0001437749-18-013583.txt : 20180723 0001437749-18-013583.hdr.sgml : 20180723 20180723080316 ACCESSION NUMBER: 0001437749-18-013583 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 34 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180723 DATE AS OF CHANGE: 20180723 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TX Holdings, Inc. CENTRAL INDEX KEY: 0001133798 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 582558702 STATE OF INCORPORATION: GA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-32335 FILM NUMBER: 18963621 BUSINESS ADDRESS: STREET 1: P. O. BOX 1425 CITY: ASHLAND STATE: KY ZIP: 41105 BUSINESS PHONE: 606-928-1131 MAIL ADDRESS: STREET 1: P. O. BOX 1425 CITY: ASHLAND STATE: KY ZIP: 41105 FORMER COMPANY: FORMER CONFORMED NAME: R WIRELESS INC DATE OF NAME CHANGE: 20030212 FORMER COMPANY: FORMER CONFORMED NAME: HOM CORP DATE OF NAME CHANGE: 20010205 10-Q 1 txhg20180630_10q.htm FORM 10-Q txhg20180630_10q.htm
 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   

Commission File No. 000-32335

 

TX HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Georgia

(State or Other Jurisdiction of Incorporation or

Organization)

58-2558702

(I.R.S. Employer Identification No.)

 

   

 12080 Virginia Blvd., Ashland, KY  41102

(Address of Principal Executive Offices and Zip Code)

(606) 928-1131

(Registrant’s Telephone Number, Including Area Code)

 

________________________________________

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐

 

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

Large accelerated filer  ☐ Accelerated filer  ☐ 
Non-accelerated filer  ☐  Smaller reporting company  ☒
  Emerging growth company  ☐

                                                   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

 

On July 23, 2018, there were 48,053,084 shares of the registrant’s common stock outstanding.

 

 

 

 

 

TX HOLDINGS, INC.

FORM 10-Q

FOR QUARTERLY PERIOD ENDED June 30, 2018

 

TABLE OF CONTENTS

 

Forward-Looking Statements

 

PART I

FINANCIAL INFORMATION

       
 

Item 1.

Financial Statements 

 
       
   

Consolidated Balance Sheets as of June 30, 2018, and September 30, 2017 (Unaudited)       

4

       
   

Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2018 and 2017 (Unaudited)

5

       
   

Consolidated Statements of Changes in Stockholders’ Deficit for the Nine Months Ended June 30, 2018 (Unaudited)

6

       
   

Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2018 and 2017 (Unaudited)

7

       
   

Notes to Unaudited Consolidated Financial Statements

8

       
 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

       
 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 23

       
  Item 4. Controls and Procedures  23

PART II

OTHER INFORMATION

       
 

Item 1.

Legal Proceedings

24

       
  Item 1A. Risk Factors 24
       
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

       
 

Item 3.

Defaults Upon Senior Securities

25

       
 

Item 4. 

Mine Safety Disclosures

25

       
 

Item 5.

Other Information

25

       
 

Item 6.

Exhibits

26

       

 

SIGNATURES

27

 

2

 

 

 

FORWARD-LOOKING STATEMENTS

 

This report contains “forward looking statements,” that is statements regarding future, not past, events. Forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "see," "will," "would," "estimate," "forecast" or "target." All statements that are not statements of historical fact are “forward looking statements.”

 

For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:

 

 

cyclical economic conditions affecting the coal mining industry and competitive pressures and changes affecting the coal mining industry, including demand for coal;

 

general economic conditions, including those affecting the domestic and global coal mining industry generally;

 

changes in environmental laws and regulations promulgated by the Environmental Protection Agency and similar state agencies or their interpretation and enforcement as they affect the mining industry and, in particular, the coal mining industry;

 

our ability to generate cash from operations, obtain funding on favorable terms and manage our liquidity needs;

 

challenges arising from acquisitions or our development and marketing of new products;

 

information concerning possible or assumed future results of operations, trends in financial results and business plans, including those related to earnings, earnings growth, revenue and revenue growth;

 

statements about the level of our costs and operating expenses relative to our revenues, and about the expected composition of our revenues;

 

statements about expected future sales trends for our products;

 

statements about our future capital requirements and the sufficiency of our cash, cash equivalents, and available bank borrowings to meet these requirements;

 

other statements about our plans, objectives, expectations and intentions; and

 

factors that are described in the Risk Factor section of our Annual Report on Form 10-K for the year ended September 30, 2017, and this report.

 

These and other uncertainties may cause our actual results to be materially different from those expressed in our forward-looking statements. You should not unduly rely on these forward-looking statements which speak only as of the date of this report. We do not ordinarily make projections of our future operating results and do not undertake to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report, or to reflect the occurrence of unanticipated events.

 

Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, expressly state that the safe harbor for forwarding looking statements does not apply to companies that issue “penny stocks.” Because we may from time to time be considered an issuer of penny stock, the safe harbor for forward looking statements under such statutory provisions may not be applicable to us at certain times.

 

We obtained certain statistical data, market data and other industry data and forecasts used in this Form 10-Q from publicly available information. While we believe that such data is reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of the information.

 

3

 

 

 

PART 1-FINANCIAL INFORMATION

Item 1-Financial Statements

TX HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

June 30, 2018 and September 30, 2017

    Unaudited  
   

June 30,

   

September 30,

 
   

2018

   

2017

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 41,834     $ 40,345  

Accounts receivable, net of allowance for doubtful accounts of $0 at June 30, 2018 and September 30, 2017

    377,863       458,203  

Inventory

    1,690,383       1,690,350  

Commission advances

    -       22,648  

Other current assets

    1,458       2,886  

Total current assets

    2,111,538       2,214,432  
                 

Property and equipment, net

    41,604       46,980  

Other

    -       500  

Total Assets

  $ 2,153,142     $ 2,261,912  
                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

               
                 

Current liabilities:

               

Accrued liabilities

  $ 492,274     $ 548,218  

Accounts payable

    564,939       654,773  

Accrued interest to officer

    434,521       359,726  

Advances from officer

    22,487       33,987  

Bank-term-loan-current portion

    83,600       83,600  

Total current liabilities

    1,597,821       1,680,304  
                 

Bank-term-loan, less current portion

    479,623       522,405  

Note payable to officer

    2,000,000       2,000,000  

Total Liabilities

    4,077,444       4,202,709  
                 

Commitments and contingencies

               
                 

Stockholders' deficit:

               

Preferred stock: no par value, 1,000,000 shares authorized no shares outstanding

    -       -  

Common stock: no par value, 250,000,000 shares authorized, 48,053,084 shares issued and outstanding at June 30, 2018 and September 30, 2017

    9,293,810       9,293,810  

Additional paid-in capital

    4,321,329       4,321,329  

Accumulated deficit

    (15,539,441 )     (15,555,936 )

Total stockholders' deficit

    (1,924,302 )     (1,940,797 )

Total Liabilities and Stockholders' Deficit

  $ 2,153,142     $ 2,261,912  

 

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

 

4

 

 

 
 

TX HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Nine Months Ended June 30, 2018 and June 30, 2017

 

