion
the Company will be  profitable  if 150 barrels of oil is produced and the price
of oil remains above $70 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.


                                       27
<PAGE>

Results of Operations

Year Ended September 30, 2007 Compared With Year Ended September 30, 2006

Revenues  From  Operations  - The Company  had no  Revenues  for the years ended
September 30, 2007 or 2006. In December  2004,  the Company  announced  plans to
change  business  direction  and began to  structure  itself into an oil and gas
production  and  exploration  company.  Since  it  ceased  its  former  business
operations, the Company has devoted its efforts to research, product development
and securing financing and has not earned revenues.

Expenses From Continuing Operations - The Company incurred operating expenses of
$3,787,199  for the  fiscal  year  ended  September  30,  2007;  a  decrease  of
$1,210,940  compared to $4,998,139 for the fiscal year ended September 30, 2006.
The  decrease  in  operating   expenses  is  primarily  related  to  stock-based
compenstion  decreasing by $2,481,298 to $2,061,603 for the year ended September
30, 2007 from $4,542,901 for the year ended September 30, 2006. This decrease to
stock based  compensation was partially offset by increses in professional  fees
of  $340,388  and  significant  personnel  related  expenses  as it pursues  its
business  strategy of oil and gas exploration  and  production.  The stock based
compensation in 2006 was incurred because of the cost of raising capital for the
Company  pursuant to a private  placement,  the bringing current of the required
reporting of the Company and the payment for services rendered in prior years.

Net Loss - For the fiscal year ended  September 30, 2007 the Company  incurred a
loss of $4,085,033  compared to a loss of  $5,015,719  for the fiscal year ended
September  30,  2006, a decrease of  $930,686.  The major  reasons for this loss
decrease is having a decrease in  stock-based  compensation  for the fiscal year
ended  September  30,  2007  partially  offset by higher  professional  fees and
personnel  expenses  for the fiscal year ended  September  30, 2007 as discussed
above.  The Company's  interest  expense in 2007 also  increased from $18,290 in
2006 to $299,834 in 2007 an  increase  of $272,544 in interest  expense.  During
2007 the Company shifted its focus to oilraised  capital by loans primarily from
shareholders  and gas  exploration and  production.management.  At September 30,
2007,  Mark S. Neuhaus has made cash  advances an payments  with common stock of
the Company  $1,199,886.  The resulting note to Mr. Neuhaus bears interest at 8%
interest.  During the year 2007 the Company was  required to pay  interest up to
24% for some loans.

Net Operating Loss Carryforward for Tax Purposes

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


                                       28
<PAGE>

Net  operating  losses after  December 12, 2002 through  September 30, 2007 were
approximately  $2,666,000.  The  total net  operating  losses  available  to the
Company to offset future taxable income is approximately $3,090,000.

There can be no  assurance  that these  deferred  tax assets can ever be used. A
deferred  tax asset can be used only if there is future  taxable  income,  as to
which there can be no assurance in the case of the Company.  (See NOTE 5 - NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS.)

Liquidity

At September  30, 2007,  we had no cash or cash  equivalent  or prepaid  current
assets.  As of September 30, 2006, we had a cash balance of $332,546 and $15,000
in 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 $617,038 in 2007 from  $290,318 in 2006 an increase of $326,720 or
53%. In addition  Deposit for oil and gas  property  acquisitions  increased  to
$378,000 in 2007 from  $253,000  in 2006 an  increase  of  $125,000 or 33%.  The
investment in the oil and gas fields has caused the Company a liquidity  crisis.
The  Company has been able to borrow  money from Mark S.  Neuahus  primarily  to
resolve the  Company's  liquity  needs.  The Company has  completed  its testing
required by the Texas  Railroad  Commision as of December  28,  2007.  This will
allow the Company to start to produce the oil wells on the Williams lease.  (See
"Oil and Gas Leases" under Item 2 Description of  Properties)  While the Company
will begin to generate  revenue  during the second  quarter of 2008 to amount of
production will not be suffiecient 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 provided loans to the
Company  providing  the Company with  $1,199,886  for  operating  purposes as of
September  30,  2007.  As of September  30,  2007,  the Company owed to Dexter &
Dexter,  Attorneys at Law the sum of $80,205 for attorneys'  fees and the sum of
$25,671 to Jose Fuentes as payment for service.

During the 2007 and 2006 fiscal years the Company borrowed  $1,199,886 from Mark
Neuhaus.  This  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
may be converted at any time during that period.

Based on current expectations,  the Company will need to find additional sources
of financing to meet our general  corporate  needs as well as the large  capital
requirements  necessary  for the  production  of the oil and gas in the wells we
currently 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 its current  obligations.  At this time the Company has no 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 begin to generate  revenue  from its oil and gas leases.  If the
revenue is not generated, then the Company will need to seek merger partners.

Item 7 Financial Statements

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


                                       29
<PAGE>

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.


                                       30
<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
FINANCIAL STATEMENTS - TABLE OF CONTENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006

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

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

Report Of Independent Registered Public Accounting Firm                    32

Audited Financial Statements:

    Balance Sheets at September 30, 2007 and 2006                          33

    Statements Of Operations for the years ended September 30, 2007
    and 2006, and
      for the period from inception of the development stage,
      October 1, 2004, to
      September 30, 2007                                                   34

    Statements Of Changes In Stockholders' Deficit for the period
    from inception of the
      Development stage, October 1, 2004, to September 30, 2007            35

    Statements Of Cash Flows for the years ended September 30, 2007
    and 2006, and for the period from inception of the development
      stage, October 1, 2004, to                                           38
      September 30, 2007

Notes to Financial Statements                                              39


                                       31
<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,  2007  and  2006  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, 2007.
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,  2007 and 2006,  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, 2007, in conformity  with
accounting principles generally accepted in the United States of America.

