**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


__________________________________


**FORM
      10-KSB**





ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




**For the fiscal year ended December
              31, 2006**
            **Commission file number: 000-49743**




__________________________________




**TXP
      CORPORATION**





(Exact
      name of small business issuer as specified


in
      its
      charter)


**Nevada**
            **88-0443110**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)**1299
                Commerce Drive**
              **Richardson,
                Texas**
            **75081**(Address
                of principal
              executive
                offices)
            (Zip
                Code)


__________________________________





Issuer’s
      telephone number, including area code: **(214)
      575-9300**


Securities
      registered under Section 12(b) of the Exchange Act: **None**


Securities
      registered pursuant to Section 12(g) of the Exchange Act: **Common
      Stock, par value $.001.**





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 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 issuer was required to file such reports), and (2) has been subject
      to
      the filing requirements for the past 90 days. Yes  ̈ No **T**




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B and no disclosure will be contained, to the best of the issuer’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.  ̈




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No **T**




The
      issuer’s revenues for the fiscal year ended December 31, 2006 were
      $8,228,000.




The
      aggregate market value of the Common Stock held by non-affiliates of the issuer
      as of March 26 ,
      2007
      was $9,945,809.




The
      number of shares outstanding of the issuer’s Common Stock as of March 26, 2007
      was 104,080,623 shares.




**DOCUMENTS
      INCORPORATED BY REFERENCE: NONE**





Transitional
      Small Business Disclosure Format (check one): Yes  ̈ No **T**








**TXP
      CORPORATION**





**2006
      FORM 10-KSB ANNUAL REPORT**





**TABLE
      OF CONTENTS**




Page  PART
                  IItem
                  1.
              Description
                  of Business
              2Item
                  2.
              Description
                  of Property
              15Item
                  3.
              Legal
                  Proceedings
              15Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders.
              15PART
                  II15Item
                  5.
              Market
                  for Common Equity and Related Stockholder Matters.
              17Item
                  6.
              Management’s
                  Discussion and Analysis or Plan of Operation.
              31Item
                  7.
              Financial
                  Statements.
              32Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure.
              32Item
                  8A.
              Controls
                  and Procedures.
              33Item
                  8B.
              Other
                  InformationPART
                  IIIItem
                  9.****
              Directors,****Executive
                  Officers, Promoters and Control Persons: Compliance with Section
                  16(a) of
                  theExchange
                  Act
              33Item
                  10.
              Executive
                  Compensation
              35Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholders...
              37Item
                  12.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence....
              37Item
                  13.
              Exhibits
              38Item
                  14.
              Principal
                  Accountant Fees and Services.
              40







**PART
      I**


**ITEM
      1.**  **DESCRIPTION
      OF THE BUSINESS**




We
      are a
      provider of Pre-Manufacturing Services for the global electronics industry,
      supporting original equipment manufacturers, original design manufacturers,
      contract manufacturers and new technology innovators. Pre-Manufacturing, also
      referred to as pre-production, consists of the initial activities required
      to
      prepare a product for manufacturing. The success of these early activities
      directly impacts the speed with which a product can be brought to market.
      Pre-Manufacturing Services generally include: electrical design of the product,
      design and fabrication of the printed circuit board (PCB) based on the design,
      development of the material supply chain for parts required to build the desired
      electronic product, manufacture of a small number of initial prototype boards,
      development of procedures and protocol for testing the proper functioning of
      the
      assembled boards, manufacture of another small set of PCB’s (referred to as a
      pilot production) to effectively confirm the manufacturing process, and then
      the
      transfer of all product build data into a production environment.





In
      December of 2006, TXP created a new business unit, iPhotonics, which will focus
      primarily on the development and sale of Optical Network Terminals (“ONT’s”) and
      related accessories and to a lesser extent related design and development
      services. The iPhotonics business unit intends to operate as an Original Design
      Manufacturer (“ODM”) which means we will manufacture products that are
      ultimately branded by another organization for sale. A primary attribute of
      this
      business model is that the ODM owns and/or designs in-house the products that
      are branded by the buying firm. ONTs are the customer premise located devices
      used by a carrier to serve residential and business customers over a PON-based
      (Passive Optical Networking) system. PON is a maturing point-to-multipoint
      technology which is being adopted by telephone companies globally because of
      its
      cost effectiveness in extending fiber-based service delivery all the way to
      the
      customer premise (Fiber-to-the-Home [FTTH] or Fiber-to-the-Premise [FTTP]).
      TXP's ONTs will sit at each customer premise and will be connected over fiber
      to
      an Optical Line Terminal (OLT) generally located in the carrier's central
      office. A single OLT can deliver services to thousands of ONTs.





**Company
      History**




We
      are a
      Nevada corporation formed in June 1994 under the name Cyber Synergy, Inc. to
      develop stock market related software applications. In November 1999, we changed
      our name to Jesse Livermore.com, Inc. In December 2001, we changed our name
      to
      Stock Market Solutions, Inc. (“SMS”).





Our
      company was originally founded to assist professional mutual and hedge fund
      traders and managers, as well as individual investors, to more skillfully trade
      in the stock market. We were inactive until entering the development stage
      in
      January 1999. We intended to offer a teaching and a computer-trading program
      designed to provide educational/instructional assistance and aid to those stock
      market traders who wish to learn how to trade in the stock market using a system
      previously developed by an early 20 th century
      stock market trader, Jesse Livermore.




On
      June
      13, 2005, we and our wholly-owned subsidiary of SMS entered into an Agreement
      and Plan of Merger with Texas Prototypes, Inc. (“TXP”) whereby SMS, following
      the effectuation of a 1 for 10 reverse stock split, issued shares of its common
      stock to TXP on May 4, 2006 equal to 94.7% of its total outstanding shares
      of
      common stock, or 89,298,042 shares, within ten days after completion of the
      closing conditions under the Merger Agreement, the principal requirement being
      the completion of the reverse stock split. In exchange, TXP issued 100% of
      the
      outstanding shares of common stock, or 221,051,400 shares, to SMS. TXP merged
      into a wholly owned subsidiary of SMS and the separate corporate existence
      of
      such subsidiary ceased. TXP continued as the surviving corporation.




On
      March
      31, 2006, SMS obtained the majority vote of its shareholders necessary to
      effectuate the 1 for 10 reverse stock split. On April 26, 2006, the Certificate
      of Merger between TXP and a wholly owned subsidiary of SMS was filed with the
      Secretary of State of the State of Texas. The directors and officers of TXP
      were
      appointed directors and officers of the surviving corporation pursuant to which
      Michael C. Shores and Robert Bruce, the President and CFO of TXP, respectively,
      were appointed as directors and officers of SMS, and Richard Smitten resigned
      as
      the Chief Executive Officer and sole director of SMS. The parties completed
      the
      merger and satisfied all closing conditions as set forth in the Merger Agreement
      on April 28, 2006.




On
      April
      21, 2006, we changed our name to YTXP Corporation, in anticipation of a reverse
      merger with a wholly owned subsidiary of SMS and Texas Prototypes, Inc., and
      our
      stock symbol was changed to “YTXO”. In addition, on July 14, 2006 we changed our
      name to TXP Corporation and our stock symbol was changed to “TXPO”. Further, on
      July 14, 2006 we amended our articles of incorporation to increase the number
      of
      authorized shares of our common stock from 100,000,000 shares to 300,000,000
      shares.




For
      accounting purposes, the acquisition has been treated as recapitalization of
      Texas Prototypes, Inc. with Texas Prototypes, Inc. as the acquirer and as the
      continuing reporting entity. Accordingly, financial statements filed for
      post-merger periods will depict the acquisition of YTXP by the accounting
      acquirer and will include financial statements of the accounting acquirer for
      the pre-merger comparable periods.




2





In
      Q4 of
      2006, we hired Siemens' former ONT development team and created a new business
      unit, iPhotonics, which will focus primarily on the development and sale of
      Optical Network Terminals (“ONT’s”) and related accessories and to a lesser
      extent related design and development services. The iPhotonics business unit
      intends to operate as an Original Design Manufacturer (“ODM”) which means we
      will manufacture products that are ultimately branded by another organization
      for sale.





**Description
      of Our Business**





We
      are a
      global provider of Pre-Manufacturing Services for the electronics industry.
      We
      support original equipment manufacturers, original design manufacturers,
      contract manufacturers and new technology innovators. We focus in design and
      supply chain solutions services for new product development which include PCB
      layout, signal integrity analysis, prototyping and quick-turn electronic
      assembly, new product introduction, pilot production, material supply chain
      development as well as the transfer of product build data into
      production.





Our
      core
      technology focus is on complex printed circuit board assemblies for high speed,
      digital, analog, and RF technologies and other industries that require
      complementary service requirements. By working closely with our customers'
      engineering groups and being highly responsive to their requirements throughout
      the design processes, we believe that we can be an integral part of its
      customers' operations, accelerate their time-to-market and time-to-volume
      productions and reduce their overall product costs.





In
      December of 2006, TXP created a new business unit, iPhotonics, which will focus
      primarily on the development and sale of Optical Network Terminals (“ONT’s”) and
      related accessories and to a lesser extent related design and development
      services. The iPhotonics business unit intends to operate as an Original Design
      Manufacturer (“ODM”) which means we will manufacture products that are
      ultimately branded by another organization for sale. A primary attribute of
      this
      business model is that the ODM owns and/or designs in-house the products that
      are branded by the buying firm. We believe that we can leverage our
      pre-manufacturing services and the expertise of our development team to
      significantly decrease the time to market for our ONT products for software
      and
      hardware enhancements and design to cost efforts. ONTs are the customer premise
      located devices used by a carrier to serve residential and business customers
      over a PON-based (Passive Optical Networking) system. PON is a maturing
      point-to-multipoint technology which is being adopted by telephone companies
      globally because of its cost effectiveness in extending fiber-based service
      delivery all the way to the customer premise (Fiber-to-the-Home [FTTH] or
      Fiber-to-the-Premise [FTTP]). TXP's ONTs will sit at each customer premise
      and
      will be connected over fiber to an Optical Line Terminal (OLT) generally located
      in the carrier's central office. A single OLT can deliver services to thousands
      of ONTs.





**Our
      Pre-Manufacturing Services**





Many
      within the electronics industry, including original equipment manufacturers,
      original design manufacturers, and contract manufacturers, frequently spend
      unnecessary money and time, bringing new products from prototype to mass
      production. We believe that outsourcing these pre-manufacturing services to
      us
      can rapidly and cost-effectively bridge the gap between engineering design
      and
      production by first validating the functionality of the product, and improving
      the product's manufacturability. This in turn accelerates our clients'
      time-to-market and may significantly reduce production costs.




Although
      our core business focus is the technology sector of the communications equipment
      industry, our customer base is growing and now spans a broad range of industry
      segments which include automotive, communications, computing (including desktop
      and notebook computers, peripherals, and storage) consumer, handheld devices,
      IT
      infrastructure, instrumentation, medical, military, and
      networking/datacom.




We
      believe that we have become an integral bridge between the engineering and
      manufacturing divisions of our customers. We offer customers supply-chain
      solutions and services that require the outsourcing of new product development,
      including prototyping and quick-turn electronic assembly, new product
      introduction, pilot production, material and supply chain management as well
      as
      the transfer of customers' product programs into production. By working closely
      with our customers and being highly responsive to their requirements throughout
      the design processes, our management believes that we can be an integral part
      of
      their operations, accelerate their time-to-market and time-to-volume production,
      and reduce their product costs.




Due
      to
      the intensely competitive nature of the electronics industry, the increasing
      complexity and sophistication of electronics products and the pressure on OEMs
      and CMs to reduce product costs, increasingly shorter product lifecycles,
      increased time-to-market needs, and the demand for the type of supply chain
      services, an increasing number of OEMs in the electronics industry utilize
      advanced electronics manufacturing services (EMS) providers, such as us, to
      assist with their business, product development and manufacturing strategies.
      This allows OEMs to take advantage of the global design, manufacturing and
      supply chain management expertise of EMS providers, in addition to EMS economies
      of scale, enabling OEMs to concentrate on intellectual property, product
      research and development, marketing and sales. Our management believes that
      by
      developing strategic relationships with the OEMs and CM providers, it can
      enhance their competitive position by:




·
            Reducing
                design, engineering and product development
                costs;





·
            Accelerating
                time-to-market and time-to-volume
                production;





·
            Reducing
                capital investment requirements and fixed
                costs;




3




·
            Improving
                inventory management and purchasing
                power;





·
            Reducing
                the cost of new product introduction to production;
                and





·
            Providing
                worldwide access and transfer of manufacturing and
                logistics.




We
      compete primarily in the time-critical segment of the EMS industry. We focus
      on
      prototyping and the quick turn market sector of the EMS industry, which at
      this
      point is highly fragmented. We compete against small independent private
      companies and integrated subsidiaries of large, broadly based volume producers,
      as well as the internal capacity of OEMs. Our management believes that
      competition in the market segment we serve is less driven by price because
      customers are willing to pay a premium for a responsive, broad-reaching
      capability to produce customized complex products in a very short time.
      Accordingly, we compete primarily on the basis of quick turnaround, product
      quality and customer service.




We
      believe, along with many of the CMs, that the market for EMS will continue
      to
      grow, driven largely by the need of OEMs for increased flexibility to respond
      to
      the rapid changes in markets and technologies and to reduce manufacturing costs.
      We further believe OEMs need advanced outsourced design, engineering and
      manufacturing capabilities to meet the increased complexity and shorter life
      cycles of today's electronic products.




Over
      the
      past two years, we have focused on enhancing our business by developing our
      services. We began as a quick-turn prototyping business in 2002, and then in
      Q4
      of 2004, we added a PCB design group to expand our offering. This allowed us
      to
      assist customers in designing of how the parts and connections on a printed
      circuit board will be configured and operate; also taking into account was
      increasing the efficiency in which the product would be mass produced. In Q2
      2005, we added a photonics group as we began to pursue business in this industry
      sector. In Q3 2005, we added a mechanical engineering services to our offerings.
      Our management believes that we are now well positioned to help our customers
      with their entire product development and introduction processes, from
      prototyping through complete program transfer to volume
      production.





Our
      complete capabilities include:




·
            Electronic
                technology manufacturing road mapping: creation of a plan for increasingly
                improving the electronics manufacturing process for a product based
                on
                most appropriate and technologically advanced assembly
                technologies.





·
            New
                product development: the complete process of bringing a new product
                or
                service to market. There are two parallel paths involved in the NPD
                process: one involves the idea generation, product design, and detail
                engineering; the other involves market research and marketing analysis.
                Companies typically see new product development as the first stage
                in
                generating and commercializing new products within the overall strategic
                process of product life cycle management used to maintain or grow
                their
                market share.





·
            PCB
                layout: the design of how the parts and connections on a printed
                circuit
                board will be configured and
                operate.





·
            Simulation:
                testing in simulated environments to predict expected
                results.





·
            Test
                development: creating the procedures and protocol for testing the
                proper
                functioning of the assembled PCBs.





·
            Quick-Turn
                prototyping assembly: the process of quickly configuring a working
                model
                (a prototype) in order to test various aspects of a design, illustrate
                ideas or features and gather early user
                feedback.





·
            Surface
                mount technology (SMT): robotic machines that place electronic parts
                onto
                printed circuit boards.





·
            Backplanes:
                a circuit board (usually a printed circuit board) that connects several
                connectors in parallel to each other, so that each pin of each connector
                is linked to the same relative pin of all the other connectors, forming
                a
                computer bus. It is used as a backbone to connect several printed
                circuit
                board cards together to make up a complete computer
                system.





·
            Optoelectronics:
                the study and application of electronic devices that interact with
                light,
                and thus is usually considered a sub-field of
                photonics.





·
            Photonics:
                the science and technology of generating, controlling, and detecting
                photons, particularly in the visible light and near
                infra-red spectrum.




·
            Process
                development: assisting engineers to develop manufacturing build processes
                so that they can be effectively transferred
                overseas.





·
            Complex
                spot-builds:****high-density
                prototyping on a one-time basis**.**





·
            Pilot
                production: manufacture of a limited quantity of PCBs after initial
                prototypes to effectively confirm the manufacturing
                process.




4




·
            New
                product introduction: process for transferring manufacturing process
                into
                a production environment.





·
            Mechanical
                engineering and thermal analysis: the application for engineering
                principles to design tangible objects such as machinery, equipment
                etc.
                Thermal analysis is the analysis of material properties as they change
                with temperature.





·
            System
                assembly & integration; the process of putting together a final
                product by assembling all related
                parts.





·
            Production
                transfer: shifting the manufacturing process and all related documentation
                and data from one manufacturing facility to
                another.





·
            Global
                program transfer: moving the manufacturing process and all related
                documentation and data to a manufacturing facility located in a different
                geographic region, usually
                low-cost.





·
            Material
                and supply chain development: developing processes and procedures
                for
                establishing the supply and purchase of materials and goods from
                raw
                materials to final product




The
      foundation of our business strategy is to provide customers with the ability
      to
      focus on their core competencies of intellectual property, product development,
      marketing and branding, while utilizing global outsourcing supply chain partners
      to reduce product costs.




Our
      pre-manufacturing services strategy addresses the outsourcing supply chain
      model
      in the prototyping and quick turn market segments. The pre-manufacturing
      services that we provide in this market segment include engineering, product
      development, PCB layout, prototyping, design for ease of manufacturing, material
      supply chain development, and functional test development.




We
      are
      planning to expand our design and prototyping manufacturing resources, as well
      as providing additional technology prototyping services in advanced component
      packaging and photonics assembly services.




**Prototyping**




Our
      prototyping services are performed at our design facility in Richardson,
      Texas.




*Prototyping
      - SMT* .
      The
      components, subassemblies and finished products produced by our company
      incorporate advanced interconnect, miniaturization and packaging technologies,
      such as surface mount technology, multi-chip modules, ball grid array and micro
      ball grid array as well as chip scale packaging. We offer customers looking
      for
      prototype expertise in manufacturing a broad array of products, ranging from
      high-volume PC motherboards to advanced communication and networking cards.
      We
      have combined advanced assembly processes, innovative techniques, along with
      highly skilled personnel resources, to extend in the development of advanced
      assembly technology.




*Prototyping
      -Photonics/Optoelectronics* .
      We
      offer prototyping services of optical subsystems, with an emerging optical
      assembly integrator with engineering and assembly services for design,
      manufacturing and testing. Our capabilities include fiber splicing, connections
      and fiber routing for optoelectronic modules.




Our
      engineering staff works with our customers' engineers to develop a technology
      fit for the customer's specific needs, actively assisting customers with initial
      product design to facilitate manufacturing of the product.




Our
      management believes our pilot production assembly expertise allows our customers
      to achieve long term significant improvement in cycle time, asset utilization,
      reliability, flexibility and responsiveness.




**Materials
      Management**




Our
      company has expertise in materials management. Our staff of engineers can
      qualify components and audit vendors. Materials and customer kits are
      inventoried and kept in controlled access and secured storage areas. We work
      with both customers and vendors to ensure that the best price is negotiated
      on
      materials and that they arrive on schedule. We also support dual vendor sourcing
      on critical components to relieve manufacturing constraints.




Our
      company's expanded material supply chain services include, but are not limited
      to, the following:




·
            Intuitive
                MRP (“Manufacturing Resource Planning”) system: Our third party MRP
                system used to plan and manage manufacturing
                operations.




·
            Dedicated
                engineering procurement team- We have a dedicated team experienced
                in
                procuring materials for engineering manufacturing which generally
                includes
                locating and procuring at lesser material volumes than production.
                Frequently we use specialized brokers or obtain samples to reduce
                costs
                for our customers.




5




·
            On-site
                kitting materials support: We have a dedicated team that supports
                preparing the materials either procured by us or provided by our
                customers
                for customer assembly projects.





·
            Seamless,
                secure connectivity options: We provide various means for our customers
                to
                provide engineering data via the internet including secure file transfer
                protocol.





·
            Global
                supply chain sourcing: Assisting our customers with the process of
                identifying, conducting negotiations with, and forming supply agreements
                with vendors of goods and services





**Competition**





We
      are,
      and will continue to be, subject to intense competition as the electronics
      industry continues to grow. Large companies with greater financial and
      managerial resources than ours, and greater name recognition, are offering
      pre-manufacturing services solutions. While certain market overlaps exist
      between our product and other solutions, we believe that our pre-manufacturing
      services are designed to provide unique competitive advantages. As the market
      for electronics continues to mature, new players may enter the market competing
      directly or indirectly with us.





However,
      our management believes that competition in the market segment we serves is
      less
      driven by price because customers are willing to pay a premium for a responsive,
      broad-reaching capability to produce customized complex products in a very
      short
      time, and therefore we compete primarily on the basis of quick turnaround,
      product quality and customer service.





**Our
      iPhotonics Products and Services**





In
      December of 2006, TXP created a new business unit, iPhotonics, which will focus
      primarily on the development and sale of Optical Network Terminals (“ONT’s”) and
      related accessories and to a lesser extent related design and development
      services. The iPhotonics business unit intends to operate as an Original Design
      Manufacturer (“ODM”) which means we will manufacture products that are
      ultimately branded by another organization for sale. A primary attribute of
      this
      business model is that the ODM owns and/or designs in-house the products that
      are branded by the buying firm. We believe that we can leverage our
      pre-manufacturing services and the expertise of our development team to
      significantly decrease the time to market for our ONT products for software
      and
      hardware enhancements and design to cost efforts. ONTs are the customer premise
      located devices used by a carrier to serve residential and business customers
      over a PON-based (Passive Optical Networking) system. PON is a maturing
      point-to-multipoint technology which is being adopted by telephone companies
      globally because of its cost effectiveness in extending fiber-based service
      delivery all the way to the customer premise (Fiber-to-the-Home [FTTH] or
      Fiber-to-the-Premise [FTTP]). TXP's ONTs will sit at each customer premise
      and
      will be connected over fiber to an Optical Line Terminal (OLT) generally located
      in the carrier's central office. A single OLT can deliver services to thousands
      of ONTs.





**Products
      Portfolio**





BPON
      Family of ONT’S:





·
            SFU
                (Single Family Unit): For triple play (date, voice and video) high
                speed
                access for resident end customers of wire-line
                carriers.





·
            MDU
                (Multi-Dwelling Unit): For triple play (date, voice and video) high
                speed
                access for residents and business end customers of wire-line
                carriers.





·
            SBU
                (Small Business Units): For triple play (date, voice and video) high
                speed
                access for business end customers of wire-line
                carriers.




GPON
      Family including data Ethernet of ONT’S:





·
            E-SFU
                (Ethernet-Single Family Unit): For triple play (date, voice and video)
                high speed access for resident end customers of wire-line
                carriers.





·
            SFU
                (Single Family Unit): For triple play (date, voice and video) high
                speed
                access for residents and business end customers of wire-line
                carriers.


·


·
            SBU
                (Small Business Unit): For triple play (date, voice and video) high
                speed
                access for business end customers of wire-line
                carriers.





6




Our
      development capabilities and technical competencies include:





·
            System
                architecture - new system design layout focusing on appropriate hardware
                and software functions and product cost
                issues


·
            GPON
                FPGA technology - hardware ship design source code for physical layer
                GPON
                physical interface control


·
            GPON
                SW stacks- message interface communications protocol for
                PON


·
            Interoperability
                - experience with working against multiple vendors' central office
                equipment


·
            Standards
                representation - Participation in International standards bodies
                governing
                PON, DSL and Voice of IP technical
                requirements


·
            Protocols
                - ATM - IP routing/switching/security - Data switching and control
                mechanisms


·
            TDM
                voice, SIP, H.248, AAL1, and AAL2 - Voice Switching control
                mechanisms


·
            FPGA
                architecture and implementation - programmable gate
                arrays


·
            Design
                to cost evolution - reducing and refining design cost, while maintaining
                adherence to requirements


·
            Development
                environment infrastructure - ISO compliant, strict analysis and design
                methodology and tooling for developing hardware, software and mechanical
                designs


·
            Simulation
                and automation - use of offline tools to validate design
                quality


·
            Analog/power
                supply design - integrated circuit designs to deliver power at proper
                voltages to PCB components


·
            Analog
                design, optics, RF video, and emissions - delivery of cable TV signals,
                integrated optical design blocks for PON interface and designs that
                meet
                strict emissions requirements for FCC and other standards
                bodies


·
            NEBS
                quality mechanical design and packaging - strict set of design guidelines
                and requirements dictated by Telcordia for use on North American
                carrier
                product deployments





Our
      ONT
      development team has been working specifically in the area of passive optical
      networks since 2003. The team has worked together for an average of eighteen
      (18) years in multiple disciplines of telecommunications. The team’s heritage is
      in Class 5 central office development, and continued through the migration
      of
      the TDM networks with an emphasis on remote distributed architecture. The team
      has also been responsible for various developments within the ATM broadband
      multimedia access products and gateways.





**Competition
      within the ONT Market**





Competition
      in the ONT customer premises equipment market is intense, and we expect
      competition to increase. Many of our competitors and potential competitors
      have
      substantially greater name recognition and technical, financial and marketing
      resources than we have. In addition, many of our competitors are able to offer
      their customers a range of products of which the ONT premises equipment is
      only
      one element. Customers may prefer to purchase from fewer vendors, and may
      therefore favor competitors with broader product offerings. If we are unable
      to
      compete successfully, our business will be harmed and our results of operations
      and financial condition would be adversely affected. We cannot assure you that
      we will have the financial resources, technical expertise or marketing,
      distribution and support capabilities to compete successfully. Competitive
      pressures could adversely affect us in the following ways once sales commence,
      if they commence at all:





·
            reduce
                demand for our products if customers shift their purchasing to
                competitors; or





·
            cause
                us to reduce prices on our existing or future products and thereby
                adversely affect our gross


margins.





**Government
      Regulation**





We
      are
      subject to various federal, state, and local laws affecting electronic and
      communication businesses. The Federal Trade Commission and equivalent state
      agencies regulate advertising and representations made by businesses in the
      sale
      of their products, which apply to us. We are also subject to government laws
      and
      regulations governing health, safety, working conditions, employee relations,
      wrongful termination, wages, taxes and other matters applicable to businesses
      in
      general.




**Compliance
      with Environmental Laws and Regulations**





Our
      operations are subject to local, state and federal laws and regulations
      governing environmental quality and pollution control. To date, we believe
      we
      are in compliance with such laws and regulations and our compliance with all
      these regulations has had no material effect on our operations, capital,
      earnings, or competitive position, and the cost of such compliance has not
      been
      material. We are unable to assess or predict at this time what effect additional
      regulations or legislation could have on our activities.




**Seasonality**





We
      do not
      anticipate that our business will be substantially affected by
      seasonality.





**Employees**





As
      of
      March 26, 2007, we had a total of 82 full-time employees of which 35 were
      devoted to our iPhotonic’s business. None of our employees are covered by the by
      collective bargaining agreements. We believe that our relations with our
      employees are good.




7


**RISK
      FACTORS**





An
      investment in our shares involves a high degree of risk. Before making an
      investment decision, you should carefully consider all of the risks described
      herein. If any of the risks discussed herein actually occur, our business,
      financial condition and results of operations could be materially and adversely
      affected. If this were to happen, the price of our shares could decline
      significantly and you may lose all or a part of your investment. The risk
      factors described below are not the only ones that may affect us. Our
      forward-looking statements in this 10-KSB are subject to the following risks
      and
      uncertainties. Our actual results could differ materially from those anticipated
      by our forward-looking statements as a result of the risk factors below. See
      "Forward-Looking Statements."





**Risks
      Related to Our Business and Financial Condition**




***We
      have a history of losses, which may continue in the future and which may cause
      us to curtail operations.***




For
      the
      year ended December 31, 2006 and 2005, we generated revenues of $8,228,000
      and
      $9,400,000, respectively. Our accumulated deficit was $5,190,000 at December
      31,
      2006 and $598,000 at December 31, 2005. While we are building our sales and
      operating infrastructure, future losses are likely to occur, as we are dependent
      on spending money in excess of funds received from sales to pay for our
      operations. No assurances can be given that we will be successful in reaching
      or
      maintaining profitable operations. Accordingly, we may experience liquidity
      and
      cash flow problems. If our losses continue, our ability to operate may be
      severely impacted which may cause us to cease operations
      altogether.





***We
      are an early-stage company with a short operating history, which makes it
      difficult to evaluate our current business and future
      prospects.***





We
      have a
      limited operating history upon which to base an evaluation of our current
      business and future prospects. We were founded in March 2002 and began selling
      our services that same month. Our limited operating history makes evaluating
      our
      business and prospects very difficult. These risks and difficulties include,
      but
      are not limited to, the following:




·
            Our
                new business and technology models;·
            a
                limited number of service offerings and risks associated with developing
                new service offerings;





·
            the
                difficulties we face in managing rapid growth in personnel and
                operations;·
            the
                negative impact on our brand, reputation or trustworthiness caused
                by any
                significant unavailability of our
                service;





·
            the
                failure to perform our service at our customers' expectations including
                quick turnaround and product quality;·
            the
                timing and success of new service introductions and new technologies
                by
                our competitors; and





·
            our
                ability to build brand awareness in a highly fragmented
                market.





We
      may
      not be able to successfully address any of these risks or others. Failure to
      adequately do so could seriously harm our business and cause our operating
      results to suffer.





***Because
      a small number of customers account for a substantial portion of our net sales,
      our net sales could decline significantly if we lose a major customer or a
      major
      customer orders fewer of our services or cancels or delays
      orders.***





Historically,
      we have derived a significant portion of our net sales from a limited number
      of
      customers. Our top five customers, which may vary from year to year, represented
      54% and 80% of our net sales in fiscal 2006 and 2005, respectively. AMX
      Corporation, Siemens Networks GmbH & Co. KG, and Flextronics accounted for
      18%, 12%, and 11% respectively of net sales in 2006 while no other customer
      accounted for more than 10% of net sales for 2006. Foxconn NSG Technology
      accounted for approximately 55% of net sales in 2005 while no other customer
      accounted for more than 10% of net sales for 2005. We expect to continue to
      depend upon a small number of customers for a significant portion of our net
      sales for the foreseeable future. The loss of, or decline in, orders from one
      or
      more major customers could reduce our net sales.





***Because
      We Generally Do Not Have Long-Term Contracts With  Our Customers, We Are
      Subject To Uncertainties And Variability In Demand By Our Customers, Which
      Could
      Decrease Net Sales And Negatively Affect Our Operating
      Results.***





As
      is
      common in our industry, we generally do not have long-term contracts with our
      customers, and, consequently, our net sales are subject to short-term
      variability in demand by our customers. Customers have no obligation to order
      from us and may cancel, reduce or delay orders for a variety of reasons. The
      level and timing of orders placed by its customers vary due to:





·
            fluctuation
                in demand for our customers'
                products;




8




·
            changes
                in customers' manufacturing strategies, such as a decision by a customer
                to either diversify or consolidate the number of prototyping contract
                manufacturers used;




·
            customers'
                inventory management; and




·
            changes
                in new product introductions.





We
      have
      experienced terminations, reductions and delays in its customers' orders.
      Further terminations, reductions or delays in its customers' orders could lower
      our production asset utilization, which would lower our gross margins, decrease
      our net sales and negatively affect our business.




***Because
      we have only one facility, we could be harmed by adverse weather or operating
      conditions.***




Our
      only
      facility is located in Richardson, Texas. Our inability to continue production
      at this facility as a result of weather conditions, or a prolonged power
      shortage, fire or other natural disaster, could prevent us from supplying
      products to our customers, and could harm our business, results of operations
      and financial condition.





***Products
      we assemble may contain defects, which could result in reduced demand for our
      services and liability claims against us.***





Our
      company assembles highly complex products to our customers' specifications.
      These products may contain assembly errors or failures despite our quality
      control and quality assurance efforts. Defects in the products we assemble,
      whether caused by a design, assembly or materials failure or error, may result
      in delayed shipments, customer dissatisfaction, and/or a reduction in or
      cancellation of purchase orders. If these defects occur either in large
      quantities or too frequently, our business reputation may be impaired. Since
      our
      products are used in products that are integral to our customers' businesses,
      errors, defects or other performance problems could result in financial or
      other
      damages to our customers beyond the cost of the printed circuit board, for
      which
      we may be liable. Although sales arrangements generally contain provisions
      designed to limit our exposure to liability and related claims, existing or
      future laws or unfavorable judicial decisions could negate these limitation
      of
      liability provisions. Liability litigation against us, even if it were
      unsuccessful, would be time consuming and costly to defend.





***Our
      company is exposed to the credit risk of some of our customers as a result
      of a
      concentration of our customer base.***





Most
      of
      our sales are on an "open credit" basis, with standard industry payment terms.
      We monitor individual customer payment capability in granting open credit
      arrangements, and seek to limit open credit to amounts our management believes
      the customers can pay. Further, we maintain reserves we believe are adequate
      to
      cover exposure for doubtful accounts. During periods of economic downturn in
      the
      global economy and the electronics industry, our exposure to credit risks from
      our customers increases. Although we have programs in place to monitor and
      mitigate the associated risk, those programs may not be effective in reducing
      our credit risks.





Five
      companies represented approximately 68% of our net trade accounts receivable
      at
      December 31, 2006, with individual percentages for those companies ranging
      from
      6% to 31%. Our OEM customers direct their sales to a relatively limited number
      of EMS providers. Our management expects to continue to be subject to the credit
      risk of a limited number of customers. This concentration of customers exposes
      us to increased credit risks. If one or more of our significant customers were
      to become insolvent or were otherwise unable to pay us, our results of
      operations would be harmed.