    Unaudited  
   

THREE MONTHS ENDED

   

NINE MONTHS ENDED

 
   

June 30,

   

June 30,

   

June 30,

   

June 30,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Revenue

  $ 1,002,866     $ 852,926     $ 3,100,840     $ 2,273,245  
                                 

Cost of goods sold

    (832,680 )     (657,126 )     (2,578,678 )     (1,858,902 )
                                 

Gross profit

    170,186       195,800       522,162       414,343  
                                 

Operating expenses, except items shown separately below

    88,879       106,689       260,804       308,525  

Commission expense

    44,418       51,903       130,596       108,259  

Professional fees

    5,267       4,789       22,167       12,409  

Bad debt expense/(recovery)

 

 

-       (10,000 )     20       (9,095 )

Depreciation expense

    1,792       2,449       5,376       7,347  

Total operating expenses

    140,356       155,830       418,963       427,445  
                                 

Income (loss) from operations

    29,830       39,970       103,199       (13,102 )
                                 

Other income and (expense):

                               

Other income

    4,215    

 

-       10,692    

 

-  

Interest expense

    (33,481 )     (33,568 )     (97,396 )     (95,212 )
                                 

Total other income and (expense), net

    (29,266 )     (33,568 )     (86,704 )     (95,212 )
                                 

Net income (loss)

  $ 564     $ 6,402     $ 16,495     $ (108,314 )
                                 

Net income/(loss) per common share

                               

Basic and Diluted

  $ 0.00     $ 0.00     $ 0.00     $ 0.00  
                                 

Weighted average of common shares outstanding-

                               

Basic and Diluted

    48,053,084       48,053,084       48,053,084       48,053,084  

 

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

 

5

 

 

 

TX HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Nine Months Ended June 30, 2018

 

   

Unaudited

 
                                   

Additional

                 
   

Preferred Stock

   

Common Stock

   

Paid in

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 
                                                         

Balance at September 30, 2017

    -     $ -       48,053,084     $ 9,293,810     $ 4,321,329     $ (15,555,936 )   $ (1,940,797 )
                                                         

Net income

    -       -       -       -       -       16,495       16,495  
                                                         

Balance at June 30, 2018

    -     $ -       48,053,084     $ 9,293,810     $ 4,321,329     $ (15,539,441 )   $ (1,924,302 )

 

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

 

6

 

 

 

TX HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended June 30, 2018 and 2017

   

(Unaudited)

 
   

June 30,

   

June 30,

 
   

2018

   

2017

 

Cash flows provided by operating activities:

               

Net income/(loss)

  $ 16,495     $ (108,314 )

Adjustments to reconcile income/(loss) to net cash provided by operating activities:

               

Depreciation expense

    5,376       7,347  

Bad debt expense

    (20 )     (62,135 )

Changes in operating assets and liabilities:

               

Accounts receivable

    80,360       (258,902 )

Inventory

    (33 )     239,821  

Commission advances

    22,648       36,015  

Other current assets

    1,428       (45 )

Other assets

    500       -  

Accrued liabilities

    851       7,819  

Accounts payable

    (89,834 )     261,813  

Stockholder/officers advances for operations

    18,000       24,000  

Net cash provided by operating activities

    55,771       147,419  
                 

Cash flows provided/(used) in investing activities:

               

Net cash provided/(used) in investing activities

 

 

-       -  
                 

Cash flows used in financing activities:

               

Repayment of bank term loan

    (42,782 )     (47,242 )

Proceeds from officer advances

    186,000       111,150  

Repayment of officer advances

    (197,500 )     (210,700 )

Net cash used in financing activities

    (54,282 )     (146,792 )
                 

Increase in cash and cash equivalents

    1,489       627  

Cash and cash equivalents at beginning of period

    40,345       3,062  
                 

Cash and cash equivalents at end of period

  $ 41,834     $ 3,689  
                 

Supplemental Disclosure of Cash Flow Information

               
                 

Cash paid during the year for interest

  $ 22,601     $ 16,752  

 

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

 

7

 

 

 TX HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 
 
 

NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

 

INTERIM FINANCIAL STATEMENTS

 

Basis of Presentation

 

The accompanying interim unaudited consolidated financial statements and footnotes of TX Holdings, Inc., and its subsidiaries (the “Company,” “we,” “our,” or “us”), have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

 

The balance sheet as of September 30, 2017, included herein was derived from audited consolidated financial statements as of that date, but does not include all disclosures including notes required by GAAP.

 

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017. The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results for any subsequent quarter or the entire year ending September 30, 2018.

 

Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the financial statements and accompanying notes. These estimates form the basis for judgments management makes about the carrying values of the Company assets and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of share-based awards, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.

 

Overview of Business

 

The Company is in the business of supplying, distributing and selling drill bits, related tools, and other mining supplies, rail, rail ties, and rail material directly and through other suppliers to United States’ coal mining companies for use in their production and transportation processes. The products are supplied to the Company by various manufacturers and suppliers. The products are warehoused and distributed from the Company’s principal business location in Ashland, Kentucky or shipped directly to its customers.

 

In addition, on November 21, 2014, and with a view to diversifying its business, the Company acquired all of the membership interests in The Bag Rack, LLC. The acquired company has developed a new product, “The Bag Rack.” The Bag Rack is a unique device that enables bags with handles to be stored in the trunk of a car preventing the bags from tipping over and causing spillage. The Company has not generated any revenue from the sale of the new product and wrote-off all the Bag Rack inventories as of September 30, 2017. See Note 2.

 

8

 

 

Revenue Recognition

 

The Company recognizes revenue from direct sales of our products to our customers, including shipping fees. Revenue is recognized when title passes to the customer (usually upon shipment or delivery, depending upon the terms of the sales order) when persuasive evidence of an arrangement exists; when sales amounts are fixed or determinable; and when collectability is reasonably assured. The Company expenses shipping and handling costs as incurred which are included in cost of goods sold on the consolidated statements of operations.

 

Going Concern Considerations

 

The unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm’s report on the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended September 30, 2017, contains an explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going concern.

 

Since the commencement of its mining and rail products distribution business, the Company has relied substantially upon financing provided by Mr. Shrewsbury, the Company’s CEO and, from November 2012 to December 2015, a secured bank line of credit in connection with the development and expansion of its business. On December 3, 2015, the Company entered into a new loan agreement with Town Square Bank under which it obtained a term loan in the amount of $711,376. The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of five years and matures on December 3, 2020.

 

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

 

Principles of Consolidation 

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.

 

 

NOTE 2 –ACQUISITIONS

 

On November 21, 2014, the Company acquired 100% ownership of The Bag Rack, LLC, a Kentucky limited liability company, from the Company’s CEO (who prior to the acquisition, owned 50% of the membership interest in the acquired company) and the remaining membership interests from an unrelated third party. The acquired company had been recently established and was in the process of initiating the development and distribution of “The Bag Rack”, a unique patent pending device which enables bags with handles to be stored in the trunk of a car neatly and preventing content spillage. The transaction was completed with the Company paying a purchase price of $500.