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


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

Houston, Texas
December 28, 2007


                                       32
<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
BALANCE SHEETS
September 30, 2007 and 2006


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

                                                         2007           2006
                                                     -----------    -----------

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

     Total current assets                                     --        347,546

Deposit for oil and gas property acquisition             378,000        253,000
Property and equipment, net                              617,038        290,318
Other                                                      5,000             --
                                                     -----------    -----------

         Total assets                                $ 1,000,038    $   890,864
                                                     ===========    ===========

        LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Notes payable to a stockholder                    $   170,000    $        --
   Accounts payable and accrued liabilities              491,788        455,251
   Accrued stock-based compensation                      231,000        830,000
   Advances from a stockholder/officer                        --        164,385
                                                     -----------    -----------

     Total current liabilitiess                          892,788      1,449,636

Convertible debt to stockholder/officer                1,199,886             --
                                                     -----------    -----------

       Total liabilities                               2,092,674      1,449,636
                                                     -----------    -----------

Commitments and contingencies

Stockholders' deficit:
   Preferred stock: no par value, 1,000,000 shares
     authorized, 1,000 shares issued or outstanding    1,018,000      1,018,000
   Common stock: no par value, 250,000,000 shares
     authorized, 31,884,355 and 25,782,558 shares
     issued and outstanding at September 30, 2007
     and 2006, respectively                            8,443,004      5,104,541
   Additional paid-in capital                            800,409        587,703
   Accumulated deficit                                (1,803,507)    (1,803,507)
   Losses accumulated in the development stage        (9,550,542)    (5,465,509)
                                                     -----------    -----------

     Total stockholders' deficit                      (1,092,636)      (558,772)
                                                     -----------    -----------


         Total liabilities and stockholders' deficit $ 1,000,038    $   890,864
                                                     ===========    ===========

    The accompanying notes are an integral part of these financial statements


                                       33
<PAGE>



TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
STATEMENTS OF OPERATIONS

For the Years Ended September 30, 2007 and 2006 and for the Period from
Inception of the Development Stage, October 1, 2004, to September 30, 2007
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------

                                                                                           Inception of
                                                                                           Development
                                                                                             Stage to
                                                                                          September 30,
                                                                 2007            2006                2007
                                                        --------------  --------------  ------------------

Operating expenses, except items shown
<S>                                                      <C>             <C>             <C>
  separately below                                       $  1,119,590    $    202,177    $      1,389,017
  Stock-based compensation                                  2,061,603       4,542,901           6,644,504
  Professional fees                                           552,012         211,624             884,342
  Lease expense                                                     -          12,392              17,392
  Depreciation expense                                          1,378             780               2,638
  Advertising expense                                          52,616          28,265              83,265
                                                        --------------  --------------  ------------------

    Total operating
     expenses                                               3,787,199       4,998,139           9,021,158
                                                        --------------  --------------  ------------------

Loss from operations                                       (3,787,199)     (4,998,139)         (9,021,158)
                                                        --------------  --------------  ------------------

Other income and
 (expenses):
  Other income                                                      -             710                 710
  Loss on disposal of
   equipment                                                   (7,000)              -              (7,000)
  Forebearance agreement
   costs                                                            -               -            (211,098)
  Interest expense                                           (290,834)        (18,290)           (311,996)
                                                        --------------  --------------  ------------------

    Total other income and (expenses), net                   (297,834)        (17,580)           (529,384)
                                                        --------------  --------------  ------------------

Net loss                                                 $ (4,085,033)   $ (5,015,719)   $     (9,550,542)
                                                        ==============  ==============  ==================


Net loss per common share - basic and
 diluted                                                 $      (0.14)   $      (0.25)
                                                        ==============  ==============

Weighted average number of common shares
  outstanding - basic and diluted                          28,750,169      20,192,875
                                                        ==============  ==============
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       34

<PAGE>


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, 2007
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                            Losses
                                                                           Additional                    Accumulated
                            Preferred Stock          Common Stock            Paid-In      Accumulated   in the Develop-
                          -------------------- -------------------------
                           Shares     Amount      Shares       Amount        Capital        Deficit       ment Stage       Total
                          --------- ---------- ------------ ------------ --------------- -------------- -------------- -------------

Balance at September 30,
<S>                                 <C>          <C>        <C>           <C>            <C>            <C>             <C>
 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)
                          ========= ========== ============ ============ =============== ============== ============== =============
</TABLE>



    The accompanying notes are an integral part of these financial statements

                                       35


<PAGE>

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, 2007
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                       Losses
                                                                         Additional                  Accumulated
                            Preferred Stock          Common Stock          Paid-In    Accumulated  in the Develop-
                           ------------------  ------------------------
                           Shares   Amount       Shares       Amount       Capital      Deficit      ment Stage          Total
                           ------ -----------  ----------- ------------ ------------- ------------ --------------- -----------------

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

Common stock issued for
  professional services         -           -    4,649,300    2,318,296             -            -               -         2,318,296
Common stock issued for
 cash                           -           -    4,633,324    1,164,997             -            -               -         1,164,997
Common stock issued upon
  exercise of warrants          -           -      294,341        2,943             -            -               -             2,943
Common stock surrendered        -           -    (500,000)            -             -            -               -                 -
Warrants issued for
 services                       -           -            -            -       376,605            -               -           376,605
Preferrd stock issued to
 the
  Company's chief executive
  officer/stockholder       1,000   1,018,000            -            -             -            -               -         1,018,000
Net 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)
                           ====== ===========  =========== ============ ============= ============ =============== =================
</TABLE>



    The accompanying notes are an integral part of these financial statements


                                       36

<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, 2007

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

                                                                                                      Losses
                                                                         Additional                Accumulated
                            Preferred Stock          Common Stock         Paid-In    Accumulated  in the Develop-
                          -------------------- ------------------------
                           Shares    Amount       Shares      Amount      Capital      Deficit      ment Stage          Total
                          -------- ----------- ------------ ----------- ------------ ------------ -------------- -------------------

Balance at September 30,
<S>                          <C>   <C>           <C>        <C>         <C>          <C>          <C>            <C>
 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 accrued 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)
                          ======== =========== ============ =========== ============ ============ ============== ===================
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       37


<PAGE>

TX HOLDINGS, INC.
A CORPORATION IN THE DEVELOPMENT STAGE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2007 and 2006 and for the Period From
Inception of the Development Stage, October 1, 2004, to September 30, 2007
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------

                                                                                  Inception of
                                                                                  Development
                                                                                    Stage to
                                                                                 September 30,
                                                          2007            2006               2007
                                                -------------- --------------- ------------------
Cash flows from opersating activities:
<S>                                             <C>            <C>             <C>
  Net loss                                      $  (4,085,033) $   (5,015,719) $      (9,550,542)
  Adjustments to reconcile net loss to net cash
   used in
    operating activities
    Warrants issued for forbearance agreement                -               -            211,098
    Loss on disposal of equipment                        7,000                              7,000
    Depreciation expense                                 1,378             780              2,638
    Common stock issued for services                 2,061,603       3,336,296          5,447,899
    Preferred stock issued for services                      -         376,605            376,605
    Common stock issued to settle accounts
     payable                                           215,114               -            251,308
    Common stock issued in payment of interest
     expense                                           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
    Accrued interest added to stockholder
     advances                                           35,171               -             35,171
    Changes in operating assets and
     liabilities:
      Prepaid expenses and other assets                 10,000         (5,000)            (4,750)
      Accounts payable and accrued liabilities          99,537       1,083,264          1,203,506
                                                -------------- --------------- ------------------