***Our
      Company depends on industries that continually produce technologically advanced
      products with short life cycles.***




Factors
      affecting these industries in general could seriously harm our customers and,
      as
      a result, our company. These factors include:





·
            slower
                changes in technology, which result in longer product life
                cycles;·
            lack
                of competitive pressure on our customers to develop new
                products;





·
            the
                inability of our customers to successfully develop new product
                innovations, and the failure of these innovations to gain widespread
                market acceptance for commercialization; and·
            maturation
                of the technology markets served by our customers or market periods
                characterized by a lack of disruptions in the enabling
                technology.





***If
      our company cannot deliver the customized complex products in the time demanded
      by our customers, we will be unable to attract new
      customers.***





Our
      future success depends upon our ability to respond quickly to the needs of
      our
      customers and to analyze and advise regarding the best design of complex
      products in a quick and cost efficient manner.




9




***In
      the past, our customers have canceled their orders, changed pre-production
      quantities or locations or delayed pre-production and new product design cycles,
      and may do so again in the future.***





As
      a
      provider of electronic pre-manufacturing services, we must provide increasingly
      rapid product turnaround for our customers. We generally do not obtain firm,
      long-term purchase commitments from our customers, and we often experience
      reduced lead-times in customer orders. Customers cancel their orders, change
      pre-production quantities, and delay pre-production for a number of reasons.
      Uncertain economic and geopolitical conditions have resulted, and may continue
      to result, in some of our customers delaying prototyping of products that they
      are to assemble in a period, causing a delay in repayment of their expenditures
      for inventory in preparation for customer orders and lower asset utilization,
      resulting in lower gross margins.




In
      addition, our management makes significant decisions, including determining
      the
      levels of business that it seeks and accepts, production schedules, component
      procurement commitments, personnel needs and other resource requirements, based
      on its estimates of customer requirements. The short-term nature of our
      customers' commitments and rapid changes in demand for their products reduces
      our ability to estimate accurately future customer requirements. This makes
      it
      difficult to schedule prototyping production and maximize utilization of our
      operating capacity. We may be forced to increase staffing, increase capacity
      and
      incur other expenses to meet the anticipated demand of our customers, which
      may
      cause reductions in our gross margins if customer orders are cancelled.
      Anticipated orders may not materialize and delivery schedules may be deferred
      as
      a result of changes in demand for our customers' products. On occasion,
      customers may require increases in production development services, which strain
      our resources and reduce our margins. Although we have increased our capacity,
      and may plan further increases, we may not have significant capacity at any
      given time to meet our customers' demands. In addition, because many of our
      cost
      and operating expenses are relatively fixed, a reduction in customer demand
      harms may harm our gross profit and operating income.





***Our
      Operating Results May Vary Significantly From Period To
      Period.***





We
      experience significant fluctuations in our results of operations. Some of the
      principal factors that contribute to these fluctuations are:





· changes
      in demand for our services;




· our
      effectiveness in managing manufacturing processes and costs in order to decrease
      manufacturing expenses;




· changes
      in our low volume, high mix, high complexity manufacturing
      requirements;




· changes
      in the cost and availability of labor and components, which often occur in
      the
      electronics manufacturing industry and which affect our margins and our ability
      to meet delivery schedules;




· the
      degree to which we are able to utilize our available manufacturing
      capacity;




· our
      ability to manage the timing of our component purchases so that components
      are
      available when needed for production, while avoiding the risks of purchasing
      inventory in excess of immediate prototyping needs;




· local
      conditions and events that may effect our production volumes, such as labor
      conditions, political instability and local holidays; and




· changes
      in demand in our customers' end markets.





***Intellectual
      property infringement claims against our customers could harm our
      business.***





Customers
      for our services typically require that we indemnify them against the risk
      of
      intellectual property infringement. If any claims are brought against us or
      our
      customers for such infringement, whether or not these have merit, we could
      be
      required to expend significant resources in defense of such claims. In the
      event
      of such an infringement claim, we may be required to spend a significant amount
      of money to develop non-infringing alternatives or obtain licenses. We may
      not
      be successful in developing such alternatives or obtaining such a license on
      reasonable terms or at all.





***We
      depend on the continuing trend of outsourcing by
      OEMs.***





Future
      growth in our revenue depends on new outsourcing opportunities in which we
      assume additional manufacturing and design responsibilities from OEMs. To the
      extent that these opportunities are not available, either because OEMs decide
      to
      perform these functions internally or because they use other providers of these
      services, our future growth would be limited.





***Our
      industry is extremely competitive.***





The
      prototyping and quick turn sector of the electronics manufacturing services
      industry is extremely competitive and highly fragmented. We principally compete
      in the time-critical segment of the industry against small independent private
      companies and integrated subsidiaries of large, broadly based volume producers,
      as well as the internal capacity of OEMs. Our management believes that
      competition in the market segment we serve is less driven by price because
      customers are willing to pay a premium for a responsive, broad-reaching
      capability to design customized complex products in a very short time.
      Accordingly, we compete primarily on the basis of quick turnaround, product
      quality and customer service.




10




***Our
      customers may be adversely affected by rapid technological change, which may
      decrease our revenues.***





Our
      customers compete in markets that are characterized by rapidly changing
      technology, evolving industry standards and continuous improvement in products
      and services. These conditions frequently result in a disruption in a product's
      development life cycle. Customers may be adversely affected by maturation of
      the
      technology markets they serve. This lack of innovation and competitive pressure
      in technology development could impact the research and development plans of
      some technology companies. Our success will depend largely on the success
      achieved by our customers in continually developing and marketing new products.
      If the technologies or product development activity supported by our customers
      mature, our business could be adversely affected.





***Our
      limited operating history may impede acceptance of our service by medium-sized
      and large customers and reduce our revenues.***




Although
      we compete in a highly fragmented market, our ability to increase revenue and
      achieve profitability depends, in large part, on widespread acceptance of our
      service by medium-sized and large businesses. Our efforts to sell to these
      customers may not be successful. In particular, because we are a relatively
      new
      company with a limited operating history, these target customers may have
      concerns regarding our viability and may prefer to purchase services from one
      of
      our larger, more established competitors. Even if we are able to sell our
      services to these types of customers, they may insist on additional assurances
      from us that we will be able to provide adequate levels of service, which could
      harm our business.





***As
      More Of Our Sales Efforts Are Targeted At Larger Customers, Our Sales Cycle
      May
      Become More Time-Consuming And Expensive, Potentially Diverting Resources And
      Reducing Our Revenues.***





As
      we
      target more of our sales efforts at larger customers, we will face greater
      costs, longer sales cycles and less predictability in completing some of our
      sales. In this market segment, the customer's decision to use our service may
      be
      an enterprise-wide decision and, if so, these types of sales would require
      us to
      provide greater levels of education to prospective customers regarding the
      use
      and benefits of our service. In addition, larger customers may demand more
      customization, services and features. As a result of these factors, these sales
      opportunities may require us to devote greater sales support and professional
      services resources to individual sales, driving up costs and time required
      to
      complete sales and diverting sales and professional services resources to a
      smaller number of larger transactions.





***If
      We Fail To Develop Our Brand Cost-Effectively, Our Revenues May
      Decline.***





Our
      management believes that developing and maintaining awareness of our brand
      in a
      cost-effective manner are critical to achieving widespread acceptance of our
      existing and future services and are important elements in attracting new
      customers. Furthermore, management believes that the importance of brand
      recognition will increase as competition in our market develops. Successful
      promotion of our brand will depend largely on the effectiveness of our marketing
      efforts and on our ability to provide reliable and useful services at
      competitive prices. In the past, our efforts to build our brand have involved
      significant expense. Brand promotion activities may not yield increased revenue,
      and even if they do, any increased revenue may not offset the expenses we incur
      in building our brand. If we fail to successfully promote and maintain our
      brand, or incur substantial expenses in an unsuccessful attempt to promote
      and
      maintain our brand, we may fail to attract enough new customers or retain our
      existing customers to the extent necessary to realize a sufficient return on
      our
      brand-building efforts, and our business could suffer.





***We
      Are Subject To Environmental Compliance Risks.***





We
      are
      subject to various federal, state, local and foreign environmental laws and
      regulations, including those governing the use, storage, discharge and disposal
      of hazardous substances in the ordinary course of our manufacturing process.
      Further, environmental matters may arise in the future at sites where no problem
      is currently known or at sites that we may acquire in the future. Currently
      unexpected costs that we may incur with respect to environmental matters may
      result in loss contingencies, the quantification of which cannot be determined
      at this time.





***If
      we lose key employees and consultant or are unable to attract or retain
      qualified personnel, our business could suffer.*** ****





Our
      success is highly dependent on our ability to attract and retain qualified
      scientific and management personnel. We are highly dependent on our management,
      including Mr. Michael Shores, our Chief Executive Officer, who has been critical
      to the development of our technologies and business. The loss of the services
      of
      Mr. Shores could have a material adverse effect on our operations. We do not
      have an employment agreement with Mr. Shores. Accordingly, there can be no
      assurance that he will remain associated with us. His efforts will be critical
      to us as we continue to develop our technology and as we attempt to transition
      from a development state company to a company with commercialized products
      and
      services. If we were to lose Mr. Shores, or any other key consultants, we may
      experience difficulties in competing effectively, developing our technology
      and
      implementing our business strategies.




**Risks
      Relating to Our Newly Formed Optical Networking Terminal (“ONT”) Business
      Unit.**





***We
      May Need to Raise Additional Funds In Order Achieve ONT Business
      Objectives.***




11




We
      may be
      required to raise additional capital in order to meet our liquidity needs and
      satisfy our current business plan prior to the receipt of significant revenues
      from sales of our ONT products. At the present time, we have no legally binding
      commitments for any additional financing, and there can be no assurance that
      additional capital will be available to us on commercially acceptable terms
      or
      at all. We may have difficulty obtaining additional funds as and when needed,
      and we may have to accept terms that would adversely affect our stockholders.
      Additional equity financings are likely to be dilutive to holders of our Common
      Stock and debt financing, if available, may involve significant payment
      obligations and covenants that restrict how we operate our business or contain
      rights, preferences and privileges senior to our Common Stock.





We
      also
      may be required to seek additional financing in the future to respond to
      increased expenses or shortfalls in anticipated revenues, accelerate product
      development and deployment, respond to competitive pressures, develop new or
      enhanced products, or take advantage of unanticipated acquisition opportunities.
      We cannot be certain we will be able to find such additional financing on
      commercially reasonable terms, or at all.





If
      we are
      unable to obtain additional financing when needed, we could be required to
      modify our business plan in accordance with the extent of available financing.
      We also may not be able to accelerate the development and deployment of our
      products, respond to competitive pressures, develop new or enhanced products
      or
      take advantage of unanticipated acquisition opportunities. Finally, we may
      be
      required to sell out assets or shut down the company and cease
      operations.





***We
      have a limited operating history, few customers and no contracts and, as a
      result, it is difficult to predict our future results of
      operations.***





We
      have a
      limited operating history upon which to evaluate our ONT offering. We have
      just
      commenced product shipments to date and have few customers and no contracts.
      Due
      to our limited operating history, it is difficult or impossible for us to
      predict future results of operations. Investors in our common stock must
      consider our business and prospects in light of the risks and difficulties
      typically encountered by companies in their early stages of development,
      particularly those in rapidly evolving markets such this one.





Our
      ability to become operationally profitable will depend on a number of factors,
      many of which are beyond our control. These factors include:




· the rate
      of market acceptance of fiber to premise in general and the demand for our
      products in particular;




· our
      ability to acquire customers and contracts for our products.





· our
      ability to establish a viable contract manufacturing source for production
      of
      our products;





· the
      competitive environment for ONT customer premises equipment and the rate at
      which the prices that we are able to command for our products may decline;
      and





· our
      ability to achieve manufacturing and operational efficiencies as we implement
      our operations.





Due
      to
      these factors, we cannot forecast with any degree of accuracy when or if we
      will
      become operationally profitable or, if we achieve such profitability, that
      we
      would be able to sustain it.





***Our
      potential customer base is concentrated, and the lack of acquisition of one
      or
      more of potential customers could harm our
      business.***





A
      substantial majority of potential end users of our ONT Products in the U.S.
      and
      in other countries are a relatively small number of network service providers.
      If we are not successful in establishing relationships with these few network
      service providers or their OEMS that supply them, our business will be
      harmed.




***Competition
      within the Optical Network Terminal market is intense and includes numerous,
      well established competitors. If we are unable to compete effectively, our
      business would be harmed.***





Competition
      in the ONT customer premises equipment market is intense, and we expect
      competition to increase. Many of our competitors and potential competitors
      have
      substantially greater name recognition and technical, financial and marketing
      resources than we have. In addition, many of our competitors are able to offer
      their customers a range of products of which the ONT premises equipment is
      only
      one element. Customers may prefer to purchase from fewer vendors, and may
      therefore favor competitors with broader product offerings. If we are unable
      to
      compete successfully, our business will be harmed and our results of operations
      and financial condition would be adversely affected. We cannot assure you that
      we will have the financial resources, technical expertise or marketing,
      distribution and support capabilities to compete successfully. Competitive
      pressures could adversely affect us in the following ways once sales commence,
      if they commence at all:





· reduce
      demand for our products if customers shift their purchasing to competitors;
      or





· cause us
      to reduce prices on our existing or future products and thereby adversely affect
      our gross margins.





***Our
      failure to enhance our existing products or to develop and introduce new
      products that meet changing customer requirements and emerging industry
      standards would adversely impact our ability to sell our
      products.***




12




The
      market for ONT's is characterized by rapidly changing customer demands and
      short
      product life cycles. If our product development and enhancements take longer
      than planned, the availability of our products would be delayed. Any such delay
      could adversely impact our ability to sell our products and our results of
      operations and financial condition would be adversely affected. Our future
      success will depend in large part upon our ability to:





· identify
      and respond to emerging technological trends in the market;





· develop
      and maintain competitive products that meet changing customer
      demands;





· enhance
      our products by adding innovative features that differentiate our products
      from
      those of our competitors;





· bring
      products to market on a timely basis;




· introduce products that have competitive prices; and





· respond
      effectively to new technological changes or new product announcements by
      others.




**Risks
      Relating to Our Current Financing Arrangements**





***There
      are a large number of shares underlying our convertible notes and warrants
      that
      may be registered in the near future and the sale of these shares may depress
      the market price of our common stock.***




As
      of
      March 30, 2007, we had 104,080,623 shares of common stock issued and
      outstanding. In connection with the financing arrangements that we entered
      into
      on March 30, 2007, we also have outstanding secured convertible note and accrued
      interest that may be converted into an estimated 12,195,000 shares of
      common stock at current market prices. In addition, we have outstanding warrants
      to purchase 13,197,500 shares of common stock. The debentures issued on March
      30, 2007 are at a conversion price per share equal to $0.41.




The
      shares underlying the convertible note and warrants have not been registered
      but
      the Company intends to register those shares under Form SB-2. Upon effectiveness
      of the registration statement, all of the shares, including all of the shares
      issuable upon conversion of the notes and upon exercise of our warrants, may
      be
      sold without restriction. The sale of these shares may adversely affect the
      market price of our common stock.








***The
      issuance of our stock upon the conversion of the convertible note could
      encourage short sales by third parties, which could contribute to the future
      decline of our stock price and materially dilute the existing stockholder's
      equity and voting rights.*** .





The
      convertible note has the potential to cause significant downward pressure on
      the
      price of our common stock. This is particularly the case if the shares being
      placed into the market exceed the market's ability to absorb the increased
      number of shares of stock. Such an event could place further downward pressure
      on the price of our common stock, which presents an opportunity to short sellers
      and others to contribute to the future decline of our stock price. If there
      are
      significant short sales of our stock, the price decline that would result from
      this activity will cause the share price to decline more so, which, in turn,
      may
      cause long holders of the stock to sell their shares thereby contributing to
      sales of stock in the market. If there is an imbalance on the sell side of
      the
      market for the stock, our stock price will decline.





***The
      issuance of shares upon conversion of the convertible note and exercise of
      warrants issued to Cornell Capital Partners, L.P. may result in substantial
      dilution to the interests of other stockholders and a change of control of
      our
      company since the selling stockholders may ultimately convert and sell the
      full
      amount issuable on conversion.***




The
      issuance of shares upon conversion of the convertible note and exercise of
      warrants issued to Cornell Capital Partners, L.P., and the other selling
      stockholders with respect to outstanding warrants, may result in substantial
      dilution to the interests of other stockholders and a change in control of
      our
      company since the selling stockholder may ultimately convert and sell the full
      amount issuable on conversion.





***If
      we are required for any reason to repay our outstanding convertible note, we
      would be required to deplete our working capital, if available, or raise
      additional funds. Our failure to repay the convertible note, if required, could
      result in legal action against us, which could require the sale of substantial
      assets*** .




Our
      convertible note matures three years from the date of issuance, unless sooner
      converted into shares of our common stock. Beginning in month twelve, we are
      required to make monthly interest payments and beginning in month eighteen
      we
      are required to make principal and interest payments in the amount of $100,000.
      The principal and interest payments may be deferred but only at the option
      of
      Cornell Capital. Any event of default such as our failure to repay the principal
      or interest when due, our failure to issue shares of common stock upon
      conversion by the holder, or our failure to timely file a registration statement
      or have such registration statement declared effective, could render the entire
      convertible note and accrued interest immediately due and payable. If we were
      required to repay the entire convertible note, we would be required to use
      our
      limited working capital and raise additional funds. However, our ability to
      raise additional funds is hindered by the fact that we are required to obtain
      the consent of the holder in order to engage in any financing for the issuance
      of our securities or to engage in any secured financing. If we were unable
      to
      repay the convertible note when required, the holders could commence legal
      action against us and foreclose on all of our assets to recover the amounts
      due.
      Any such action would require us to curtail or cease operations.




13




***If
      an Event of Default Occurs under the Securities Purchase Agreement, Secured
      Convertible Note, Warrants, or Security Agreement, Cornell Could Take Possession
      of all Our Goods, Inventory, Contractual Rights and General Intangibles,
      Receivables, Documents, Instruments, and Chattel Paper, and Intellectual
      Property.***





In
      connection with the Securities Purchase Agreements we entered into on March
      30,
      2007, we executed a Security Agreement in favor of the investors granting them
      a
      second priority security interest in all of our goods, inventory, contractual
      rights and general intangibles, receivables, documents, instruments, and chattel
      paper. The Security Agreement states that if an event of default occurs under
      the Securities Purchase Agreements, Convertible Note, Warrants, or Security
      Agreement, Cornell has the right to take possession of the collateral, to
      operate our business using the collateral, and have the right to assign, sell,
      lease or otherwise dispose of and deliver all or any part of the collateral,
      at
      public or private sale or otherwise to satisfy our obligations under these
      agreements.




***Risk
      Related to Our Common Stock*** ****




***There
      is a limited market for our common stock which may make it more difficult for
      you to sell your stock.***





Our
      common stock is quoted on the OTC Bulletin Board under the symbol "TXPO.OB."
      There is a limited trading market for our common stock. Accordingly, there
      can
      be no assurance as to the liquidity of any markets that may develop for our
      common stock, the ability of holders of our common stock to sell our common
      stock, or the prices at which holders may be able to sell our common
      stock.





***Our
      stock price may be volatile.***





The
      market price of our common stock is likely to be highly volatile and could
      fluctuate widely in price in response to various factors, many of which are
      beyond our control, including:





· technological innovations or new products and services by us or our
      competitors;




· additions or departures of key personnel;




· sales of
      our common stock;




· our
      ability to integrate operations, technology, products and services;




· our
      ability to execute our business plan;




· operating results below expectations;




· loss of
      any strategic relationship;




· industry
      developments;




· economic
      and other external factors; and




· period-to-period
      fluctuations in our financial results.





Because
      we have a limited operating history, you may consider any one of these factors
      to be material. Our stock price may fluctuate widely as a result of any of
      the
      above listed factors.





In
      addition, the securities markets have from time to time experienced significant
      price and volume fluctuations that are unrelated to the operating performance
      of
      particular companies. These market fluctuations may also materially and
      adversely affect the market price of our common stock.





***We
      have not paid dividends in the past and do not expect to pay dividends in the
      future. Any returns on investment may be limited to the value of our common
      stock.***





We
      have
      never paid cash dividends on our common stock and do not anticipate paying
      cash
      dividends in the foreseeable future. The payment of dividends on our common
      stock will depend on earnings, financial condition and other business and
      economic factors affecting it at such time as the board of directors may
      consider relevant. If we do not pay dividends, our common stock may be less
      valuable because a return on your investment will only occur if its stock price
      appreciates.




14




***Our
      common stock is deemed to be “penny stock” with a limited trading
      market.*** ****





Our
      common stock is currently listed for trading on the OTC Bulletin Board which
      is
      generally considered to be a less efficient market than markets such as NASDAQ
      or other national exchanges, and which may cause difficulty in conducting trades
      and difficulty in obtaining future financing. Further, our securities are
      subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the
      Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock
      rules apply to non-NASDAQ companies whose common stock trades at less than
      $5.00
      per share or which have tangible net worth of less than $5,000,000 ($2,000,000
      if we have been operating for three or more years). Such rules require, among
      other things, that brokers who trade "penny stock" to persons other than
      "established customers" complete certain documentation, make suitability
      inquiries of investors and provide investors with certain information concerning
      trading in the security, including a risk disclosure document and quote
      information under certain circumstances. Many brokers have decided not to trade
      "penny stock" because of the requirements of the penny stock rules and, as
      a
      result, the number of broker-dealers willing to act as market makers in such
      securities is limited. In the event that we remain subject to the "penny stock
      rules" for any significant period, there may develop an adverse impact on the
      market, if any, for our securities. Because our securities are subject to the
      "penny stock rules," investors will find it more difficult to dispose of our
      securities. Further, for companies whose securities are traded in the OTC
      Bulletin Board, it is more difficult: (i) to obtain accurate quotations, (ii)
      to
      obtain coverage for significant news events because major wire services, such
      as
      the Dow Jones News Service, generally do not publish press releases about such
      companies, and (iii) to obtain needed capital.





**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**





Our
      executive offices are located at 1299 Commerce Drive **,** Richardson, TX 75081. We lease our facilities and lease payments for fiscal
      2006
      and 2005 amounted to $198,000 and $172,000, respectively. Our facilities lease
      was executed in December 2004 and commenced in March of 2005 and terminates
      in
      March of 2010. Our lease was amended effective November 15, 2006 to include
      approximately 16,500 additional square feet. The incremental monthly lease
      payment is approximately $7,000 per month for the term of the lease. Total
      annual lease payments are as follows: $284,000, $292,000, $298,000, and $60,000
      for the years ending December 31, 2007, 2008, 2009, and 2010, respectively.
      We
      believe that our facilities are adequate to meet our current needs. Our offices
      are in good condition and are sufficient to conduct our operations. We do not
      intend to renovate, improve, or develop properties. We are not subject to
      competitive conditions for property and currently have no property to insure.
      We
      have no policy with respect to investments in real estate or interests in real
      estate and no policy with respect to investments in real estate mortgages.
      Further, we have no policy with respect to investments in securities of or
      interests in persons primarily engaged in real estate activities.




**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




We
      are
      not currently party to any legal proceedings.





**ITEM
      4.**  **SUBMISSIONS
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.**




There
      were no submissions of matters to a vote of security holders during Q4 of 2006.





**PART
      II**




**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY AND RELATED STOCK HOLDER MATTERS.**




**Market
      Information**





Our
      common stock is quoted on the OTC Bulletin Board under the symbol "TXPO." On
      July 14, 2006, we changed our name from YTXP Corporation to TXP Corporation
      and
      our symbol was changed from “YTXO” to “TXPO.” Prior to the completion of the
      merger with Texas Prototypes, Inc., our common stock traded on the OTC Bulletin
      Board under the symbol “SMKT,” and later “SMSO.” The following table shows the
      reported high and low closing bid quotations per share for our common stock
      based on information provided by the OTC Bulletin Board. Particularly since
      our
      common stock is traded infrequently, such over-the-counter market quotations
      reflect inter-dealer prices, without markup, markdown or commissions and may
      not
      necessarily represent actual transactions or a liquid trading
      market.





Year
                Ended December 31, 2007
            
            High
            
            LowFirst
                Quarter ended March 31, 2007*
            
            $
            0.45
            
            $
            0.20





Year
                Ended December 31, 2006
            
            High
            
            LowFirst
                Quarter ended March 31, 2006
            
            $
            0.68
            
            $
            0.22Second
                Quarter ended June 30, 2006
            
            $
            0.99
            
            $
            0.25Third
                Quarter ended September 30, 2006
            
            $
            0.70
            
            $
            0.27Fourth
                Quarter ended December 31, 2006
            
            $
            0.54
            
            $
            0.31




15




Year
                Ended December 31, 2005
            
            High
            
            LowFirst
                Quarter ended March 31, 2005
            
            $
            0.60
            
            $
            0.08Second
                Quarter ended June 30, 2005
            
            $
            0.48
            
            $
            0.06Third
                Quarter ended September 30, 2005
            
            $
            0.65
            
            $
            0.18Fourth
                Quarter ended December 31, 2005
            
            $
            0.49
            
            $
            0.22




Year
                Ended December 31, 2004
            
            High
            
            LowFirst
                Quarter ended March 31, 2004
            
            $
            1.10
            
            $
            0.35Second
                Quarter ended June 30, 2004
            
            $
            0.95
            
            $
            0.45Third
                Quarter ended September 30, 2004
            
            $
            0.66
            
            $
            0.31Fourth
                Quarter ended December 31, 2004
            
            $
            0.50
            
            $
            0.10




*Through
      March 23, 2007





**Number
      of Stockholders**





As
      of
      March 26, 2007, there were 56 holders of record of our common stock. The
      transfer agent of our common stock is Fidelity Transfer Company, 1800 S. West
      Temple, Suite 301, Salt Lake City, UT 84115.




**Dividend
      Policy**




We
      have
      not declared any dividends to date. We have no present intention of paying
      any
      cash dividends on our common stock in the foreseeable future, as we intend
      to
      use earnings, if any, to generate growth. The payment by us of dividends, if
      any, in the future, rests within the discretion of our Board of Directors and
      will depend, among other things, upon our earnings, our capital requirements
      and
      our financial condition, as well as other relevant factors. There are no
      restrictions in our articles of incorporation or bylaws that restrict us from
      declaring dividends.





**EQUITY
      COMPENSATION PLAN INFORMATION**





**Plan
                category**
            **Number
                of securities**
              **to
                be issued upon**
              **exercise
                of**
              **outstanding
                options,**
              **warrants
                and rights**
            **Weighted
                average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrans
                and rights**
            **Number
                of securities**
              **remaining
                available for future issuance under equity compensation plans (excluding
                securities reflected in column (a)****(a)**
            **(b)**
            **(c)****Equity
                compensation plans approved by security holders**
            10,000,000
            $0.31
            7,443,671**Equity
                compensation plans not approved by security
                holders**
            -0-
            -0-
            -0-**Total**
            10,000,000
            $0.31
            7,443,671





**Unregistered
      Sales of Equity Securities**





Following
      is a summary of unregistered securities issued during the fourth quarter of
      2006.





On
      October 11, 2006, we entered into a Securities Purchase Agreement with Kuekenhof
      Equity Fund, L.P., a qualified institutional buyer that is not affiliated with
      us or any of the other selling stockholders, pursuant to which we sold an
      aggregate of $1,500,000 in shares of the Company’s common stock, par value $.001
      per share, at a per share purchase price of $.32, together with five year
      warrants to purchase 2,343,750 shares of common stock at an exercise price
      equal
      to $0.50 per share and five year warrants to purchase 2,343,750 shares of common
      stock at an exercise price equal to $1.00 per share. The entire purchase price
      of the shares and the warrants was used by us to redeem our principal amount
      $550,000 and $577,000 10% secured convertible debentures issued to Cornell
      Capital Partners, L.P. in June 2005 and June 2006, respectively, each at a
      20%
      premium, for a total redemption price of approximately $1,500,000.





The
      exercise prices of the warrants are subject to adjustment in certain events,
      including, without limitation, upon our consolidation, merger or sale of all
      of
      substantially all of our assets, a reclassification of our common stock, or
      any
      stock splits, combinations or dividends with respect to our common stock. In
      addition, we have the option to call all or a portion of the warrants so long
      as
      (i) the closing bid price of our common stock is trading at or above $1.50
      for
      20 consecutive trading days immediately preceding the call date, and (ii) the
      shares of common stock underlying the warrants are registered under an effective
      registration statement on the call date.




16




On
      October 12, 2006, we entered into an Agreement with James Von Ehr, II pursuant
      to which we issued to the investor five-year warrants to purchase an aggregate
      of 640,000 shares of common stock as consideration for the investor agreeing
      to
      pledge an aggregate of $2,000,000 in free-trading shares of common stock of
      Adobe Systems Incorporated (NASDAQ:ADBE), Fossil Incorporated (NASDAQ:FOSL)
      or
      such other shares of free-trading common stock having a value of $2,000,000
      in
      the aggregate beneficially owned by the Investor as may be agreed upon between
      the parties. The collateral is to be pledged on behalf of our company in favor
      of First Bank of Canyon Creek, or such other lending or financing institution
      as
      may be agreed upon between the parties, as collateral for a loan to be obtained
      by us from a lender in an amount up to $2,000,000 with a term of up to 1 year
      (the “Term”), which will be further guaranteed personally and through the pledge
      of common stock beneficially owned by Michael Shores, our Chief Executive
      Officer. The warrants are exercisable into shares of our common stock at a
      price
      equal to $0.50 per share. As additional consideration of the investor's
      agreement to pledge the collateral to a lender, we agreed to pay to the investor
      a one-time commitment fee during the Term of 125,000 shares of our common stock
      (the “Commitment Fee”) no later than 90 days after the collateral is deposited
      into the account of a lender; provided, however, that we shall pay an additional
      Commitment Fee within 90 days after the renewal of the loan by a
      lender.





*
      All of
      the above offerings and sales were deemed to be exempt under rule 506 of
      Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
      advertising or general solicitation was employed in offering the securities.
      The
      offerings and sales were made to a limited number of persons, all of whom were
      accredited investors, business associates of TXP CORPORATION or executive
      officers of TXP CORPORATION, and transfer was restricted by TXP CORPORATION
      in
      accordance with the requirements of the Securities Act of 1933. In addition
      to
      representations by the above-referenced persons, we have made independent
      determinations that all of the above-referenced persons were accredited or
      sophisticated investors, and that they were capable of analyzing the merits
      and
      risks of their investment, and that they understood the speculative nature
      of
      their investment. Furthermore, all of the above-referenced persons were provided
      with access to our Securities and Exchange Commission filings.





**ITEM
      6.**  **MANAGEMENT'S
      DISCUSSIONS AND ANALYSIS OR PLAN OF OPERATION.**





**Cautionary
      and Forward Looking Statements**





Our
      representatives and we may from time to time make written or oral statements
      that are "forward-looking," including statements contained in this 10-KSB and
      other filings with the Securities and Exchange Commission, reports to our
      stockholders and news releases. All statements that express expectations,
      estimates, forecasts or projections are forward-looking statements within the
      meaning of the Act. In addition, other written or oral statements which
      constitute forward-looking statements may be made by us or on our behalf. Words
      such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
      "estimates," "projects," "forecasts," "may," "should," variations of such words
      and similar expressions are intended to identify such forward-looking
      statements. These statements are not guarantees of future performance and
      involve risks, uncertainties and assumptions which are difficult to predict.
      Therefore, actual outcomes and results may differ materially from what is
      expressed or forecasted in or suggested by such forward-looking statements.
      We
      undertake no obligation to update publicly any forward-looking statements,
      whether as a result of new information, future events or otherwise. Important
      factors on which such statements are based are assumptions concerning
      uncertainties, including but not limited to uncertainties associated with the
      following:





(a)
      volatility or decline of our stock price;





(b)
      potential fluctuation in quarterly results;





(c)
      our
      failure to earn revenues or profits;





(d)
      inadequate capital and barriers to raising the additional capital or to
      obtaining the financing needed to implement its business plans;





(e)
      inadequate capital to continue business;





(f)
      changes in demand for our products and services;





(g)
      rapid
      and significant changes in markets;





(h)
      litigation with or legal claims and allegations by outside parties;
      or





(i)
      insufficient revenues to cover operating costs.




There
      is
      no assurance that we will be profitable, we may not be able to successfully
      develop, manage or market our products and services, we may not be able to
      attract or retain qualified executives and technology personnel, our products
      and services may become obsolete, government regulation may hinder our business,
      additional dilution in outstanding stock ownership may be incurred due to the
      issuance of more shares, warrants and stock options, or the exercise of warrants
      and stock options, and other risks inherent in the our businesses.




17




We
      undertake no obligation to publicly revise these forward-looking statements
      to
      reflect events or circumstances that arise after the date hereof. Readers should
      carefully review the factors described in other documents we file from time
      to
      time with the Securities and Exchange Commission, including the Quarterly
      Reports on Form 10-QSB and Annual Report on Form 10-KSB filed by us in 2006
      and
      any Current Reports on Form 8-K filed by us.





**Overview**





We
      are a
      Nevada corporation formed in June 1994 under the name Cyber Synergy, Inc. to
      develop stock market related software applications. In November 1999, we changed
      our name to Jesse Livermore.com, Inc. In December 2001, we changed our name
      to
      Stock Market Solutions, Inc.





Our
      company was originally founded to assist professional mutual and hedge fund
      traders and managers, as well as individual investors, to more skillfully trade
      in the stock market. We were inactive until entering the development stage
      in
      January 1999. We intended to offer a teaching and a computer-trading program
      designed to provide educational/instructional assistance and aid to those stock
      market traders who wish to learn how to trade in the stock market using a system
      previously developed by an early 20 th century
      stock market trader, Jesse Livermore.