 

The Bag Rack, LLC acquired all rights to the product shortly prior to its acquisition by the Company. Since its formation and at the date of acquisition, the acquired company held no assets or liabilities other than rights to the product which were valued at $500 as they pertained to a new unproven product. In addition, the Company agreed to pay 20% of the net profit for each product sold to a customer by The Bag Rack LLC to the former pending patent holder and 20% of the net income, after payment to the former pending patent holder, to each of the two former members of The Bag Rack, LLC. The payments to the former pending patent holder and prior members of The Bag Rack, LLC will be in perpetuity.

 

9

 

 

Since its acquisition, The Bag Rack has not generated any revenue and incurred cumulative losses of $172,553. Accordingly, on September 30, 2017, the Company elected to write-off The Bag Rack’s inventories and, in the subsequent fiscal quarter, wrote-off the $500 investment.

 

 

NOTE 3 – STOCKHOLDERS’ DEFICIT

 

Potentially Dilutive Options and Warrants

 

On May 16, 2012, the Board of Directors authorized the issuance of an aggregate of 400,000 common stock purchase warrants to a sales agent, Mr. Tom Chafin. Over a period of four years, Mr. Chafin was expected to receive 50,000 warrants every six months, for an aggregate of 400,000 warrants. The warrants are exercisable at a price of $0.10 per share, become immediately exercisable, and expire two years after the date of issuance. The initial tranche of 50,000 warrants were issuable effective July 1, 2012. As of June 30, 2018, all 400,000 issuable warrants to Mr. Chafin have expired under the terms of the agreement. The warrants were not included in the calculation of diluted earnings per share since their inclusion will be anti-dilutive.

 

On February 25, 2014, the Company issued 500,000 common stock purchase options to Mr. Shrewsbury. Commencing April 1, 2014, the options became exercisable at a price of $.0924 per share, the fair value of the Company’s shares of Common Stock on the date authorized by the Board of Directors, February 21, 2014. The options expired on March 31, 2017.

 

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

Advances from Stockholder and Officer

 

As of June 30, 2018, and September 30, 2017, Mr. Shrewsbury had outstanding advances owed from the Company of $22,487 and $33,987, respectively. The advances bear no interest and are due on demand.

 

Notes Payable to Officer

 

On February 25, 2014, the Company and Mr. Shrewsbury consolidated an aggregate of $2,000,000 of indebtedness due to Mr. Shrewsbury, including principal due under a Revolving Demand Note (“Revolving Note”) in the amount of $1,062,000 and accrued but unpaid interest as of January 31, 2014 of $168,905; principal due under a 10% Promissory Note (“10% Note”) in the amount of $289,997 and accrued but unpaid interest as of January 31, 2014 of $93,252; and $385,846 of non-interest bearing advances outstanding as of January 31, 2014. The Company issued in exchange a Consolidated Secured Promissory Note (“Consolidated Note”) in the principal amount of $2,000,000. The Revolving Note and 10% Note were cancelled and Mr. Shrewsbury agreed to waive any prior defaults under the terms of such notes and to release the Company from any claims related thereto. The Consolidated Note bears interest at the rate of 5% per annum or prime rate if higher than 5% per annum, is repayable in full ten years from the date of issuance, and is subject to certain events of default. Payment of the Consolidated Note is to be secured or otherwise payable by the Company out of the death benefit proceeds of key man life insurance of $2 million that has been purchased by the Company on the life of Mr. Shrewsbury. The terms of the debt consolidation and restructuring were unanimously approved by disinterested members of the Board of Directors of the Company. As of June 30, 2018, the Company has recorded $434,521 accrued interest on the note.

 

Lease Agreement with Stockholder and Officer

 

In November 2012, the Company entered into a lease agreement with William Shrewsbury and Peggy Shrewsbury to lease to the Company real estate and warehouse space to store the Company’s inventory. The initial lease had a two-year term starting October 1, 2012 and ending August 31, 2014. On September 1, 2014 the lease was extended for an additional two years and on September 1, 2016, further extended for an additional two years. The lease rental is $2,000 per month payable on the first of each month. As of June 30, 2018, since the beginning of the lease, the Company has made lease payments in the amount of $84,000 and has an outstanding payable, reported under accrued liabilities, to Mr. and Mrs. Shrewsbury of $78,000.

 

10

 

 

Freight Charges Paid to Company Controlled by Officer and Stockholder

 

The Company utilizes the services of a trucking company owned and controlled by Mr. Shrewsbury, our Chief Executive Officer, to transport certain of the Company’s products to its customers. During the three months ended June 30, 2018, and 2017, such trucking company was paid $24,480 and $17,243, respectively, and for the nine months ended June 30, 2018, and 2017 was paid $66,895 and $37,888, respectively, for these trucking services. The freight charges are reported under cost of sales.

 

Commissions Paid to Company Controlled by Officer and Stockholder

 

In connection with the transportation and delivery of certain of the Company’s products, the Company utilizes the services of a national transportation company. The chief executive officer of the Company owns and controls a company that is an agent of such transportation company. Such controlled company places orders for such transportation services on behalf of the Company and is paid a commission for such transportation services. During the three months ended June 30, 2018, and 2017, the Company paid commissions of $3,800 and $3,390 respectively, and for the nine months ended June 30, 2018 and 2017, was paid $9,203 and $7,456, respectively. The delivery costs are reflected under cost of sales in our financial statements

 

 

NOTE 5BANK LOAN

 

In November 2012, the Company obtained a $250,000 line of credit from a bank and, on August 26, 2014, increased the line of credit to $750,000 and extended the term of the line of credit. The line of credit was secured by a priority security interest in the Company’s inventory and accounts receivable and matured on November 7, 2015. On December 3, 2015, the Company entered into a new fixed term loan agreement with the bank of $711,376 the proceeds of which were used to repay its line of credit. The loan is for a term of five years and matures on December 3, 2020. As of June 30, 2018, the loan balance was $563,223.

 

During the term of the loan, the Company has agreed to make equal monthly repayments of principal and interest of $6,967 commencing January 3, 2016, and to make a final payment on December 3, 2020, of the outstanding balance of the interest and principal then due, estimated to be approximately $391,896. Early repayment of the loan will not affect the monthly repayment amount, unless otherwise agreed to by the bank.

 

An event of default under the loan will occur upon the occurrence of any of the following events:

 

 

the Company fails to make any payment when due;

 

the Company fails to comply with any term, obligation, covenant or condition in the loan documents or any other agreement between the bank and the Company:

 

the Company defaults under any loan, extension of credit, security agreement, purchase or sales agreement or other agreement with any creditor that materially affects the Company’s property or its ability to repay the note or perform its obligations under the note or related documents;

 

a warranty, representation or statement made to the bank under the loan document is or becomes materially false or misleading;

 

the dissolution or termination of the Company’s existence, or its insolvency, the appointment of a receiver for any part of its property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Company;

 

the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan;

 

any of the preceding events occurs with respect to any loan guarantor;

 

a 25% or more change in the ownership of the Company’s common stock;

 

a material adverse change in the Company’s financial condition, or the bank believes the prospect of payment or performance of the loan is impaired; or

 

the bank in good faith believes itself insecure.