           Net cash used by operating
            activities                               (841,814)       (223,774)        (1,206,651)
                                                -------------- --------------- ------------------

Cash flows from investing activities:
  Payment of deposits for oil and gas property
    acquisition                                      (125,000)       (253,000)          (378,000)
  Property and equipment additions                    (45,538)       (290,018)          (335,556)
                                                -------------- --------------- ------------------

           Net cash used by investing
            activities                               (170,538)       (543,018)          (713,556)
                                                -------------- --------------- ------------------

Cash flows from financing activities:
  Repayment of note payable to a bank                        -               -           (20,598)
  Proceeds from note payable to stockholders           520,000                            520,000
  Proceeds from sale of common stock                         -       1,164,997          1,164,997
  Proceeds from warrant exercise                        75,461           2,943             78,404
  Proceeds from stockholder/officer advances            84,345        (68,602)            177,404
                                                -------------- --------------- ------------------

           Net cash provided by financing
            activities                                 679,806       1,099,338          1,920,207
                                                -------------- --------------- ------------------

Decrease in cash and cash equivalents                (332,546)         332,546                  -
Cash and cash equivalents at beginning of year         332,546               -                  -
                                                -------------- --------------- ------------------

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

Supplemental disclosure of cah flow information
  Cash paid for interest expense                $            - $        13,717
  Cash paid for income taxes                                 -               -
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                       38

<PAGE>


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


NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

HISTORICAL BUSINESS ACTIVITIES

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

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

CURRENT BUSINESS ACTIVITIES

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

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

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

Management raised  $1,240,000 in a Private Placement  offering during the months
of July through September 2006 to finance these  acquisitions.  The funds raised
in 2006 were used to purchase an interest in three oil and gas fields located in
Texas.  Development  of the  fields  began on  November  1,  2006.  The  Company
experienced  substantial costs for engineering and other  professional  services
during  2005,  2006  and  2007  in  making  the  transition  to an oil  and  gas
exploration and production  company.  During 2007 the Company borrowed money and
obtained  other  advances  from Mark  Neuhaus in the form of  payments in common
stock on behalf of the Company.  The total  borrowed from Mr.  Neuhaus in fiscal
2007 and  2006  totaled  $1,199,885  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.


                                       39
<PAGE>


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

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

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.

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 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.


                                       40
<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

If a well is determined to be unsuccessful,  the capitalized drilling costs will
be charged to expense in the period the determination is made. If an exploratory
well requires a major capital  expenditure before production can begin, the cost
of drilling the exploratory well will continue to be carried as an asset pending
determination of whether proved reserves have been found only as long as: i) the
well has found a sufficient  quantity of reserves to justify its completion as a
producing well if the required  capital  expenditure is made and ii) drilling of
the  additional  exploratory  wells is under way or firmly  planned for the near
future.  If drilling in the area is not under way or firmly  planned,  or if the
well  has  not  found  a  commercially  producible  quantity  of  reserves,  the
exploratory  well is  assumed  to be  impaired,  and its  costs are  charged  to
expense.

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

The impairment of unamortized  capital costs is measured at a lease level and is
reduced to fair value if it is  determined  that the sum of expected  future net
cash flows is less than the net book value. 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 no revenue  from oil and gas  operations.  When the
Company  begins  to  receive  revenue  from  oil and gas  operations  it will be
recognized  upon the  delivery of the oil or gas to the  purchaser of the oil or
gas.


                                       41
<PAGE>


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


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

INCOME TAXES

Income taxes are estimated for the tax effects of  transactions  reported in the
financial  statements  and consist of taxes  currently due plus  deferred  taxes
related  primarily to  differences  between the  financial  reporting  basis and
income tax basis of assets and liabilities.  Deferred tax assets and liabilities
represent  future tax  consequences of those  differences,  which will either be
taxable or deductible  when the assets and liabilities are recovered or settled.
Deferred taxes may also be recognized for operating losses that are available to
offset future  taxable  income.  Deferred  taxes are adjusted for changes in tax
laws and tax rates when those changes are enacted.

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

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  potentially  dilutive 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.

                                                           2007         2006
                                                         ----------  -----------
Convertible notes                                         4,285,306           -
Warrants Issued for
forbearance of payable                                           -     1,434,088
Warrants       issued       as
compensation                                              1,050,000    1,050,000
Warrants   issued  in  private
placement                                                 4,368,324    4,368,324
                                                         ----------  -----------

     Total                                                             6,852,412
                                                         ==========  ===========

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the SEC issued SAB No. 108,  "Considering the Effects
of Prior Year  Misstatements  when Quantifying  Misstatements in Current
Year Financial Statements." SAB 108 provides  interpretative guidance on
the process of  quantifying  financial  statement  misstatements  and is
effective for fiscal years ending after  November 15, 2006. The adoption
of this  statement in fiscal 2007 did not have a material  impact on the
Company's financial condition, results of operations or cash flows.


                                       42
<PAGE>


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


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

RECENTLY ISSUED ACCOUNTING STANDARDS, continued

In  May  2005,  the  FASB  issued  SFAS  154,   "Accounting  Changes  and  Error
Corrections" which supersedes APB Opinion No. 20, "Accounting  Changes" and SFAS
3, "Reporting  Accounting  Changes in Interim  Financial  Statements."  SFAS 154
changes the  requirements  for the  accounting  for and reporting of a change in
accounting  principle.  SFAS 154  also  carries  forward,  without  change,  the
guidance  contained  in APB 20 for  reporting  the  correction  of an  error  in
previously issued financial statements and a change in accounting estimate. SFAS
154 requires retrospective application to prior periods' financial statements of
changes in accounting principle,  unless it is impracticable to determine either
the  period-specific  effects  or  the  cumulative  effect  of the  change.  The
correction of an error in previously issued financial statements is not a change
in accounting principle.  However, the reporting of an error correction involves
adjustments to previously issued financial statements similar to those generally
applicable  to reporting an  accounting  change  retroactively.  Therefore,  the
reporting of a correction of an error by restating  previously  issued financial
statements is also  addressed by SFAS 154. SFAS 154 is effective for  accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005.  The adoption of this statement in fiscal 2007 did not have a material
impact on The  Company's  financial  condition,  results of  operations  or cash
flows.