On
      June
      13, 2005, we and a wholly-owned subsidiary of SMS entered into an Agreement
      and
      Plan of Merger with Texas Prototypes, Inc. (“TXP”) whereby SMS, following the
      effectuation of a 1 for 10 reverse stock split, issued shares of its common
      stock to TXP on May 4, 2006 equal to 94.7% of its total outstanding shares
      of
      common stock, or 89,298,042 shares, within ten days after completion of the
      closing conditions under the Merger Agreement, the principal requirement being
      the completion of the reverse stock split. In exchange, TXP issued 100% of
      the
      outstanding shares of common stock, or 221,051,400 shares, to SMS. TXP merged
      into a wholly owned subsidiary of SMS and the separate corporate existence
      of
      such subsidiary ceased. TXP continued as the surviving corporation.




On
      March
      31, 2006, SMS obtained the majority vote of its shareholders necessary to
      effectuate the 1 for 10 reverse stock split. On April 26, 2006, the Certificate
      of Merger between TXP and a wholly owned subsidiary of SMS was filed with the
      Secretary of State of the State of Texas. The directors and officers of TXP
      were
      appointed directors and officers of the surviving corporation pursuant to which
      Michael C. Shores and Robert Bruce, the President and CFO of TXP, respectively,
      were appointed as directors and officers of SMS, and Richard Smitten resigned
      as
      the Chief Executive Officer and sole director of SMS. The parties completed
      the
      merger and satisfied all closing conditions as set forth in the Merger Agreement
      on April 28, 2006.




On
      April
      21, 2006, we changed our name to YTXP Corporation, in anticipation of a reverse
      merger with a wholly owned subsidiary of SMS and Texas Prototypes, Inc., and
      our
      stock symbol was changed to “YTXO”. In addition, on July 14, 2006 we changed our
      name to TXP Corporation and our stock symbol was changed to “TXPO”. Further, on
      July 14, 2006 we amended our articles of incorporation to increase the number
      of
      authorized shares of our common stock from 100,000,000 shares to 300,000,000
      shares





For
      accounting purposes, the acquisition has been treated as recapitalization of
      Texas Prototypes, Inc. with Texas Prototypes, Inc. as the acquirer and as the
      continuing reporting entity. Accordingly, financial statements filed for
      post-merger periods will depict the acquisition of YTXP by the accounting
      acquirer and will include financial statements of the accounting acquirer for
      the pre-merger comparable periods.





We
      are a
      provider of Pre-Manufacturing Services for the global electronics industry,
      supporting original equipment manufacturers, original design manufacturers,
      contract manufacturers and new technology innovators. Pre-Manufacturing, also
      referred to as pre-production, consists of the initial activities required
      to
      prepare a product for manufacturing. The success of these early activities
      directly impacts the speed with which a product can be brought to market.
      Pre-Manufacturing Services generally include: electrical design of the product,
      design and fabrication of the printed circuit board (PCB) based on the design,
      development of the material supply chain for parts required to build the desired
      electronic product, manufacture of a small number of initial prototype boards,
      development of procedures and protocol for testing the proper functioning of
      the
      assembled boards, manufacture of another small set of PCB's (referred to as
      a
      pilot production) to effectively confirm the manufacturing process, and then
      the
      transfer of all product build data into a production environment.





In
      December of 2006, TXP created a new business unit, iPhotonics, which will focus
      primarily on the development and sale of Optical Network Terminals (“ONT’s”) and
      related accessories and to a lesser extent related design and development
      services. The iPhotonics business unit intends to operate as an Original Design
      Manufacturer (“ODM”) which means we will manufacture products that are
      ultimately branded by another organization for sale. A primary attribute of
      this
      business model is that the ODM owns and/or designs in-house the products that
      are branded by the buying firm. ONTs are the customer premise located devices
      used by a carrier to serve residential and business customers over a PON-based
      (Passive Optical Networking) system. PON is a maturing point-to-multipoint
      technology which is being adopted by telephone companies globally because of
      its
      cost effectiveness in extending fiber-based service delivery all the way to
      the
      customer premise (Fiber-to-the-Home [FTTH] or Fiber-to-the-Premise [FTTP]).
      TXP's ONTs will sit at each customer premise and will be connected over fiber
      to
      an Optical Line Terminal (OLT) generally located in the carrier's central
      office. A single OLT can deliver services to thousands of ONTs.





For
      the
      year ended December 31, 2006 and 2005, we generated revenues of $8,228,000
      and
      $9,400,000, respectively, and incurred a net loss of $4,592,000 and $595,000,
      respectively.




18




Our
      principal executive offices are located at 1299 Commerce Drive Richardson,
      Texas 75081and our telephone number is (214) 575-9300.





**Critical
      Accounting Policies**





Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of these
      consolidated financial statements requires us to make estimates and assumptions
      that affect the reported amounts of assets, liabilities, revenues, costs and
      expenses, and related disclosures. We evaluate our estimates and assumptions
      on
      an ongoing basis. Actual results may differ from these estimates under different
      assumptions or conditions.





Our
      significant accounting policies are described in Note 2 of the notes to our
      consolidated financial statements contained herein. The following accounting
      policies involve a greater degree of judgment and complexity. Accordingly,
      these
      are the policies we believe are the most critical to aid in fully understanding
      and evaluating our consolidated financial condition and results of
      operations.




***Accounting
      for Convertible Debentures, Warrants and Derivative
      Instruments***





We
      account for our embedded conversion features and freestanding warrants pursuant
      to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
      and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to and
      Potentially Settled in, a Company's Own Stock,” (“EITF 00-19”) which requires
      freestanding contracts that are settled in a company's own stock, including
      common stock warrants, to be designated as an equity instrument, asset or a
      liability. Under the provisions of EITF 00-19, a contract designated as an
      asset
      or a liability must be carried at fair value on a company's balance sheet,
      with
      any changes in fair value recorded in our results of operations. In accordance
      with EITF 00-19, certain warrants to purchase common stock and embedded
      conversion options are accounted for as liabilities at fair value and the
      unrealized changes in the values of these derivatives are recorded in our
      consolidated statement of operations as “Changes in Fair Value of Derivative
      Financial Instruments”. The recognition of derivative liabilities is applied
      first to the proceeds of such issuance, at the date of issuance, and the excess
      of derivative liabilities over the proceeds is recognized in our consolidated
      statement of operations as “Changes in Fair Value of Derivative Financial
      Instruments.”





We
      use
      the Black Scholes Pricing Model to determine fair values of our derivatives.
      Valuations derived from this model are subject to ongoing internal and external
      verification and review. The model uses market-sourced inputs such as interest
      rates, exchange rates and option volatilities. Selection of these inputs
      involves management's judgment and may impact net income. The fair value of
      the
      derivative liabilities are subject to the changes in the trading value of our
      common stock. As a result, the our financial statements may fluctuate from
      quarter-to-quarter based on factors, such as the price of our stock at the
      balance sheet date, the amount of shares converted by note holders and/or
      exercised by warrant holders. Consequently, our financial position and results
      of operations may vary from quarter-to-quarter based on conditions other than
      our operating revenues and expenses.





We
      have
      penalty provisions in the registration rights agreement of our Cornell
      debentures and warrants ( See
      NOTE
      11 - CONVERTIBLE DEBENTURES, WARRANTS, AND SECURITIES )
      that
      require us to file the Registration Statement no later than 45 days from the
      date of closing and to use its best efforts to cause the Registration Statement
      to be declared effective no later than 120 days after filing and to insure
      that
      the registration statement remains in effect until all of the shares of common
      stock issuable upon conversion of the Debentures and exercise of the Warrants
      have been sold. In the event of a default of its obligations under the
      Registration Rights Agreements, including its agreement to file the Registration
      Statement for the shares of common stock issuable upon conversion of the
      Debentures and exercise of the Warrants with the Securities and Exchange
      Commission no later than 45 days from the date of closing, or if the
      Registration Statement is not declared effective within 120 days of filing,
      it
      is required that we pay to Cornell, as liquidated damages, for each month that
      the registration statement has not been filed or declared effective, as the
      case
      may be, either a cash amount or shares of our common stock at Cornell's option
      equal to 2% of the liquidated value of the debentures. The agreement does not
      specify whether the liquidated damages may be satisfied in unregistered shares
      or how the payment in shares would be valued should Cornell elect to be paid
      liquidated damages in common stock. The Company obtained a waiver from Cornell
      Capital waiving any claim or payment of liquidated damages up through and
      including May 15, 2007.





On
      October 11, 2006, we entered into a Securities Purchase Agreement which provided
      for the filing of a registration statement by the Company with the Securities
      and Exchange Commission registering the Shares and the share common stock
      issuable upon exercise of the Warrants. (See
      NOTE
      11 - CONVERTIBLE DEBENTURES, WARRANTS, AND SECURITIES) The
      Company is obligated to file the registration statement no later than December
      15, 2006 and to use its best efforts to cause the registration statement to
      be
      declared effective no later than 90 days after filing. If the Company does
      not
      meet the aforementioned filing and effectiveness deadlines, it shall pay to
      the
      investor an amount equal to 1% of the purchase price for the first 60 days
      or
      part thereof of the pendency of such non-registration event and 2% for each
      30
      days or part thereof thereafter, of the purchase price of the Shares and the
      Warrants; provided, however, that the aforementioned liquidated damages shall
      only accrue, if at all, for 12 months after the closing date.  The Company
      obtained a waiver from the investor waiving any claim or payment of liquidated
      damages up through and including May 15, 2007.




We
      account for these penalties as contingent liabilities, applying the accounting
      guidance of Financial Accounting Standard No. 5, “Accounting for Contingencies”
(“FAS 5”). This accounting is consistent with views established by the Emerging
      Issues Task Force in its consensus set forth in EITF 05-04 and FASB Staff
      Positions FSP EITF 00-19-2 “Accounting for Registration Payment Arrangements”,
      which was issued December 21, 2006. Accordingly, we recognize the damages when
      it becomes probable that they will be incurred and amounts are reasonably
      estimable.




19




**Revenue
      Recognition**





Revenues
      are derived from the following sources:





·
            Prototyping
                and assembly services


·
            Prototyping
                -Photonics/Optoelectronics services


·
            Material
                supply chain management services


·
            Turn-key
                solution - consists of material supply chain management services
                and one
                of the other services listed above


·
            Optical
                Network Terminal (ONT) product and accessory
                sales


·
            ONT
                design and development services





The
      following is a description of each revenue source and our revenue recognition
      policy for each source:





Prototyping
      and assembly services typically consist of assembling and designing surface
      mount technology and other build-to-order products to the customer provided
      design specifications. These services are priced based on the complexity,
      time-to turn and unit volume of the customer project. The majority of our
      prototyping and assembly services projects are completed in less than three
      weeks. We recognize revenue when persuasive evidence of an arrangement exists,
      delivery has occurred, services have been performed, the sales price is fixed
      or
      determinable and collectibility is probable. These criteria are generally met
      after an internal quality control review of the product and at the time product
      is shipped.





Prototyping
      -Photonics/Optoelectronics services typically consists of assembling and
      designing optical and optical related products to the customer provided design
      specifications. We recognize revenue when persuasive evidence of an arrangement
      exists, delivery has occurred, services have been performed, the sales price
      is
      fixed or determinable and collectibility is probable. These criteria are
      generally met after an internal quality control review of the product and at
      the
      time product is shipped.





Material
      supply chain management services consists of locating and procuring materials
      according to customer design specifications, qualifying components and auditing
      vendors, inventorying materials, and providing dual vendor sourcing if
      necessary. Material supply chain management services are priced at the cost
      of
      the material plus 5% to 25%. The pricing is solely dependent on the complexity
      and volume of the services performed. We recognize revenue when persuasive
      evidence of an arrangement exists, delivery has occurred, services have been
      performed, the sales price is fixed or determinable and collectibility is
      probable. These criteria are generally met at the time materials have been
      received and inventoried, and the materials have shipped.





Turn-key
      solution is a combination of material supply chain management and one of the
      other service revenue sources described above. Revenue is generally recognized
      after both services have been performed and the products have
      shipped.





Optical
      Network Terminal (ONT) product and accessory sales. In December of 2006, TXP
      created a new business unit, iPhotonics, which will focus primarily on the
      development and sale of ONT’s and related accessories. ONTs are the customer
      premise located devices used by a carrier to serve residential and business
      customers over a PON-based (Passive Optical Networking) system. PON is a
      maturing point-to-multipoint technology which is being adopted by telephone
      companies globally because of its cost effectiveness in extending fiber-based
      service delivery all the way to the customer premise (Fiber-to-the-Home [FTTH]
      or Fiber-to-the-Premise [FTTP]). TXP's ONTs will sit at each customer premise
      and will be connected over fiber to an Optical Line Terminal (OLT) generally
      located in the carrier's central office. A single OLT can deliver services
      to
      thousands of ONTs. We recognize revenue when persuasive evidence of an
      arrangement exists, delivery has occurred, services have been performed, the
      sales price is fixed or determinable and collectibility is probable. These
      criteria are generally met after an internal quality control review of the
      product and at the time product is shipped.


ONT
      design and development services. TXP offers contract services related to the
      design and development of ONT products and accessories. TXP recognizes design
      and development services revenue using the percentage-of-completion method
      of
      accounting, in accordance with SOP 81-1, “Accounting for Performance of
      Construction-Type and Certain Production-Type Contracts.” Revenues are
      recognized primarily based on costs incurred to date compared with total
      estimated contract costs. Generally our design and development service costs
      consist of engineering labor costs.





**Allowance
      for Doubtful Accounts**





Our
      allowance for doubtful accounts relates to trade accounts receivable. The
      allowance for doubtful accounts is an estimate prepared by management based
      on
      identification of the collectibility of specific accounts and the overall
      condition of the receivable portfolios. We specifically analyze individual
      customer balances in trade receivables, historical bad debts, customer credits,
      customer concentrations, customer credit-worthiness, current economic trends
      and
      changes in customer payment terms when evaluating the adequacy of the allowance
      for doubtful accounts. If the financial condition of our customers were to
      deteriorate, resulting in an impairment of their ability to make payments,
      additional allowances may be required. Likewise, should we determine that we
      would be able to realize more of its receivables in the future than previously
      estimated, an adjustment to the allowance would increase income in the period
      such determination was made. The allowance for doubtful accounts is reviewed
      on
      a quarterly basis and adjustments are recorded as deemed necessary.





**Property
      and Equipment**




20




Property
      and equipment are stated at cost less accumulated depreciation. Major renewals
      and improvements are capitalized; minor replacements, maintenance and repairs
      are charged to current operations. Depreciation is computed by applying the
      straight-line method over estimated useful lives, which are generally three
      to
      seven years.





**COMPARISON
      OF YEAR ENDED DECEMBER 31, 2006 ("2006") TO THE YEAR ENDED DECEMBER 31, 2005
      ("2005")**





***Revenues***




TXP
      currently derives the majority of its revenue from our prototyping and assembly
      and material supply chain management services. Prototyping services are priced
      based on the complexity, time-to turn and volume of the customer project. TXP's
      material supply chain management services are priced at the cost of the material
      plus 5% to 25%. Total revenues decreased 12% from $9,400,000 in 2005 to
      $8,228,000 in 2006 or by $1,172,000. Material supply chain management services
      increased 23% from $1,914,000 in 2005 to $2,360,000 in 2006. Prototyping and
      assembly services decreased 35% from $7,486,000 in 2005 to $4,871,000 in 2006
      or
      $2,615,000. In 2005, TXP had revenues of $5,200,000 from a single customer,
      Foxconn, a multi-billion tier 1 contract manufacturer, related to photonics
      prototyping project which did not recur in 2006. Excluding the Foxconn project,
      prototyping and assembly revenues increased $2,585,000 compared to 2005. In
      2006, TXP had sales of $1,030,000 to several new customers related to
      build-to-order tele-communications product assemblies. In addition, TXP had
      revenues of $997,000 in 2006 related to design and development services
      performed by its iPhotonics group which was formed in Q4 of 2006. TXP does
      not
      expect to generate significant future design and development revenues. The
      entire $997,000 of design and development services revenue is attributable
      to
      design and development work performed for Siemens related to completing certain
      Optical Network Terminal (“ONT”) development hardware and software releases. The
      Siemens design and development project was consideration given by TXP in a
      non-monetary transaction whereby we received certain ONT assets from Siemens
      (See Note 17 of the audited financial statements included herein for further
      discussion of the non-monetary transaction). The remaining increase in revenues
      is attributed to an increasing customer base and continued demand from existing
      customers. TXP expanded its customer base from 86 in 2005 to 110 in 2006. TXP's
      top five customers accounted for 80% of revenue in 2005 and 54% of revenue
      in
      2006.





***Cost
      of Sales and Gross Profit***




Cost
      of
      sales consists of direct material, manufacturing overhead, labor costs,
      depreciation expense on machinery and equipment, equipment lease, and set-up
      and
      tooling charges associated with performing our services. Cost of sales decreased
      from $6,916,000 in 2005 to $5,523,000 in 2006 or $1,393,000. Direct costs of
      $4,133,000 related to the photonics prototyping project completed in Q3 2005
      did
      not recur in 2006. Other direct material costs and production supplies increased
      from $1,847,000 in 2005 to $2,808,000 in 2006 or $961,000. Manufacturing
      overhead and labor cost increased from $529,000 in 2005 to $1,240,000 or
      $711,000 in 2006 due to increased headcount and higher manufacturing overhead
      allocations due to expanded operations. Contract labor directly attributable
      to
      prototyping and assembly increased by $144,000 compared to 2005. Direct labor
      and personnel costs attributable to design and development services performed
      by
      our iPhotonic’s business unit increased to $997,000 compared to $0 in 2005.





Gross
      profit is dependent on the scope and the nature of the customer project and
      thus
      can vary significantly. Customer projects requiring a turnkey solution which
      includes both prototyping and material supply chain management services
      typically results in a lower margin than prototyping services only. Margins
      on
      prototyping services can range from 30% to 85% while margins on material supply
      chain management services can range from 5% to 25%. Margins on our design and
      development services were 0% as the revenues were recorded at our costs which
      consisted of labor and personnel costs.





Gross
      profit increased from $2,484,000 in 2005 to $2,705,000 in 2006 or $221,000.
      Revenues decreased for the same period by $1,172,000. During the same period
      the
      gross margin increased from 26% in 2005 to 33% in 2006 due to a positive change
      in revenue mix compared to 2005 - most significantly the 2005 $5,200,000
      photonics prototyping project which did not recur in 2006 on which we realized
      gross margins of approximately 20%. Additionally, margins on our development
      and
      services revenues were negatively impacted in 2006 by approximately 4 percentage
      points as we did not mark up our costs and thus had no margin on the $997,000
      in
      revenue recognized.





***Selling,
      General and Administrative Expenses***




Selling
      general & administrative expense (“SG&A”) consists of personnel costs
      including taxes and benefits, rent and utilities, contract labor, insurance,
      professional fees, marketing, telecommunication, internet costs, and other
      administrative expenses. SG&A expenses increased by $1,234,000 from
      $2,600,000 in 2005 to $3,834,000 in 2006. In 2006, the TXP incurred
      approximately $52,000 in legal, accounting and other professional fees related
      to the merger between YTXP and its wholly owned subsidiary and Texas Prototypes,
      Inc. In addition, TXP expensed deferred offering costs of $697,000 related
      to
      the standby equity distribution agreement with Cornell in accordance with SAB
      Topic 5A which considers significant delays in offering to be aborted for
      accounting purposes. Personnel costs increased as costs increased from
      $1,770,000 in 2005 to $2,241,000 in 2006 or by $471,000. Included in this
      increase was a net increase of approximately $313,000 of stock compensation
      expense incurred as result of employee stock and stock option awards in 2006
      compared to 2005. TXP created and filled several new positions including three
      Vice Presidents, Chief Technology Officer and an administrative clerical
      position subsequent to June 2005 and certain personnel have received raises
      from
      the prior year. Rent and utilities decreased $123,000 as result of increased
      allocations to manufacturing overhead as operations expanded. Sales and
      Marketing decreased $33,000 due to costs incurred in 2005 related to a trade
      show that we did not participate in 2006. Professional fees increased by
      $158,000 as legal, accounting, printing, investor relations, and transfer agent
      fees increased due to our becoming public in April of 2006. Travel and
      entertainment costs increased from $65,000 in 2005 to $116,000 as 2006 because
      of increased international and domestic travel related to establishing and
      developing our iPhotonics business unit.




21




***Research
      and Development***





Research
      and development (“R&D”) consists of materials, wages, contract services and
      other reasonable allocation of indirect costs that have no future alternative
      use and which are consumed in the research and development of our Optical
      Network Terminals. R&D increased from $0 in 2005 to $52,000 in 2006 as TXP’s
      iPhotonics’ business unit was established in December of 2006 and prior to that
      no R&D was performed.





***Depreciation
      Expense***





Depreciation
      expense, net amounts included as a component of cost of sales, increased from
      $54,000 in 2005 to $94,000 in 2006. The increase was in-line with capital
      expenditures and depreciable asset base.




***Net
      Interest Expense***





Net
      interest expense increased from $411,000 in 2005 to $943,000 in 2006 or by
      $532,000. Approximately $639,000 of the increase relates to additional
      amortization of note discounts on our secured convertible debentures issued
      to
      Cornell Capital which was partially offset by a decrease of $215,000 related
      to
      interest to finance the purchase of materials related to our photonics
      prototyping project in Q3 2005. TXP amortized $44,000 of debt issue costs to
      interest expense in 2006 related to its $3 million line of credit which
      originated in 2006 and there were no debt issue costs in 2005. The remaining
      increase in interest expense relates to increases on the outstanding balances
      of
      our lines credit, loans and capital lease obligations from 2005 to
      2006.





***Change
      in Fair Value of Derivative Financial Instruments***





Change
      in
      fair value of derivative financial instruments **** was
      $0 in
      2005 compared to $2,703,000 of expense in 2006. We account for all derivative
      financial instruments in accordance with SFAS No. 133. Derivative financial
      instruments are initially recorded as liabilities in the consolidated balance
      sheet, at fair value. We had no derivative instrument liabilities in
      2005. Derivative instrument liabilities are re-valued at the end of each
      reporting period, with changes in the fair value of the derivative liability
      recorded in our consolidated statement of operations as “Changes in Fair Value
      of Derivative Financial Instruments” in the period in which the changes occur.
      As a result, our financial statements may fluctuate from quarter-to-quarter
      based on factors, such as the price of our stock at the balance sheet date,
      the
      amount of shares converted by note holders and/or exercised by warrant holders.
      Consequently, our financial position and results of operations may vary from
      quarter-to-quarter based on conditions other than our operating revenues and
      expenses.





***Net
      Gain on Early Extinguishment of Debt***





Net
      gain on early extinguishment of debt **** increased
      from $0 in 2005 to $161,000 in 2006 as a result of the following three
      transactions:





In
      June
      of 2006, we issued 1,700,000 shares of common stock in the exchange for full
      settlement this $400,000 compensation debenture and another $240,000 convertible
      debenture assumed by TXP upon the completion of the merger in April 2006. The
      combined value of both debentures amounted to $685,000 which included the fair
      value of an embedded conversion option and accrued interest. The fair market
      value the stock was $850,000 on the date of settlement. We realized a $165,000
      loss on early extinguishment of debt as a result of the settlement.





In
      addition, on June 5, 2006 we issued to Cornell an amended and restated
      convertible debenture that consolidated all outstanding amounts of the
      convertible debenture issued by Texas Prototypes, Inc. to Cornell on June 15,
      2005 in the amount of $550,000, plus accrued and unpaid interest in the amount
      of $27,000 through June 5, 2006, for the principal sum of $577,000. We reviewed
      EITF 05-07 “Accounting for Modifications to Conversion Options Embedded in Debt
      Instruments and Related Issues” and EIFT 96-19 “Debtor's Accounting for a
      Modification or Exchange of Debt Instruments” and deemed that the modifications
      and amendments were substantial and determined that debt extinguishment had
      occurred as the cash flow effect (including the changes in fair value of the
      embedded conversion option) on a present value basis exceeded 10%. We recorded
      a gain on extinguishment debt of $630,000 in the consolidated statements of
      operations as a result of the modification.





On
      October 11, 2006, the Company exercised its right to redeem both debentures
      issued on June 5, 2006. The Company paid Cornell Capital $1,392,000 which was
      calculated by multiplying the principal balance of both debentures by 120%
      plus
      the accrued interest on the debentures. The combined carrying value of both
      debentures amounted to $1,088,000. The company recorded a $304,000 loss in
      the
      consolidated statements of operations on extinguishment of debt related to
      the
      redemption in October of 2006





***Other
      income (loss)***





On
      July
      28, 2006 we entered into an Asset Purchase Agreement with Mr. Richard Smitten,
      the former Chief Executive Officer and sole director of our predecessor
      corporation, Stock Market Solutions, Inc., pursuant to which we sold the assets
      of our predecessor business, including the business and related software, as
      well as the book-rights to three Livermore related books relating to a teaching
      and a computer training program designed to provide educational/instructional
      assistance and aid to those stock market traders who wish to learn how to trade
      in the stock market using a system previously developed by an early 20th century
      stock market trader, Jesse Livermore. In consideration for the sale of the
      Assets, Mr. Smitten agreed to forgive the repayment of a certain debt that
      we
      owed to Mr. Smitten in the aggregate amount of $329,272, of which $179,272
      was
      forgiven by Mr. Smitten immediately prior to the merger on April 28, 2006
      pursuant to that certain Agreement and Plan of Merger dated as of June 15,
      2005
      and $150,000 was forgiven by Mr. Smitten pursuant to the Agreement. We realized
      a $150,000 gain on extinguishment of debt as a result of the sale.




22




**Liquidity
      and Capital Resources**





TXP's
      principal potential sources of liquidity are cash on hand, cash generated from
      current revenues and cash provided from financing activities. As of December
      31,
      2006, TXP had cash and cash equivalents of $228,000.





During
      2006, TXP used $2,405,000 in operating activities compared to using $107,000
      during 2005. Cash used in operating activities during 2006 reflects $4,592,000
      in net loss, $264,000 in depreciation, $716,000 in debt discount amortization,
      $161,000 in gain on extinguishment of debt, $18,000 in gain on sale of
      fixed assets, $355,000 in stock compensation, $697,000 in aborted deferred
      offering costs, $1,760,000 in change in fair value of derivative financial
      instruments and $997,000 in deferred revenue. Accounts receivable, inventory,
      and other current assets, increased by $281,000, $555,000, $147,000,
      respectively decreasing working capital. We obtained net cash for working
      capital changes consisting of decreases in other assets and increases in
      accounts payable and accrued expenses of $13,000, $436,000, and $105,000
      respectively.




Cash
      used
      in operating activities during 2005 reflects $595,000 in net loss, $218,000
      in
      depreciation, $80,000 in debt discount amortization, $45,000 in stock
      compensation expense, and $14,000 in loss on sale of fixed assets. Accounts
      receivable, inventory, and other current assets increased by $194,000, $33,000,
      and $16,000 respectively decreasing working capital. TXP obtained cash for
      working capital changes consisting of increases in accounts payable and accrued
      expenses of $245,000 and $68,000 as well as a decrease in other assets of
      $61,000.





During
      2006, TXP used $308,000 in investing activities reflecting capital expenditures
      for plant, property and equipment and software of $368,000 net of $60,000 in
      proceeds received from the sale of fixed assets.





During
      2005, TXP used $444,000 in investing activities reflecting capital expenditures
      for plant, property and equipment and software of $492,000 net of $48,000 in
      proceeds received from the sale of company vehicles.





During
      2006, financing activities provided net cash of $2,599,000 as the result of
      issuances of $550,000 in convertible debentures to Cornell Capital partially
      offset by fees paid of $70,000 to secure the transaction. Additionally, we
      received net proceeds of $1,485,000 as a result of issuing 4,687,500 shares
      of
      common stock in a private placement. We received proceeds from an unsecured
      note
      payable from the majority shareholder, CEO Michael Shores, for $150,000 and
      draw
      downs on our lines of credit for $1,150,000. Total repayments on loans and
      capital lease obligations amounted to $228,000 and total net redemptions
      amounted to $429,000 on redemptions of convertible debt issued to Cornell
      Capital.





During
      2005, financing activities provided net cash of $242,000 as the result of
      issuances of $550,000 in convertible debentures to Cornell Capital partially
      offset by fees paid of $65,000 to secure the transaction as well as short term
      note payable from a private investor for $250,000 and a draw down our line
      of
      credit for $80,000. TXP also had proceeds from other notes payables and capital
      lease obligations of $96,000. Total repayments on debt amounted to $456,000.
      Deferred offering cost increased $213,000 further reducing cash provided by
      financing activities.





**STANDBY
      EQUITY DISTRIBUTION AGREEMENT**





In
      August
      2004, TXP entered into a Standby Equity Distribution Agreement. Under this
      agreement, TXP may issue and sell Common Stock to Cornell Capital Partners
      ("Cornell") for a total purchase price of up to $15.0 million. Subject to
      certain conditions, TXP will be entitled to commence drawing down on the Standby
      Equity Distribution Agreement when the sale of Common Stock under the Standby
      Equity Distribution Agreement is registered with the SEC and the authorization
      for quotation on the National Association of Securities Dealers OTC Bulletin
      Board is obtained and TXP is within the commitment period as defined under
      the
      terms of the agreement. The commitment period shall mean the period commencing
      on the earlier to occur of the effective date (which shall mean the date on
      which the SEC first declares effective a registration statement registering
      the
      resale of the common stock under the Standby Equity Distribution Agreement),
      or
      such earlier date as TXP and Cornell may mutually agree in writing, and expiring
      on the earliest to occur of the date on which the Investor shall have made
      payment of advances pursuant to this agreement in the aggregate amount of
      Fifteen Million Dollars ($15,000,000), or the date occurring twenty-four (24)
      months after the Effective Date.





The
      purchase price for the shares will be equal to 100% of the market price, which
      is defined as the lowest closing bid price of the Common Stock during the five
      trading days following the notice date. A cash fee equal to five percent (5%)
      of
      the cash proceeds of the draw down is also payable at the time of funding.
      To
      date, TXP has not drawn down on the Standby Equity Distribution
      Agreement.





We
      are
      currently unable to register the shares of common stock issuable to Cornell
      under the Standby Equity Distribution Agreement because the terms of the
      agreement are not consistent with the SEC's guidance regarding the terms of
      equity line financings that may be registered. We and Cornell Capital have
      not
      taken any steps to date to revise the standby equity distribution agreement,
      or
      any other applicable transaction documents in connection with the equity line,
      so that the resale of the shares issuable under the equity line may be
      registered with the SEC in accordance with such guidance.




23




In
      conjunction with the Standby Equity Distribution Agreement, TXP issued a
      $400,000 compensation debenture to Cornell Capital. In June of 2006, the Company
      issued 1,700,000 shares of common stock in the exchange for full settlement
      of
      this $400,000 compensation debenture and another $240,000 convertible debenture
      that was issued to Cornell Capital by YTXP (f/k/a Stock Market Solutions Inc)
      for separate standby equity distribution agreement that was terminated prior
      to
      the merger in April of 2006. The combined carrying value of both debentures
      amounted to $685,000 which included the fair value of an embedded conversion
      option and accrued interest. The fair market value of the stock was $850,000
      on
      the date of settlement. The Company realized a $165,000 loss on early
      extinguishment of debt as a result of the settlement. At the time of issuance,
      the $400,000 debenture was recorded as a liability and as a deferred offering
      cost on the balance sheet of the company. This cost and other costs consisting
      of related legal, and accounting were charged to expense on April 28, 2006
      upon
      consummation of the merger and recapitalization when the Company became subject
      to SAB Topic 5A. SAB TOPIC 5A considers significant delays in offerings to
      be
      aborted and that the offering costs should be expensed.





***August
      2004 Secured Convertible Debt***





In
      August
      of 2004, Texas Prototypes, Inc. entered into Securities Purchase Agreements
      with
      Cornell and Mobilepro Corp. for the sale of a secured convertible debenture
      in
      the principal amount of $1,400,000 ($700,000 to each), bearing interest at
      five
      percent (5%). The terms of this debenture require us to obtain prior written
      consent from the holder, Cornell Capital, so long as any of the principal or
      interest on this debenture remains unpaid and unconverted before issuing or
      selling any common stock or preferred stock without consideration or for a
      consideration per share less than its lowest bid price determined immediately
      prior to its issuance, or issuing or selling any preferred stock, warrant,
      option, right, contract, call, or other security or instrument granting the
      holder thereof the right to acquire common stock without consideration or for
      a
      consideration per share less than such common stock's fair market value
      determined immediately prior to its issuance, or file any registration statement
      on Form S-8 for more than 10,000,000 shares of common stock. The debentures
      are
      secured by a second priority security interest in all of our goods, inventory,
      contractual rights and general intangibles, receivables, documents, instruments,
      and chattel paper. These convertible debentures have a term of three years
      and
      are convertible at the holder's option. If the convertible debentures have
      not
      been converted on the third anniversary they will be automatically converted
      into common stock of TXP. At any time TXP may elect to redeem all or any portion
      of the convertible debentures at the price of one hundred twenty percent (120%)
      of the amount redeemed plus accrued interest. If TXP uses this option, it must
      then issue the holder of the debenture 50,000 warrants for every $100,000
      redeemed. The warrants will have a two-year term and will be excisable at the
      fixed price of $.157 per share. The convertible debentures were assumed by
      TXP
      Corporation upon completion of the merger in April of 2006.