 

11

 

 

The loan agreements contain certain affirmative covenants, including an obligation to: notify the bank of a material adverse change in the Company’s financial condition and of any threatened litigation or claim or other proceeding which could materially affect the Company’s financial condition; maintain certain liability insurance in amounts acceptable to the bank; maintain qualified executive and management personnel; comply with applicable environmental laws and perform environmental studies required by the bank; and certify annually to the bank compliance with the representations and warranties in the bank loan documents. The loan agreements contain certain other customary covenants and conditions.

 

In addition, the loan agreements contain certain negative covenants, including that the Company will not, without the bank’s consent:

 

 

incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course;

 

sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of its assets, except for permitted liens;

 

sell its accounts receivable, except to the bank;

 

engage in business activities substantially different from the Company’s current activities;

 

cease operations, liquidate, merge, transfer, acquire or consolidate with another entity, change the Company’s name, dissolve, or sell the inventory or accounts receivable secured under the loan;

 

pay any dividend other than in stock;

 

lend money, invest or advance money or assets to another person or entity;

 

purchase, create or acquire an interest in any other entity;

 

incur any obligation as a surety or guarantor other than in the ordinary course; or

 

enter into any agreement containing any provision which would be violated or breached by the performance of the Company’s obligations under the loan agreements.

 

Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 5.00% per annum. In the event of a default, interest under the loan may be increased by 2%. The line of credit is secured by a priority security interest in the Company’s inventory and accounts receivable and has been guaranteed by our CEO. Also, all obligations due from the Company to Mr. Shrewsbury are subordinate to the bank’s indebtedness, including under the Consolidated Note and any advances due to Mr. Shrewsbury.

 

 

NOTE 6NEW ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. It is effective for annual and interim reporting periods beginning after December 15, 2017. This standard permits early adoption, but not before December 15, 2016, and permits the use of either a retrospective or cumulative effect transition method. We evaluated the potential impact of this standard on our financial position and results of operations, as well as our selected transition method. Based on our evaluation, we concluded the new standard does not have a material impact on our financial position and results of operations, as we do not expect to change the manner or timing of recognizing revenue on a majority of our revenue transactions. We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position, but we do not expect it to have a material impact on our results of operations.

 

12

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Introduction

 

You should read the following summary together with the more detailed information and consolidated financial statements and notes thereto and schedules appearing elsewhere in this report. When we refer to the “Company” “TX Holdings,” “we,” “our” or “us,” we mean TX Holdings, Inc., and its subsidiary.

 

The discussion and analysis contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is based upon our consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition and contingencies. We base our estimates on historical experience, where available, and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

 

Except for historical information, the statements and other information contained in this MD&A are forward-looking. Our actual results could differ materially from the results discussed in the forward-looking statements, which include certain risks and uncertainties.

 

Our independent registered public accounting firm’s report on the consolidated financial statements included in our Annual Report Form 10-K for the year ended September 30, 2017, contained an explanatory paragraph in which they expressed an opinion that there is substantial doubt about our ability to continue as a going concern.

 

Accordingly, careful consideration of such opinion should be given in determining whether to continue or become our stockholder.

 

Please refer to and carefully consider the factors described in the Risk Factors section in our Form 10-K for the year ended September 30, 2017, and in this report.

 

Business and Operational Overview

 

We are in the business of supplying, distributing and selling drill bits, related tools, and other mining supplies, rail and rail material directly and through other suppliers to United States’ coal mining companies for use in their production and transportation processes. Our coal mining customers are primarily located in Ohio, Pennsylvania, Kentucky and West Virginia. Our principal executive offices and warehousing facility is located in Ashland, Kentucky.

 

Recent Developments in U.S. Coal Industry

 

Due to declining U.S. coal production and bankruptcies and restructurings among certain U.S. coal companies, we experienced a reduction in demand for our mining and rail products during fiscal 2015 and 2016 and the first quarter of fiscal 2017. The demand for, and production of, coal has been adversely affected by several factors, including increased environmental regulation in the U.S., declining coal consumption in the electric power sector, increased competition from natural gas, and a strong U.S. dollar. Commencing in the second fiscal quarter of 2017, demand for our products increased due to U.S. coal production, as discussed below, following a period of production decline.

 

13

 

 

The U.S. Energy Information Administration (EIA) has reported in its Short-Term Energy Outlook (STEO) released June 2018 U.S. coal production was 774 million short tons (MMst) in 2017, 46 MMst (6%) higher than in 2016

 

The EIA Short-Term Energy Outlook (STEO) released June 2018 states that the EIA expects the share of U.S. total utility-scale electricity generation from natural gas fired power plants to rise from 32% in 2017 to 34% in both 2018 and 2019. The forecast electricity generation share from coal in both 2018 and 2019 averages 28%, down from 30% in 2017. The nuclear share of generation was 20% in 2017 and is forecast to average 20% in 2018 and 19% in 2019. The generation share of hydropower was 7% in 2017 and is forecast to be about the same in 2018 and 2019.

 

The EIA forecasts coal production to decline by almost 2.3% to 756 million short tons (MMst) in 2018 and then decrease by 2.4% to 738 MMst in 2019. The EIA report released in June 2018, indicates the production decrease is largely attributable to a forecast decline of 5% in domestic coal consumption in 2018, with most of the decline is expected to be in the electric power sector. A forecast decline of 4% in coal exports also contributes to lower expected coal production in 2018. The EIA estimates that coal production will decline by 2% in 2019.

 

U.S. coal exports were 97 MMst in 2017, a 61% increase from the previous year, but they are expected to decrease in both 2018 and 2019. Exports of metallurgical coal, which are used in the steelmaking process, remain at 55 MMst in 2018 and decline to 54 MMst in 2019. Steam coal exports, which were an estimated 42 MMst in 2017, are expected to decline to 26 MMst and 23 MMst in 2018 and 2019, respectively.

 

The EIA estimates the delivered coal price averaged $2.28 per million British thermal units (MMBtu) in 2017, which was 5 cent/MMBtu lower than the 2016 price. Coal prices are estimated at $2.21/MMBtu in 2018 and increase to $2.34 in 2019.

 

Our Business

 

We purchase mining supplies such as drill bits, augurs and related products from domestic as well as overseas manufacturers and rail material such as tee rail, switches, ties and other rail products from several suppliers of such products and distribute and sell such products to U.S. coal mining companies and other suppliers. Our products are either shipped to our warehouse in Ashland, Kentucky, for distribution to our customers or shipped directly to our customers, including products we import once they have been received by us at a port and cleared customs. Our products are transported primarily by ground transportation to our customers. Shipping costs are born by our customers.

 

We distribute and sell our products through an independent sales agent who is compensated on a commission basis.

 

We were incorporated in the State of Georgia in 2000.

 

Results of Operations

 

Revenues for the third fiscal quarter of 2018 were $1,002,866 as compared to $852,926 for the same period in 2017, an increase of approximately 17.6%.

 

Gross profit during the third fiscal quarter of 2018 was $170,186 compared to $195,800 during the same period in 2017. Gross profit in the current quarter decreased by 13.1% when compared to the same period in fiscal 2017.