In September 2006, the FASB issued SFAS 157, "Fair Value Measurements." SFAS 157
defines  fair value,  establishes  a framework  for  measuring  fair value under
generally accepted  accounting  principles,  and expands  disclosures about fair
value  measurements.  SFAS 157 is  effective  for fiscal years  beginning  after
November 15, 2008, and interim periods within those fiscal years. The Company is
currently evaluating the impact the adoption of this statement could have on its
financial condition, results of operations and cash flows.

In July 2006, the FASB issued FASB Interpretation  (FIN) No. 48, "Accounting for
Uncertainty  in Income  Taxes,  an  interpretation  of  Statement  of  Financial
Accounting Standards No. 109, Accounting for Income Taxes." FIN 48 clarifies the
accounting for income taxes by prescribing the minimum  recognition  threshold a
tax  position  is  required to meet before  being  recognized  in the  financial
statements.  FIN  48  also  provides  guidance  on  derecognition,  measurement,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure  and  transition.  The  interpretation  applies to all tax  positions
related to income  taxes  subject to SFAS 109.  FIN 48 is  effective  for fiscal
years  beginning  after  December  15,  2006.  Differences  between  the amounts
recognized in the statements of financial  position prior to the adoption of FIN
48 and  the  amounts  reported  after  adoption  should  be  accounted  for as a
cumulative-effect  adjustment  recorded  to the  beginning  balance of  retained
earnings.  The Company is currently evaluating the impact of the adoption of FIN
48 but does not expect the adoption of this statement to have a material  impact
on the Company's financial condition, results of operations or cash flows.

In February  2007,  the FASB issued  SFAS No.  159,  "The Fair Value  Option for
Financial  Assets and  Financial  Liabilities  -- Including an Amendment of FASB
Statement  No.  115." SFAS No. 159 permits an entity to measure  many  financial
instruments  and  certain  other  items at fair  value  that  are not  currently
required to be measured at fair value. Entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting
date.  SFAS No. 159 is effective for fiscal years  beginning  after November 15,
2007.  The  Company is  currently  evaluating  the impact the  adoption  of this
statement could have on its financial condition,  results of operations and cash
flows.

In December  2007,  the FASB issued SFAS No. 160,  "Noncontrolling  Interests in
Consolidated  Financial  Statements--an  amendment  of ARB No. 51." SFAS No. 160
requires  all  entities  to  report   noncontrolling   (minority)  interests  in
subsidiaries as equity in the consolidated  financial statements.  Its intention
is  to  eliminate  the  diversity  in  practice  regarding  the  accounting  for
transactions between an entity and noncontrolling  interests.  This Statement is
effective  for fiscal  years,  and interim  periods  within those fiscal  years,
beginning on or after  December 15, 2008.  Earlier  adoption is  prohibited  The
Company is  currently  evaluating  the impact of the adoption of FIN 48 but does
not expect  the  adoption  of this  statement  to have a material  impact on the
Company's financial condition, results of operations or cash flows.


                                       43
<PAGE>


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


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

RECENTLY ISSUED ACCOUNTING STANDARDS, continued

In December 2007, the FASB issued SFAS No. 141(R), a revised version of SFAS No.
141,  "Business  Combinations."  The  revision is intended to simplify  existing
guidance  and  converge  rulemaking  under U.S.  generally  accepted  accounting
principles  (GAAP) with  international  accounting rules. This statement applies
prospectively to business combinations where the acquisition date is on or after
the  beginning  of the  first  annual  reporting  period  beginning  on or after
December 15, 2008, and may affect the release of our valuation allowance against
prior acquisition intangibles.  An entity may not apply it before that date. The
new  standard  also  converges   financial   reporting   under  U.S.  GAAP  with
international  accounting rules. The Company is currently  evaluating the impact
the adoption of this statement could have on its financial condition, results of
operations  and  cash  flows.

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 catagories of costs if all provisions of the agreement are met. At
September  30,  2007,  the Company had made  payments  totaling  $378,000 to the
seller 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, 2007
and 2006:

                                              Life
                                               Years           2007         2006
                                            ----------- ----------- ------------

  Oil and gas properties and
   equipment                                            $   614,328 $    289,348
  Furniture and office equipment             3-5 years        6,088        3,070
                                                        ----------- ------------

  Total                                                     620,416      292,318

  Less accumulated depreciation,
   depletion and
   amortization                                             (3,378)      (2.000)
                                                        ----------- ------------

                                                        $   617,038 $    290,318
                                                        =========== ============


Depreciation  expense of $1,378 and $780 was  recognized  during the years ended
September 30, 2007 and 2006,  respectively.  At September 30, 2007 and 2006, the
Company  had no proven  oil and gas  properties  and,  accordingly,  there is no
amortization  of oil and gas properties  during the yer ended September 30, 2007
or 2006.

Included in oil and gas  properties  and equipment is $352,560 of 2007 additions
thet were  acquired  in  excghange  for  shares of the  Company's  common  stock
transferred  by the  Company's  former  Chief  Executive  Officer who is a major
stockholder  of the Company.  This amount is now due the former Chief  Executive
Officer/Stockholder  and is included in Convertible Debt to Officer/Stockholder.
See Note 4.


                                       44
<PAGE>


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


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 the shares
provided for  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  Neuhas,  Chairman of the Board of  Directors  and former  Chief  Executive
Officer of the  Company  and  entities he  controls  have  provided  much of the
support of the Company in the  development  stage. In September 2007 the Company
issued  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 maket  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.

NOTE 5 - INCOME TAXES

                                                             2007           2006
                                                      ----------- --------------

  Deferred tax assets:
    Net operating losses                              $ 1,051,207  $     591,580
    Accrued expenses                                      221,653              -
    Valuation allowance                                (1,272,760)     (591,480)
                                                      ----------- --------------

  Total deferred tax assets                                   100            100
                                                        (591,480)
  Deferred tax liabilities:
    Basis of property and
     equipment                                                100            100
                                                      ----------- --------------

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

The Company has tax net  operating  loss  carryforwards  totaling  approximately
$3,090,000,  expiring in 2018  through  2027.  Approximately  $1,200,000  of net
operating  losses was  incurred  prior to  December  12, 2002 at which date MA&N
acquired 51% of the Company and are consequently  subject to certain  limitation
described in section 382 of the Internal  Revenue  Code.  The Company  estimates
that,  due to the  limitations  and expiration  dates,  only $424,000 of the net
operating losses incurred prior to December 12, 2002 will be available to offset
future taxable income.