There
      are
      two ways this convertible debenture can be converted to common stock of TXP.
      First, the debentures are convertible at a fixed price of $0.157 per shares
      (“Fixed Price”). The fixed price was determined per the provisions of the
      debenture agreement which stated that fixed price shall be equal to 110% of
      a
      post-money market capitalization of $15 million (which shall be calculated
      by
      dividing (i) the product of 110% times 15,000,000 by (ii) the total outstanding
      capital stock of the Company on a fully-diluted basis as of the date our common
      stock was first quoted on the Over the Counter Bulletin Board. Second, the
      debentures are convertible at an amount equal to eighty percent (80%) of the
      volume weighted average price of TXP' common stock, as quoted by Bloomberg,
      LP,
      for the five days immediately preceding the conversion date (“Variable Price”).
      The conversion price elected will be the lower of fixed or variable price at
      the
      date of election to convert by the holder. The conversion term expires August
      25, 2007.





In
      Q2 of
      2006, upon completion of the merger and assumption of all liabilities of Texas
      Prototypes, Inc., including the secured debentures, the contingencies related
      to
      the future event of TXP common stock being quoted and traded on either the
      over-the-counter bulletin board, NASDAQ small cap market or American Stock
      Exchange was resolved. . The conversion option, the option to convert at an
      amount equal to eighty percent (80%) of the volume weighted average price of
      TXP's common stock, as quoted by Bloomberg, LP, for the five days immediately
      preceding the conversion date, was then deemed to be financial derivatives
      under
      SFAS 133 and EITF 00-19 Specifically, the variable conversion pricing aspects
      of
      the convertible debenture as discussed above were analyzed under paragraph
      12
      SFAS 133 and determined to be an embedded derivative that should be separated
      from the host contract since all of the following criteria were
      met:





·
            The
                economic characteristics and risks of the embedded derivative instrument
                are not clearly and closely related to the economic characteristics
                and
                risks of the host contract.





·
            The
                contract ("the hybrid instrument") that embodies both the embedded
                derivative instrument and the host contract is not re-measured at
                fair
                value under otherwise applicable generally accepted accounting principles
                with changes in fair value reported in earnings as they
                occur.





·
            A
                separate instrument with the same terms as the embedded derivative
                instrument would, pursuant to paragraphs 6-11, be a derivative instrument
                subject to the requirements of this
                Statement.





The
      embedded derivative was then evaluated using EITF 00-19 paragraphs 12 -32 to
      determine whether the embedded derivative should be classified as a liability
      or
      as equity. We concluded that the conversion option should be recorded as a
      liability at fair value since all of the criteria for recording as equity were
      not met under EITF 00-19 including the ability to have sufficient authorized
      shares to fulfill our potential obligations under the convertible debentures.
      If
      a company could be required to obtain shareholder approval to increase the
      company's authorized shares in order to net-share or physically settle a
      contract, share settlement is not controlled by the company.




24




At
      the
      time of the merger, the derivatives were bifurcated and recorded at fair value
      and reflected on the Company's balance sheet. The derivatives are adjusted
      to
      fair value at each reporting period.




In
      June
      of 2006, the Company issued 923,657 shares of common stock to Cornell Capital
      in
      conversion of $145,000 of this convertible debenture. The conversion price
      was
      equal to $0.157 per share in accordance with the debenture
      agreement.





In
      October of 2006, the Company issued 2,324,841 shares of common stock to Cornell
      Capital in conversion of $365,000 of this convertible debenture. The conversion
      price was equal to $0.157 per share in accordance with the debenture
      agreement.





This
      convertible debentures were originally discounted by $200,000 which were fees
      paid to the lenders and further discounted by $1,200,000 upon bifurcation and
      recording at fair value certain financial derivative instruments embedded within
      the note in Q2 2006. The discount is being amortized over the life of the notes
      of three years. At December 31, 2006 the convertible debenture had balance
      of
      $467,000 net $423,000 of unamortized discount. As of December 31, 2006,
      approximately $156,000 of interest has been accrued. The effective interest
      rate
      on the debenture is 10.6% compared to the stated interest of 5% which takes
      into account the debt discount and issue costs related to the
      debenture.




***June
      5, 2006 Secured Convertible Debentures and
      Warrants***





On
      June
      5, 2006, the Company consummated a securities purchase agreement dated June
      5,
      2006 with Cornell providing for the sale by the company to Cornell of its 10%
      secured convertible debentures in the aggregate principal amount of $1,127,000
      with principal and interest due on or before June 5, 2009. The terms of this
      debenture require the Company to obtain prior written consent from the holder,
      Cornell Capital, so long as any of the principal or interest on this debenture
      remains unpaid and unconverted before issuing or selling any Common Stock or
      Preferred Stock without consideration or for a consideration per share less
      than
      its lowest bid price determined immediately prior to its issuance, or issuing
      or
      selling any Preferred Stock, warrant, option, right, contract, call, or other
      security or instrument granting the holder thereof the right to acquire Common
      Stock without consideration or for a consideration per share less than such
      Common Stock's fair market value determined immediately prior to its issuance,
      or file any registration statement on Form S-8 for more than 10,000,000 shares
      of Common Stock. Additionally, the terms of this debenture provide holder,
      Cornell Capital, with a right of first refusal on capital raises by the Company.
      Specifically, for a period if eighteen (18) months after the Closing Date,
      if
      the Company intends to raise additional capital by the issuance or sale of
      capital stock of the Company, including without limitation shares of any class
      of Common Stock, any class of preferred stock, options, warrants or any other
      securities convertible or exercisable into shares of Common Stock (whether
      the
      offering is conducted by the Company, underwriter, placement agent or any third
      party) the Company shall be obligated to offer to the Holder such issuance
      or
      sale of capital stock, by providing in writing the principal amount of capital
      it intends to raise and outline of the material terms of such capital raise,
      prior to the offering such issuance or sale of capital stock  to any third
      parties including, but not limited to, current or former officers or directors,
      current or former shareholders and/or investors of the obligor, underwriters,
      brokers, agents or other third parties.  The Holder shall have ten (10)
      business days from receipt of such notice of the sale or issuance of capital
      stock to accept or reject all or a portion of such capital raising offer. The
      debenture is secured by a second priority security interest in all of our goods,
      inventory, contractual rights and general intangibles, receivables, documents,
      instruments, and chattel paper. In the event of default, Cornell may cause
      the
      obligation to become immediately due and payable. In addition, upon the
      occurrence of an event of default, Cornell shall: (i) be entitled to
      receive all distributions with respect to the pledged property, (ii) to
      cause the pledged property to be transferred into the name of the secured party
      or its nominee, (iii) to dispose of the pledged property, and (iv) to
      realize upon any and all rights in the pledged property then held by Cornell;
      provided however, that Cornell security interest is second in priority behind
      First Bank Canyon Creek




The
      Company also issued to Cornell warrants to purchase 1,850,000 and 1,850,000
      shares of common stock at a price equal to $0.50 and $0.70 per share,
      respectively. The warrants expire five years from the date of issuance. Cornell
      may exercise the warrants on a cashless basis if the shares of common stock
      underlying the warrants are not then registered pursuant to an effective
      registration statement. In the event Cornell exercises the warrants on a
      cashless basis, then we will not receive any proceeds. In addition, the exercise
      price of the warrants will be adjusted in the event we issue common stock at
      a
      price below market, with the exception of any securities issued as of the date
      of the warrants or issued in connection with the secured convertible notes
      issued pursuant to the Securities Purchase Agreement. There can be no assurance
      to how many, if any, of these warrants will be exercised. The exercise price
      of
      the warrants may be adjusted in certain circumstances such as if we pay a stock
      dividend, subdivide or combine outstanding shares of common stock into a greater
      or lesser number of shares, or take such other actions as would otherwise result
      in dilution of the selling stockholders' position.





The
      first
      debenture amounting to $550,000 matures on the third anniversary of the date
      of
      issuance and the company is not required to make any payments until the maturity
      Date. The debentures are convertible at any time into shares of common stock
      of
      the company at a conversion price per share equal to the lesser of (i) $0.50,
      or
      (ii) 95% of the lowest daily volume weighted average price of the Common Stock,
      as quoted by Bloomberg, LP, for the 30 trading days immediately preceding the
      date of conversion (“Variable Market Price”). Unless waived by the company, the
      holders may not, together with their affiliates, convert more than an aggregate
      of $150,000 in any 30-day period of principal amount of the debentures at the
      Variable Market Price. The conversion option to convert at an amount equal
      to
      95% of the lowest daily volume weighted average price of the Common Stock,
      as
      quoted by Bloomberg, LP, for the 30 trading days immediately preceding the
      date
      of conversion is deemed to be a financial derivative under SFAS 133 and EITF
      00-19 Specifically, the conversion option was analyzed under paragraph 12 SFAS
      133 and determined to be an embedded derivative that should be separated from
      the host contract and then further evaluated using EITF 00-19 paragraphs 12
      -32
      which required the conversion option to be recorded as liability at fair value.
      Specifically, the variable conversion pricing aspects of the convertible
      debenture as discussed above were analyzed under paragraph 12 SFAS 133 and
      determined to be an embedded derivative that should be separated from the host
      contract since all of the following criteria were met:




25




·
            The
                economic characteristics and risks of the embedded derivative instrument
                are not clearly and closely related to the economic characteristics
                and
                risks of the host contract.





·
            The
                contract ("the hybrid instrument") that embodies both the embedded
                derivative instrument and the host contract is not re-measured at
                fair
                value under otherwise applicable generally accepted accounting principles
                with changes in fair value reported in earnings as they
                occur.





·
            A
                separate instrument with the same terms as the embedded derivative
                instrument would, pursuant to paragraphs 6-11, be a derivative instrument
                subject to the requirements of this
                Statement.





The
      embedded derivative was then evaluated using EITF 00-19 paragraphs 12 -32 to
      determine whether the embedded derivative should be classified as a liability
      or
      as equity. We concluded that the conversion option should be recorded as a
      liability at fair value since all of the criteria for recording as equity were
      not met under EITF 00-19 including the ability to have sufficient authorized
      shares to fulfill our potential obligations under the convertible debentures.
      If
      a company could be required to obtain shareholder approval to increase the
      company's authorized shares in order to net-share or physically settle a
      contract, share settlement is not controlled by the company.





The
      Company has the right to redeem a portion or all amounts outstanding under
      the
      Debentures prior to the Maturity Date at a 20% redemption premium provided
      that
      the closing bid price of the Common Stock is less than $0.50. The convertible
      debentures are secured by substantially all the company's assets. On October
      11,
      2007, the Company exercised its right to redeem the June 5, 2006 convertible
      debenture.




In
      addition, on June 5, 2006 the Company issued to Cornell an amended and restated
      convertible debenture, on the same terms and conditions as set forth above
      which
      consolidates all outstanding amounts of the convertible debenture issued by
      Texas Prototypes, Inc. to Cornell on June 15, 2005 in the amount of $550,000,
      plus accrued and unpaid interest in the amount of $27,000 through June 5, 2006,
      for the principal sum of $577,000. The company reviewed EITF 05-07 “Accounting
      for Modifications to Conversion Options Embedded in Debt Instruments and Related
      Issues” and EIFT 96-19 “Debtor's Accounting for a Modification or Exchange of
      Debt Instruments” and deemed that the modifications and amendments were
      substantial and determined that debt extinguishment had occurred as the cash
      flow effect (including the changes in fair value of the embedded conversion
      option) on a present value basis exceeded 10%. The company recorded a gain
      on extinguishment debt of $630,000 in the consolidated statements of operations
      as a result of the modification. On October 11, 2006, the Company exercised
      its
      right to redeem the June 5, 2006 convertible debenture.





On
      October 11, 2006, the Company exercised its right to redeem both debentures
      issued on June 5, 2006. The Company paid Cornell Capital $1,392,000 which was
      calculated by multiplying the principal balance of both debentures by 120%
      plus
      the accrued interest on the debentures. The combined carrying value of both
      debentures amounted to $1,088,000. The company recorded a $304,000 loss in
      the
      consolidated statements of operations on extinguishment of debt related to
      the
      redemption in October of 2006.




***Cornell
      Capital Registration Rights Agreement***





In
      connection with all of the above secured convertible debentures and warrants
      issued to Cornell Capital, the Company entered into registration rights
      agreements providing for the filing of a registration statement with the
      Securities and Exchange Commission registering the Common Stock issuable upon
      conversion of the Debentures and exercise of the Warrants. The Company is
      obligated to file the Registration Statement no later than 45 days from the
      date
      of closing and to use its best efforts to cause the Registration Statement
      to be
      declared effective no later than 120 days after filing and to insure that the
      registration statement remains in effect until all of the shares of common
      stock
      issuable upon conversion of the Debentures and exercise of the Warrants have
      been sold. In the event of a default of its obligations under the Registration
      Rights Agreements, including its agreement to file the Registration Statement
      with the Securities and Exchange Commission no later than 45 days from the
      date
      of closing, or if the Registration Statement is not declared effective within
      120 days of filing, it is required that we pay to Cornell, as liquidated
      damages, for each month that the registration statement has not been filed
      or
      declared effective, as the case may be, either a cash amount or shares of our
      common stock equal to 2% of the liquidated value of the Debentures. The
      Company obtained a waiver from Cornell Capital waiving any claim or payment
      of
      liquidated damages up through and including May 15, 2007.





***July
      2006 Warrants***





On
      July
      28, 2006, TXP Corporation entered into an Agreement (the "Agreement") with
      James
      Von Ehr, II, an accredited investor (the "Investor"), pursuant to which the
      Company issued to the Investor five-year warrants to purchase an aggregate
      of
      320,000 shares of common stock (the "Warrants") as consideration for the
      Investor agreeing to pledge an aggregate of $2,000,000 in free-trading shares
      of
      common stock of Adobe Systems Incorporated (NASDAQ:ADBE), Fossil Incorporated
      (NASDAQ:FOSL) or such other shares of free-trading common stock having a value
      of $2,000,000 in the aggregate beneficially owned by the Investor as may be
      agreed upon between the parties (the “Collateral”).




26




The
      Collateral is to be pledged on behalf of the Company in favor of First Bank
      of
      Canyon Creek, or such other lending or financing institution as may be agreed
      upon between the parties (a “Lender”), as Collateral for a loan to be obtained
      by the Company from a Lender in an amount up to $2,000,000 with a term of up
      to
      2 years (the “Term”), which will be further guaranteed personally and through
      the pledge of common stock beneficially owned by the Company's Chief Executive
      Officer.




The
      warrants are exercisable into shares of the Company's common stock at a price
      equal to $0.50 per share. The investor may exercise the warrants on a cashless
      basis at his option. In the event the investor exercises the warrants on a
      cashless basis, then we will not receive any proceeds. The exercise price of
      the
      warrants may be adjusted in certain circumstances such as if we pay a stock
      dividend, subdivide or combine outstanding shares of common stock into a greater
      or lesser number of shares, or take such other actions as would otherwise result
      in dilution of the selling stockholders' position.





In
      addition, the company shall prepare and file with the SEC a separate
      Registration Statement on Form SB-2 covering the resale of all of the Warrant
      Shares with no later than forty-five (45) days from closing. The Company shall
      use its best efforts to have the Registration Statement declared effective
      by
      the SEC as soon as practicable, but in no event later than one hundred twenty
      (120) days after the initial filing. There are no liquidating damages clauses
      related to the warrant or agreement with the investor.





As
      additional consideration of the Investor's agreement to pledge the Collateral
      to
      a Lender, the Company agreed to pay to the Investor a one-time commitment fee,
      during the Term, of $40,000 (the “Commitment Fee”) no later than 90 days after
      the Collateral is deposited into the account of a Lender; provided, however,
      that the Company shall pay an additional Commitment Fee within 90 days after
      the
      renewal of the Loan by a Lender. TXP consummated the loan facility with the
      First Bank of Canyon Creek in early Q3 2006 (See Note 7).





The
      Company accounted for these warrants pursuant to SFAS No. 133, "Accounting
      for
      Derivative Instruments and Hedging Activities", and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in, a
      Company's Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
      are settled in a company's own stock, including common stock warrants, to be
      designated as an equity instrument, asset or a liability. Since the Company
      has
      convertible debenture instruments that do not have limits on the net shares
      that
      potentially would have to be delivered in a net share settlement, the company
      is
      precluded from concluding it has sufficient shares authorized and unissued
      to
      net-share settle the warrants and must fair value the warrants as a liability.
      Accordingly, under the provisions of EITF 00-19, these warrants were designated
      as a liability to be carried at fair value on a company's balance sheet, with
      any changes in fair value recorded in the company's results of
      operations.





***October
      2006 Warrants***





On
      October 12, 2006, the Company entered into an Agreement (the "Agreement") with
      James Von Ehr, II, an accredited investor pursuant to which the Company issued
      to the Investor five-year warrants to purchase an aggregate of 640,000 shares
      of
      common stock (the "Warrants") as consideration for the Investor agreeing to
      pledge an aggregate of $2,000,000 in free-trading shares of common stock of
      Adobe Systems Incorporated (NASDAQ:ADBE), Fossil Incorporated (NASDAQ:FOSL)
      or
      such other shares of free-trading common stock having a value of $2,000,000
      in
      the aggregate beneficially owned by the Investor as may be agreed upon between
      the parties (the “Collateral”).





The
      Collateral is to be pledged on behalf of the Company in favor of First Bank
      of
      Canyon Creek, or such other lending or financing institution as may be agreed
      upon between the parties (a “Lender”), as Collateral for a loan to be obtained
      by the Company from a Lender in an amount up to $2,000,000 with a term of up
      to
      1 year (the “Term”), which will be further guaranteed personally and through the
      pledge of common stock beneficially owned by Michael Shores, the Company's
      Chief
      Executive Officer.





The
      warrants are exercisable into shares of the Company's common stock at a price
      equal to $0.50 per share. The investor may exercise the warrants on a cashless
      basis at his option. In the event the investor exercises the warrants on a
      cashless basis, then we will not receive any proceeds. The exercise price of
      the
      warrants may be adjusted in certain circumstances such as if we pay a stock
      dividend, subdivide or combine outstanding shares of common stock into a greater
      or lesser number of shares, or take such other actions as would otherwise result
      in dilution of the selling stockholders' position.





In
      addition, the Agreement provides for the filing of a registration statement
      by
      the Company with the Securities and Exchange Commission registering the common
      stock issuable upon exercise of the Warrants and the common stock issued for
      the
      Commitment Fee. The Company is obligated to file the Registration Statement
      no
      later than 65 days from the date of closing and to use its best efforts to
      cause
      the Registration Statement to be declared effective no later than 120 days
      after
      filing and to insure that the Registration Statement remains in effect until
      all
      of the shares of common stock issuable upon exercise of the Warrants have been
      sold. There are no liquidating damages clauses related to the warrant or
      agreement with the investor.





As
      additional consideration of the Investor's agreement to pledge the Collateral
      to
      a Lender, the Company agreed to pay to the Investor a one-time commitment fee
      during the Term of 125,000 shares of the Company's common stock (the “Commitment
      Fee”) no later than 90 days after the Collateral is deposited into the account
      of a Lender; provided, however, that the Company shall pay an additional
      Commitment Fee within 90 days after the renewal of the Loan by a Lender. TXP
      increased its Line of Credit from $1 million to $3 million with the First Bank
      of Canyon Creek in Q4 2006 (See Note 7).




27




The
      Company accounted for these warrants pursuant to SFAS No. 133, "Accounting
      for
      Derivative Instruments and Hedging Activities", and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in, a
      Company's Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
      are settled in a company's own stock, including common stock warrants, to be
      designated as an equity instrument, asset or a liability. Since the Company
      has
      convertible debenture instruments that do not have limits on the net shares
      that
      potentially would have to be delivered in a net share settlement, the company
      is
      precluded from concluding it has sufficient shares authorized and unissued
      to
      net-share settle the warrants and must fair value the warrants as a liability.
      Accordingly, under the provisions of EITF 00-19, these warrants were designated
      as a liability to be carried at fair value on a company's balance sheet, with
      any changes in fair value recorded in the company's results of
      operations.





***October
      2006 Securities Purchase Agreement***





On
      October 11, 2006, TXP entered into a Securities Purchase Agreement (the
“Purchase Agreement”) with an qualified institutional buyer pursuant to which
      the Company sold an aggregate of $1,500,000 in shares (the “Shares”) of the
      Company's common stock, par value $.001 per share, at a per share purchase
      price
      of $.32, together with five year warrants to purchase 2,343,750 shares of common
      stock at an exercise price equal to $0.50 per share and five year warrants
      to
      purchase 2,343,750 shares of common stock at an exercise price equal to $1.00
      per share (collectively, the “Warrants”). The entire purchase price of the
      Shares and the Warrants was used by the Company to redeem its principal amount
      $550,000 and $577,000 10% secured convertible debentures issued to Cornell
      Capital Partners, L.P. in June 2005 and June 2006, respectively, each at a
      20%
      premium, for a total redemption price of approximately $1,392,000.





The
      exercise prices of the Warrants are subject to adjustment in certain events,
      including, without limitation, upon the Company's consolidation, merger or
      sale
      of all of substantially all of its assets, a reclassification of the Company's
      common stock, or any stock splits, combinations or dividends with respect to
      the
      Company's common stock. In addition, the Company has the option to call all
      or a
      portion of the Warrants so long as (i) the closing bid price of the Company's
      common stock is trading at or above $1.50 for 20 consecutive trading days
      immediately preceding the call date, and (ii) the shares of common stock
      underlying the Warrants are registered under an effective registration statement
      on the call date.





Further,
      the Purchase Agreement provides for the filing of a registration statement
      by
      the Company with the Securities and Exchange Commission registering the Shares
      and the share common stock issuable upon exercise of the Warrants. The Company
      is obligated to file the registration statement no later than December 15,
      2006
      and to use its best efforts to cause the registration statement to be declared
      effective no later than 90 days after filing. If the Company does not meet
      the
      aforementioned filing and effectiveness deadlines, it shall pay to the investor
      an amount equal to 1% of the purchase price for the first 60 days or part
      thereof of the pendency of such non-registration event and 2% for each 30 days
      or part thereof thereafter, of the purchase price of the Shares and the
      Warrants; provided, however, that the aforementioned liquidated damages shall
      only accrue, if at all, for 12 months after the closing date.  The Company
      obtained a waiver the investor waiving any claim or payment of liquidated
      damages up through and including May 15, 2007.





The
      Company accounted for these warrants pursuant to SFAS No. 133, "Accounting
      for
      Derivative Instruments and Hedging Activities", and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in, a
      Company's Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
      are settled in a company's own stock, including common stock warrants, to be
      designated as an equity instrument, asset or a liability. Since the Company
      has
      convertible debenture instruments that do not have limits on the net shares
      that
      potentially would have to be delivered in a net share settlement, the company
      is
      precluded from concluding it has sufficient shares authorized and unissued
      to
      net-share settle the warrants and must fair value the warrants as a liability.
      Accordingly, under the provisions of EITF 00-19, these warrants were designated
      as a liability to be carried at fair value on a company's balance sheet, with
      any changes in fair value recorded in the company's results of
      operations.





**LINES
      OF CREDIT**





***Line
      of Credit April 1, 2006***





On
      April
      1, 2006 TXP renewed its revolving line of credit for $500,000. The line of
      credit has a one-year term with a variable interest rate of prime plus 2%.
      The
      line of credit is secured by all assets of the Company. The majority shareholder
      and Chief Executive Officer of the Company, Michael Shores, has provided his
      personal guarantee on this loan (See NOTE 3). Interest payments are due monthly
      beginning April 1, 2006 and the principal is due when the one-year term expires.
      The line of credit has provisions that the maximum TXP may have outstanding
      is
      $500,000 or 70% of the borrowing base, whichever is less. The borrowing base
      is
      defined as the value of accounts receivable less than 90 days past their invoice
      date. TXP was in compliance with these provisions as of December 31, 2006 and
      2005. The revolving line credit also has financial and non-financial covenants.
      A summary of the significant covenants are as follows:





·
            Maintain
                a Debt-to-Net Worth Ratio of not greater than 2:1. This ratio is
                calculated by dividing Total Liabilities by Net Worth (total stockholders'
                equity) Net worth is to include the subordinated debt in the form
                of debt
                owed Cornell Capital and likewise is to be excluded from total
                liabilities.





·
            Maintain
                a Current Ratio of not less than 1:1:1. This ratio is to be calculated
                by
                dividing Total Current Assets by Total Current
                Liabilities.





·
            Maintain
                a Debt Coverage Ratio of not less than 1.25:1. This ratio is to be
                calculated by dividing Earnings before Interest, Depreciation, and
                Taxes
                by all principal and interest payments for the
                period.




28




At
      December 31, 2006, the Company was in default due to failure to maintain a
      Debt
      Coverage ratio as provided for in the loan agreement. Any default under the
      loan
      agreement permits the bank to demand immediate payment of the debt under this
      note including principal and accrued interest. However, the lending institution
      and TXP entered into forbearance agreement on August 3, 2006 which waived
      non-compliance of this covenant so long as the company maintained the
      Debt-to-net-worth ratio and Current Ratio as provided for in the loan agreement.
      As of December 31, 2006, the Debt-to-net-worth and Current Ratio were in
      compliance with the loan agreement. The balance outstanding on the note at
      December 31, 2006 and 2005 was $400,000 and $250,000 respectively.





***Line
      of Credit November 15, 2006***





The
      Company consummated a loan agreement dated as of August 3, 2006 with a financial
      institution pursuant to which the institution extended a line of credit to
      the
      Company in an aggregate amount of $1,000,000 to be used by the Company for
      working capital and general corporate purposes. On
      December 21, 2006, the Company consummated a second Loan Agreement with the
      same
      financial institution dated as of November 15, 2006 which renews and supersedes
      the prior Loan Agreement dated as of August 3, 2006 and increased the Company’s
      line of credit from $1,000,000 to $3,000,000 to be used by the Company for
      working capital and general corporate purposes. The Loan pays interest at a
      rate
      of 8.00% per annum and all principal, and accrued and unpaid interest is due
      on
      August 3, 2008. The Company’s obligations under the Loan Agreement are secured
      by a pledge of an aggregate of $3,875,000 in free-trading shares of Fossil
      Incorporated by the Investor. In addition, the Company’s obligations under the
      Loan Agreement are further guaranteed personally and through the pledge of
      an
      aggregate of 8,520,000 shares of common stock beneficially owned by Michael
      Shores, the Company’s Chief Executive Officer.  As
      of
      December 31, 2006, the balance outstanding on the line of credit was
      $1,000,000.





**Formation
      of iPhotonics business unit in Q4 2006**





We
      hired Siemens' former ONT development team effective at the beginning of Q4
      2006. As a result, TXP has added 35 full-time employees and amended its lease
      in
      November of 2006 and expanded the operating facility by 16,000 square feet.
      Incremental personnel cost and lease payments are expected to average
      approximately $290,000 and $7,000, respectively, per month.





In
      Q4
      2006, we executed a Transfer and License Agreement with Siemens AG in which
      we
      acquired certain assets including fixed assets and component inventory and
      were
      granted non-exclusive, non-transferable, and non-sub licensable rights and
      license to use, copy and otherwise deploy software and code and know-how related
      to its Optical Network Terminal (ONT) technology, supporting both Broadband
      Passive Optical Network (BPON) and Gigabit Passive Optical Network (GPON)
      standards. TXP was also granted non-exclusive, non-transferable, and non-sub
      licensable rights and license to use under the pertinent patents related to
      BPON
      and GPON ONT to manufacture, market and further develop the BPON and GPON ONT
      products. Further, any intellectual property created or made on behalf TXP
      related to BPON or GPON ONTs would become vested to TXP.





TXP
      did
      not pay cash, issue stock or incur financial obligations to acquire the ONT
      assets or use of intellectual property. However, the Transfer and License
      Agreement did provide that we complete development of a release of certain
      GPON
      ONT products by January 31, 2007 and provide Siemens with all pertinent
      documentation, data, software code and files which will enable Siemens to
      manufacture, distribute and further develop or have manufactured, developed
      and
      distributed these releases. Further that TXP grant Siemens a non-exclusive,
      non-transferable, non-sub licensable right and license under any copyrights
      and
      intellectual property to manufacture, distribute and further develop or have
      manufactured, developed and distributed these particular releases.





The
      Transfer and License Agreement also provided that the TXP pay to Siemens a
      license fee for three years equal to 5% of revenue generated for any TXP BPON
      products sales in accordance with current BPON design or 2.5% of revenues should
      TXP create a variant of the current BPON design. Additionally, TXP will pay
      Siemens a license fee for three years or $20,000,000, whichever comes first,
      equal to 5% of revenue generated for any TXP GPON products sales in accordance
      with current GPON design or 2.5% of revenues should TXP create a variant of
      the
      current GPON design. The license fees will be payable within twenty (20) days
      of
      the end of each calendar quarter and receipt of Siemens invoice.





The
      BPON
      technology acquired is immediately available for sale to telecommunication
      service providers and Other Equipment Manufacturers (“OEM”). The GPON technology
      acquired will be ready for sale to telecommunication service providers and
      OEMs
      once the GPON ONT development release is completed in January of 2007. The
      development of this release is expected to require substantially all the ONT
      development team's efforts through January of 2007. We expect to have ongoing
      development related to cost reductions and feature enhancements to address
      customer specific requirements. We are currently negotiating an ONT supply
      agreement with Siemens which we expect to complete prior to the end of Q1
      2007.




29





**March
      2007 Securities Purchase Agreement**





On
      March
      30, 2007, TXP Corporation (the "Company") consummated a Securities Purchase
      Agreement (the "Purchase Agreement") with Cornell Capital Partners L.P.
      ("Cornell") providing for the sale by the Company to Cornell of its 6% secured
      convertible notes in the aggregate principal amount of $5,000,000 (the "Notes").
      Under the Purchase Agreement, the Company also issued to Cornell five-year
      warrants to purchase (i) 1,500,000 shares of common stock at a price equal
      to
      $0.60 per share; (ii) 1,000,000 shares of common stock at a price equal to
      $0.75
      per share; (iii) 750,000 shares of common stock at a price equal to $0.85 per
      share; and 600,000 shares of common stock at a price equal to $1.00 per share
      (collectively, the "Warrants").





The
      Notes
      mature on the third anniversary of the date of issuance (the "Maturity Date")
      and bear interest at a rate equal to 6% per annum. Beginning 12 months after
      the
      date of issuance, the Company shall make monthly payments of interest, and
      beginning 18 months after the date of issuance, the Company shall make monthly
      payments of interest plus principal payments in the amount of $100,000; provided
      however, that Cornell has the option to deliver a written notice to the Company
      within 2 days prior to the scheduled payment date electing to have all or any
      portion of scheduled payment deferred to the Maturity Date. Any amount deferred
      to the Maturity Date shall continue to accrue interest through the Maturity
      Date.





In
      addition, the Notes are convertible at any time into shares of common stock
      of
      the Company at a conversion price per share equal to $0.41 (the “Conversion
      Price”); provided however, that in the event that the Company has not raised at
      least $1,000,000 in additional equity capital between the closing date and
      the
      date that is 120 days after the closing date, the Conversion Price shall
      automatically become $0.25 per share. The Company has the right to redeem a
      portion or all amounts outstanding under the Notes prior to the Maturity Date
      at
      a 20% redemption premium provided that the closing bid price of the common
      stock
      is less than the Conversion Price, the Registration Statement (as defined below)
      is effective, and no event of default has occurred or is continuing. The
      Company's obligations under the Purchase Agreement and the Notes are secured
      by
      substantially all of the Company's assets; provided however, such security
      interest is second in priority to certain liens granted by the Company in favor
      of First Bank of Canyon Creek.





In
      connection with the Purchase Agreement, the Company also entered into
      registration rights agreements (the “Registration Rights Agreements”) providing
      for the filing of a registration statement (the “Registration Statement”) with
      the Securities and Exchange Commission registering 100% of the shares of common
      stock issuable upon conversion of the Notes and exercise of the Warrants within
      30 days of receipt of written demand of Cornell. The Company is obligated to
      use
      its best efforts to cause the Registration Statement to be declared effective
      no
      later than 90 days after filing and to insure that the registration statement
      remains in effect until all of the shares of common stock issuable upon
      conversion of the Notes and exercise of the Warrants have been sold. In the
      event of a default of its obligations under the Registration Rights Agreements,
      including its agreement to file the Registration Statement with the Securities
      and Exchange Commission no later than 30 days from receipt of a written demand
      from Cornell, or if the Registration Statement is not declared effective within
      90 days of filing, it is required pay to Cornell, as liquidated damages (
“Liquidated Damages”), for each month that the registration statement has not
      been filed or declared effective, as the case may be, a cash amount equal to
      2%
      of the liquidated value of the Notes. Notwithstanding the foregoing, the Company
      shall not be liable for Liquidated Damages with respect to any Warrants or
      Warrant Shares and the maximum aggregate Liquidated Damages payable to Cornell
      by the Company, if any, shall be 15% of the aggregate purchase price paid by
      Cornell pursuant to the Purchase Agreement.





The
      Company claims an exemption from the registration requirements of the Act for
      the private placement of these securities pursuant to Section 4(2) of the Act
      and/or Regulation D promulgated thereunder since, among other things, the
      transaction did not involve a public offering, Cornell is an accredited
      investors and/or qualified institutional buyers, Cornell had access to
      information about the Company and their investment, Cornell took the securities
      for investment and not resale, and the Company took appropriate measures to
      restrict the transfer of the securities.





**Cash
      Requirements**





Except
      for the financing agreements with Cornell Capital and other investors discussed
      above, existing financing arrangements, borrowing capacity created by the
      investor agreeing to pledge collateral, and revenue generated through its
      operations, TXP has no other significant sources of working capital or cash
      commitments.





We
      are
      currently unable to register the shares of common stock issuable to Cornell
      under the Standby Equity Distribution Agreement because the terms of the
      agreement are not consistent with the SEC's guidance regarding the terms of
      equity line financings that may be registered. We and Cornell Capital have
      not
      taken any steps to date to revise the standby equity distribution agreement,
      or
      any other applicable transaction documents in connection with the equity line,
      so that the resale of the shares issuable under the equity line may be
      registered with the SEC in accordance with such guidance. Accordingly, TXP
      cannot currently rely upon access to the $15,000,000 standby equity distribution
      agreement. See "Risk Factors."