As a percentage of revenue, gross profit decreased to 17.0% during the third quarter of fiscal 2018 from 23.0% during the third quarter of fiscal 2017.

 

During the third fiscal quarter of 2018, we had net income of $564 as compared to a net income of $6,402 for the same period in fiscal 2017.

 

Liquidity and Capital Resources

 

At June 30, 2018, cash and cash equivalents were $41,834 compared to $40,345 at September 30, 2017.

 

14

 

 

Net cash provided by operating activities was $55,771 during the nine months ended June 30, 2018. Net cash provided by operating activities during the same nine-month period in 2017 was $147,419.

 

There was no cash flow from investing activities for either of the nine-month period ended June 30, 2018, or 2017.

 

During the nine months ended June 30, 2018, net cash used in financing activities was $54,282 due to a repayment of $42,782 on our bank term loan and net advance repayment to our CEO, William Shrewsbury in the amount of $11,500.

 

Mr. William Shrewsbury, our Chairman and CEO, is providing financing to us in the form of a Consolidated Secured Promissory Note of $2,000,000 (“Consolidated Note”) and periodic advances. The principal and interest under the Consolidated Note is due February 24, 2024.The principal bears interest at the rate of 5% per annum or prime rate if higher than 5% per annum and is subject to certain events of default. The Consolidated Note is to be secured or otherwise payable by us out of the death benefit proceeds of key man insurance of $2 million that has been purchased by us on the life of Mr. Shrewsbury. As of June 30, 2018, Mr. Shrewsbury had also provided non-interest-bearing advances to us of $22,487.

 

In November 2012, we obtained a bank line of credit of $250,000 which was subsequently increased to $750,000. On December 3, 2015, we entered into a new loan agreement with a bank under which we obtained a term loan in the amount of $711,376. The loan is secured by a lien on our inventory and accounts receivable and guaranteed by Mr. Shrewsbury. We utilized proceeds of the new loan to repay our line of credit. The loan is for a term of five years and matures on December 3, 2020. As of June 30, 2018, the loan balance was $563,223.

 

 

RESULTS OF OPERATIONS

 

Results of Operations – For the three months ended June 30, 2018, versus the three months ended June 30, 2017

 

Revenues from Operations

 

Revenues for the third quarter of fiscal 2018 were $1,002,866 as compared to $852,926 for the same period in fiscal 2017, an increase of $149,940 or 17.6%. The increase in revenues is attributable to higher sales of our rail products during the current period due to increased or renewed operations at previously downsized or shut-down coal mines as the coal industry experiences increased demand, a more favorable regulatory environment, and due to relatively higher natural gas prices.

 

Cost of Goods Sold

 

During the quarter ended June 30, 2018, our cost of goods sold was $832,680 as compared to cost of goods sold of $657,126 for the quarter ended June 30, 2017, an increase of $175,554 or 26.7% due to an increase in sales during the current period. As a percentage of sales, cost of goods sold increased from 77.0% in 2017 to 83.0% during the current period due to higher sales of a product mix with relatively higher unit cost during the current quarter.

 

Gross Profit

 

Gross profit for the period ended June 30, 2018, decreased as a percentage of revenue to 17.0% from 23.0% for the same period of the prior fiscal year. The decrease in gross profit resulted from a favorable mix of lower cost rail related products with higher margins sold during the prior year’s third quarter.

 

Operating Expenses

 

Operating expenses for the three months ended June 30, 2018 were $140,356 as compared to $155,830 for the three months ended June 30, 2017, a decrease of $15,474 or 9.9%. As a percentage of revenues, operating expenses decreased from 18.3% in 2017 to 14.0% in 2018. The decrease is attributable to the impact of certain operating expenses remaining fixed and, also our higher revenue during the third fiscal quarter of 2018.

 

15

 

 

The table below details the components of operating expenses, as well as the dollar and percentage changes for the comparative three-month periods.

 

   

Three Months Ended

 
   

6/30/2018

   

6/30/2017

   

$ Change

   

%Change

 

Operating Expense

                               

Commission expense

  $ 44,418     $ 51,903     $ (7,485 )     (14.4 )

Professional fees

    5,267       4,789     $ 478       10.0  

Bad debt expense/(recovery)

    -       (10,000 )     10,000       100.0  

Depreciation expense

    1,792       2,449     $ (657 )     (26.8 )

Other operating expenses

    88,879       106,689     $ (17,810 )     (16.7 )

Total

  $ 140,356     $ 155,830     $ (15,474 )     (9.9 )

 

 

Commission expense for the three months ended June 30, 2018, was $44,418 compared to $51,903 for the same period in 2017, a decrease of $7,485 or 14.4%. The lower commission expense is a direct result of the 8.5% decrease in sales margins during the current period.

 

Professional fees increased $478 or 10.0% during the three months ended June 30, 2018 as compared to the same period in 2017. The increase can be attributed to higher legal expenses related to SEC compliance and other compliance related matters.

 

A bad debt recovery of $10,000, due to subsequent collection, during the third quarter of 2017 account for the $10,000 variance when compared to the current three-month period. There was no bad debt expense incurred in the same period in the current quarter.

 

Depreciation expense during the three months ended June 30, 2018, was $1,792, $657 lower than the same period the prior year. The lower depreciation is the result of shipping related equipment becoming fully depreciated.

 

During the three months ended June 30, 2018, other operating expenses of $88,879 decreased by $17,810 or 16.7% from $106,689 for the same period in 2017. The lower other operating expenses resulted primarily from lower travel related expenses of $12,475, lower board related fees of $7,500 partially offset by higher tax related expense of $2,453.

 

Income/(loss) from operations

 

Income from operations for the quarter ended June 30, 2018 was $29,830 compared to income from operations of $39,970 during the same period in 2017.When compared to the income for the same period in the prior year, the income reduction in the current period is the direct result of lower sales margins of rail products partially offset by a $15,474 reduction in the current period operating expenses.

 

Other income and (expense)

 

Other income and expense for the three months ended June 30, 2018, reflected a net expense of $29,266 as compared to net expense of $33,568 for the quarter ended June 30, 2017. The lower net expense of $4,302 in the current period compared to the same period the prior year, result from other income generated by the sale of scrap during the current quarter.

 

16

 

 

Net income (loss)

 

For the quarter ended June 30, 2018, we had net income of $564 compared to net income of $6,402 for the quarter ended June 30, 2017. The decrease in the current period was due to lower sales margins of rail products during the current quarter as compared to the same quarter the prior year. The negative income variance was partially offset by a $15,474 reduction in operating expenses.

 

Net income (loss) per common share

 

The net income of $564 for the quarter ended June 30, 2018, as well as the net income of $6,402 for the quarter ended June 30, 2017, when divided by the number of common shares outstanding of 48,053,084 basic shares in both years resulted in a net income and loss per share of less than $0.01 in both periods.