Net  operating  losses after  December 12, 2002 through  September 30, 2007 were
approximately  $2.666,000.  The  total net  operating  losses  available  to the
Company to offset future taxable income is approximately  $3,090,000.  Following
is a  reconciliation  of the tax  benefit at the federal  statutory  rate to the
amount reported in the statement of operations:


                                       45
<PAGE>


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


NOTE 5 - INCOME TAXES, continued

<TABLE>
<CAPTION>

                                                        2007                       2006
                                  -------------------------- --------------------------
                                     Amount       Percent       Amount       Percent
                                  ------------ ------------- ------------ -------------

  Benefit for income tax at
   federal
<S>                               <C>                     <C>                        <C>
  statutory rate                  $  1,388,911            34%$  1,705,344            34%
  Change in valuation allowance      (681,280)          (16)    (160,758)           (3)
  Non-deductible interest             (66,866)           (1)            -             -
  Non-deductible stock-based
    compensation                     (700,945)          (17)  (1,544,586)          (31)
                                  ------------ ------------- ------------ -------------

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

There were no income taxes due or receivable from operations for the years ended
September 30, 2007 or 2006, and the Company's  reported benefit for income taxes
differs from the amount computed by applying  statutory tax rates to loss before
income taxes due to changes in the valuation  allowance for financial  reporting
purposes.

NOTE 6 - SEGMENT INFORMATION

As of September 30, 2007 the Company's  only  operation  were in the oil and gas
operations.

NOTE 7 - STOCKHOLDERS' EQUITY

PREFERRED STOCK

In May 2006 an  employment  agreement  was  entered  into with Mr.  Neuhaus  the
president,  CEO and  chairman  of the Board.  The  agreement  provides  that Mr.
Neuhaus shall be  compensated  at the rate of $25,000 per month plus bonus based
on oil and gas production.  In addition the employment agreement provides to Mr.
Neuhaus 1,000 shares of preferred  stock.  The preferred stock has the following
rights and privileges:

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

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

During the fiscal  year 2006,  Mr.  Neuhaus  waived  his  salary;  however,  the
preferred  stock he was issued was valued at $1,018,000 due to the fact that the
shares  give Mr.  Neuhaus  complete  control  over  every  decision  made by the
Company.  The  shares  were  valued at  $1,018,000  based on an  opinion  letter
received from Baron Capital Group, Inc.

COMMON STOCK

During the years ended  September 30, 2006 and 2007,  the Company  issued Common
stock to raise capital,  compensate  employees and professionals,  and to settle
liabilities. Following is a description of stock issuances in 2006 and 2007:

In October  2005 the  Company  issued  2,000,000  shares of its common  stock to
Darren Bloom as his compensation in the role of, CFO, Secretary - Treasurer. The
Company has filed suit against Mr. Bloom for the return of the shares for breach
of contract. The shares were issued pursuant to a three year employment contract
which Mr. Bloom only served for 9 months.


                                       46
<PAGE>


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


NOTE 7 - STOCKHOLDERS' EQUITY, continued

COMMON STOCK, continued

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

In March  2006 the  Company  entered  into a  contract  with  Global  Investment
Holdings, LLC ("Global"). Global acts as a consultant and provides advice in the
areas of paper-based stock and internet-based  stock information  publishers who
are in compliance  with the federal  securities  laws,  etc. For their services,
Global will receive 400,000  restricted  shares of common stock each month for a
period of six months  commencing March 1, 2006. The Company used the services of
Global for seven months in 2006 and issued Global a total of 1,600,000 shares in
2006 with a value of $1,300,000.  An additional  1,220,000 shares were issued to
Global subsequent to September 30, 2006, with a value of $830,000. The liability
for the services performed for which shares were not issued in 2006 is presented
as accrued  stock-based  compensation  of $231,000 in the  accompanying  balance
sheet.

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

During May 2006,  the Company  entered into a Private  Placement  Agreement with
Brill  Securities,  Inc. to act as a financial advisor for the private placement
of shares of common  stock of TX  Holdings.  Pursuant to the  private  placement
memorandum  $1,240,000 of units were placed. The units contained an aggregate of
4,133,324  shares of the  Company's  common  stock and  4,133,324  common  stock
purchase  warrants.  Each common stock  purchase  warrant is  exercisable  for a
period of two years at an  exercise  price of $.50 per share and is subject to a
call provision.  The warrants are exercisable for up to twenty-four  (24) months
after the date of their issuance and the exercise price is subject to adjustment
for stock splits,  combinations and dividends.  The Company may call the warrant
at anytime  after  January 1, 2007 if the stock  price of the Company is trading
above  $1.50 per share  for a period of ten (10)  trading  days as quoted on the
stock  quotation  system where the shares are regularly  traded.  If the Company
chooses to call the warrants,  then the warrant holder shall have twenty trading
days from the day the Company  sets as the call date to  surrender  the warrants
with the required  payment If the warrant  holder fails to exercise the warrants
within the twenty day period, the warrants expire.

In connection with the offering,  the Company paid a placement fee of $70,500 in
cash.  In addition,  the placing agent was issued  warrants to purchase  235,000
shares of common stock on the same terms and  conditions as the  investors.  The
net proceeds of the offering  will be used by the Company to purchase  necessary
equipment to upgrade,  replace, repair equipment on site at the fields we lease;
to search,  negotiate  and acquire  additional  oil and gas leases;  and general
corporate purposes.

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

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


                                       47
<PAGE>


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


NOTE 7 - STOCKHOLDERS' EQUITY, continued

STOCK OPTIONS AND WARRANTS

On December 12, 2002, the award of five year options to purchase  294,341 shares
of TX Holdings  Common Stock at $0.01 per share to Robert Wilson,  then Chairman
and Chief Executive  Officer of the Company was authorized in lieu of $54,000 in
compensation  earned during  calendar  year 2001,  and cash advances and accrued
interest of $19,585  for a total of  $73,585.  The  options  were  exercised  in
December 2005.

On July 21, 2005, a warrant to purchase  1,434,088  shares of TX Holdings  stock
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.

In September 1, 2006, the Company entered into a consulting  agreement with W.A.
("Bill") Alexander to provide technical support and advice in setting up the oil
and gas  operations.  Mr.  Alexander  was granted a warrant to purchase  250,000
shares of the  Company's  Common Stock at an exercise  price of $0.30 per share.
The warrant expires on March 27, 2010.

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,  2011and  vest over a two year period  with  1,000,000
shares vesting  September 28, 2007 and 1,000,000  shares  vesting  September 28,
2008.

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 may 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.