Additionally,
      until the March 2007 Cornell secured convertible is fully repaid or fully
      converted, we are required to obtain Cornell's consent prior to selling or
      issuing (i) any common stock or preferred stock without consideration or
      for a consideration per share less than its lowest bid price determined
      immediately prior to its issuance, (ii) issue or sell any preferred stock,
      warrant, option, right, contract, call, or other security or instrument granting
      the holder thereof the right to acquire common stock without consideration
      or
      for a consideration per share less than such common stock's fair market value
      determined immediately prior to its issuance, or (iii) file any registration
      statement on Form S-8 for more than 10,000,000 shares of common stock which
      will
      restrict our ability to obtain future financing.




30





Management
      believes that it has sufficient financing arrangements to satisfy TXP's cash
      requirements for the next twelve months. Management is not depending upon the
      Standby Equity Distribution Agreement to meet its cash requirements for the
      next
      twelve months. If TXP is unable to recognize sufficient proceeds from these
      anticipated arrangements, management believes that it can limit its operations,
      defer payments to management and maintain its business at nominal levels until
      it can identify alternative sources of capital or if necessary cease certain
      operations.





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures.






**ITEM
      7.**  **FINANCIAL
      STATEMENTS.**




**REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors
 Texas
        Prototypes Inc.
 Richardson,
        Texas
 
 We
        have
        audited the accompanying consolidated balance sheets of TXP Corporation (FKA
        Texas Prototypes, Inc.) as of December 31, 2006 and 2005 and the related
        consolidated statements of operations, stockholders' deficit, and cash flows
        for
        the years then ended. These consolidated financial statements are the
        responsibility of TXP Corporation's management. Our responsibility is to
        express
        an opinion on these financial statements based on 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 audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of TXP Corporation as of
        December 31, 2006 and 2005 and the results of its consolidated operations
        and
        its cash flows for the years then ended, in conformity with accounting
        principles generally accepted in the United States of America.
  Payne,
        Smith and Jones, P.C.
 Dallas,
        Texas
 
 February
        23, 2007, except for note 18, as to which the date is March 30,
        2007.





31


TXP
      CORPORATION


CONSOLIDATED
      BALANCE SHEETS


December
      31, 2006 and 2005





**2006**
            
            **2005**ASSETSCurrent
                assetsCash
            
            $
            228,000
            
            $
            342,000Accounts
                receivable, net of allowance of $0 and $7,000 as ofDecember
                31, 2006 and 2005, respectively.
            
            
            976,000
            
            
            695,000Inventory
            
            
            673,000
            
            
            118,000Other
                assets
            
            
            346,000
            
            
            79,000Total
                current assets
            
            
            2,223,000
            
            
            1,234,000Property
                and equipment, net
            
            
            2,667,000
            
            
            914,000Deferred
                offering costs
            
            
            --
            
            
            688,000Other
                assets
            
            
            13,000
            
            
            25,000TOTAL
                ASSETS
            
            $
            4,903,000
            
            $
            2,861,000LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                liabilitiesCurrent
                maturities of notes payable
            
            $
            272,000
            
            $
            143,000Current
                capital lease obligation
            
            
            46,000
            
            
            19,000Line
                of credit
            
            
            400,000
            
            
            250,000Current
                derivative financial instruments
            
            
            1,288,000
            
            
            --Current
                convertible debentures, net of unamortized discount of $423,000
                and$0
                as of December 31, 2006 and 2005, respectively.
            
            
            467,000
            
            
            --Accounts
                payable
            
            
            913,000
            
            
            477,000Deferred
                revenue
            
            
            332,000
            
            
            --Accrued
                expenses
            
            
            412,000
            
            
            174,000Total
                current liabilities
            
            
            4,130,000
            
            
            1,063,000Notes
                payable, net of current maturities
            
            
            144,000
            
            
            15,000Capital
                lease obligation, net of current obligation
            
            
            32,000
            
            
            33,000Line
                of credit
            
            
            1,000,000
            
            
            --Convertible
                debentures, net of unamortized discount of $0 and $165,000 as of
              December
                31, 2006 and 2005, respectively.
            
            
            --
            
            
            2,187,000Derivative
                financial instruments, net of current obligation
            
            
            2,507,000
            
            
            --Deferred
                tax liability
            
            
            48,000
            
            
            48,000TOTAL
                LIABILITIES
            
            
            7,861,000
            
            
            3,346,000STOCKHOLDERS'
                DEFICIT:Common
                stock, $.001 par value, 300,000,000 shares authorized, 104,080,623
                and
              89,298,042
                shares issued and outstanding as of December 31, 2006 and
              December
                31, 2005, respectively.
            
            
            104,000
            
            
            89,000Additional
                paid in capital
            
            
            2,121,000
            
            
            17,000Accumulated
                deficit
            
            
            (5,190,000
            )
            
            (598,000
            )Accumulated
                other comprehensive income
            
            
            7,000
            
            
            7,000TOTAL
                STOCKHOLDERS' DEFICIT
            
            
            (2,958,000
            )
            
            (485,000
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIT
            
            $
            4,903,000
            
            $
            2,861,000




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





F-1








TXP
      CORPORATION


CONSOLIDATED
      STATEMENTS OF OPERATIONS


December
      31, 2006 and 2005




**2006**
            
            **2005**RevenuesPrototyping
                and assembly
            
            $
            4,871,000
            
            $
            7,486,000Material
                management services
            
            
            2,360,000
            
            
            1,914,000Design
                and development services
            
            
            997,000
            
            
            --Total
                Revenues
            
            
            8,228,000
            
            
            9,400,000Cost
                of sales
            
            
            5,523,000
            
            
            6,916,000Gross
                profit
            
            
            2,705,000
            
            
            2,484,000Costs
                and expensesSelling,
                general & administrative
            
            
            3,834,000
            
            
            2,600,000Research
                and development
            
            
            52,000
            
            
            --Depreciation
            
            
            94,000
            
            
            54,000Total
                costs and expenses
            
            
            3,980,000
            
            
            2,654,000Operating
                loss
            
            
            (1,275,000
            )
            
            (170,000
            )Interest
                expense, net
            
            
            (943,000
            )
            
            (411,000
            )Change
                in fair value of derivativefinancial
                instruments
            
            
            (2,703,000
            )
            
            --Net
                gain on early extinguishment of debt
            
            
            161,000
            
            
            --Other
                income
            
            
            150,000
            
            
            --Gain
                (loss) on sale of fixed assets
            
            
            18,000
            
            
            (14,000
            )Loss
                before income taxes
            
            
            (4,592,000
            )
            
            (595,000
            )Income tax
                expense
            
            
            --
            
            
            --Net
                loss
            
            
            (4,592,000
            )
            
            (595,000
            )Foreign
                currency translationadjustment
            
            
            --
            
            
            2,000Comprehensive
                loss
            
            $
            (4,592,000
            )
            $
            (593,000
            )Basic
                earnings per share
            
            
            (.05
            )
            
            (.01
            )Diluted
                earnings per share
            
            
            (.05
            )
            
            (.01
            )Basic
                weighted average shares outstanding:
            
            
            95,024,296
            
            
            72,967,468Diluted
                weighted average shares outstanding:
            
            
            95,024,296
            
            
            72,967,468




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





F-2




TXP
      CORPORATION


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


December
      31, 2006 and 2005





**2006**
            
            **2005**CASH
                FLOWS USED IN OPERATING ACTIVITIESNet
                loss
            
            $
            (4,592,000
            )
            $
            (595,000
            )Adjustments
                to reconcile net loss to cash used in operating
                activities:Depreciation
            
            
            264,000
            
            
            218,000(Gain)
                loss on sale of fixed assets
            
            
            (18,000
            )
            
            14,000Deferred
                revenue
            
            
            (997,000
            )
            
            --Amortization
                of discount on convertible notes
            
            
            716,000
            
            
            80,000Net
                gain on extinguishment of debt
            
            
            (161,000
            )
            
            --Stock
                compensation
            
            
            355,000
            
            
            45,000Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (281,000
            )
            
            (194,000
            )Deferred
                offering costs
            
            
            697,000
            
            
            --Inventory
            
            
            (555,000
            )
            
            (33,000
            )Other
                current assets
            
            
            (147,000
            )
            
            (16,000
            )Other
                assets
            
            
            13,000
            
            
            61,000Accounts
                payable
            
            
            436,000
            
            
            245,000Accrued
                expenses
            
            
            105,000
            
            
            68,000Change
                in fair value of derivative financial instruments
            
            
            1,760,000
            
            
            --CASH
                FLOWS USED IN OPERATING ACTIVITIES
            
            
            (2,405,000
            )
            
            (107,000
            )CASH
                FLOWS USED INVESTING ACTIVITIESCapital
                expenditures
            
            
            (368,000
            )
            
            (492,000
            )Proceeds
                from sale of fixed assets
            
            
            60,000
            
            
            48,000CASH
                FLOWS USED IN INVESTING ACTIVITIES
            
            
            (308,000
            )
            
            (444,000
            )CASH
                FLOWS FROM FINANCING ACTIVITIESDeferred
                offering costs
            
            
            (9,000
            )
            
            (213,000
            )Proceeds
                from convertible debenture
            
            
            480,000
            
            
            485,000Line
                of credit, net
            
            
            1,150,000
            
            
            80,000Redemption
                of convertible debenture net of unamortized discount of
                $1,002,000
            
            
            (429,000
            )
            
            --Proceeds
                from notes payable
            
            
            150,000
            
            
            346,000Proceeds
                from issuance of stock
            
            
            1,485,000
            
            
            --Repayment
                of notes payable and capital lease obligation
            
            
            (228,000
            )
            
            (456,000
            )CASH
                FLOWS FROM FINANCING ACTIVITIES
            
            
            2,599,000
            
            
            242,000Effect
                of currency translation on cash balances
            
            
            --
            
            
            2,000NET
                DECREASE IN CASH
            
            
            (114,000
            )
            
            (307,000
            )Cash,
                beginning of period
            
            
            342,000
            
            
            649,000Cash,
                end of period
            
            $
            228,000
            
            $
            342,000




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





F-3




TXP
      CORPORATION


CONSOLIDATED
      STATEMENTS OF CASH FLOWS -continued


December
      31, 2006 and 2005








**SUPPLEMENTAL
      DISCLOSURE OF CASH AND NONCASH INVESTING AND FINANCING
      ACTIVITIES:**





**2006**
            
            **2005****Cash**Interest
                paid
            
            $
            98,000
            
            $
            26,000Taxes
                paid
            
            $
            --
            
            $
            --**NONCASH
                INVESTING AND FINANCING ACTIVITIES**1,700,000
                shares issued to extinguish debt
            
            $
            684,000
            
            $
            --Liabilities
                assumed upon merger
            
            $
            744,000
            
            $
            --923,657
                shares issued on conversion of debt
            
            $
            145,000
            
            $
            --2,324,481
                shares issued on conversion of debt
            
            $
            365,000
            
            $
            --Debt
                issue costs recorded on issuance of 320,000 warrants
            
            $
            120,000
            
            
            --Property
                acquired under capital lease obligations and notes payable
            
            $
            363,000
            
            $
            96,000Assets
                acquired for consulting services in non-monentary exchange (See Note
                17)
            
            $
            1,329,000
            
            
            --Modification
                of debt treated as extinguishment of debt
            
            $
            619,000
            
            $
            --




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





F-4




TXP
      CORPORATION


STATEMENTS
      OF STOCKHOLDERS' DEFICIT


December
      31, 2006 and 2005





**Common
                Stock**
            
            **Additional**
                **paid
                  in**
              **capital**
            
            **(Accumulated**
              **deficit)**
            
            **Accumulated****other**
                **comprehensive**
              **income**
            
            **Total****Shares**
            
            **Amount****Balance,
                December 31, 2004**
            
            
            **22,324,341**
            ****
            **$**
            **22,000**
            ****
            **$**
            **39,000**
            ****
            **$**
            **(3,000**
            **)**
            **$**
            **5,000**
            ****
            **$**
            **63,000**Stock
                compensation
            
            
            66,973,701
            
            
            67,000
            
            
            (22,000
            )
            
            --
            
            
            --
            
            
            45,000Foreign
                currency translation adjustment
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            2,000
            
            
            2,000Net
                loss
            
            
            --
            
            
            --
            
            
            --
            
            
            (595,000
            )
            
            --
            
            
            (595,000
            )**Balance,
                December 31, 2005**
            
            
            **89,298,042**
            ****
            ****
            **89,000**
            ****
            ****
            **17,000**
            ****
            ****
            **(598,000**
            **)**
            ****
            **7,000**
            ****
            ****
            **(485,000**
            **)**Addition
                of YTXP shares
            
            
            4,997,673
            
            
            5,000
            
            
            (5,000
            )
            
            --
            
            
            --
            
            
            --Liabilities
                assumed upon merger
            
            
            --
            
            
            --
            
            
            (744,000
            )
            
            --
            
            
            --
            
            
            (744,000
            )Net
                Loss
            
            
            --
            
            
            --
            
            
            --
            
            
            (4,592,000
            )
            
            --
            
            
            (4,592,000
            )Issuance
                of shares to extinguish debt
            
            
            1,700,000
            
            
            2,000
            
            
            848,000
            
            
            --
            
            
            --
            
            
            850,000Stock
                compensation: options awarded to employees
            
            
            --
            
            
            --
            
            
            56,000
            
            
            --
            
            
            --
            
            
            56,000Stock
                compensation: shares awarded to employees
            
            
            
            
            
            
            
            
            238,000
            
            
            
            
            
            
            
            
            238,000Stock
                compensation: shares awarded to employees
            
            
            149,000
            
            
            --
            
            
            61,000
            
            
            
            
            
            
            
            
            61,000Shares
                issued in conversion of debentures
            
            
            923,567
            
            
            1,000
            
            
            144,000
            
            
            --
            
            
            --
            
            
            145,000Unamortized
                debt discount charged to APIC on conversion of debentures
            
            
            --
            
            
            --
            
            
            (124,000
            )
            
            --
            
            
            --
            
            
            (124,000
            )Shares
                issued in conversion of debentures
            
            
            2,324,841
            
            
            2,000
            
            
            363,000
            
            
            --
            
            
            --
            
            
            365,000Unamortized
                debt discount charged to APIC on conversion of debentures
            
            
            --
            
            
            --
            
            
            (213,000
            )
            
            --
            
            
            --
            
            
            (213,000
            )Shares
                issued in private placement
            
            
            4,687,500
            
            
            5,000
            
            
            1,480,000
            
            
            
            
            
            
            
            
            1,485,000**Balance,
                December 31, 2006**
            
            
            **104,080,623**
            ****
            **$**
            **104,000**
            ****
            **$**
            **2,121,000**
            ****
            **$**
            **(5,190,000**
            **)**
            **$**
            **7,000**
            ****
            **$**
            **(2,958,000**
            **)**




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





F-5




TXP
      CORPORATION


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS







**NOTE
      1 - ORGANIZATION AND NATURE OF OPERATIONS**





TXP
      specializes in quick-turn complex circuit card assemblies and optoelectronic
      prototyping, new product introduction, and pilot production of electronic
      assemblies for Technology Innovators and Original Equipment Manufacturers (OEM)
      and Contract Manufacturers (CM) in the United States of America.





In
      December of 2006, TXP created a new business unit, iPhotonics, which will focus
      primarily on the development and sale of Optical Network Terminals (“ONT’s”) and
      related accessories and to a lesser extent related design and development
      services. ONTs are the customer premise located devices used by a carrier to
      serve residential and business customers over a PON-based (Passive Optical
      Networking) system. PON is a maturing point-to-multipoint technology which
      is
      being adopted by telephone companies globally because of its cost effectiveness
      in extending fiber-based service delivery all the way to the customer premise
      (Fiber-to-the-Home [FTTH] or Fiber-to-the-Premise [FTTP]). TXP's ONTs will
      sit
      at each customer premise and will be connected over fiber to an Optical Line
      Terminal (OLT) generally located in the carrier's central office. A single
      OLT
      can deliver services to thousands of ONTs.





The
      Company was originally formed in Nevada in June of 1994 under the name Cyber
      Synergy, Inc. to develop stock market related software applications. The
      Corporate name has changed several times to date including in November 1999
      to
“Jesse Livemore.com” and in December 2001 to “Stock Market Solutions, Inc.” and
      in April of 2006 to “YTXP Corporation”. On April 28, 2006, the merger between
      YTXP and its wholly owned subsidiary was consummated with Texas Prototypes,
      Inc
      - a private company. The transaction was treated as a recapitalization of Texas
      Prototypes, Inc with Texas Prototypes, Inc treated as the accounting acquirer
      and continuing reporting entity. A change of control was deemed to have occurred
      as a result of the transaction. In June of 2006, the articles of incorporation
      were amended and the Company's name was changed to TXP Corporation (See NOTE
      2
      Merger and Recapitalization).





The
      company is located in a 47,500 square-foot high-tech facility, located in
      Richardson, Texas.





**NOTE
      2 - ACCOUNTING POLICIES**





***Merger
      and Recapitalization***





On
      June
      14, 2005 Stock Market Solutions, Inc. and its wholly owned subsidiary entered
      into a definitive Agreement and Plan of Merger “Agreement” with Texas
      Prototypes, Inc.





On
      April
      28, 2006, YTXP Corporation (f/k/a Stock Market Solutions, Inc.) issued
      89,298,042 shares or 94.7% of the issued and outstanding shares to the
      shareholders of Texas Prototypes, Inc. and acquired all of the outstanding
      shares of Texas Prototypes, Inc. As contemplated with the agreement and
      concurrent with closing of the transaction, all directors and officers of YTXP
      resigned and were replaced by appointees of the current shareholders of YTXP.
      A
      change of control was deemed to have occurred as a result of the merger. For
      accounting purposes, the acquisition has been treated as recapitalization of
      Texas Prototypes, Inc. with Texas Prototypes, Inc. as the acquirer and as the
      continuing reporting entity. Accordingly, financial statements filed for
      post-merger periods will depict the acquisition of YTXP by the accounting
      acquirer and will include financial statements of the accounting acquirer for
      the pre-merger comparable periods. As of April 28, 2006, the Company completed
      a
      recapitalization transaction which resulted in new common shares outstanding
      of
      94,295,715, after giving effect of cancellation of shares in the transaction
      and
      reissuance per the related merger agreement. As required by accounting guidance,
      authorized shares, issued and outstanding shares and per share amounts have
      been
      retroactively restated throughout these consolidated financial statements and
      the accompanying notes.





After
      closing the Merger on April 28, 2006, YTXP began operating a business model
      focused solely on the pre-manufacturing services segment of the electronics
      industry supporting original equipment manufacturers, original design
      manufacturers, contract manufacturers and new technology innovators. YTXP has
      ceased all pre-merger operations. In June of 2006, the articles of incorporation
      were amended in order to change the name of the Company to TXP
      Corporation.





***Consolidation***





As
      of
      December 31, 2006 and 2005, TXP had one wholly owned subsidiary, TXP-Asia.
      All
      material inter-company balances and inter-company transactions have been
      eliminated.





***Basis
      of Accounting***





TXP
      maintains its accounts on the accrual method of accounting in accordance with
      accounting principles generally accepted in the United States of
      America.





F-6





***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 the reported amounts of assets and
      liabilities at the date of the balance sheet. Actual results could differ from
      those estimates.





***Foreign
      Currency Translation***





Pursuant
      to Statement of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency
      Translation, TXP's investment in TXP- Asia translates all assets and liabilities
      at the respective period-end currency exchange rates and revenues and expenses
      at an average currency exchange rate for the period. The resulting translation
      adjustments are accumulated as a separate component of shareholders'
      equity.




***Cash
      and Cash Equivalents***





TXP
      considers all highly liquid debt instruments and other short-term investments
      with an initial maturity of three months or less to be cash or cash equivalents.
      TXP maintains cash and cash equivalents with a financial institution that
      periodically exceed the limit of insurability under Federal Deposit Insurance
      Corporation. At December 31, 2006 and December 31, 2005, the cash balance
      exceeded the insured limits by $375,000 and $304,000, respectively.





***Allowance
      for Doubtful Accounts***





Earnings
      are charged with a provision for doubtful accounts based on a current review
      of
      collectibility of accounts receivable. Accounts deemed uncollectible are applied
      against the allowance for doubtful accounts.





***Inventory***





Inventory
      is valued at the lower of cost or market. Cost is determined by using the
      average cost method. Inventory consists primarily of direct raw material costs
      related to customer prototyping and assembly projects. In November 2004 the
      Financial Accounting Standards Board ("FASB") issued Statement of Financial
      Accounting Standards No. 151, "Inventory Costs-an amendment of ARB No. 43,
      Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43, Chapter
      4,
      "Inventory Pricing," to clarify the accounting for abnormal amounts of idle
      facility expense, freight, handling costs and wasted material (spoilage). Among
      other provisions, the new rule requires that items such as idle facility
      expense, excessive spoilage, double freight and rehandling costs be recognized
      as current-period charges regardless of whether they meet the criterion of
      "so
      abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that the
      allocation of fixed production overheads to the costs of conversion be based
      on
      the normal capacity of the production facilities. SFAS 151 is effective for
      fiscal years beginning after June 15, 2005. As of January 1, 2006, the Company
      adopted SFAS 151. The adoption did not have a material impact on the Company's
      consolidated financial condition and results of operations.





***Deferred
      Offering Costs***




Deferred
      offering costs were costs incurred by TXP related to entering into the
      $15,000,000 Standby Equity Distribution Agreement (See Note 8 of Financial
      Statements). These costs consist of related legal, accounting, and commitment
      fees and were charged to expense on April 28, 2006 upon consummation of the
      merger and recapitalization (See Note 3) when the Company became subject to
      SAB
      Topic 5A. SAB TOPIC 5A considers significant delays in offerings to be aborted
      and that the offering costs should be expensed.




***Property
      and Equipment***





Property
      and equipment are stated at cost less accumulated depreciation. Major renewals
      and improvements are capitalized; minor replacements, maintenance and repairs
      are charged to current operations. Depreciation is computed by applying the
      straight-line method over the estimated useful lives, which are generally three
      to seven years.





***Accounting
      for Convertible Debentures, Warrants and Derivative
      Instruments***





The
      Company accounts for its embedded conversion features and freestanding warrants
      pursuant to SFAS No. 133, "Accounting for Derivative Instruments and Hedging
      Activities", and EITF 00-19, “Accounting for Derivative Financial Instruments
      Indexed to and Potentially Settled in, a Company's Own Stock,” (“EITF 00-19”)
      which requires freestanding contracts that are settled in a company's own stock,
      including common stock warrants, to be designated as an equity instrument,
      asset
      or a liability. Under the provisions of EITF 00-19, a contract designated as
      an
      asset or a liability must be carried at fair value on a company's balance sheet,
      with any changes in fair value recorded in the company's results of operations.
      In accordance with EITF 00-19, certain warrants to purchase common stock and
      embedded conversion options are accounted for as liabilities at fair value
      and
      the unrealized changes in the values of these derivatives are recorded in our
      consolidated statement of operations as “Changes in Fair Value of Derivative
      Financial Instruments”. The recognition of derivative liabilities is applied
      first to the proceeds of such issuance, at the date of issuance, and the excess
      of derivative liabilities over the proceeds is recognized in our consolidated
      statement of operations as “Changes in Fair Value of Derivative Financial
      Instruments.”





F-7




We
      use
      the Black Scholes Pricing Model to determine fair values of our derivatives.
      Valuations derived from this model are subject to ongoing internal and external
      verification and review. The model uses market-sourced inputs such as interest
      rates, exchange rates and option volatilities. Selection of these inputs
      involves management's judgment and may impact net income. The fair value of
      the
      derivative liabilities are subject to the changes in the trading value of the
      Company's common stock. As a result, the TXP's financial statements may
      fluctuate from quarter-to-quarter based on factors, such as the price of the
      Company's stock at the balance sheet date, the amount of shares converted by
      note holders and/or exercised by warrant holders. Consequently, our financial
      position and results of operations may vary from quarter-to-quarter based on
      conditions other than our operating revenues and expenses.





We
      have
      penalty provisions in the registration rights agreement of our Cornell
      debentures and warrants ( See
      NOTE
      11 - CONVERTIBLE DEBENTURES, WARRANTS, AND SECURITIES )
      that
      require us to file the Registration Statement no later than 45 days from the
      date of closing and to use its best efforts to cause the Registration Statement
      to be declared effective no later than 120 days after filing and to insure
      that
      the registration statement remains in effect until all of the shares of common
      stock issuable upon conversion of the Debentures and exercise of the Warrants
      have been sold. In the event of a default of its obligations under the
      Registration Rights Agreements, including its agreement to file the Registration
      Statement for the shares of common stock issuable upon conversion of the
      Debentures and exercise of the Warrants with the Securities and Exchange
      Commission no later than 45 days from the date of closing, or if the
      Registration Statement is not declared effective within 120 days of filing,
      it
      is required that we pay to Cornell, as liquidated damages, for each month that
      the registration statement has not been filed or declared effective, as the
      case
      may be, either a cash amount or shares of our common stock at Cornell's option
      equal to 2% of the liquidated value of the debentures. The agreement does not
      specify whether the liquidated damages may be satisfied in unregistered shares
      or how the payment in shares would be valued should Cornell elect to be paid
      liquidated damages in common stock. The Company obtained a waiver from Cornell
      Capital waiving any claim or payment of liquidated damages up through and
      including May 15, 2007.





On
      October 11, 2006, we entered into a Securities Purchase Agreement which provided
      for the filing of a registration statement by the Company with the Securities
      and Exchange Commission registering the Shares and the share common stock
      issuable upon exercise of the Warrants. (See
      NOTE
      11 - CONVERTIBLE DEBENTURES, WARRANTS, AND SECURITIES) The
      Company is obligated to file the registration statement no later than December
      15, 2006 and to use its best efforts to cause the registration statement to
      be
      declared effective no later than 90 days after filing. If the Company does
      not
      meet the aforementioned filing and effectiveness deadlines, it shall pay to
      the
      investor an amount equal to 1% of the purchase price for the first 60 days
      or
      part thereof of the pendency of such non-registration event and 2% for each
      30
      days or part thereof thereafter, of the purchase price of the Shares and the
      Warrants; provided, however, that the aforementioned liquidated damages shall
      only accrue, if at all, for 12 months after the closing date.  The Company
      obtained a waiver from the investor waiving any claim or payment of liquidated
      damages up through and including May 15, 2007.





We
      account for these penalties as contingent liabilities, applying the accounting
      guidance of Financial Accounting Standard No. 5, “Accounting for Contingencies”
(“FAS 5”). This accounting is consistent with views established by the Emerging
      Issues Task Force in its consensus set forth in EITF 05-04 and FASB Staff
      Positions FSP EITF 00-19-2 “Accounting for Registration Payment Arrangements”,
      which was issued December 21, 2006. Accordingly, we recognize the damages when
      it becomes probable that they will be incurred and amounts are reasonably
      estimable.





***Revenue
      Recognition***





Revenues
      are derived from the following sources:





·
            Prototyping
                and assembly services


·
            Prototyping
                -Photonics/Optoelectronics services


·
            Material
                supply chain management services


·
            Turn-key
                solution - consists of material supply chain management services
                and one
                of the other services listed above


·
            Optical
                Network Terminal (ONT) product and accessory
                sales


·
            ONT
                design and development services





The
      following is a description of each revenue source and our revenue recognition
      policy for each source:





Prototyping
      and assembly services typically consist of assembling and designing surface
      mount technology and other build-to-order products to the customer provided
      design specifications. These services are priced based on the complexity,
      time-to turn and unit volume of the customer project. The majority of our
      prototyping and assembly services projects are completed in less than three
      weeks. We recognize revenue when persuasive evidence of an arrangement exists,
      delivery has occurred, services have been performed, the sales price is fixed
      or
      determinable and collectibility is probable. These criteria are generally met
      after an internal quality control review of the product and at the time product
      is shipped.





Prototyping
      -Photonics/Optoelectronics services typically consists of assembling and
      designing optical and optical related products to the customer provided design
      specifications. We recognize revenue when persuasive evidence of an arrangement
      exists, delivery has occurred, services have been performed, the sales price
      is
      fixed or determinable and collectibility is probable. These criteria are
      generally met after an internal quality control review of the product and at
      the
      time product is shipped.





Material
      supply chain management services consists of locating and procuring materials
      according to customer design specifications, qualifying components and auditing
      vendors, inventorying materials, and providing dual vendor sourcing if
      necessary. Material supply chain management services are priced at the cost
      of
      the material plus 5% to 25%. The pricing is solely dependent on the complexity
      and volume of the services performed. We recognize revenue when persuasive
      evidence of an arrangement exists, delivery has occurred, services have been
      performed, the sales price is fixed or determinable and collectibility is
      probable. These criteria are generally met at the time materials have been
      received and inventoried, and the materials have shipped.





F-8




Turn-key
      solution is a combination of material supply chain management and one of the
      other service revenue sources described above. Revenue is generally recognized
      after both services have been performed and the products have
      shipped.





Optical
      Network Terminal (ONT) product and accessory sales. In December of 2006, TXP
      created a new business unit, iPhotonics, which will focus primarily on the
      development and sale of ONT’s and related accessories. ONTs are the customer
      premise located devices used by a carrier to serve residential and business
      customers over a PON-based (Passive Optical Networking) system. PON is a
      maturing point-to-multipoint technology which is being adopted by telephone
      companies globally because of its cost effectiveness in extending fiber-based
      service delivery all the way to the customer premise (Fiber-to-the-Home [FTTH]
      or Fiber-to-the-Premise [FTTP]). TXP's ONTs will sit at each customer premise
      and will be connected over fiber to an Optical Line Terminal (OLT) generally
      located in the carrier's central office. A single OLT can deliver services
      to
      thousands of ONTs. We recognize revenue when persuasive evidence of an
      arrangement exists, delivery has occurred, services have been performed, the
      sales price is fixed or determinable and collectibility is probable. These
      criteria are generally met after an internal quality control review of the
      product and at the time product is shipped.


ONT
      design and development services. TXP offers contract services related to the
      design and development of ONT products and accessories. TXP recognizes design
      and development services revenue using the percentage-of-completion method
      of
      accounting, in accordance with SOP 81-1, “Accounting for Performance of
      Construction-Type and Certain Production-Type Contracts.” Revenues are
      recognized primarily based on costs incurred to date compared with total
      estimated contract costs. Generally our design and development service costs
      consist of engineering labor costs.





***Income
      Taxes***





Income
      taxes are computed using the asset and liability method. Under the asset and
      liability method, deferred income tax assets and liabilities are determined
      based on the differences between the financial reporting and tax bases of assets
      and liabilities and are measured using the currently enacted tax rates and
      laws.
      A valuation allowance is provided for the amount of deferred tax assets that,
      based on available evidence, are not expected to be realized.





***Stock-Based
      Compensation***




Effective
      January 1, 2006, the Company adopted Statement of Financial Accounting
      Standards No. 123(R),
“Share-Based Payment,” (SFAS No. 123R) which was issued by the Financial
      Accounting Standards Board (FASB) in December 2004. SFAS No. 123R revises
      SFAS No. 123 “Accounting for Stock Based Compensation,” and supersedes APB
      No. 25, “Accounting for Stock Issued to Employees,” (APB No. 25) and
      its related interpretations. SFAS No. 123R requires recognition of the cost
      of employee services received in exchange for an award of equity instruments
      in
      the financial statements over the period the employee is required to perform
      the
      services in exchange for the award (presumptively the vesting period). SFAS
      No. 123R also requires measurement of the cost of employee services
      received in exchange for an award based on the grant-date fair value of the
      award. SFAS No. 123R also amends SFAS No. 95 “Statement of Cash
      Flows,” to require that excess tax benefits be reported as financing cash
      inflows, rather than as a reduction of taxes paid, which is included within
      operating cash flows.





In
      June
      of 2006, the majority of shareholders approved the "2006 Stock Incentive Plan."
      The plan provides for up to 10,000,000 shares of TXP's common stock to be issued
      in the form of incentive and/or non-qualified common stock for employees,
      directors and consultants to TXP. As of December 31, 2006, 2,407,329 stock
      options and 149,000 shares of common stock have been issued to employees,
      directors or consultants under this plan of which the company recognized $56,000
      and $61,000, respectively, of stock compensation expense in SG&A in the
      statement of operations for year ended December 31, 2006. In Q4 2006, the
      Company agreed to issue a combined 1,404,870 free-trading shares on April 2,
      2007 to certain employees who were hired as of October 2, 2006. The agreement
      between the Company and employees provided that the stock would vest 50% on
      January 1, 2007 with the remaining 50% vesting daily through April 2, 2007
      at
      which time the common stock will be issued to the employees. In our statement
      of
      operations for the year ended December 31, 2006, we recorded $238,000 of
      compensation cost for the expected issuance of these shares based on the closing
      price of our stock on the award date of October 2, 2006.





***Net
      Loss Per Share***





Basic
      net
      loss per share is computed using the weighted average number of common shares
      outstanding during the period. Contingently issuable shares are included in
      the
      computation of basic net income (loss) per share when the related conditions
      are
      satisfied. Diluted net income (loss) per share is computed using the weighted
      average number of common shares and potentially dilutive securities outstanding
      during the period. Potentially dilutive securities consist of contingently
      issuable shares, the incremental common shares issuable upon conversion of
      preferred stock or convertible debt (using the “if converted” method) and shares issuable upon the
      exercise of stock options and warrants (using the “treasury stock” method).
      Potentially dilutive securities are excluded from the computation if their
      effect is anti-dilutive.