 

Results of operations – For the nine months ended June 30, 2018 versus the nine months ended June 30, 2017

 

Revenues from Operations

 

Revenue for the nine months ended June 30, 2018 was $3,100,840 as compared to $2,273,245 for the same period in 2017, an increase of $827,595 or 36.4%. The increase in revenues is attributable to higher sales of our rail and mine related products during the current period due to increased or renewed operations at previously downsized or shut-down coal mines as the coal industry experiences increased demand and a more favorable regulatory environment.

 

Cost of Goods Sold

 

During the nine months ended June 30, 2018, our cost of goods sold was $2,578,678 as compared to cost of goods sold of $1,858,902 for the nine months ended June 30, 2017, an increase of $719,776 or 38.7% due to higher sales during the current period. As a percentage of sales, cost of goods sold increased from 81.8% in 2017 to 83.2% during the current period, an increase of approximately 1.4% resulting from sales of products with higher unit cost and higher sales of a product mix with relatively higher unit cost during the current period.

 

Gross Profit

 

Gross profit for the period ended June 30, 2018, decreased as a percentage of revenue to 16.8% from 18.2% for the same period of the prior year, or approximately 1.4%. The decrease in gross profit resulted from sales of certain products with higher unit cost and lower sales prices to address a more competitive environment.

 

Operating Expenses

 

Operating expenses for the nine months ended June 30, 2018 were $418,963 as compared to $427,445 for the nine months ended June 30, 2017, a decrease of $8,482 or 2.0%.

 

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The following table details the components of operating expenses as well as the dollar and percentage changes for the comparative nine-month periods.

.

   

Nine Months Ended

 
   

6/30/2018

   

6/30/2017

   

$ Change

   

%Change

 

Operating Expense

                               

Commission expense

  $ 130,596     $ 108,259     $ 22,337       20.6  

Professional fees

    22,167       12,409     $ 9,758       78.6  

Bad debt expense/(recovery)

    20       (9,095 )     9,115       100.2  

Depreciation expense

    5,376       7,347     $ (1,971 )     (26.8 )

Other operating expenses

    260,804       308,525     $ (47,721 )     (15.5 )

Total

  $ 418,963     $ 427,445     $ (8,482 )     (2.0 )

 

 

Commission expense for the nine months ended June 30, 2018, was $130,596 compared to $108,259 for the same period in 2017, an increase of $22,337 or 20.6%. The higher commission expense is a direct result of a 36.4% increase in sales during the current period as compared to the same period the prior year.

 

Professional fees increased $9,758 or 78.6% during the nine months ended June 30, 2018, as compared to the same period in 2017. The increase in expense can be attributed to higher legal expenses related to SEC compliance and other compliance related matters.

 

Bad debt expense/(recovery) for the nine- month period ended June 30, 2018 was $20 as compared to $(9,095) for the same period in 2017, an increase of $9,115 or 100.2%. The total variance is attributed to a $10,000 bad debt recovery in June 2017, resulting from the collection of a customer receivable previously reserved as uncollectable.

 

Depreciation expense of $5,376 for the nine months ended June 30, 2018, was lower by $1,971 than for the same nine-month period the prior year. The lower depreciation is the result of shipping related equipment becoming fully depreciated.

 

During the nine months ended June 30, 2018, other operating expenses of $260,804 decreased by $47,721 or 15.5% from $308,525 for the same period in 2017. The lower other operating expenses resulted primarily from lower payroll and payroll taxes of $46,659 during the current nine-month period.

 

Income/(loss) from operations

 

Income from operations for the nine months ended June 30, 2018 was $103,199 compared to loss from operations of $13,102 during the same period in 2017. When compared to the loss for the same period in the prior year, the income in the current period is the direct result of higher sales and, lower operating expenses.

 

Other income and (expense)

 

Other income for the current nine-month period increased by $10,692 due to scrap sales sold. Interest expense for the nine months ended June 30, 2018, reflected a $97,396 expense as compared to $95,212 expense for the nine months ended June 30, 2017, an increase of $2,184 due to higher interest expense under our bank term loan resulting from an increase in the rate of interest under such loan.

 

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Net income/(loss)

 

For the nine months ended June 30, 2018, we had net income of $16,495 compared to a net loss of $108,314 for the nine months ended June 30, 2017, a difference of $124,809. The net income increase during the current period was a result of higher sales.

 

Net earnings/(loss) per common share

 

The net income of $16,495 for the nine months ended June 30, 2018, as well as the net loss of $108,314 for the nine months ended June 30, 2017, when divided by the number of common shares outstanding of 48,053,084 basic shares in both periods resulted in a net income per share and a loss per share of less than $0.01, respectively.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following table presents a summary of our net cash provided (used) by operating, investing and financing activities:

 

   

Nine Months Ended

 

Liquidity and capital resources

 

6/30/2018

   

6/30/2017

 

Net cash provided by operating activities

  $ 55,771     $ 147,419  

Net cash provided/(used) in investing activities

    -       -  

Net cash used in financing activities

    (54,282 )     (146,792 )

Net increase in cash and cash equivalents

  $ 1,489     $ 627  

 

 

At June 30, 2018, we had cash and cash equivalents of $41,834 as compared to $40,345 at September 30, 2017, an increase of $1,489 or 3.7%.

 

Cash Flows Provided/(Used) in Operating Activities

 

Net cash provided in operating activities for the nine-months ended June 30, 2018, was $55,771 compared to cash provided of $147,419 in 2017, a decrease of $91,648 or 62.2%.

 

During the nine months ended June 30, 2018, we had net income of $16,495 as compared to a net loss of $108,314 for the same period in the prior year.

 

In the current nine-month period, the Company had non-cash expenses for depreciation of $5,376 and $20 bad debt expense.

 

A decrease in accounts receivable in the current period of $80,360 was offset by a decrease in accounts payable of $89,834 As of June 30, 2018, commission advances decreased by $22,648, inventory increased by $33 and, other current assets decreased by $1,428 due to a decrease in employee’s advances.

 

Cash Flows Provided/(Used) in Investing Activities

 

There was no cash flow used in investing activities for the period ended June 30, 2018 or 2017.

 

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Cash Flows Used in Financing Activities

 

During the nine months ended June 30, 2018, cash used in financing activities was $54,282 compared to cash used in financing activities of $146,792 during the same period in 2017. During the current nine-month period, the Company made payment on its term loan of $42,782 and repaid net advances from our CEO of $11,500.

 

On December 3, 2015, we entered into a new fixed term loan agreement with a bank of $711,376 the proceeds of which were used to repay our previous line of credit. The loan is for a term of five years and matures on December 3, 2020. As of June 30, 2018, the loan balance was $563,223. The current rate of interest under the loan is 5% per annum. Principal, interest and collection costs under the loan are guaranteed by Mr. Shrewsbury.

 

On February 25, 2014, we issued to Mr. Shrewsbury a Consolidated Secured Promissory Note (“Consolidated Note”) to consolidate an aggregate of $2,000,000 in outstanding debt and unpaid interest due to Mr. Shrewsbury. The Consolidated Note bears interest at 5% per annum or prime rate if higher than 5% per annum and principal and interest are repayable ten years from February 25, 2014. The Consolidated Note is subject to customary events of default. Payment of the Consolidated Note is to be secured or otherwise payable by us out of the death benefit proceeds of key man insurance of $2 million that has been purchased by us on the life of Mr. Shrewsbury.