Following is a summary of  outstanding  stock  warrants at September 30,
2007 and 2006 and activity during the years then ended:

                                            Number of    Exercise     Weighted
                                                                      Average
                                             Shares       Price         Price
                                           ----------- ------------ ------------

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

  Issued                                     5,418,324  0.30 - 0.50         0.15
  Exercised                                  (294,341)         0.01
                                          ------------

  Warrants at September 30, 2006             6,852,406  0.01 - 0.15         0.13

  Issued                                    2,,355,827  0.21 - 0.28         0.27
  Expired                                    (800,000)         0.30         0.30
  Exercised                                (1,789,909)) 0.15 - 0.21         0.16
                                          ------------

  Warrants at September 30, 2007             6,618,324 $0.28 - 0.50 $       0.42
                                          ============


                                       48
<PAGE>


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


NOTE 7 - STOCKHOLDERS' EQUITY, continued

STOCK OPTIONS AND WARRANTS, continued

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

                                                                     Contractual
                                                                    Remaining
                                            Number of   Exercise        Life
         Expiration Date                      Shares      Price       (Years)
  ------------------------------            ---------- ----------- -------------

  October 2008                               4,368,324        0.50           1.0
  March 2010                                   250,000        0.30           3.5
  September 2011                             2,000,000        0.28           4.0
                                           -----------

  Warrants at September 30, 2007             6,618,324
                                           ===========

NOTE 8 - RELATED PARTY TRANSACTIONS

Mark Neuhas,  Chairman of the Board of Directors and Chief Executive  Officer of
the Company and entities he controls  have  provided  much of the support of the
Company in the  development  stage. As described in Note 7, the Company issued 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. This convertible promissory note is the
result  of the  consolidation  of  stockholder  advances  made by  Mark  Nuehaus
entities he controls.

Included in the  financial  statements  at September  30, 2006 are advances from
stockholder/officer of $164,385 and due Mark Neuhaus.  Interest has been accrued
on these  advances at rates ranging from 8% to 10% in 2007  interest  expense of
$35,171, in the accompanying statement of operations, relates to those advances.

In June 2007 the Company  enetered  into a  strategic  alliance  agreement  with
Hewett 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.  Hewett Energy Group,
LLC is controlled by a former member of the Company's board of directors. During
2007  the  Company's  Chief  Executive  Officer,  who  is a  major  stockholder,
transferred stock with a market value of $352,560 to Hewett Energy Group, LLC to
acquire an interest in the Perth field in Kansas.

                                                          2007         2006
                                                      ------------ -------------

  Beginning balance                                   $    164,385  $    214,697

  Expoenses paid and added to
   note                                                     84,345             -
  Interest accrued                                          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             -
  Repayments                                                     -      (50,312)
  Contributions to stockholders'
   equity                                                 (53,325)             -
  Converted to convertible
   promissory note                                     (1,199,886)             -
                                                      ------------ -------------

  Ending balance                                      $          -  $    164,385
                                                      ============ =============


                                       49
<PAGE>


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


NOTE 9 - 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 2006:

                                                         2007          2006
                                                     ------------- -------------

  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                                            352,560             -
   from officer/stockholder

  Advances from
   officer/stockholder converted
   to
   long-term convertible debt                            1,199,886             -


                                       50
<PAGE>


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

Effective August 9, 2005, the Registrant  engaged Ham Langston & Brezina L.L.P.,
11550  Fuqua,  Suite 475,  Houston,  Texas 77034 as its  auditors to replace its
former  auditors,  Elliott  Davis LLC. The former  auditor was notified of their
dismissal on August 09, 2005.

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

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

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

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

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

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

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

Item 8A Controls and Procedures

Effectiveness of Disclosure and Procedures

The management of the Company is responsible  for  establishing  and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and  15d-15(f)  under  the  Securities  Exchange  Act  of  1934.  The  Company's
internalcontrol  over  financial  reporting  is designed  to provide  reasonable
assurance  regarding the reliability of financial  reporting and the preparation
offinancial  statements  for  external  purposes in  accordance  with  generally
acceptedaccounting  principles  in the United  States of America.  The Company's
internal control over financial reporting includes those policies and procedures
that:(i)  pertain to the  maintenance  of records that,  in  reasonable  detail,
accuratelyand  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
generally accepted accounting principles,  and that receipts and expenditures of
the  Company  are  being  made  only  in  accordance  with   authorizations   of
managementand  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.


                                       51
<PAGE>


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

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

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

Since the  assessments of September 30, 2005 and September 30, 2006, the Company
has  instituted  significant  changes in the  operation  of the  Company.  These
changes include the following financial controls:

1.   All  obligations  that are paid are subject to review by the  President and
     the Director of Finance;
2.   The  President  of  the  Company  signs  each  check  or  other   financial
     instrument;
3.   Copies of each check are  maintained  and attached to each invoice or funds
     request;
4.   The President and the Director of Finance  review all bank  statements on a
     monthly basis;
5.   Each bank account and the stock accounts are reconciled on a monthly basis;
6.   All of the  financial  records are  maintained  in the  Company's  business
     office;
7.   The Company has hired as the Director of Finance,  Jose  Fuentes,  who is a
     Certified Public Account;
8.   The  Company has hired a Company to oversee all  accounting,  payments  and
     operations for its Texas oil and gas operations;
9.   The Chief Financial Officer reviews all accounts on a regular basis.

Item 8B Other Information

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

Mr.  Neuhaus is  alleged to have  violated  Sections  5(b) and (c) and  Sections
17(a)(1),  (2) and (3) of the  Securities  Act of 1933 and Section  10(b) of the
Securities  Exchange Act of 1934 and Rule 10b-5  thereunder.  Mr. Neuhaus denies
violation  of any  applicable  law in  connection  with his resale of  Universal
common stock.  On February 21, 2007 the United States  District  Court  Southern
District of New York granted a motion for summary  judgment  against Mr. Neuhaus
as to Section 5 liability only. The summary judgment motion was denied as to all
other issues  pending  against Mr.  Neuhaus.  The Company  believes  there is no
connection  between the Company and Universal other than Mr.  Neuhaus'  position
with the Company and the fact that Mr. Neuhaus was a consultant to Universal and
received and resold shares of its common stock.


                                       52
<PAGE>


                                    PART III


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

The  following  table shows the names,  ages and  positions  held by our
executive officers,  directors and significant employees at December 10,
2007:

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

William Shrewsbury                 63          Chief Executive Officer and
Chairman of the Board of
 Directors

Rob Hutchings                      65          Interim President and Director

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

Michael A. Cederstrom              54          Interim Chief Financial Officer

W.A. Alexander                     70          Chief Operating Officer

Jose Fuentes                       60          Vice President of Finance

Martin Lipper                      73          Director

Bobby S. Fellers                   57          Director

Business Experience of Executive Officers and Directors

William "Buck" Shrewsbury, CEO and Chairman of the Board, age 63. 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,  Interim President and Director,  age 65. 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.