F-9





***Reclassifications***





Certain
      prior periods' balances have been reclassified to conform to the current
      period's financial statement presentation. These reclassifications had no impact
      on previously reported results of operations or stockholders'
      equity.





**NOTE
      3 - RELATED PARTY TRANSACTIONS**





In
      Q4
      2005, the majority shareholder and Chief Executive Officer of the Company,
      Michael Shores, purchased two company owned vehicles for $48,000 by arranging
      to
      pay-off the loans on both vehicles. The purchase price approximated the fair
      values of the vehicles in aggregate. The company realized an accounting loss
      on
      the sale of $14,000.





In
      Q2
      2006, the majority shareholder and Chief Executive Officer of the Company,
      Michael Shores, loaned the company $150,000. The unsecured loan has a one-year
      term and bears interest at 10%. The loan principal and interest are due at
      maturity. The Company repaid $37,500 of principal in 2006. The balance on the
      note at December 31, 2006 was $112,500.





The
      majority shareholder and Chief Executive Officer of the Company, Michael Shores,
      has provided his personal guarantee on all of the Company's notes payables,
      line
      of credit, and capital leases.





In
      Q3
      2006, we entered into an Asset Purchase Agreement with Mr. Richard Smitten,
      the
      former Chief Executive Officer and sole director of our predecessor corporation,
      Stock Market Solutions, Inc., pursuant to which we sold the assets of our
      predecessor business, including the business and related software, as well
      as
      the book-rights to three Livermore related books relating to a teaching and
      a
      computer training program designed to provide educational/instructional
      assistance and aid to those stock market traders who wish to learn how to trade
      in the stock market using a system previously developed by an early
      20 th century
      stock market trader, Jesse Livermore. In consideration for the sale of the
      assets, Mr. Smitten agreed to forgive the repayment of a certain debt related
      to
      accrued compensation that we owed to Mr. Smitten in the aggregate amount of
      $329,272, of which $179,272 was forgiven by Mr. Smitten pursuant to that certain
      Agreement and Plan of Merger dated as of June 15, 2005 and $150,000 was forgiven
      by Mr. Smitten pursuant to the Agreement.





On
      November 15, 2006, we entered into an Asset Purchase Agreement with G3 Global
      Investments, Inc., a Texas corporation, pursuant to which we purchased all
      of
      the SMT line production assets of G3. G3 is 100% owned and controlled by Mr.
      Michael C. Shores, our Chief Executive Officer. Prior to entering into the
      Agreement, we leased the assets from G3 for a monthly price of $15,000 under
      a
      certain Equipment Lease (the “Lease”) dated as of May 1, 2005 by and between G3
      and Texas Prototypes, Inc., a wholly owned subsidiary of our company. The Lease
      terminates on April 30, 2007. We assumed the Lease from its wholly owned
      subsidiary in April 2006. In consideration for the sale of the assets, we paid
      a
      purchase price of $300,000 to G3. In addition, G3 and TXP agreed to terminate
      the Lease pursuant to the terms of the Agreement. Prior to the termination
      of
      the lease, TXP paid $157,500 and $180,000 in 2006 and 2005, respectively to
      G3 in accordance with the terms of the lease.





**NOTE
      4 - STOCK BASED COMPENSATION**




In
      June
      of 2006, the majority of shareholders approved the "2006 Stock Incentive Plan."
      The purpose of the Plan is to promote the long-term growth and profitability
      of
      the Company by providing key people, including employees, officers,
      directors and consultants, with incentives to improve stockholder value and
      to
      contribute to the growth and financial success of the Company through their
      future services, and enabling the Company to attract, retain and reward the
      best-available persons.  The Plan permits the granting of stock options
      (including incentive stock options qualifying under Code section 422 and
      nonqualified stock options), stock appreciation rights, restricted or
      unrestricted stock awards, phantom stock, performance awards, other stock-based
      awards, or any combination of the foregoing. The plan provides for up to
      10,000,000 shares of TXP's common stock to be issued in the form of incentives
      discussed above for employees, officers, directors and consultants of
      TXP.





In
      Q3
      2006, the Company issued a combined 149,000 free-trading shares which were
      registered under a registration statement on Form S-8 to all of its employees
      who were employed as of April 28, 2006 except for the CFO and CEO. In our
      statement of operations for the year ended December 31, 2006, we recorded
      $61,000 of compensation cost for the issuance of these shares based on the
      closing price of our stock on the issue date.





In
      Q4
      2006, the Company agreed to issue a combined 1,404,870 free-trading shares
      on
      April 2, 2007 to certain employees who were hired as of October 2, 2006. The
      agreement between the Company and employees provided that the stock would vest
      50% on January 1, 2007 with the remaining 50% vesting daily through April 2,
      2007 at which time the common stock will be issued to the employees. In our
      statement of operations for the year ended December 31, 2006, we recorded
      $238,000 of compensation cost for the expected issuance of these shares based
      on
      the closing price of our stock on the award date of October 2,
      2006.





Options
      granted under the 2006 Plan are generally at an exercise price per share not
      less than the fair market value per share of common stock on the option grant
      date. Options are granted with a term of up to 10 years and generally become
      exercisable in installments over periods of up to three years.





F-10





A
      summary
      of stock option activity for the year ended December 31, 2006 is presented
      in
      the following table.





**Options**
            
            **Weighted**
              **average**
              **exercise**
              **price**
            
            **Aggregate**
              **intrinsic**
              **value**
            
            **Weighted**
              **average**
              **remaining**
              **contractual**
              **life
                (years)**Outstanding
                at January 1, 2006
            
            
            --
            
            
            --
            
            
            --
            
            
            --Granted
            
            
            2,407,329
            
            $
            0.31
            
            
            120,366
            
            
            9.70Exercised
            
            
            --
            
            
            --Forfeited
            
            
            --
            
            
            --Expired
            
            
            --
            
            
            --Outstanding
                at December 31, 2006
            
            
            2,407,329
            
            $
            0.31
            
            $
            120,366
            
            
            9.70Exercisable
                at December 31, 2006
            
            
            --
            
            $
            --
            
            $
            --
            
            
            --




We
      adopted SFAS No. 123R effective January 1, 2006. In our statement of
      operations for the year ended December 31, 2006, we recorded $56,000 of
      compensation cost for stock option share-based payment arrangements, $61,000
      of
      compensation cost for free trading shares issued in Q3 2006 and $238,000 of
      compensation costs for the expected issuance of common stock to employees on
      April 2, 2007. No stock options were exercised during the year ended December
      31, 2006.




The
      fair
      value of stock options is determined using the Black-Scholes valuation model.
      During year ended December 31, 2006 the fair value of each stock option award
      was determined as of the date of grant using the Black-Scholes option-pricing
      model with the following assumptions:





Expected
                volatility
            
            
            115%-120
            %Expected
                term (years)
            
            
            6.0Risk-free
                interest rate
            
            
            4.6
                -4.7
            %Expected
                dividend yield
            
            
            0
            %Forfeiture
                rate
            
            
            12
            %





Expected
      volatility is based solely on historical volatility of our common stock over
      the
      period commensurate with the expected term of the stock options. We rely solely
      on historical volatility because our traded options do not have sufficient
      trading activity to allow us to incorporate the mean historical implied
      volatility from traded options into our estimate of future volatility. The
      expected term calculation for stock options is based on the “simplified” method
      described in Staff Accounting Bulletin No. 107, Share-Based Payment. The
      risk-free interest rate is based on the U.S. Treasury yield in effect at the
      time of grant for an instrument with a maturity that is commensurate with the
      expected term of the stock options. The dividend yield of zero is based on
      the
      fact that we have never paid cash dividends on our common stock, and we have
      no
      present intention to pay cash dividends.




As
      of
      December 31, 2006, there was $739,000 of total unrecognized compensation cost,
      which includes the impact of expected forfeitures related to unvested
      share-based compensation arrangements. That cost is expected to be recognized
      over a weighted-average period of 2.8 years.





F-11





**NOTE
      5 - NET INCOME (LOSS) PER SHARE**




Basic
      net
      income per common share is calculated by dividing net income (loss) by the
      weighted-average number of common shares outstanding during the reporting
      period. Diluted net income per common share reflects the effects of potentially
      dilutive securities. A reconciliation of the numerator and denominator used
      in
      the calculation of basic and diluted net income per share follows:




**For
                the year ended December 31,****2006**
            
            **2005****(in
                thousands, except per share data)**Numerator:Net
                loss available to common stockholders
            
            $
            (4,592,000
            )
            $
            (593,000
            )Denominator:Denominator
                for basic net income per share--weighted
              average
                shares
            
            
            95,024,296
            
            
            72,967,468Dilutive
                potential securities
            
            
            --
            
            
            --Denominator
                for diluted net income per share--
              adjusted
                weighted average shares
            
            
            95,024,296
            
            
            72,967,468Basic
                net income per share
            
            $
            (.05
            )
            $
            (.01
            )Diluted
                net income per share
            
            $
            (.05
            )
            $
            (.01
            )




For
      the
      years ended December 31, 2006 and 2005, certain potential shares of common
      stock
      have been excluded from diluted loss per share because the exercise price was
      greater than the average market price of our common stock, and therefore, the
      effect on diluted loss per share would have been anti-dilutive. Other
      convertible securities and employee stock options were excluded because their
      inclusion was anti-dilutive.  The following table sets forth the number of
      potential shares of common stock that have been excluded from diluted net loss
      per share because their effect was anti-dilutive:




**For
                the year ended December 31,****2006**
            
            **2005**Warrants
                to purchase common shares
            
            
            9,348,000
            
            
            --Employee
                stock options
            
            
            2,407,000
            
            
            --Convertible
                debentures
            
            
            5,669,000
            
            
            --17,424,000
            
            
            --





**NOTE
      6 - PROPERTY AND EQUIPMENT:**





Components
      of property, plant, and equipment, at December 31, 2006 and 2005 are as
      follows:





2006
            
            2005Machinery
                and equipment
            
            $
            2,561,000
            
            $
            925,000Computers
            
            
            124,000
            
            
            69,000Software
            
            
            413,000
            
            
            158,000Vehicles
            
            
            12,000
            
            
            12,000Furniture
                and fixtures
            
            
            176,000
            
            
            137,000Leasehold
                improvements
            
            
            54,000
            
            
            34,0003,340,000
            
            
            1,335,000Less:
                accumulated depreciation
            
            
            (673,000
            )
            
            (421,000
            )$
            2,667,000
            
            $
            914,000




Depreciation
      expense totaled $264,000 and $218,000 in 2006 and 2005,
      respectively





F-12





**NOTE
      7 - LINES OF CREDIT**





***Line
      of Credit April 1, 2006***





On
      April
      1, 2006 TXP renewed its revolving line of credit for $500,000. The line of
      credit has a one-year term with a variable interest rate of prime plus 2%.
      The
      line of credit is secured by all assets of the Company. The majority shareholder
      and Chief Executive Officer of the Company, Michael Shores, has provided his
      personal guarantee on this loan (See NOTE 3). Interest payments are due monthly
      beginning April 1, 2006 and the principal is due when the one-year term expires.
      The line of credit has provisions that the maximum TXP may have outstanding
      is
      $500,000 or 70% of the borrowing base, whichever is less. The borrowing base
      is
      defined as the value of accounts receivable less than 90 days past their invoice
      date. TXP was in compliance with these provisions as of December 31, 2006 and
      2005. The revolving line credit also has financial and non-financial covenants.
      A summary of the significant covenants are as follows:





·
            Maintain
                a Debt-to-Net Worth Ratio of not greater than 2:1. This ratio is
                calculated by dividing Total Liabilities by Net Worth (total stockholders'
                equity) Net worth is to include the subordinated debt in the form
                of debt
                owed Cornell Capital and likewise is to be excluded from total
                liabilities.





·
            Maintain
                a Current Ratio of not less than 1:1:1. This ratio is to be calculated
                by
                dividing Total Current Assets by Total Current
                Liabilities.





·
            Maintain
                a Debt Coverage Ratio of not less than 1.25:1. This ratio is to be
                calculated by dividing Earnings before Interest, Depreciation, and
                Taxes
                by all principal and interest payments for the
                period.




At
      December 31, 2006, the Company was in default due to failure to maintain a
      Debt
      Coverage ratio as provided for in the loan agreement. Any default under the
      loan
      agreement permits the bank to demand immediate payment of the debt under this
      note including principal and accrued interest. However, the lending institution
      and TXP entered into forbearance agreement on August 3, 2006 which waived
      non-compliance of this covenant so long as the company maintained the
      Debt-to-net-worth ratio and Current Ratio as provided for in the loan agreement.
      As of December 31, 2006, the Debt-to-net-worth and Current Ratio were in
      compliance with the loan agreement. The balance outstanding on the note at
      December 31, 2006 and 2005 was $400,000 and $250,000 respectively.





***Line
      of Credit November 15, 2006***





The
      Company consummated a loan agreement dated as of August 3, 2006 with a financial
      institution pursuant to which the institution extended a line of credit to
      the
      Company in an aggregate amount of $1,000,000 to be used by the Company for
      working capital and general corporate purposes. On
      December 21, 2006, the Company consummated a second Loan Agreement with the
      same
      financial institution dated as of November 15, 2006 which renews and supersedes
      the prior Loan Agreement dated as of August 3, 2006 and increased the Company’s
      line of credit from $1,000,000 to $3,000,000 to be used by the Company for
      working capital and general corporate purposes. The Loan pays interest at a
      rate
      of 8.00% per annum and all principal, and accrued and unpaid interest is due
      on
      August 3, 2008. The Company’s obligations under the Loan Agreement are secured
      by a pledge of an aggregate of $3,875,000 in free-trading shares of Fossil
      Incorporated by the Investor (As more fully discussed in **NOTE
      11 - CONVERTIBLE DEBENTURES, WARRANTS, AND SECURITIES** under
      the
      subheadings “July 2006 Warrants” and “October 2006 Warrants”). In addition, the
      Company’s obligations under the Loan Agreement are further guaranteed personally
      and through the pledge of an aggregate of 8,520,000 shares of common stock
      beneficially owned by Michael Shores, the Company’s Chief Executive
      Officer.  As
      of
      December 31, 2006, the balance outstanding on the line of credit was
      $1,000,000.





F-13





**NOTE
      8 - NOTES PAYABLE**





On
      March
      15, 2004, TXP entered into a standard bank loan agreement for $45,000 to
      purchase equipment and issued a promissory note to evidence such loan. The
      note
      has a three-year term with a variable interest rate of prime plus 2%. The note
      is secured by the equipment. The majority shareholder and Chief Executive
      Officer of the Company, Michael Shores, has provided his personal guarantee
      on
      this loan (See NOTE 3). Monthly payments of $1,400 began May 15, 2004. The
      balance outstanding on the note at December 31, 2006 was $5,000.





TXP
      entered into a financing agreement to purchase an automobile at the end of
      fiscal year 2003 for $10,000 with interest rate of 6%. The note is secured
      by
      the vehicle. The majority shareholder and Chief Executive Officer of the
      Company, Michael Shores, has provided his personal guarantee on this loan (See
      NOTE 3). The term of the financing agreement is 36 months, expiring in fiscal
      year 2006. The note was repaid in full in Q2 2006.





In
      December 2003, TXP entered into a standard bank loan agreement for $350,000
      to
      purchase equipment. The note has a three-year term with a 6.5% interest rate
      and
      is secured by accounts receivable and equipment. The majority shareholder and
      Chief Executive Officer of the Company, Michael Shores, has provided his
      personal guarantee on this loan (See NOTE 3). Monthly payments for this note
      are
      $11,000 and began February 18, 2004. The balance outstanding on the note at
      December 31, 2006 was $10,000.








In
      May of
      2006, TXP entered into a loan agreement with the majority shareholder and Chief
      Executive Officer of the Company, Michael Shores, for $150,000 (See Note 3).
      The
      note has a one year term with a 10% interest rate and is unsecured. Principal
      and interest are contractually due at maturity. The Company repaid $37,500
      of
      principal in 2006. The balance outstanding on this note at December 31, 2006
      was
      $112,500.





In
      November of 2006, TXP entered into a standard bank loan agreement for $300,000
      to purchase equipment from Global Investments, Inc., a Texas corporation,
      pursuant to which we purchased all of the SMT line production assets of G3.
      G3
      is 100% owned and controlled by Mr. Michael C. Shores, our Chief Executive
      Officer. The two
      year note bears interest at 9.25% and requires monthly payments of approximately
      $14,000. The loan is secured by the purchased assets, in addition to all of
      the
      assets of the Company. The
      balance outstanding on this note at December 31, 2006 was $288,000.





**NOTE
      9 - CAPITAL LEASE OBLIGATIONS**





In
      June
      of 2005, TXP entered into a standard lease agreement for $62,000 to lease
      certain operating and production equipment. The lease has a three-year term
      and
      is secured by the equipment. The majority shareholder and Chief Executive
      Officer of the Company, Michael Shores, has provided his personal guarantee
      on
      this lease (See NOTE 3). Monthly lease payments are $2,000 and began in June
      of
      2005. The balance outstanding at December 31, 2006 was $33,000. The lease has
      been accounted for as capitalized lease in accordance with generally accepted
      accounting policies.





In
      March
      of 2006, TXP entered into a standard lease agreement for $25,000 to lease
      certain computer equipment. The lease has a three-year term and is secured
      by
      the computer equipment. The majority shareholder and Chief Executive Officer
      of
      the Company, Michael Shores, has provided his personal guarantee on this lease
      (See NOTE 3). Monthly lease payments are $1,000 and began in March of 2006.
      The
      balance outstanding at December, 2006 was $20,000. The lease has been accounted
      for as capitalized lease in accordance with generally accepted accounting
      policies.





In
      March
      of 2006, TXP entered into a standard lease agreement for $37,000 to lease
      certain software. The lease has a thirty-month term and is secured by the
      software. The majority shareholder and Chief Executive Officer of the Company,
      Michael Shores, has provided his personal guarantee on this lease (See NOTE
      3).
      Monthly lease payments are $1,000 and began in March of 2006. The balance
      outstanding at December 31, 2006 was $25,000. The lease has been accounted
      for
      as capitalized lease in accordance with generally accepted accounting
      policies.





The
      following is a schedule by years of future minimum lease payments under the
      capital lease together with the present value of the net minimum lease payments
      as of December 31, 2006:




Year
            
            Amount01/01/07
                - 12/31/07
            
            $
            52,00001/01/08
                - 12/31/08
            
            
            32,00001/01/09
                - 12/31/09
            
            
            3,000Total
                Minimum Lease Payments
            
            
            87,000Less
                Amounts Representing Interest
            
            
            9,000Present
                Value of Minimum Lease Payments
            
            $
            78,000




F-14





**NOTE
      10 - STANDBY EQUITY DISTRIBUTION AGREEMENT**





In
      August
      2004, TXP entered into a Standby Equity Distribution Agreement. Under this
      agreement, TXP may issue and sell Common Stock to Cornell Capital Partners
      ("Cornell") for a total purchase price of up to $15.0 million. Subject to
      certain conditions, TXP will be entitled to commence drawing down on the Standby
      Equity Distribution Agreement when the sale of Common Stock under the Standby
      Equity Distribution Agreement is registered with the SEC and the authorization
      for quotation on the National Association of Securities Dealers OTC Bulletin
      Board is obtained and TXP is within the commitment period as defined under
      the
      terms of the agreement. The commitment period shall mean the period commencing
      on the earlier to occur of the effective date (which shall mean the date on
      which the SEC first declares effective a registration statement registering
      the
      resale of the common stock under the Standby Equity Distribution Agreement),
      or
      such earlier date as TXP and Cornell may mutually agree in writing, and expiring
      on the earliest to occur of the date on which the Investor shall have made
      payment of advances pursuant to this agreement in the aggregate amount of
      Fifteen Million Dollars ($15,000,000), or the date occurring twenty-four (24)
      months after the Effective Date.





The
      purchase price for the shares will be equal to 100% of the market price, which
      is defined as the lowest closing bid price of the Common Stock during the five
      trading days following the notice date. A cash fee equal to five percent (5%)
      of
      the cash proceeds of the draw down is also payable at the time of funding.
      To
      date, TXP has not drawn down on the Standby Equity Distribution
      Agreement.





We
      are
      currently unable to register the shares of common stock issuable to Cornell
      under the Standby Equity Distribution Agreement because the terms of the
      agreement are not consistent with the SEC's guidance regarding the terms of
      equity line financings that may be registered. We and Cornell Capital have
      not
      taken any steps to date to revise the standby equity distribution agreement,
      or
      any other applicable transaction documents in connection with the equity line,
      so that the resale of the shares issuable under the equity line may be
      registered with the SEC in accordance with such guidance.





In
      conjunction with the Standby Equity Distribution Agreement, TXP issued a
      $400,000 compensation debenture to Cornell Capital. In June of 2006, the Company
      issued 1,700,000 shares of common stock in the exchange for full settlement
      of
      this $400,000 compensation debenture and another $240,000 convertible debenture
      that was issued to Cornell Capital by YTXP (f/k/a Stock Market Solutions Inc)
      for separate standby equity distribution agreement that was terminated prior
      to
      the merger in April of 2006. The combined carrying value of both debentures
      amounted to $685,000 which included the fair value of an embedded conversion
      option and accrued interest. The fair market value of the stock was $850,000
      on
      the date of settlement. The Company realized a $165,000 loss on early
      extinguishment of debt as a result of the settlement. At the time of issuance,
      the $400,000 debenture was recorded as a liability and as a deferred offering
      cost on the balance sheet of the company. This cost and other costs consisting
      of related legal, and accounting were charged to expense on April 28, 2006
      upon
      consummation of the merger and recapitalization (See Note 2) when the Company
      became subject to SAB Topic 5A. SAB TOPIC 5A considers significant delays in
      offerings to be aborted and that the offering costs should be
      expensed.





**NOTE
      11 - CONVERTIBLE DEBENTURES, WARRANTS, AND SECURITIES**





***August
      2004 Secured Convertible Debt***





In
      August
      of 2004, Texas Prototypes, Inc. entered into Securities Purchase Agreements
      with
      Cornell and Mobilepro Corp. for the sale of a secured convertible debenture
      in
      the principal amount of $1,400,000 ($700,000 to each), bearing interest at
      five
      percent (5%). The terms of this debenture require the Company to obtain prior
      written consent from the holder, Cornell Capital, so long as any of the
      principal or interest on this debenture remains unpaid and unconverted before
      issuing or selling any Common Stock or Preferred Stock without consideration
      or
      for a consideration per share less than its lowest bid price determined
      immediately prior to its issuance, or issuing or selling any Preferred Stock,
      warrant, option, right, contract, call, or other security or instrument granting
      the holder thereof the right to acquire Common Stock without consideration
      or
      for a consideration per share less than such Common Stock's fair market value
      determined immediately prior to its issuance, or file any registration statement
      on Form S-8 for more than 10,000,000 shares of Common Stock. The debentures
      are
      secured by a second priority security interest in all of our goods, inventory,
      contractual rights and general intangibles, receivables, documents, instruments,
      and chattel paper In the event of default, Cornell may cause the obligation
      to
      become immediately due and payable. In addition, upon the occurrence of an
      event
      of default, Cornell shall: (i) be entitled to receive all distributions
      with respect to the pledged property, (ii) to cause the pledged property to
      be transferred into the name of the secured party or its nominee, (iii) to
      dispose of the pledged property, and (iv) to realize upon any and all
      rights in the pledged property then held by Cornell; provided however, that
      Cornell security interest is second in priority behind First Bank Canyon
      Creek . These convertible debentures have a term of three years and are
      convertible at the holder's option. If the convertible debentures have not
      been
      converted on the third anniversary they will be automatically converted into
      common stock of TXP. Interest is due at maturity or conversion in cash or common
      stock at the holder's option. If the holder elects the interest to be paid
      in
      common stock it will be valued based upon the closing bid price of the Company's
      stock at time paid. At any time TXP may elect to redeem all or any portion
      of
      the convertible debentures at the price of one hundred twenty percent (120%)
      of
      the amount redeemed plus accrued interest. If TXP uses this option, it must
      then
      issue the holder of the debenture 50,000 warrants for every $100,000 redeemed.
      The warrants will have a two-year term and will be excisable at the fixed price
      of $.157 per share. The convertible debentures were assumed by TXP Corporation
      upon completion of the merger in April of 2006.





F-15





There
      are
      two ways this convertible debenture can be converted to common stock of TXP.
      First, the debentures are convertible at a fixed price of $0.157 per shares
      (“Fixed Price”) as provided for under the secured debenture agreement.
      Specifically, the Fixed Price was calculated at one hundred ten (110%) of a
      post-money market capitalization of $15 million (which shall be calculated
      by
      dividing the product of 110% times 15,000,000 by the total outstanding capital
      stock of TXP on a fully-diluted basis as of the date the TXP's Common Stock
      is
      first quoted on the Principal Market). Second, the debentures are convertible
      at
      an amount equal to eighty percent (80%) of the volume weighted average price
      of
      TXP' common stock, as quoted by Bloomberg, LP, for the five days immediately
      preceding the conversion date (“Variable Price”). The conversion price elected
      will be the lower of fixed or variable price at the date of election to convert
      by the holder. The conversion term expires August 25, 2007.




In
      Q2 of
      2006, upon completion of the merger and assumption of all liabilities of Texas
      Prototypes, Inc., including the secured debentures, the contingencies related
      to
      the future event of TXP common stock being quoted and traded on either the
      over-the-counter bulletin board, NASDAQ small cap market or American Stock
      Exchange was resolved. The conversion option, the option to convert at an amount
      equal to eighty percent (80%) of the volume weighted average price of TXP's
      common stock, as quoted by Bloomberg, LP, for the five days immediately
      preceding the conversion date, was then deemed to be financial derivatives
      under
      SFAS 133 and EITF 00-19 Specifically, the variable conversion pricing aspects
      of
      the convertible debenture as discussed above were analyzed under paragraph
      12
      SFAS 133 and determined to be an embedded derivative that should be separated
      from the host contract since all of the following criteria were
      met:





·
            The
                economic characteristics and risks of the embedded derivative instrument
                are not clearly and closely related to the economic characteristics
                and
                risks of the host contract.





·
            The
                contract ("the hybrid instrument") that embodies both the embedded
                derivative instrument and the host contract is not re-measured at
                fair
                value under otherwise applicable generally accepted accounting principles
                with changes in fair value reported in earnings as they
                occur.





·
            A
                separate instrument with the same terms as the embedded derivative
                instrument would, pursuant to paragraphs 6-11, be a derivative instrument
                subject to the requirements of this
                Statement.





The
      embedded derivative was then evaluated using EITF 00-19 paragraphs 12 -32 to
      determine whether the embedded derivative should be classified as a liability
      or
      as equity. We concluded that the conversion option should be recorded as a
      liability at fair value since all of the criteria for recording as equity were
      not met under EITF 00-19 including the ability to have sufficient authorized
      shares to fulfill our potential obligations under the convertible debentures.
      If
      a company could be required to obtain shareholder approval to increase the
      company's authorized shares in order to net-share or physically settle a
      contract, share settlement is not controlled by the company.





At
      the
      time of the merger, the derivatives were bifurcated and recorded at fair value
      and reflected on the Company's balance sheet. The derivatives are adjusted
      to
      fair value at each reporting period.




In
      June
      of 2006, the Company issued 923,657 shares of common stock to Cornell Capital
      in
      conversion of $145,000 of this convertible debenture. The conversion price
      was
      equal to $0.157 per share in accordance with the debenture
      agreement.





In
      October of 2006, the Company issued 2,324,841 shares of common stock to Cornell
      Capital in conversion of $365,000 of this convertible debenture. The conversion
      price was equal to $0.157 per share in accordance with the debenture
      agreement.





This
      convertible debentures were originally discounted by $200,000 which were fees
      paid to the lenders and further discounted by $1,200,000 upon bifurcation and
      recording at fair value certain financial derivative instruments embedded within
      the note in Q2 2006. The discount is being amortized over the life of the notes
      of three years. At December 31, 2006 the convertible debenture had balance
      of
      $467,000 net $423,000 of unamortized discount. As of December 31, 2006,
      approximately $156,000 of interest has been accrued. The effective interest
      rate
      on the debenture is 10.6% compared to the stated interest of 5% which takes
      into account the debt discount and issue costs related to the
      debenture.





F-16





***June
      5, 2006 Secured Convertible Debentures and
      Warrants***





On
      June
      5, 2006, the Company consummated a securities purchase agreement dated June
      5,
      2006 with Cornell providing for the sale by the company to Cornell of its 10%
      secured convertible debentures in the aggregate principal amount of $1,127,000
      with principal and interest due on or before June 5, 2009. The terms of this
      debenture require the Company to obtain prior written consent from the holder,
      Cornell Capital, so long as any of the principal or interest on this debenture
      remains unpaid and unconverted before issuing or selling any Common Stock or
      Preferred Stock without consideration or for a consideration per share less
      than
      its lowest bid price determined immediately prior to its issuance, or issuing
      or
      selling any Preferred Stock, warrant, option, right, contract, call, or other
      security or instrument granting the holder thereof the right to acquire Common
      Stock without consideration or for a consideration per share less than such
      Common Stock's fair market value determined immediately prior to its issuance,
      or file any registration statement on Form S-8 for more than 10,000,000 shares
      of Common Stock. Additionally, the terms of this debenture provide holder,
      Cornell Capital, with a right of first refusal on capital raises by the Company.
      Specifically, for a period if eighteen (18) months after the Closing Date,
      if
      the Company intends to raise additional capital by the issuance or sale of
      capital stock of the Company, including without limitation shares of any class
      of Common Stock, any class of preferred stock, options, warrants or any other
      securities convertible or exercisable into shares of Common Stock (whether
      the
      offering is conducted by the Company, underwriter, placement agent or any third
      party) the Company shall be obligated to offer to the Holder such issuance
      or
      sale of capital stock, by providing in writing the principal amount of capital
      it intends to raise and outline of the material terms of such capital raise,
      prior to the offering such issuance or sale of capital stock  to any third
      parties including, but not limited to, current or former officers or directors,
      current or former shareholders and/or investors of the obligor, underwriters,
      brokers, agents or other third parties.  The Holder shall have ten (10)
      business days from receipt of such notice of the sale or issuance of capital
      stock to accept or reject all or a portion of such capital raising offer. The
      debenture is secured by a second priority security interest in all of our goods,
      inventory, contractual rights and general intangibles, receivables, documents,
      instruments, and chattel paper. In the event of default, Cornell may cause
      the
      obligation to become immediately due and payable. In addition, upon the
      occurrence of an event of default, Cornell shall: (i) be entitled to
      receive all distributions with respect to the pledged property, (ii) to
      cause the pledged property to be transferred into the name of the secured party
      or its nominee, (iii) to dispose of the pledged property, and (iv) to
      realize upon any and all rights in the pledged property then held by Cornell;
      provided however, that Cornell security interest is second in priority behind
      First Bank Canyon Creek.





The
      Company also issued to Cornell warrants to purchase 1,850,000 and 1,850,000
      shares of common stock at a price equal to $0.50 and $0.70 per share,
      respectively. The warrants expire five years from the date of issuance. Cornell
      may exercise the warrants on a cashless basis if the shares of common stock
      underlying the warrants are not then registered pursuant to an effective
      registration statement. In the event Cornell exercises the warrants on a
      cashless basis, then we will not receive any proceeds. In addition, the exercise
      price of the warrants will be adjusted in the event we issue common stock at
      a
      price below market, with the exception of any securities issued as of the date
      of the warrants or issued in connection with the secured convertible notes
      issued pursuant to the Securities Purchase Agreement. There can be no assurance
      to how many, if any, of these warrants will be exercised. The exercise price
      of
      the warrants may be adjusted in certain circumstances such as if we pay a stock
      dividend, subdivide or combine outstanding shares of common stock into a greater
      or lesser number of shares, or take such other actions as would otherwise result
      in dilution of the selling stockholders' position.





The
      first
      debenture amounting to $550,000 matures on the third anniversary of the date
      of
      issuance and the company is not required to make any payments until the maturity
      Date. The debentures are convertible at any time into shares of common stock
      of
      the company at a conversion price per share equal to the lesser of (i) $0.50,
      or
      (ii) 95% of the lowest daily volume weighted average price of the Common Stock,
      as quoted by Bloomberg, LP, for the 30 trading days immediately preceding the
      date of conversion (“Variable Market Price”). Unless waived by the company, the
      holders may not, together with their affiliates, convert more than an aggregate
      of $150,000 in any 30-day period of principal amount of the debentures at the
      Variable Market Price. The conversion option to convert at an amount equal
      to
      95% of the lowest daily volume weighted average price of the Common Stock,
      as
      quoted by Bloomberg, LP, for the 30 trading days immediately preceding the
      date
      of conversion is deemed to be a financial derivative under SFAS 133 and EITF
      00-19 Specifically, the conversion option was analyzed under paragraph 12 SFAS
      133 and determined to be an embedded derivative that should be separated from
      the host contract and then further evaluated using EITF 00-19 paragraphs 12
      -32
      which required the conversion option to be recorded as liability at fair value.
      Specifically, the variable conversion pricing aspects of the convertible
      debenture as discussed above were analyzed under paragraph 12 SFAS 133 and
      determined to be an embedded derivative that should be separated from the host
      contract since all of the following criteria were met:





·
            The
                economic characteristics and risks of the embedded derivative instrument
                are not clearly and closely related to the economic characteristics
                and
                risks of the host contract.





·
            The
                contract ("the hybrid instrument") that embodies both the embedded
                derivative instrument and the host contract is not re-measured at
                fair
                value under otherwise applicable generally accepted accounting principles
                with changes in fair value reported in earnings as they
                occur.