 

During the nine months ended June 30, 2018, we received advances of $186,000 from Mr. Shrewsbury and repaid $197,500 in cash advances to Mr. Shrewsbury, bringing the total outstanding advance balance to $22,487. Cash advances from Mr. Shrewsbury are repayable upon demand and do not bear interest.

 

As of June 30, 2018, the Company had an accrued liability in the amount of $376,179 due to Jose Fuentes, CFO, for past services.

 

Financial Condition and Going Concern Uncertainties

 

Since inception, the Company, with a few exceptions has not generated sufficient cash to fund its operations and has incurred operating losses. As of June 30, 2018, the Company’s accumulated deficit was $15,539,441. Currently, in addition to funds from operations, the Company relies substantially upon financing provided by Mr. Shrewsbury, the Company’s Chief Executive Officer, and a secured bank loan that is guaranteed by Mr. Shrewsbury to finance its business operations. In view of these matters, realization of certain assets in the accompanying balance sheet is dependent upon continued operations which are dependent upon our ability to meet our financial requirements, upon the continued provision of financing from Mr. Shrewsbury and under the Company’s bank loan, and the success of our operations.

 

Our independent registered public accounting firm’s report on the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2017, contained an explanatory paragraph in which our auditors expressed an opinion that there is a substantial doubt about our ability to continue as a going concern.

 

Accordingly, careful consideration of such opinion should be given in determining whether to continue or to become our stockholder.

 

As of June 30, 2018, we had cash and cash equivalents of $41,834 as compared to $40,345 as of September 30, 2017.

 

Our accounts receivable was $377,863 as of June 30, 2018, as compared to $458,203 as of September 30, 2017, a decrease of $80,340 or 17.5%. The lower June 30, 2018 receivable balance is the direct result of a significant number of customers submitting payments at the end of the current quarter.

 

Inventory was $1,690,383 as of June 30, 2018, as compared to $1,690,350 as of September 30, 2017, an increase of $33.

 

20

 

 

Accrued liabilities were reduced from $548,218 as of September 30, 2017 to $492,274 as of the nine-month ended June 30, 2018, a reduction of $55,944. A reduction in accrued payroll and payroll taxes account for the lower accrued liabilities balance as of June 30, 2018.

 

Accounts payable for the nine months ended June 30, 2018, were $564,939 as compared to $654,773 as of September 30, 2017, a decrease of $89,834 or 13.7%. The decrease in accounts payable is due to large payments to a major supplier on invoices due at the end of the current quarter.

 

During the nine months ended June 30, 2018, our accumulated deficit decreased from $15,555,936 to $15,539,441, a decrease of $16,495 due to the reported net income during the nine months ended June 30, 2018.

 

During the nine months ended June 30, 2018, the Company’s net income was $16,495 compared to a net loss of $108,314 for the comparable period in 2017. The loss reduction is due to increased sales of our rail and mining related products.

 

Currently, in addition to product purchases for resale, we are spending approximately $50,000 per month on operations. Management believes that the Company’s available cash, cash flows from operations, loans and advances provided by Mr. Shrewsbury, and the loan provided by the bank to be sufficient to fund the Company’s operations during the next 12 months.

 

We continue to rely substantially upon financings provided by Mr. Shrewsbury and a bank loan to fund our operations. The terms of such financings are discussed below.

 

Bank Loan

 

On December 3, 2015, we obtained a term loan from Town Square Bank of $711,376. We used proceeds of the new loan to repay our former line of credit. The loan is for a term of five years and matures on December 3, 2020. As of June 30, 2018, the loan balance was $563,223.

 

During the term of the loan, we agreed to make equal monthly repayments of principal and interest of $6,967 commencing January 3, 2016, and to make a final payment on December 3, 2020, of the outstanding balance of the interest and principal, estimated to be approximately $391,896. Early repayment of the loan will not affect the monthly repayment amount, unless otherwise agreed to by the bank.

 

An event of default under the loan will occur upon the occurrence of any of the following events:

 

 

we fail to make any payment when due;

 

we fail to comply with any term, obligation, covenant or condition in the loan documents or any other agreement with the bank;

 

we default under any loan, extension of credit, security agreement, purchase or sales agreement or other agreement with any creditor that materially affects our property or our ability to repay the note or perform our obligations under the note or related documents;

 

a warranty, representation or statement made to the bank under the loan documents is or becomes materially false or misleading;

 

the dissolution or termination of our existence, our insolvency, the appointment of a receiver for any part of our property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against us;

 

the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan;

 

any of the preceding events occurs with respect to any loan guarantor;

 

a 25% or more change in the ownership of our common stock;

 

a material adverse change in our financial condition, or the bank believes the prospect of payment or performance of the loan is impaired; or

 

the bank in good faith believes itself insecure.

 

21

 

 

The loan agreements contain affirmative covenants, including an obligation to: notify the bank of a material adverse change in our financial condition and of any threatened litigation or claim or other proceeding which could materially affect our financial condition; maintain certain liability insurance in amounts acceptable to the bank; maintain qualified executive and management personnel; comply with applicable environmental laws and perform environmental studies required by the bank; and certify annually to the bank compliance with the representations and warranties in the bank loan documents. The loan agreements contain other customary covenants, terms and conditions.

 

In addition, the loan agreements contain negative covenants, including that we will not, without the bank’s consent:

 

 

incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course;

 

sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of our assets, except for permitted liens;

 

sell our accounts receivable, except to the bank;

 

engage in business activities substantially different from our current activities;

 

cease operations, liquidate, merge, transfer, acquire or consolidate with another entity, change our name, dissolve, or sell the inventory or accounts receivable secured under the loan;

 

pay any dividend other than in stock;

 

lend money, invest or advance money or assets to another person or entity;

 

purchase, create or acquire an interest in any other entity;

 

incur any obligation as a surety or guarantor other than in the ordinary course; or

 

enter into any agreement containing any provision which would be violated or breached by the performance of our obligations under the loan agreements.

 

Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 5.00% per annum. In the event of a default, interest under the loan may be increased by 2%. The loan is secured by a priority security interest in the Company’s inventory and accounts receivable and has been guaranteed by our CEO.

 

Advances and Loans from Mr. Shrewsbury

 

Since 2006, Mr. Shrewsbury, our Chairman and CEO, has provided financing to us in the form of demand notes and advances.

 

Mr. Shrewsbury, our Chairman and CEO, has provided financing to us in the form of demand notes and advances. On February 25, 2014, we entered into a Note Exchange Agreement (“Exchange Agreement”) with Mr. Shrewsbury under which an aggregate of $2,000,000 of our indebtedness (including amounts of accrued interest) to Mr. Shrewsbury was consolidated and restructured and we issued in exchange for the indebtedness a Consolidated Secured Promissory Note (the “Consolidated Note) in the principal amount of $2,000,000.