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.

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


                                       53
<PAGE>


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

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

Martin Lipper,  Director,  age 73, 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,  Member Board of Directors - Mr. Fellers Joined TX Holdings on
March 28, 2006 as a member of the board of  directors.  Mr.  Fellers has over 30
years  experience  in the oil and  gas  industry  in  both  field  and  offshore
operations.  Currently,  Mr.  Fellers is the  principal of the Masada  Family of
Companies which includes Masada Oil and Gas Company, Ltd.

Term of Office

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

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

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

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

Audit Committee

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

Compliance with Section 16(a)

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


                                       54
<PAGE>


Code of Ethics

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

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

Item 10 Executive Compensation

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

                         SUMMARY COMPENSATION TABLE
                         --------------------------

<TABLE>
<CAPTION>
                                                              Long Term Compensation
                       Annual Compensation                  Awards               Payouts
                                                                 Securities
                                         Other       Restricted    Under-
 Name And                                Annual         Stock      Lying    LTIP   All Other
 Principal             Salary  Bonus  Compensation  Compensation  Options/ PayoutsCompensation
<S>                     <C>     <C>       <C>            <C>           <C>   <C>      <C>
 Position       Year    ($)     ($)       ($)            ($)      SARs (#)   ($)      ($)

   Mark                                                  N/A        N/A      N/A      (1)
 Neuhaus,                                                N/A        N/A      N/A      N/A
   Chief                                                 N/A        N/A      N/A      N/A
 Executive      2007    -0-     -0-       -0-            N/A        N/A      N/A      N/A
  Officer       2006    -0-     -0-       -0-
    and         2005    -0-     -0-       -0-
  Chairman      2004    -0-     -0-       -0-
Michael A.
 Cederstrom     2007     0       0      180,000          N/A        N/A      N/A      N/A
   Jose
  Fuentes       2007  150,000    0                       N/A        N/A      N/A      N/A
Fuentes
</TABLE>

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

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

Equity Compensation Plan Information - Employment Agreements

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's total voting control
of the Company. Mr. Neuhaus still has substantial control of the Company via his
common stock ownership.


                                       55
<PAGE>


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

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

On March 28, 2006, the Company entered into a consulting  agreement with Douglas
C. Hewitt to provide  technical support and advice in setting up the oil and gas
operations.  Mr. Hewitt was granted  warrants to purchase  300,000  shares of TX
Holdings Common Stock at an exercise price of $0.30 per share. The warrants will
expire on March 27, 2010.  Mr.  Hewitt  resigned  from the Company on August 10,
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 granted  warrants  to  purchase  300,000  shares of TX Holdings
Common Stock at an exercise  price of $0.30 per share.  The warrants will expire
on March 27, 2010.

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

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

Option Warrant Grants During 2006 Fiscal Year

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

Name                  No. of Securities        % of Total Options      Exercise
Expiration Date        Underlying Options       Granted to Employees    Price
                       Granted (#)              in Fiscal               ($/Sh)
--------------------------------------------------------------------------------
W.A. Alexander
March 27, 2010                        250,000                    23.8      $0.30
Michael A.
 Cederstrom
March 27, 2010                        200,000                    19.0      $0.30
Bobby S. Fellers
March 27, 2010                        300,000                    28.6      $0.30
Douglas C. Hewitt
March 27, 2010                        300,000                    28.6      $0.30

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


                                       56
<PAGE>


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

Name                  No. of Securities    % of Total Options Granted Exercise
Expiration Date        Underlying Options   to Employees in Fiscal     Price
                       Granted (#)                                     ($/Sh)
--------------------------------------------------------------------------------
Michael A.
 Cederstrom
September 28, 2011               1,000,000                        50%      $0.28
Jose Fuentes
September 28, 2011               1,000,000                        50%      $0.28

Aggregated  Option  Exercises During 2006 Fiscal Year and Fiscal Year-End Option
Values

The following table provides  information  related to employee options exercised
by the named executive officers during the 2006 fiscal year and number and value
of such options held at fiscal year-end.

<TABLE>
<CAPTION>
                                                              Value of Unexercised In-the-
  Number of Securities Underlying Unexercised                   Money Options at Fiscal
             Options at Fiscal Year-                                      Year-
                    End (#)                                           End ($) (1)
------------------------------------------------              ----------------------------
              Shares
               Acquired
                 on
               Exercise   Value
       Name       (#)     Realized Exercisable Unexercisable  Exercisable Unexercisable
======================== ========= ----------- -------------- ----------------------------
<S>                  <C>               <C>                 <C>    <C>                   <C>
W.A. Alexander       N/A       N/A     250,000            -0-     700,000              -0-
Michael
A. Cederstrom        N/A       N/A     700,000        500,000     196,000          140,000
Jose Fuentes         N/A       N/A   1,000,000        500,000     140,000          140,000
Bobby S.
 Fellers             N/A       N/A     300,000            -0-      84,000              -0-
Douglas C.
 Hewitt              N/A       N/A     300,000            -0-      84,000              -0-
</TABLE>

(1) Based on the closing price of $0.28 at September 30, 2006.


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

The  following  table  sets  forth  information,  to the  best of the  Company's
knowledge,  as of January 22, 2007 with respect beneficially  ownership (as such
term is defined in Item 403 of Regulation S-B under the Securities  Exchange Act
of 1934) of the  outstanding TX Holdings  common stock by (i) each person to own
more than 5%, (ii) each director, each executive officer and (iii) all directors
and officers as a group.

Name of Beneficial Owner (1)                    Amount and Nature of Beneficial
Percent of Class                                                       Ownership
--------------------------------------------------------------------------------
Mark Neuhaus
19.7%                                                              7,662,626 (3)
Darren Bloom
7.4%                                                                   2,000,000
Nicole B. Neuhaus
8.6%                                                               4,647,626 (4)
MA&N LLC
17.2%                                                                  4,647,626
David R. Baker
6.0%                                                               1,632,669 (5)
Ned Baramov
3.5%                                                                     940,000
Michael A. Cederstrom
3.87%                                                           1,200,000 (6)(7)
Jose Fuentes
3.22%                                                               1,000,000(7)
William "Buck" Shrewsbury
4.51%                                                                  1,400,000
Martin Lipper
1.29%                                                                    400,000
Rob Hutchings*                                                           100,000
Bobby S. Fellers                                                     300,000 (6)
W.A. Alexander                                                       250,000 (6)

All Directors and executive officers
(5 persons)                                                           10,561,126


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

                                       57
<PAGE>




(1)  Unless otherwise  indicated,  the Company has been advised that each person
     above has sole investment and voting power over the shares indicated above.
     The address of each beneficial  owner is c/o TX Holdings,  1701 North Judge
     Ely Blvd., #6480, Abilene, Texas 79601.