·
            A
                separate instrument with the same terms as the embedded derivative
                instrument would, pursuant to paragraphs 6-11, be a derivative instrument
                subject to the requirements of this
                Statement.





F-17





The
      embedded derivative was then evaluated using EITF 00-19 paragraphs 12 -32 to
      determine whether the embedded derivative should be classified as a liability
      or
      as equity. We concluded that the conversion option should be recorded as a
      liability at fair value since all of the criteria for recording as equity were
      not met under EITF 00-19 including the ability to have sufficient authorized
      shares to fulfill our potential obligations under the convertible debentures.
      If
      a company could be required to obtain shareholder approval to increase the
      company's authorized shares in order to net-share or physically settle a
      contract, share settlement is not controlled by the company.





The
      Company has the right to redeem a portion or all amounts outstanding under
      the
      Debentures prior to the Maturity Date at a 20% redemption premium provided
      that
      the closing bid price of the Common Stock is less than $0.50. The convertible
      debentures are secured by substantially all the company's assets. On October
      11,
      2007, the Company exercised its right to redeem the June 5, 2006 convertible
      debenture.




In
      addition, on June 5, 2006 the Company issued to Cornell an amended and restated
      convertible debenture, on the same terms and conditions as set forth above
      which
      consolidates all outstanding amounts of the convertible debenture issued by
      Texas Prototypes, Inc. to Cornell on June 15, 2005 in the amount of $550,000,
      plus accrued and unpaid interest in the amount of $27,000 through June 5, 2006,
      for the principal sum of $577,000. The company reviewed EITF 05-07 “Accounting
      for Modifications to Conversion Options Embedded in Debt Instruments and Related
      Issues” and EIFT 96-19 “Debtor's Accounting for a Modification or Exchange of
      Debt Instruments” and deemed that the modifications and amendments were
      substantial and determined that debt extinguishment had occurred as the cash
      flow effect (including the changes in fair value of the embedded conversion
      option) on a present value basis exceeded 10%. The company recorded a gain
      on extinguishment debt of $630,000 in the consolidated statements of operations
      as a result of the modification. On October 11, 2006, the Company exercised
      its
      right to redeem the June 5, 2006 convertible debenture.





On
      October 11, 2006, the Company exercised its right to redeem both debentures
      issued on June 5, 2006. The Company paid Cornell Capital $1,392,000 which was
      calculated by multiplying the principal balance of both debentures by 120%
      plus
      the accrued interest on the debentures. The combined carrying value of both
      debentures amounted to $1,088,000. The company recorded a $304,000 loss in
      the
      consolidated statements of operations on extinguishment of debt related to
      the
      redemption in October of 2006.





F-18





***Cornell
      Capital Registration Rights Agreement***





In
      connection with all of the above secured convertible debentures and warrants
      issued to Cornell Capital, the Company entered into registration rights
      agreements providing for the filing of a registration statement with the
      Securities and Exchange Commission registering the Common Stock issuable upon
      conversion of the Debentures and exercise of the Warrants. The Company is
      obligated to file the Registration Statement no later than 45 days from the
      date
      of closing and to use its best efforts to cause the Registration Statement
      to be
      declared effective no later than 120 days after filing and to insure that the
      registration statement remains in effect until all of the shares of common
      stock
      issuable upon conversion of the Debentures and exercise of the Warrants have
      been sold. In the event of a default of its obligations under the Registration
      Rights Agreements, including its agreement to file the Registration Statement
      with the Securities and Exchange Commission no later than 45 days from the
      date
      of closing, or if the Registration Statement is not declared effective within
      120 days of filing, it is required that we pay to Cornell, as liquidated
      damages, for each month that the registration statement has not been filed
      or
      declared effective, as the case may be, either a cash amount or shares of our
      common stock equal to 2% of the liquidated value of the Debentures. The
      Company obtained a waiver from Cornell Capital waiving any claim or payment
      of
      liquidated damages up through and including May 15, 2007.





***July
      2006 Warrants***





On
      July
      28, 2006, TXP Corporation entered into an Agreement (the "Agreement") with
      James
      Von Ehr, II, an accredited investor (the "Investor"), pursuant to which the
      Company issued to the Investor five-year warrants to purchase an aggregate
      of
      320,000 shares of common stock (the "Warrants") as consideration for the
      Investor agreeing to pledge an aggregate of $2,000,000 in free-trading shares
      of
      common stock of Adobe Systems Incorporated (NASDAQ:ADBE), Fossil Incorporated
      (NASDAQ:FOSL) or such other shares of free-trading common stock having a value
      of $2,000,000 in the aggregate beneficially owned by the Investor as may be
      agreed upon between the parties (the “Collateral”).





The
      Collateral is to be pledged on behalf of the Company in favor of First Bank
      of
      Canyon Creek, or such other lending or financing institution as may be agreed
      upon between the parties (a “Lender”), as Collateral for a loan to be obtained
      by the Company from a Lender in an amount up to $2,000,000 with a term of up
      to
      2 years (the “Term”), which will be further guaranteed personally and through
      the pledge of common stock beneficially owned by the Company's Chief Executive
      Officer.





The
      warrants are exercisable into shares of the Company's common stock at a price
      equal to $0.50 per share. The investor may exercise the warrants on a cashless
      basis at his option. In the event the investor exercises the warrants on a
      cashless basis, then we will not receive any proceeds. The exercise price of
      the
      warrants may be adjusted in certain circumstances such as if we pay a stock
      dividend, subdivide or combine outstanding shares of common stock into a greater
      or lesser number of shares, or take such other actions as would otherwise result
      in dilution of the selling stockholders' position.





In
      addition, the company shall prepare and file with the SEC a separate
      Registration Statement on Form SB-2 covering the resale of all of the Warrant
      Shares with no later than forty-five (45) days from closing. The Company shall
      use its best efforts to have the Registration Statement declared effective
      by
      the SEC as soon as practicable, but in no event later than one hundred twenty
      (120) days after the initial filing. There are no liquidating damages clauses
      related to the warrant or agreement with the investor.





As
      additional consideration of the Investor's agreement to pledge the Collateral
      to
      a Lender, the Company agreed to pay to the Investor a one-time commitment fee,
      during the Term, of $40,000 (the “Commitment Fee”) no later than 90 days after
      the Collateral is deposited into the account of a Lender; provided, however,
      that the Company shall pay an additional Commitment Fee within 90 days after
      the
      renewal of the Loan by a Lender. TXP consummated the loan facility with the
      First Bank of Canyon Creek in early Q3 2006 (See Note 7).





The
      Company accounted for these warrants pursuant to SFAS No. 133, "Accounting
      for
      Derivative Instruments and Hedging Activities", and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in, a
      Company's Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
      are settled in a company's own stock, including common stock warrants, to be
      designated as an equity instrument, asset or a liability. Since the Company
      has
      convertible debenture instruments that do not have limits on the net shares
      that
      potentially would have to be delivered in a net share settlement, the company
      is
      precluded from concluding it has sufficient shares authorized and unissued
      to
      net-share settle the warrants and must fair value the warrants as a liability.
      Accordingly, under the provisions of EITF 00-19, these warrants were designated
      as a liability to be carried at fair value on a company's balance sheet, with
      any changes in fair value recorded in the company's results of
      operations.





***October
      2006 Warrants***





On
      October 12, 2006, the Company entered into an Agreement (the "Agreement") with
      James Von Ehr, II, an accredited investor pursuant to which the Company issued
      to the Investor five-year warrants to purchase an aggregate of 640,000 shares
      of
      common stock (the "Warrants") as consideration for the Investor agreeing to
      pledge an aggregate of $2,000,000 in free-trading shares of common stock of
      Adobe Systems Incorporated (NASDAQ:ADBE), Fossil Incorporated (NASDAQ:FOSL)
      or
      such other shares of free-trading common stock having a value of $2,000,000
      in
      the aggregate beneficially owned by the Investor as may be agreed upon between
      the parties (the “Collateral”).





The
      Collateral is to be pledged on behalf of the Company in favor of First Bank
      of
      Canyon Creek, or such other lending or financing institution as may be agreed
      upon between the parties (a “Lender”), as Collateral for a loan to be obtained
      by the Company from a Lender in an amount up to $2,000,000 with a term of up
      to
      1 year (the “Term”), which will be further guaranteed personally and through the
      pledge of common stock beneficially owned by Michael Shores, the Company's
      Chief
      Executive Officer.




The
      warrants are exercisable into shares of the Company's common stock at a price
      equal to $0.50 per share. The investor may exercise the warrants on a cashless
      basis at his option. In the event the investor exercises the warrants on a
      cashless basis, then we will not receive any proceeds. The exercise price of
      the
      warrants may be adjusted in certain circumstances such as if we pay a stock
      dividend, subdivide or combine outstanding shares of common stock into a greater
      or lesser number of shares, or take such other actions as would otherwise result
      in dilution of the selling stockholders' position.





F-19





In
      addition, the Agreement provides for the filing of a registration statement
      by
      the Company with the Securities and Exchange Commission registering the common
      stock issuable upon exercise of the Warrants and the common stock issued for
      the
      Commitment Fee. The Company is obligated to file the Registration Statement
      no
      later than 65 days from the date of closing and to use its best efforts to
      cause
      the Registration Statement to be declared effective no later than 120 days
      after
      filing and to insure that the Registration Statement remains in effect until
      all
      of the shares of common stock issuable upon exercise of the Warrants have been
      sold. There are no liquidating damages clauses related to the warrant or
      agreement with the investor.





As
      additional consideration of the Investor's agreement to pledge the Collateral
      to
      a Lender, the Company agreed to pay to the Investor a one-time commitment fee
      during the Term of 125,000 shares of the Company's common stock (the “Commitment
      Fee”) no later than 90 days after the Collateral is deposited into the account
      of a Lender; provided, however, that the Company shall pay an additional
      Commitment Fee within 90 days after the renewal of the Loan by a Lender. TXP
      increased its Line of Credit from $1 million to $3 million with the First Bank
      of Canyon Creek in Q4 2006 (See Note 7).





The
      Company accounted for these warrants pursuant to SFAS No. 133, "Accounting
      for
      Derivative Instruments and Hedging Activities", and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in, a
      Company's Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
      are settled in a company's own stock, including common stock warrants, to be
      designated as an equity instrument, asset or a liability. Since the Company
      has
      convertible debenture instruments that do not have limits on the net shares
      that
      potentially would have to be delivered in a net share settlement, the company
      is
      precluded from concluding it has sufficient shares authorized and unissued
      to
      net-share settle the warrants and must fair value the warrants as a liability.
      Accordingly, under the provisions of EITF 00-19, these warrants were designated
      as a liability to be carried at fair value on a company's balance sheet, with
      any changes in fair value recorded in the company's results of
      operations.





***October
      2006 Securities Purchase Agreement***





On
      October 11, 2006, TXP entered into a Securities Purchase Agreement (the
“Purchase Agreement”) with an qualified institutional buyer pursuant to which
      the Company sold an aggregate of $1,500,000 in shares (the “Shares”) of the
      Company's common stock, par value $.001 per share, at a per share purchase
      price
      of $.32, together with five year warrants to purchase 2,343,750 shares of common
      stock at an exercise price equal to $0.50 per share and five year warrants
      to
      purchase 2,343,750 shares of common stock at an exercise price equal to $1.00
      per share (collectively, the “Warrants”). The entire purchase price of the
      Shares and the Warrants was used by the Company to redeem its principal amount
      $550,000 and $577,000 10% secured convertible debentures issued to Cornell
      Capital Partners, L.P. in June 2005 and June 2006, respectively, each at a
      20%
      premium, for a total redemption price of approximately $1,392,000.





The
      exercise prices of the Warrants are subject to adjustment in certain events,
      including, without limitation, upon the Company's consolidation, merger or
      sale
      of all of substantially all of its assets, a reclassification of the Company's
      common stock, or any stock splits, combinations or dividends with respect to
      the
      Company's common stock. In addition, the Company has the option to call all
      or a
      portion of the Warrants so long as (i) the closing bid price of the Company's
      common stock is trading at or above $1.50 for 20 consecutive trading days
      immediately preceding the call date, and (ii) the shares of common stock
      underlying the Warrants are registered under an effective registration statement
      on the call date.





Further,
      the Purchase Agreement provides for the filing of a registration statement
      by
      the Company with the Securities and Exchange Commission registering the Shares
      and the share common stock issuable upon exercise of the Warrants. The Company
      is obligated to file the registration statement no later than December 15,
      2006
      and to use its best efforts to cause the registration statement to be declared
      effective no later than 90 days after filing. If the Company does not meet
      the
      aforementioned filing and effectiveness deadlines, it shall pay to the investor
      an amount equal to 1% of the purchase price for the first 60 days or part
      thereof of the pendency of such non-registration event and 2% for each 30 days
      or part thereof thereafter, of the purchase price of the Shares and the
      Warrants; provided, however, that the aforementioned liquidated damages shall
      only accrue, if at all, for 12 months after the closing date.  The Company
      obtained a waiver from the investor waiving any claim or payment of liquidated
      damages up through and including May 15, 2007.





The
      Company accounted for these warrants pursuant to SFAS No. 133, "Accounting
      for
      Derivative Instruments and Hedging Activities", and EITF 00-19, “Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in, a
      Company's Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
      are settled in a company's own stock, including common stock warrants, to be
      designated as an equity instrument, asset or a liability. Since the Company
      has
      convertible debenture instruments that do not have limits on the net shares
      that
      potentially would have to be delivered in a net share settlement, the company
      is
      precluded from concluding it has sufficient shares authorized and unissued
      to
      net-share settle the warrants and must fair value the warrants as a liability.
      Accordingly, under the provisions of EITF 00-19, these warrants were designated
      as a liability to be carried at fair value on a company's balance sheet, with
      any changes in fair value recorded in the company's results of
      operations.





F-20





***Summary
      of Secured Convertible Debt and Warrants***





Presented
      below is summary of all secured convertible debt and warrants:





Description
            
            Principal
                balance
            
            Unamortized
                discount
            
            
            Fair
                value of derivative instrument
            
            
            Accrued
                interestAugust
                2005 secured convertible debt
            
            $
            890,000
            
            $
            423,000
            
            $
            1,288,000
            
            $
            156,000June
                2006 warrants: 1,850,000 @ $.50
            
            
            --
            
            
            --
            
            
            507,000
            
            
            --June
                2006 warrants: 1,850,000 @ $.70
            
            
            --
            
            
            --
            
            
            480,000
            
            
            --July
                2006 warrants: 320,000 @ $.50
            
            
            --
            
            
            --
            
            
            89,000
            
            
            --October
                2006 warrants: 640,000 @ $.50
            
            
            --
            
            
            --
            
            
            180,000
            
            
            --October
                2006 warrants: 2,343,750 @ $.50
            
            
            --
            
            
            --
            
            
            660,000
            
            
            --October
                2006 warrants: 2,343,750 @ $1.00
            
            
            --
            
            
            --
            
            
            591,000
            
            
            --Total
            
            $
            890,000
            
            $
            423,000
            
            $
            3,795,000
            
            $
            156,000







We
      use
      the Black Scholes Pricing Model to determine fair values of our derivatives.
      Valuations derived from this model are subject to ongoing internal and external
      verification and review. The model uses market-sourced inputs such as interest
      rates, exchange rates and option volatilities. Selection of these inputs
      involves management's judgment and may impact net income. The fair value of
      the
      derivative liabilities are subject to the changes in the trading value of the
      Company's common stock. As a result, TXP's financial statements may fluctuate
      from quarter-to-quarter based on factors, such as the price of the Company's
      stock at the balance sheet date, the amount of shares converted by note holders
      and/or exercised by warrant holders. Consequently, our financial position and
      results of operations may vary from quarter-to-quarter based on conditions
      other
      than our operating revenues and expenses.




The
      fair
      value of derivatives was determined using the Black-Scholes option-pricing
      model
      with the following assumptions:





Expected
                volatility
            
            
            115
            %Expected
                term (years)
            
            
            variousRisk-free
                interest rate
            
            
            4.75
            %Expected
                dividend yield
            
            
            0
            %





Expected
      volatility is based solely on historical volatility of our common stock over
      the
      period commensurate with the expected term of the stock options. We rely solely
      on historical volatility because our traded options do not have sufficient
      trading activity to allow us to incorporate the mean historical implied
      volatility from traded options into our estimate of future volatility. The
      expected term calculation for stock options is based on the “simplified” method
      described in Staff Accounting Bulletin No. 107, Share-Based Payment. The
      risk-free interest rate is based on the U.S. Treasury yield in effect at the
      time of grant for an instrument with a maturity that is commensurate with the
      expected term of the stock options. The dividend yield of zero is based on
      the
      fact that we have never paid cash dividends on our common stock, and we have
      no
      present intention to pay cash dividends.





F-21





**NOTE
      12 - COMMON STOCK**





In
      March
      2005, TXP issued 62,625,643 shares, 892,979 shares and 3,163,718
      shares to TXP's CEO (and a trust established by the CEO), CFO, and one other
      employee, respectively. The shares were issued to reward and provide incentive
      to those existing shareholders management felt deserving. The value of the
      shares issues were approximately $42,000, $1,000, and $2,000, respectively.
      The
      company also issued 291,361 shares to a group of existing shareholders.
      These shares were valued at less than $500. The value of the shares was based
      on
      an independent third party valuation performed as of October 8, 2004 which
      valued the Company at $1,200,000. The valuation involved the application of
      the
      Market Approach, Income Approach, and also considered sales transactions of
      similar companies and valuation of multiples indicated by those
      transactions.





On
      April
      28, 2006, the Company completed a recapitalization transaction which resulted
      in
      new common shares outstanding of 94,295,715, after giving effect of cancellation
      of shares in the transaction and reissuance per the related merger agreement.
      As
      required by accounting guidance, authorized shares, issued and outstanding
      shares and per share amounts have been retroactively restated throughout these
      consolidated financial statements and the accompanying notes.





In
      June
      of 2006, the Company issued an aggregate of 1,700,000 shares of its Common
      Stock
      to Cornell in consideration for the cancellation of the convertible debenture
      issued by the Company dated June 14, 2004 in the amount of $240,000 issued
      in
      connection with the Standby Equity Distribution Agreement dated June 14, 2004
      and the cancellation of the convertible debenture issued by TXP dated August
      25,
      2004 in the amount of $400,000 issued in connection with the Standby Equity
      Distribution Agreement dated August 25, 2004. The combined carrying value of
      the
      debentures amounted to $685,000 which included the fair value of an embedded
      conversion option and accrued interest. The fair market value the stock was
      $850,000 on the date of settlement. The company realized a $165,000 loss on
      early extinguishment of debt as a result of the settlement.





In
      June
      of 2006, the Company issued 923,657 shares of common stock to Cornell Capital
      in
      conversion of $145,000 of convertible debentures. The conversion price was
      equal
      to $0.157 per share in accordance with debenture agreement.





In
      June
      of 2006, the Company amended its articles of incorporation and increased the
      authorized shares from 100,000,000 to 300,000,000.





In
      August
      of 2006, the Company issued a combined 149,000 free-trading shares of common
      stock registered by the Company on a registration statement on Form S-8 to
      all
      of its Employees who were employed as of April 28, 2006 except for the CFO
      and
      CEO.





In
      September of 2006, the Company awarded 1,543,334 options to purchase common
      stock at $.30 to generally all of its employees except of the CEO and CFO.
      The
      options have a term of approximately 3 years with 1/3 vesting each
      year.





In
      October of 2006, the Company awarded 863,995 options to purchase common stock
      at
      $.34 to a group on newly hired employees. The options have a term of
      approximately 3 years with 1/3 vesting each year.





In
      October of 2006, the Company issued 2,324,841 shares of common stock to Cornell
      Capital in conversion of $365,000 of convertible debentures. The conversion
      price was equal to $0.157 per share in accordance with debenture
      agreement.





In
      November of 2006, the Company issued 4,687,500 shares of common stock for
      $1,500,000 to an investor in a private placement pursuant to a securities
      purchased agreement dated October 11, 2006.





**NOTE
      13 - COMMITMENTS**





TXP
      executed a new lease with its landlord in December 2004. The new lease began
      March 15, 2005 and will last for five years. Our lease was amended effective
      November 15, 2006 to include approximately 16,500 additional square feet. The
      incremental monthly lease payment is approximately $7,000 per month for the
      term
      of the lease. The lease required a deposit in the amount of $13,000. The annual
      rent payments increase each year as outlined below:





Year
            
            Amount01/01/07
                - 12/31/07
            
            $
            284,00001/01/08
                - 12/31/08
            
            
            292,00001/01/09
                - 12/31/09
            
            
            298,00001/01/10
                - 12/31/10
            
            
            60,000Total
            
            $
            934,000





Rent
      expense for the years ended December 31, 2006 and 2005 amounted to $198,000
      and
      $172,000, respectively.





F-22


**NOTE
      14 - MAJOR CUSTOMERS**





During
      the year ended December 31, 2006, TXP had sales to five customers which amounted
      to 54% of net sales. AMX Corporation, Siemens Networks GmbH & Co. KG, and
      Flextronics accounted for 18%, 12%, and 11% respectively of net sales in 2006
      while no other customer accounted for more than 10% of net sales for 2006.
      During the year ended December 31, 2005, TXP had sales to five customers which
      amounted to 80% of net sales. Foxconn NSG Technology accounted for approximately
      55% of net sales in 2005 while no other customer accounted for more than 10%
      of
      net sales for 2005.




**NOTE
        15 - INCOME TAXES**
 
 The
        provision for federal income tax consists of the following for the years
        ended
        December 31:
 
 2006
              
              2005Current
                  provision (benefit)
              
              $
              --
              
              $
              --Deferred
                  provision (benefit)
              
              
              --
              
              
              --$
              --
              
              $
              --
  The
        deferred tax asset and liability comprised the following at December
        31:
  2006
              
              2005Deferred
                  tax asset:Net
                  operating loss carry-forward
              
              $
              340,000
              
              $
              113,000Derivative
                  financial instrument
              
              
              405,000
              
              
              --Stock
                compensation
              
              
              44,000
              
              
              --Gross
                  deferred tax asset
              
              
              789,000
              
              
              113,000Valuation
                  Allowance
              
              
              (789,000
              )
              
              (113,000
              )Net
                  deferred tax asset
              
              
              --
              
              
              --Deferred
                  tax liability:Depreciation
              
              
              (48,000
              )
              
              (48,000
              )Gross
                  deferred tax liability
              
              
              (48,000
              )
              
              (48,000
              )Net
                  Deferred tax liability
              
              $
              (48,000
              )
              $
              (48,000
              )
 
 The
        following is a reconciliation of income taxes calculated at the United States
        federal statutory rate to the income tax provision (benefit):
  Years
                  ended December 31,2006
              
              
              2005Provision
                  (benefit) for income taxes at U.S. statutory rate
              
              
              15
              %
              
              
              15
              %Other,
                  net
              
              
              (15
              %)
              
              
              (15
              %)Income
                  tax provision (benefit)
              
              
              0
              %
              
              
              0
              %
 
 TXP
        had a
        taxable of losses of approximately $1,512,000 and $520,000 for the years
        ended
        December 31, 2006 and 2005, respectively.





**NOTE
      16 - STOCK INCENTIVE PLAN**





In
      June
      of 2006, the majority of shareholders approved the "2006 Stock Incentive Plan."
      The plan provides for up to 10,000,000 shares of TXP's common stock to be issued
      in the form of incentive and/or non-qualified common stock for employees,
      directors and consultants to TXP. As of December 31, 2006, 2,407,329 stock
      options and 149,000 shares of common stock have been issued to employees,
      directors or consultants under this plan of which the company recognized $56,000
      and $61,000, respectively, of stock compensation expense in SG&A in the
      statement of operations for year ended December 31, 2006. In Q4 2006, the
      Company agreed to issue a combined 1,404,870 free-trading shares on April 2,
      2007 to certain employees who were hired as of October 2, 2006. The agreement
      between the Company and employees provided that the stock would vest 50% on
      January 1, 2007 with the remaining 50% vesting daily through April 2, 2007
      at
      which time the common stock will be issued to the employees. In our statement
      of
      operations for the year ended December 31, 2006, we recorded $238,000 of
      compensation cost for the expected issuance of these shares based on the closing
      price of our stock on the award date of October 2, 2006.





F-23





**NOTE
      17 - NONMONETARY EXCHANGE TRANSACTION**





In
      December of 2006, TXP completed a reciprocal exchange transaction with Siemens
      Networks GmbH & Co. KG, “Siemens” pursuant to a Transfer and License
      Agreement executed by both TXP and Siemens. TXP received the following as a
      result of the exchange:





·
            Component
                inventory intended for the manufacture of Optical Network Terminals
                (“ONT”);


·
            Fixed
                assets including technical equipment, machinery, tooling used in
                the
                design of ONT products and related operational software;


·
            Computer
                servers, personal computers, and computer peripherals;
                and


·
            Siemens
                granted TXP non-exclusive, non-transferable and non-sub licensable
                right
                and license to use, modify or otherwise deploy documents, data, software
                code related to the ONT business. Siemens granted TXP non-exclusive,
                non-transferable and non-sub licensable right and license under the
                pertinent patents related to the ONT
                business.





TXP
      agreed to complete development releases for certain ONT’s for Siemens in
      exchange for the assets received. The development of those releases required
      substantially all of the time of our 35 employee ONT development group from
      October 2, 2006 through January 31, 2007.





The
      exchange transaction was accounted for as a non-monetary exchange as provided
      for under Statement of Financial Accounting Standards No. 153, “Exchanges of
      Non-monetary Assets”, an amendment of APB Opinion No. 29. Thus,
      the
      cost of the non-monetary assets acquired by TXP in the exchange was recorded
      at
      the fair value of the services provided to obtain it. The fair value of the
      development services was calculated as the four months of personnel costs TXP
      would pay its development team which amounted to approximately $1,329,000.
      Therefore, the assets acquired were recorded at approximately $1,329,000. In
      addition, TXP recognized $997,000 in design and development services revenue
      as
      of December 31, 2006 and expects to recognize the remaining $332,000 in deferred
      revenue as of December 31, 2006 in Q1 2007. TXP
      recognizes design and development services revenue using the
      percentage-of-completion method of accounting, in accordance with SOP 81-1,
      “Accounting for Performance of Construction-Type and Certain Production-Type
      Contracts.” Revenues are recognized primarily based on costs incurred to date
      compared with total estimated contract costs. Generally our design services
      costs consist of engineering labor costs.





**NOTE
      18 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT**





On
      March
      30, 2007, TXP Corporation (the "Company") consummated a Securities Purchase
      Agreement (the "Purchase Agreement") with Cornell Capital Partners L.P.
      ("Cornell") providing for the sale by the Company to Cornell of its 6% secured
      convertible notes in the aggregate principal amount of $5,000,000 (the "Notes").
      Under the Purchase Agreement, the Company also issued to Cornell five-year
      warrants to purchase (i) 1,500,000 shares of common stock at a price equal
      to
      $0.60 per share; (ii) 1,000,000 shares of common stock at a price equal to
      $0.75
      per share; (iii) 750,000 shares of common stock at a price equal to $0.85 per
      share; and 600,000 shares of common stock at a price equal to $1.00 per share
      (collectively, the "Warrants").





The
      Notes
      mature on the third anniversary of the date of issuance (the "Maturity Date")
      and bear interest at a rate equal to 6% per annum. Beginning 12 months after
      the
      date of issuance, the Company shall make monthly payments of interest, and
      beginning 18 months after the date of issuance, the Company shall make monthly
      payments of interest plus principal payments in the amount of $100,000; provided
      however, that Cornell has the option to deliver a written notice to the Company
      within 2 days prior to the scheduled payment date electing to have all or any
      portion of scheduled payment deferred to the Maturity Date. Any amount deferred
      to the Maturity Date shall continue to accrue interest through the Maturity
      Date.





In
      addition, the Notes are convertible at any time into shares of common stock
      of
      the Company at a conversion price per share equal to $0.41 (the “Conversion
      Price”); provided however, that in the event that the Company has not raised at
      least $1,000,000 in additional equity capital between the closing date and
      the
      date that is 120 days after the closing date, the Conversion Price shall
      automatically become $0.25 per share. The Company has the right to redeem a
      portion or all amounts outstanding under the Notes prior to the Maturity Date
      at
      a 20% redemption premium provided that the closing bid price of the common
      stock
      is less than the Conversion Price, the Registration Statement (as defined below)
      is effective, and no event of default has occurred or is continuing. The
      Company's obligations under the Purchase Agreement and the Notes are secured
      by
      substantially all of the Company's assets; provided however, such security
      interest is second in priority to certain liens granted by the Company in favor
      of First Bank of Canyon Creek.


In
      connection with the Purchase Agreement, the Company also entered into
      registration rights agreements (the “Registration Rights Agreements”) providing
      for the filing of a registration statement (the “Registration Statement”) with
      the Securities and Exchange Commission registering 100% of the shares of common
      stock issuable upon conversion of the Notes and exercise of the Warrants within
      30 days of receipt of written demand of Cornell. The Company is obligated to
      use
      its best efforts to cause the Registration Statement to be declared effective
      no
      later than 90 days after filing and to insure that the registration statement
      remains in effect until all of the shares of common stock issuable upon
      conversion of the Notes and exercise of the Warrants have been sold. In the
      event of a default of its obligations under the Registration Rights Agreements,
      including its agreement to file the Registration Statement with the Securities
      and Exchange Commission no later than 30 days from receipt of a written demand
      from Cornell, or if the Registration Statement is not declared effective within
      90 days of filing, it is required pay to Cornell, as liquidated damages (
“Liquidated Damages”), for each month that the registration statement has not
      been filed or declared effective, as the case may be, a cash amount equal to
      2%
      of the liquidated value of the Notes. Notwithstanding the foregoing, the Company
      shall not be liable for Liquidated Damages with respect to any Warrants or
      Warrant Shares and the maximum aggregate Liquidated Damages payable to Cornell
      by the Company, if any, shall be 15% of the aggregate purchase price paid by
      Cornell pursuant to the Purchase Agreement.





The
      Company claims an exemption from the registration requirements of the Act for
      the private placement of these securities pursuant to Section 4(2) of the Act
      and/or Regulation D promulgated thereunder since, among other things, the
      transaction did not involve a public offering, Cornell is an accredited
      investors and/or qualified institutional buyers, Cornell had access to
      information about the Company and their investment, Cornell took the securities
      for investment and not resale, and the Company took appropriate measures to
      restrict the transfer of the securities.





F-24





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





On
      January 3, 2006, LBB & Associates, Ltd., LLP (f/k/a Lopez, Blevins, Bork and
      Associates, LLP) (the "Former Accountant") was terminated by us as the auditors
      for our company. On January 3, 2006, we engaged Payne, Falkner, Smith and Jones,
      P.C. (the "New Accountant"), as our independent registered public accountant.
      Our decision to engage the New Accountant was approved by our Board of Directors
      on January 3, 2006.





The
      reports of the Former Accountant on our financial statements for the fiscal
      years ending December 31, 2004 and 2003, did not contain an adverse opinion
      or
      disclaimer of opinion and was not qualified or modified as to uncertainty,
      audit
      scope or accounting principles.





During
      our fiscal years ending December 31, 2004 and 2003 and the subsequent interim
      period through the date of termination, there were no reportable events as
      the
      term described in Item 304(a)(1)(iv) of Regulation S-B.





During
      our fiscal years ending December 31, 2004 and 2003 and the subsequent interim
      period through the date of termination, there were no disagreements with the
      Former Accountant on any matters of accounting principles or practices,
      financial statement disclosure or auditing scope or procedure, which, if not
      resolved to the satisfaction of the Former Accountant, would have caused it
      to
      make reference to the subject matter of the disagreements in connection with
      its
      reports on these financial statements for those periods.





We
      did
      not consult with the New Accountant regarding the application of accounting
      principles to a specific transaction, either completed or proposed, or the
      type
      of audit opinion that might be rendered on our financial statements, and no
      written or oral advice was provided by the New Accountant that was a factor
      considered by us in reaching a decision as to the accounting, auditing or
      financial reporting issues.




On
      May
      22, 2006, Salberg & Company, P.A., the independent registered public
      accounting firm of Stock Market Solutions, Inc. prior to the merger transaction
      with Texas Prototypes, Inc. (the "Former Accountant") was terminated by us
      as
      the auditors upon the completion of the Stock Market Solutions, Inc. filing
      of
      the March 31, 2006 Form 10-QSB on May 22, 2006. On April 28, 2006, Payne,
      Falkner, Smith and Jones, P.C. (the "New Accountant") was engaged as our
      independent registered public accountant for our surviving company. Our decision
      to engage the New Accountant was approved by our Board of Directors on April
      28,
      2006.





The
      reports of the Former Accountant on the financial statements for Stock Market
      Solutions for the fiscal years ending December 31, 2005 and 2004, did not
      contain an adverse opinion or disclaimer of opinion and was not qualified or
      modified as to uncertainty, audit scope or accounting principles except that
      that there was an explanatory paragraph describing conditions regarding Stock
      Market Solutions, Inc ability to continue as a going concern.





During
      the fiscal years of Stock Market Solutions ending December 31, 2005 and 2004
      and
      the subsequent interim period through the date of termination, there were no
      reportable events as the term described in Item 304(a)(1)(iv) of Regulation
      S-B.





During
      the fiscal years of Stock Market Solutions ending December 31, 2005 and 2004
      and
      the subsequent interim period through the date of termination, there were no
      disagreements with the Former Accountant on any matters of accounting principles
      or practices, financial statement disclosure or auditing scope or procedure,
      which, if not resolved to the satisfaction of the Former Accountant, would
      have
      caused it to make reference to the subject matter of the disagreements in
      connection with its reports on these financial statements for those
      periods.





We
      did
      not consult with the New Accountant regarding the application of accounting
      principles to a specific transaction, both completed or proposed, or the type
      of
      audit opinion that might be rendered on our financial statements, and no written
      or oral advice was provided by the New Accountant that was a factor considered
      by us in reaching a decision as to the accounting, auditing or financial
      reporting issues.





**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES.**





(a)
      Evaluation of Disclosure Controls and Procedures. Based on an evaluation of
      our
      disclosure controls and procedures (as defined in Rules 13a-15(e) and
      15d-15(e) of the Securities Exchange Act of 1934, as amended) required by
      paragraph (b) of Rule 13a-15 or Rule 15d-15, as of December 31,
      2006, our Chief Executive Officer and Chief Financial Officer has concluded
      that
      our disclosure controls and procedures were effective in ensuring that
      information required to be disclosed by us in the reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in the Commission’s rules and forms. Our Chief
      Executive Officer and Chief Financial Officer also concluded that, as of
      December 31, 2006, our disclosure controls and procedures were effective in
      ensuring that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is accumulated and communicated to our
      management, including our Chief Executive Officer and Chief Financial Officer,
      to allow timely decisions regarding required disclosure.




32





(b)
      Changes in Internal Controls. During the year ended December 31, 2006, there
      were no changes in our internal control over financial reporting identified
      in
      connection with the evaluation required by paragraph (d) of Rule 13a-15 or
      Rule
      15d-15 that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





**ITEM
      8B.**  **OTHER
      INFORMATION.**





None.





**PART
      III**




**ITEM
      9.**  **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.**





The
      following table sets forth information regarding our executive officers, senior
      managers and directors as of December 31, 2006:





Name
            
            Age
            
            PositionsMichael
                Shores
            
            40
            
            President,
                Chief Executive Officer and Chairman of the Board of
                DirectorsRobert
                Bruce
            
            40
            
            Chief
                Financial Officer and DirectorEric
                Miscoll
            
            44
            
            Vice
                PresidentTheodore
                Dubbs
            
            45
            
            Director




Directors
      serve until the next annual meeting and until their successors are elected
      and
      qualified. Officers are appointed to serve for one year until the meeting of
      the
      board of directors following the annual meeting of stockholders and until their
      successors have been elected and qualified. There are no family relationships
      between any of our directors or officers.





The
      principal occupations for the past five years (and, in some instances, for
      prior
      years) of each of our executive officers and directors are as
      follows:





**Michael
      C. Shores** ,
      age 40,
      is President, Chief Executive Officer and Chairman of the Board of Directors.
      Mr. Shores is the President and Chief Executive Officer of TXP and its sole
      director and has been serving in those capacities since TXP was established
      in
      March 2002. Prior to launching TXP, Mr. Shores worked at Flextronics
      International, Ltd., a provider of electronics manufacturing services to
      original equipment manufacturers, from 1997 through 2002 in a variety of
      capacities, most recently as Business Development Manager helping launch
      Flextronics Photonics division. Mr. Shores also worked as an Account Manager
      for
      the Flextronics Design Center in their New Product Introduction Center area.
      Mr.
      Shores is a member of the Optics & Photonics Steering Committee and the
      International Society for Optical Engineering, Advisory Board Member of the
      Korean Photonics Technology Institute, the Richardson Technology Business
      Council and the Metroplex Business Council.





**Robert
      Bruce** ,
      age 40,
      is Chief Financial Officer and Director. Mr. Bruce is the CFO of TXP, a position
      that he has held since April of 2005. Prior to joining TXP, Mr. Bruce was
      Director of Finance and Controller for the viaLink Company for five years
      (OTCBB: PPID (after merger)). Prior to that he was Controller for Fujitsu ICL
      from August 1998 through December 1999 and Internal Audit Supervisor at Quaker
      State Corporation from May 1997 through August 1998. Mr. Bruce has a diversified
      financial management experience in the technology industry with both Fortune
      1000 and Public Accounting Firms. He is a Certified Public Accountant and
      Certified Information Systems Auditor. He began his career in public accounting
      at the public accounting firms of Fisk and Robinson P.C. and Payne, Falkner,
      Smith and Jones. He was an audit Manager with Payne, Falkner, Smith and Jones
      prior to joining Quaker State Corporation in 1997. He has a B.A in Mathematics
      and Economics and a Masters of Science in Accounting from the University of
      Texas at Dallas.





**Eric
      Miscoll** ,
      age 44
      is Vice President and Director. Mr. Miscoll is the Vice President of TXP, a
      position that he has held since June of 2006. Mr. Miscoll has a comprehensive
      understanding of outsourced electronics manufacturing based on 8 years of
      experience with the industry. From 2000 to 2006, Mr. Miscoll was Chief Operating
      Officer of Technology Forecasters, Inc. a strategic consulting firm focused
      solely on the outsourced electronics manufacturing industry. Previous experience
      includes operations management with Bank of America from 1983 to 1987,
      organizational development with NASA from 1994 to 1996, and psychological
      services with the U.S. Department of Justice from 1990 to 1993. He received
      a
      B.A. in English from St. Mary's College in 1983, an MA in Counseling Psychology
      from Santa Clara University in 1990, and a PhD in Organizational Psychology
      from
      the California School of Professional Psychology in 1997.







**Theodore
      Dubbs** ,
      age 45,
      was appointed by our Board of Directors on December 19, 2006 as a director.
      There are no understandings or arrangements between Mr. Dubbs and any other
      person pursuant to which Mr. Dubbs was selected as a director of our company.
      Mr. Dubbs does not have any family relationship with any director, executive
      officer or person nominated or chosen by us to become a director or executive
      officer. Since 1997 Mr. Dubbs has served at Foxconn Electronics, Inc. as Vice
      President of Business Development and as Vice President of Sales driving
      Foxconn's business penetration in the communications and networking sectors.
      Mr.
      Dubbs led the strategic effort to bring up several new businesses in Foxconn
      such as Networking Enclosure Technology Business Unit, Backplane Products Group,
      Optical Integration Business Unit and the Network Communications Systems
      Business Group related to design, manufacturing, and fulfillment of customer
      products. Prior to 1997, Mr. Dubbs also held senior positions, including
      regional management, marketing management, and product management roles with
      companies such as Tyco Electronics, ITT Corporation, and FCI.




33




**Board
      of Directors Committees**





We
      do not
      currently have a standing audit, nominating or compensation committee of the
      Board of Directors, or any committee performing similar functions. Our Chairman
      of the Board, Michael Shores, and our remaining directors, Robert Bruce, Eric
      Miscoll and Theodore Dubbs, perform the functions of audit, nominating and
      compensation committees. Messrs. Shores, Bruce, Miscoll and Dubbs also
      participate in the consideration of Director nominees. Since the Board of
      Directors currently consists of three members, it does not believe that
      establishing a separate nominating committee is necessary for effective
      governance. When additional members of the Board of Directors are appointed
      or
      elected, we will consider creating a nominating committee. Our current Directors
      are not considered independent directors as defined by any national securities
      exchange registered pursuant to Section 6(a) of the Securities Exchange Act
      of
      1934 or by any national securities association registered pursuant to Section
      15A(a) of the Securities Exchange Act of 1934.




**COMPLIANCE
      WITH SECTION 16(a) OF THE EXCHANGE ACT**




During
      the year ended December 31, 2006, there were no directors, officers or
      beneficial owners of more than 10 percent of any class of our equity securities
      registered pursuant to Section 12 of the Exchange Act that failed to file on
      a
      timely basis, reports required by Section 16(a) of the Exchange Act during
      the
      year ended December 31, 2006. The aforementioned is based solely upon a review
      of Form 3, Form 4 and Form 5 filings furnished to us during the year ended
      December 31, 2006, certain written representations and shareholders who, to
      the
      best of our knowledge, hold 10 percent or more of our shares.





**Indebtedness
      of Executive Officers and Directors**





No
      executive officer, director or any member of these individuals' immediate
      families or any corporation or organization with whom any of these individuals
      is an affiliate is or has been indebted to us since the beginning of our last
      fiscal year.





**Family
      Relationships**





There
      are
      no family relationships among our executive officers and directors.





**Legal
      Proceedings**





As
      of the
      date of this 10-KSB, there are no material proceedings to which any of our
      directors, executive officers, affiliates or stockholders is a party adverse
      to
      us.





**Code
      of Ethics**





We
      have
      not adopted a Code of Ethics within the meaning of Item 406(b) of Regulation
      S-B
      of the Securities Exchange Act of 1934. We intend on adopting a Code of Ethics
      which applies to our chief executive officer and our senior financial officers
      in the near future.





34





**ITEM
      10.**  **EXECUTIVE
      COMPENSATION.**




The
      following table sets forth information concerning the total compensation that
      TXP has paid or that has accrued on behalf of TXP's chief executive officer
      and
      other executive officers with annual compensation exceeding $100,000 during
      the
      years ended December 31, 2006 and 2005.





**Summary
      Compensation Table**




Name
                & Principal Position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Stock
                Awards($)
            
            Option
                Awards ($)
            
            Non-Equity
                Incentive Plan Compensation ($)
            
            Change
                in Pension Value and Non-Qualified Deferred Compensation Earnings
                ($)
            
            All
                Other Compensation ($)
            
            Total
                ($)Michael
                Shores
              President,
                CEO and Director (1)
            
            
            2006
            
            
            168,332
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            168,3322005
            
            
            134,344
            
            
            
            
            (1)
            42,000
            
            
            -
            
            
            -
            
            
            -
            
            (3)
            7,287
            
            
            176,400Richard
                Smitten (7)
              President,
                CEO and Director
            
            
            2006
            
            
            42,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            42,0002005
            
            
            279,500
            
            
            150,000
            
            
            20,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            449,500Robert
                Bruce
              CFO
                and  Director (4)
            
            
            2006
            
            
            146,096
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            146,0962005
            
            (5)
            92,898
            
            
            
            
            (2)
            600
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            93,498Eric
                Miscoll
              Vice
                President and Director
            
            
            2006
            
            (6)
            57,115
            
            
            -
            
            
            -
            
            
            34,400
            
            
            -
            
            
            -
            
            
            -
            
            
            91,5152005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -


(1) On
        March 31, 2005, TXP issued Michael Shores, CEO and President of TXP, and
        Michael
        Shores Trust 49,613,601 and 13,012,042 of the Company's common stock,
        respectively. TXP recorded stock compensation expense of $33,000 and $9,000,
        respectively.





(2)
      On
      March 31, 2005, TXP issued Robert Bruce, CFO of TXP, 892,979 of TXP's common
      stock. TXP recorded stock compensation expense of $600.





(3)
      The
      CEO was provided a company car for business use. As of Q4 2005, TXP terminated
      this arrangement.





(4)
      In
      2005, prior to becoming CFO, Robert Bruce was paid $3,067 in contract consulting
      fees. TXP issued Mr. Bruce a 1099 at the end of year for these fees.





(5)  Robert
      Bruce was hired full-time as TXP's CFO in April 2005 with an annual salary
      of
      $123,000.





(6)
      Eric
      Miscoll was hired full-time as TXP's Vice President in June 2006 with an annual
      salary of $110,000. Mr. Miscoll was issued 133,334 stock options on September
      5,
      2006. **See
      NOTE 4 - STOCK BASED COMPENSATION in the audited financial statements contained
      herein for a discussion of the assumptions related to the determination of
      the
      fair value of the stock options** .
      The
      stock options were awarded prior to Mr. Miscoll being appointed to the TXP
      Board
      of Directors on September 27, 2006 and becoming an executive
      officer.




(7)
       Richard Smitten resigned from his positions as President, CEO, and
      Director on July 18, 2006.




35




**Outstanding
      Equity Awards at Fiscal Year-End Table**




The
      following table sets forth information with respect to grants of options to
      purchase our common stock under our 2006 Stock Incentive Plan to the named
      executive officers during the fiscal year ended December 31, 2006.




Option
                Awards
            
            Stock
                AwardsName
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Securities
                Underlying
              Unexercised
              Unearned
              Options
              (#)
            
            Option
              Exercise
              Price
              ($)
            
            Option
              Expiration
              Date
            
            Number
              of
                Shares
              or
                Units
              of
                Stock
              That
                Have
              Not
              Vested
              (#)
            
            Market
              Value
                of
              Shares
                or
              Units
                of
              Stock
              That
                Have
              Not
              Vested
              ($)
            
            Equity
              Incentive
              Plan
                Awards:
              Number
              of
              Unearned
              Shares,
              Units
                or
              Other
                Rights
              That
                Have
              Not
              Vested
              (#)
            
            Equity
                Incentive
              Plan
                Awards:
              Market
                or Payout
              Value
              of
              Unearned
              Shares,
              Units
                or
              Other
              Rights
              That
                Have
              Not
              Vested
              ($)Eric
                Miscoll
              Vice
                President and Director
            
            
            -
            
            
            133,334
            
            
            -
            
            
            0.30
            
            
            09/05/2016
            
            
            -
            
            
            -
            
            
            -
            
            
            -





**Director
      Compensation**





The
      following table sets forth with respect to the named director, compensation
      information inclusive of equity awards and payments made in the year end
      December 31, 2006.





Name
              (a)
            
            Fees
                Earned or Paid in Cash
              ($)
              (b)
            
            Stock
                Awards
              ($)
              (c)
            
            Option
              Awards
                ($)
              (d)
            
            Non-Equity
                Incentive Plan Compensation ($)
              (e)
            
            Change
                in Pension Value and Nonqualified Deferred Compensation
                Earnings
              (f)
            
            All
                Other Compensation
              ($)
              (g)
            
            Total
              ($)
              (h)-
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





None
      of
      the directors receive director compensation for serving on the TXP
      board.





**Stock
      Option Plan**





On
      June
      8, 2006, the majority of our stockholders approved the 2006 Stock Incentive
      Plan. The following description of the 2006 Stock Incentive Plan is only a
      summary of the important provisions of the 2006 Stock Incentive Plan and does
      not contain all of the terms and conditions of the 2006 Stock Incentive
      Plan.




The
      2006
      Incentive Stock Plan has initially reserved 10,000,000 shares of common stock
      for issuance. In addition, under the 2006 Incentive Stock Plan, options may
      be
      granted which are intended to qualify as Incentive Stock Options under Section
      422 of the Internal Revenue Code of 1986 or which are not intended to qualify
      as
      incentive stock options thereunder. In addition, direct grants of stock or
      restricted stock may be awarded.




The
      primary purpose of the 2006 Incentive Stock Plan is to attract and retain the
      best available personnel in order to promote the success of our business and
      to
      facilitate the ownership of our stock by employees and others who provide
      services to us. The 2006 Incentive Stock Plan is administered by our Board
      of
      Directors, as the Board of Directors, who may at any time, appoint a committee
      of at least two members of the Board of Directors, and delegate to the committee
      the authority of the Board of Directors to administer the 2006 Incentive Stock
      Plan.




Under
      the
      2006 Stock Incentive Plan, options or common stock may be granted to key
      employees, officers, directors or consultants of our company. The purchase
      price
      of the common stock subject to each incentive stock option shall not be less
      than the fair market value (as set forth in the 2006 Incentive Stock Plan),
      or
      in the case of the grant of a non-statutory stock option, which may be granted
      at less than the fair market value. The dates on which each option (or portion
      thereof) shall be exercisable and the conditions precedent to such exercise,
      if
      any, shall be fixed by the Board of Directors, in its discretion, at the time
      such option is granted. All options or grants, which include a vesting schedule,
      will vest in their entirety upon a change of control transaction as described
      in
      the 2006 Incentive Stock Plan. The Board of Directors, in its discretion, shall
      fix the expiration of each option, at the time such option is granted. Each
      option shall be subject to earlier termination or repurchase as expressly
      provided in the 2006 Incentive Stock Plan or as determined by the Board of
      Directors, in its discretion, at the time such option is granted. The 2006
      Incentive Stock Plan may at any time be terminated and from time to time be
      modified or amended by a majority vote of the Board of Directors.




36




**Employment
      Agreements**





We
      have
      not entered into any employment agreements with any of its current Executive
      Officers or Directors.





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**




The
      following table indicates beneficial ownership of our common stock as of March
      26, 2007 by:




·
            Each
                person or entity known by us to beneficially own more than 5% of
                the
                outstanding shares of our common
                stock;




·
            Each
                of our executive officers and directors;
                and




·
            All
                of our executive officers and directors as a
                group.




Except
      as
      otherwise indicated, the persons named in the table have sole voting and
      investment power with respect to all shares beneficially owned, subject to
      community property laws, where applicable. A person is deemed to be the
      beneficial owner of securities that can be acquired by him within 60 days from
      March 26, 2007 upon the exercise of options, warrants or convertible securities.
      Each beneficial owner's percentage ownership is determined by assuming that
      options, warrants or convertible securities that are held by him, but not those
      held by any other person, and which are exercisable within 60 days of March
      26,
      2007 have been exercised and converted.





Unless
      other indicated, the address of each beneficial owner listed below is c/o TXP
      Corporation 1299 Commerce Drive, Richardson, TX 75081.





Name
                of Beneficial Owner
            
            Number
                of Shares
            
            Percentage
                of Shares Beneficially Owned (1)Executive
                officers and directors:Michael
                Shores (2)
            
            
            80,583,533
            
            
            77.4
            %Eric
                Miscoll
            
            
            -
            
            
            0
            %Robert
                Bruce
            
            
            892,978
            
            
            0.85
            %Theodore
                Dubbs
            
            
            --
            
            
            0
            %Richard
                Smitten (3)
            
            
            1,100,000
            
            
            1.05
            %Cornell
                Capital Partners, L.P. (4)
            
            
            10,397,654
            
            
            9.99
            %All
                Directors and Executive Officers as a group (4 persons)
            
            
            81,476,511
            
            
            79.30
            %




(1)
            Applicable
                percentage ownership as of March 26, 2007 is based upon 104,080,623
                shares
                of common stock outstanding. Beneficial ownership is determined in
                accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
                as
                amended. Under Rule 13d-3, shares issuable within 60 days upon exercise
                of
                outstanding options, warrants, rights or conversion privileges are
                deemed
                outstanding for the purpose of calculating the number and percentage
                owned
                by the holder of such purchase rights, but not deemed outstanding
                for the
                purpose of calculating the percentage owned by any other person.
                "Beneficial ownership" under Rule 13d-3 includes all shares over
                which a
                person has sole or shared dispositive or voting
                power.





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





(2)
            Includes
                (i) 62,723,924 shares of common stock beneficially owned by Mr. Shores
                directly, and (ii) 17,859,609 shares of common stock beneficially
                owned by
                Mr. Shores indirectly through the Michael Shores
                Trust.




(3)
            Richard
                Smitten resigned from his positions as President, CEO, and Director
                on
                July 18, 2006.




(4)
            On
                January 3, 2007, Cornell Capital Partners delivered advanced notice
                to us
                to waive the 4.99% limitation contained in Section 1.01 of the secured
                convertible, effective March 5, 2007. All investment decisions of,
                and
                control of, Cornell Capital Partners are held by its general partner,
                Yorkville Advisors, LLC. Mark Angelo, the managing member of Yorkville
                Advisors, makes the investment decisions on behalf of and controls
                Yorkville Advisors.




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





In
      Q2
      2006, the majority shareholder and Chief Executive Officer of the Company,
      Michael Shores, loaned the company $150,000. The unsecured loan has a one-year
      term and bears interest at 10%. The loan principal and interest are due at
      maturity. The Company repaid $37,500 of principal in Q3 2006. The balance on
      the
      note at December 31, 2006 was $112,500.




37




The
      majority shareholder and Chief Executive Officer of the Company, Michael Shores,
      has provided his personal guarantee on all of the Company's notes payables,
      line
      of credit, and capital leases.





In
      Q3
      2006, we entered into an Asset Purchase Agreement with Mr. Richard Smitten,
      the
      former Chief Executive Officer and sole director of our predecessor corporation,
      Stock Market Solutions, Inc., pursuant to which we sold the assets of our
      predecessor business, including the business and related software, as well
      as
      the book-rights to three Livermore related books relating to a teaching and
      a
      computer training program designed to provide educational/instructional
      assistance and aid to those stock market traders who wish to learn how to trade
      in the stock market using a system previously developed by an early
      20 th century
      stock market trader, Jesse Livermore. In consideration for the sale of the
      assets, Mr. Smitten agreed to forgive the repayment of a certain debt related
      to
      accrued compensation that we owed to Mr. Smitten in the aggregate amount of
      $329,272, of which $179,272 was forgiven by Mr. Smitten pursuant to that certain
      Agreement and Plan of Merger dated as of June 15, 2005 and $150,000 was forgiven
      by Mr. Smitten pursuant to the Agreement.





On
      November 15, 2006, we entered into an Asset Purchase Agreement with G3 Global
      Investments, Inc., a Texas corporation, pursuant to which we purchased all
      of
      the SMT line production assets of G3. G3 is 100% owned and controlled by Mr.
      Michael C. Shores, our Chief Executive Officer. Prior to entering into the
      Agreement, we leased the assets from G3 for a monthly price of $15,000 under
      a
      certain Equipment Lease (the “Lease”) dated as of May 1, 2005 by and between G3
      and Texas Prototypes, Inc., a wholly owned subsidiary of our company. The Lease
      terminates on April 30, 2007. We assumed the Lease from its wholly owned
      subsidiary in April 2006. In consideration for the sale of the assets, we paid
      a
      purchase price of $300,000 to G3. In addition, G3 and TXP agreed to terminate
      the Lease pursuant to the terms of the Agreement. Prior to the termination
      of
      the lease, TXP paid $157,500 and $180,000 in 2006 and 2005, respectively to
      G3 in accordance with the terms of the lease.





We
      believe that all these transactions were entered into on terms as favorable
      as
      could have been obtained from unrelated third parties because, based upon its
      experience in the industry, we believe we would have had to pay independent
      third parties more for comparable assets or services.





Other
      than the above transactions, we have not entered into any material transactions
      with any director, executive officer, and nominee for director, beneficial
      owner
      of five percent or more of our common stock, or family members of such persons.
      Also, other than the above transactions, we have not had any transactions with
      any promoter.





**ITEM
      13.**  **EXHIBITS.**





Exhibit
            
            Description2.1
            
            Agreement
                and Plan of Merger made as of June 13, 2005 (incorporated by reference
                to
                Form 8-K filed with the Securities and Exchange Commission on June
                21,
                2005).3.1
            
            Articles
                of Incorporation of Cyber Energy, Inc. (incorporated by reference
                to Form
                10-SB filed with the Securities and Exchange Commission on April
                22,
                2002).3.2
            
            Bylaws
                of Stock Market Solutions, Inc. (incorporated by reference to Form
                10-SB
                filed with the Securities and Exchange Commission on April 22,
                2002).3.3
            
            Certificate
                of Amendment to the Articles of Incorporation of Cyber Energy, Inc.
                (incorporated by reference to Form 10-SB filed with the Securities
                and
                Exchange Commission on April 22, 2002).3.4
            
            Certificate
                of Amendment to the Articles of Incorporation of JesseLivermore.com
                Inc.
                (incorporated by reference to Form 10-SB filed with the Securities
                and
                Exchange Commission on April 22, 2002).3.5
            
            Certificate
                of Amendment to the Articles of Incorporation of Stock Market Solutions,
                Inc.*10.1
            
            Form
                of Convertible Debenture issued to Cornell Capital Partners, L.P.
                dated as
                of June 5, 2006 (incorporated by reference to Form 8-K filed with
                the
                Securities and Exchange Commission on June 9, 2005).10.2
            
            Form
                of $0.50 Warrant issued to Cornell Capital Partners, L.P. dated as
                of June
                5, 2006 (incorporated by reference to Form 8-K filed with the Securities
                and Exchange Commission on June 9, 2005).10.3
            
            Form
                of $0.70 Warrant issued to Cornell Capital Partners, L.P. dated as
                of June
                5, 2006 (incorporated by reference to Form 8-K filed with the Securities
                and Exchange Commission on June 9, 2005).10.4
            
            Securities
                Purchase Agreement dated as of June 5, 2006 between the Company and
                Cornell Capital Partners, L.P. (incorporated by reference to Form
                8-K
                filed with the Securities and Exchange Commission on June 9,
                2005).10.5
            
            Investor
                Registration Rights Agreement dated as of June 5, 2006 between the
                Company
                and Cornell Capital Partners, L.P. (incorporated by reference to
                Form 8-K
                filed with the Securities and Exchange Commission on June 9,
                2005).




38




10.6
            
            Security
                Agreement dated as of June 5, 2006 between the Company and Cornell
                Capital
                Partners, L.P. (incorporated by reference to Form 8-K filed with
                the
                Securities and Exchange Commission on June 9, 2005).10.7
            
            Amended
                and Restated Security Agreement dated as of June 5, 2006 between
                Texas
                Prototypes, Inc. and Cornell Capital Partners, L.P. (incorporated
                by
                reference to Form 8-K filed with the Securities and Exchange Commission
                on
                June 9, 2005).10.8
            
            2006
                Stock Incentive Plan (incorporated by reference to Schedule 14C filed
                with
                the Securities and Exchange Commission on June 12,
                2006).10.9
            
            Agreement
                dated as of July 28, 2006 by and between TXP Corporation and James
                Von
                Ehr, II (incorporated by reference to Form 8-K filed with the Securities
                and Exchange Commission on August 2, 2006).10.10
            
            Warrant
                issued to James Von Ehr, II dated as of July 28, 2006 (incorporated
                by reference to Form 8-K filed with the Securities and Exchange Commission
                on August 2, 2006).10.11
            
            Asset
                Purchase Agreement dated as of July 28, 2006 by and between TXP
                Corporation and Richard Smitten (incorporated by reference to Form
                8-K
                filed with the Securities and Exchange Commission on August 2,
                2006).10.12
            
            Loan
                Agreement dated as of August 3, 2006 by and between TXP Corporation
                and
                First Bank of Canyon Creek (incorporated by reference to Form 8-K
                filed
                with the Securities and Exchange Commission on August 15,
                2006).




10.13
            
            Securities
                Purchase Agreement dated as of October 11, 2006 by and between TXP
                Corporation and Kuekenhof Equity Fund, L.P. (incorporated by reference
                to
                Form 8-K filed with the Securities and Exchange Commission on October
                17,
                2006)10.14
            
            $0.50
                Warrant issued to Kuekenhof Equity Fund, L.P. dated as of October
                11, 2006
                (incorporated by reference to Form 8-K filed with the Securities
                and
                Exchange Commission on October 17, 2006).10.15
            
            $1.00
                Warrant issued to Kuekenhof Equity Fund, L.P. dated as of October
                11, 2006
                (incorporated by reference to Form 8-K filed with the Securities
                and
                Exchange Commission on October 17, 2006).10.16
            
            Agreement
                dated as of October 12, 2006 by and between TXP Corporation and James
                Von
                Ehr, II (incorporated by reference to Form 8-K filed with the Securities
                and Exchange Commission on October 17, 2006).10.17
            
            Warrant
                issued to James Von Ehr, II dated as of October 12, 2006 (incorporated
                by
                reference to Form 8-K filed with the Securities and Exchange Commission
                on
                October 17, 2006).10.18
            
            Asset
                Purchase Agreement dated as of November 22, 2006 by and between TXP
                Corporation and G3 Global Investments, Inc. (incorporated by reference
                to
                Form 8-K filed with the Securities and Exchange Commission on November
                22,
                2006).10.19
            
            Promissory
                Note dated as of November 15, 2006 by and between TXP Corporation
                and
                First Bank of Canyon Creek (incorporated by reference to Form 8-K
                filed
                with the Securities and Exchange Commission on November 22,
                2006).10.20
            
            Equipment
                Lease dated May 1, 2005 by and between Texas Prototypes, Inc and
                G3 Global
                Investments, Inc. (incorporated by reference to Form 8-K filed with
                the
                Securities and Exchange Commission on November 22,
                2006).10.21
            
            Commencement
                Date Memorandum and Lease by and between TCIT Dallas Industrial,
                Inc. and
                Texas Prototypes, Inc. (incorporated by reference to Form 8-K filed
                with
                the Securities and Exchange Commission on November 29,
                2006).10.22
            
            First
                Amendment to Lease dated as of November 15, 2006 by and between TCIT
                Dallas Industrial, Inc. and Texas Prototypes, Inc. (incorporated
                by
                reference to Form 8-K filed with the Securities and Exchange Commission
                on
                November 29, 2006).





10.23
            
            Promissory
                Note of TXP Corporation dated as of May 17, 2006 issued to Michael
                C.
                Shores. (incorporated by reference to the registration statement
                on Form
                SB-2 filed with the Securities and Exchange Commission on January
                26,
                2007).





10.24
            
            Standby
                Equity Distribution Agreement dated as of August 25, 2004 by and
                between
                Texas Prototypes, Inc. and Cornell Capital Partners, L.P. (incorporated
                by
                reference to the registration statement on Form SB-2 filed with the
                Securities and Exchange Commission on January 26,
                2007).




10.25
            
            Securities
                Purchase Agreement dated as of August 25, 2004 by and between Texas
                Prototypes, Inc. and Cornell Capital Partners, L.P. (incorporated
                by
                reference to the registration statement on Form SB-2 filed with the
                Securities and Exchange Commission on January 26,
                2007).




10.26
            
            Registration
                Rights Agreement dated as of August 25, 2004 by and between Texas
                Prototypes, Inc. and Cornell Capital Partners, L.P. (incorporated
                by
                reference to the registration statement on Form SB-2 filed with the
                Securities and Exchange Commission on January 26,
                2007).




39




10.27
            
            Secured
                Convertible Debenture of Texas Prototypes, Inc. dated as of August
                25,
                2004 issued to Cornell Capital Partners, L.P. (incorporated by reference
                to the registration statement on Form SB-2 filed with the Securities
                and
                Exchange Commission on January 26,
                2007).





31.1
            
            Certification
                by Chief Executive Officer pursuant to Sarbanes Oxley Section
                302.*31.2
            
            Certification
                by Chief Financial Officer pursuant to Sarbanes Oxley Section
                302.*32.1
            
            Certification
                by Chief Executive Officer pursuant to 18 U.S.C. Section
                1350.*32.2
            
            Certification
                by Chief Financial Officer pursuant to 18 U.S.C. Section
                1350.*





*
      Filed
      herewith





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.**





During
      the fiscal years ended December 31, 2006 and 2005, the aggregate audit fees
      billed by our independent registered public accounting firm Payne, Smith and
      Jones, PC, for professional services were as follows:




**Fiscal
                Year**
            
            **Audit**
            
            **Other
                audit related**
            
            **Tax**
            
            **All
                other**2006
            
            $
            22,000
            
            $
            --
            
            
            2,250
            
            
            --2005
            
            $
            49,400
            
            $
            --
            
            
            4,000
            
            
            --





**Audit
      Fees**





This
      category includes aggregate fees billed by our independent auditors for the
      audit of our annual financial statements on Form 10-KSB, audit or management's
      assessment and effectiveness of internal controls over financial reporting,
      review of financial statements included in our quarterly reports on Form 10-QSB
      and services that are normally provided by the auditor in connection with
      statutory and regulatory filings for those fiscal years.





**Audit
      Related Fees**





This
      category consists of services by our independent auditors that are reasonably
      related to the performance of the audit or review of our financial statements
      and are not reported above under Audit Fees. This category includes accounting
      consultations on transaction and proposed transaction related
      matters.





**Tax
      Fees**





This
      category consists of professional services rendered for tax compliance and
      preparation of our corporate tax returns and other tax advice.





**All
      Other Fees**





There
      are
      no other fees to disclose.





During
      the fiscal years ended December 31, 2006 and 2005, the aggregate audit fees
      billed by our former independent registered public accounting firm, LBB and
      Associates Ltd., LP for professional services were as follows:




**Fiscal
                Year**
            
            **Audit**
            
            **Other
                audit related**
            
            **Tax**
            
            **All
                other**2006
            
            $
            11,800
            
            $
            --
            
            
            --
            
            
            --2005
            
            $
            2,000
            
            $
            --
            
            
            --
            
            
            --





**Audit
      Fees**





This
      category includes aggregate fees billed by our independent auditors for the
      audit of our annual financial statements on Form 10-KSB, audit or management's
      assessment and effectiveness of internal controls over financial reporting,
      review of financial statements included in our quarterly reports on Form 10-QSB
      and services that are normally provided by the auditor in connection with
      statutory and regulatory filings for those fiscal years.





**Audit
      Related Fees**





This
      category consists of services by our independent auditors that are reasonably
      related to the performance of the audit or review of our financial statements
      and are not reported above under Audit Fees. This category includes accounting
      consultations on transaction and proposed transaction related
      matters.





**Tax
      Fees**





This
      category consists of professional services rendered for tax compliance and
      preparation of our corporate tax returns and other tax advice.





**All
      Other Fees**





There
      are
      no other fees to disclose.




40








**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
      has duly caused this report to be signed on its behalf by the undersigned on
      April 9, 2007, thereunto duly authorized.


**TXP
                CORPORATION**By:
            /s/ Michael
                ShoresMichael
                ShoresChief
                Executive Officer (Principal Executive
                Officer)




By:
            /s/ Robert
                BruceRobert
                BruceChief
                Financial Officer (Principal Financial and Accounting
                Officer)




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


Signature
            
            Title
            
            Date/s/
                Michael Shores
            
            Chief
                Executive Officer (Principal
            
            April
                9,
                2007Michael
                Shores
            
            Executive
                Officer) and Director/s/
                Robert Bruce
            
            Chief
                Financial Officer (Principal
            
            April
                9,
                2007Robert
                Bruce
            
            Financial
                and Accounting Officer) and Director/s/
                Eric Miscoll
            
            Director
            
            April
                9,
                2007Eric
                Miscoll/s/
                Theodore Dubbs
            
            Director
            
            April
                9,
                2007Theodore
                Dubbs





41