(2)  Based upon  shares of common  stock  outstanding  as of  December  8, 2006,
     together with securities  exercisable or convertible  into shares of common
     stock within 60 days of December 27, 2007 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 27, 2007 are deemed
     to be  beneficially  owned by the person  holding such  securities  for the
     purpose of computing the  percentage  of ownership of such person,  but are
     not treated as  outstanding  for the purpose of  computing  the  percentage
     ownership of any other person.

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

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

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

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

(7)  Represents  warrants issued to each individual for their specific role with
     the Company during the fiscal year 2007.

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


                                       58
<PAGE>


Item 12 Certain Relationships and Related Transactions

Particular Transactions

There have been no  transactions  during the last two years  between the Company
and any officer,  director, nominee for election as director, or any shareholder
owning more than 5% of the Company's  outstanding  shares,  or any member of any
such  individual's  immediate  family,  as to which the amount  involved  in the
transaction or a series of similar transactions exceeded $60,000,  except as set
forth below:

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

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

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

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

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

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

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


                                       59
<PAGE>


(8)   On September 28, 2007, a warrant to purchase  1,000,000  shares of
      TX Holdings,  Inc.  common stock at an exercise price of $0.28 was
      issued to Jose Fuentes for services.

(9)  On  September  28,  2007,  a warrant  to  purchase  1,000,000  shares of TX
     Holdings,  Inc.  common  stock at an exercise  price of $0.28 was issued to
     Michael A.Cederstrom for services.

(10) 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's total voting
     control of the Company.  Mr. Neuhaus still has  substantial  control of the
     Company via his common stock ownership.

Controlling Persons

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


                                       60
<PAGE>


Item 13 Exhibits and Reports on Form 8-K


Exhibit   Description
No.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
          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
<S>  <C>   <C>
     2.1   Corporation (Exhibit B omitted, to be furnished upon request of the Commission) (1)
          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)
     2.2   (1)
          Stock Acquisition Agreement dated September 4, 2003 between Jim Evans, R Wireless, Inc.
     2.3   and Homes by Owner, Inc.
          Escrow Agreement dated September 4, 2003 between Jim Evans, R Wireless, Inc., Homes by
     2.4   Owner, Inc. and David Baker. (11)
          Extension Agreement dated March 5, 2004 between Jim Evans, R Wireless, Inc., and Homes
     2.5   by Owner, Inc. (12)
3.1a      Composite Articles of Incorporation of R Wireless, Inc, as amended to reflect the change
           of name from HOM Corporation, effective January 22, 2003 (3)
     3.2  By-Laws of HOM Corporation as adopted December 12, 2002 (13)
          Instrument defining rights of holders (See Exhibit No. 3.1a, Articles of Incorporation -
       4   Article Four)
          Warrant to Purchase Shares of Common Stock of R Wireless, Inc. issued to Baker, Johnston
     4.2   and Wilson LLP, dated July 21, 2005
          Agreement to Merge - Freedom Homes, Inc. - Homes By Owners, Inc., dated March 24, 2005
    10.4   (6)
          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.
    10.5   Baker and R Wireless, Inc., dated August 1, 2005
          Amendment to Forbearance Agreement and Warrant between Baker & Johnston LLP, and TX
    10.6  Holdings, Inc., dated as of November 1, 2005
          Convertible Promissory Note between Mark S. Neuahaus and TX Holdings Inc. dated
    10.8   September 28, 2007
    16.1  Letter of Elliott Davis LLC (8)
    21.1  List of Subsidiaries of R Wireless, Inc. (2)
    31.1  Certification of Mark Neuhaus, CEO of TX Holdings, Inc.
    31.2  Certification of Michael A. Cederstrom, Esq., CFO of TX Holdings, Inc.
    31.3  Certification of William "Buck" Shrewsbury, CEO of TX Holdings, Inc.
    31.4  Certification of Rob Hutchings, Interim President 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
    32.3  Certification of William "Buck" Shrewsbury, pursuant to Section 1350
    32.4  Certification of Rob Hutchings, 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)
          Settlement Agreement between the SEC and Mark S. Neuhaus regarding case SEC vs
   99.10   Univerisal Express Inc.
</TABLE>

(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.


                                       61
<PAGE>


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

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

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

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

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

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

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

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

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

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

Reports on Form 8-K

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

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

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

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

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

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


                                       62
<PAGE>


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

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

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

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

On February 14, 2007, the Company  announced it had received a $7,500,000 letter
of commitment from its investment  banker's The Baron Group Ltd. The funding was
to be broken into three  components  $500,000 of bridge  funding,  $2,000,000 in
equity and  $5,000,000 in the form of debt to be based on the  companies  energy
reserves. All of this funding was to be done on a best efforts basis.

On February 21, 2007,  the Company  received a $7,500.000  letter of  commitment
from its investment  banker,  the Baron Group,  Ltd. The Company first announced
its  investment  and  merchant  banking  relationship  with the  Baron  Group on
November 20, 2006.

On November 21, 2007, the Company  reported that Mark Neuhaus,  Chairman settled
his involvement in the case of SEC VS Universal Express, Inc.

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 2006 were as follows:

*T
                                     2007      2006
---------------------------------------------------
Audit Fees                        $35,000   $30,000
Audit-Related Fees
Total Audit and Audit-Related
 Fees

Tax Fees
All Other Fees
Total                             $35,000   $30,000


                                       63
<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: December 28, 2007


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

      /s/ William "Buck" Shewsbury      Chairman of the Board of
      -------------------------         Directors and Chief
      William "Buck" Shrewsbury         Executive Officer
      December 28, 2007

      /s/ Rob Hutchings                 President
      -------------------------
      Rob Hutchings
      December 28, 2007

      /s/ Mark Neuhaus                  Former Chairman of the
      -------------------------         Board of Directors and
      Mark Neuhaus                      Chief Executive Officer
      December 28, 2007

      /s/ Michael A. Cederstrom         Chief Financial Officer
      -------------------------
      Michael A. Cederstrom
      December 28, 2007

      /s/ Bobby S. Fellers              Director
      -------------------------
      Bobby S. Fellers
      December 28, 2007

      /s/ Martin Lipper                 Director
      -------------------------
      Martin Lipper
      December 28, 2007


                                        64