 

The principal and interest under the Consolidated Note is due and payable ten years from the date of issuance and is to be secured by the proceeds of key man life insurance purchased by us on the life of Mr. Shrewsbury. The Consolidated Note bears interest at the rate of 5% per annum except that, if the prime rate reported by the Wall Street Journal (“WSJ Prime Rate”) exceeds 5%, then the Consolidated Note will bear interest at the WSJ Prime Rate. As of June 30, 2018, accrued interest on the note was $434,521.

 

An event of default will occur under the Consolidated Note upon:

 

 

we fail to pay when due any principal or interest;

 

we violate any covenant or agreement contained in the Consolidated Note, the Exchange Agreement, or related transaction documents;

 

an assignment for the benefit of creditors by us;

 

the application for the appointment of a receiver or liquidator for us or our property;

 

the filing of a petition in bankruptcy by or against us;

 

the issuance of an attachment or the entry of a judgment against us in excess of $250,000;

 

22

 

 

 

a default by us with respect to any other indebtedness or with respect to any installment debt whether or not owing to Mr. Shrewsbury;

 

the sale of all or substantially all of our assets or a transfer of more than 51% of our equity interests to a person not currently a holder of our equity interests;

 

our termination of existence or dissolution;

 

the death of Mr. Shrewsbury; or

 

the failure to pay when due any premium under the key man policy required to be purchased on the life of Mr. Shrewsbury.

 

In addition, in consideration of Mr. Shrewsbury agreeing to consolidate and restructure the indebtedness, the Company granted to Mr. Shrewsbury options to purchase an aggregate of 500,000 shares of our common stock pursuant to the terms of a Non-Qualified Stock Option Agreement, issued February 25, 2014. The options were exercisable commencing April 1, 2014, and for a period of three years thereafter. The options were exercisable at a price of $0.0924 per share subject to anti-dilution adjustments in the event of stock dividends, subdivisions, capital reorganizations, a consolidation or merger, or sale of all or substantially all of our assets. The options expired on March 31, 2017.

 

As of June 30, 2018, Mr. Shrewsbury had advanced an aggregate of $22,487 to the Company. The advances do not bear interest and are repayable upon demand. As of June 30, 2018, the Company also has a payable of $78,000 to Mr. Shrewsbury for warehouse storage rental.

 

The Consolidated Note and advances are subordinate to the Company’s bank indebtedness.

 

Off-Balance Sheet Arrangements

 

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations as of June 30, 2018 and September 30, 2017.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a “smaller reporting company” as defined by Rule 12b-2 under the Exchange Act and, as such, we are not required to provide the information required under this Item.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Report, the Chief Executive Officer and Chief Financial Officer of the Company (the “Certifying Officers”) conducted evaluations of the Company’s disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure the information required to be disclosed by the issuer in the reports that it files or submits under Section 13(a) or 15(d) of the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under Section 13(a) or 15(d) of the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, the Certifying Officers determined that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under Section 13(a) or 15(d) of the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in the Reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure.

 

23

 

 

Changes in Internal Controls

 

There were no changes in the Company’s internal controls over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

 

 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

The Company is not a party to any material pending legal proceeding.

.

ITEM 1A.

RISK FACTORS

 

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below (which supplement and reflect changes to certain of the risk factors we disclosed in our 2017 Annual Report on Form 10-K) and other information contained in this Report in deciding whether to invest in our common stock.   Additional risks not presently known to us or which we currently consider immaterial may also adversely affect us. If any of the following risks (or the risk factors we disclosed in our 2017 Form 10-K) actually occur, our business, financial condition and operating results could be materially adversely affected. In such case, the trading price of our common stock could decline, and you could lose a part or all your investment.

 

 

Risks Related to Our Operations

 

We are dependent on financing provided or guaranteed by our CEO to fund our business and ongoing operations. We have incurred substantial debt which could affect our ability to obtain additional financing and may increase our vulnerability to business downturns. We may be unable to repay our bank loan when it becomes due.

 

As of June 30, 2018, we have incurred debt due to Mr. Shrewsbury in the form of $2 million Consolidated Note and non-interest bearing advances in the amount of $22,487. We have outstanding accounts payable of $564,939 and other accrued liabilities of $926,795, including $376,179 due to our CFO, Jose Fuentes, for services. Also, the Company owes $563,223 under a bank term loan which is secured by the Company’s inventory and accounts receivable and which becomes due on December 3, 2020. We are subject to the risks associated with substantial indebtedness, including insufficient funds to repay the amounts due to Mr. Fuentes and Mr. Shrewsbury in the event they make a demand for payment; it may be more expensive and difficult to obtain additional financing; and we are more vulnerable to economic downturns. The Company also has a $78,000 payable for warehouse lease rental due to Mr. and Mrs. Shrewsbury.

 

We have a history of net losses and, due to the impact of increased federal regulation of the U.S. coal mining industry, a decrease in the number of coal powered electricity generation plants, a relatively weak U.S. dollar, and other factors affecting the coal mining industry in the U.S., we cannot assure that we will be profitable in the future. Any failure on the part of the Company, due to industry conditions, which will prevent us from achieving profitability may cause us to reduce or eventually cease operations.

 

We had net income of $16,495 for the nine-months ended June 30, 2018 and a net loss of $108,314 for the same period in 2017. At June 30, 2018 and September 30, 2017, we had accumulated deficits of $15,539,441 and $15,555,936, respectively. We may need to obtain additional financing or incur additional debt to expand our wholesale and retail mining supplies business. We may also require additional financing to fund ongoing operations if our revenue is insufficient to meet our operating costs. In the past, we have been able to raise financing from our CEO through notes and advances and a bank loan guaranteed by our CEO. Our inability to obtain necessary capital or financing to fund these needs will adversely affect our ability to fund operations and continue as a going concern. Additional financing may not be available when needed or may not be available on terms acceptable to us. If adequate funds are not available, we may be required to delay, scale back or eliminate one or more of our business strategies, which may affect our results of operations and financial condition.

 

24

 

 

The effect of comprehensive U.S. tax reform legislation on us, whether adverse or favorable, is uncertain.

 

On December 22, 2017, President Trump signed into law H.R. 1, "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018" (informally titled the "Tax Cuts and Jobs Act"). Among a number of significant changes to the U.S. federal income tax rules, the Tax Cuts and Jobs Act (the "Act") reduces the marginal U.S. corporate income tax rate from 35% to 21%, limits the deduction for net interest expense, limits the deduction for net operating losses and eliminates net operating loss carrybacks, modifies or repeals many business deductions and credits, shifts the United States toward a more territorial tax system, and imposes new taxes to combat erosion of the U.S. federal income tax base. The Company’s net deferred tax assets and liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized in tax expense in the year of enactment.  The Company continues to examine the impact this tax reform legislation may have on its business.  However, the effect of the Act on the Company and the Company’s customers, whether adverse or favorable, is uncertain, and may not become evident for some period of time.

 

We could be adversely affected by information systems interruptions, cybersecurity attacks or other disruptions which could have a material adverse effect on our business and result of operations.

 

We depend upon information technology infrastructure, including network, hardware and software systems to conduct our business.  Despite our implementation of network and other cybersecurity measures, our information technology system and networks could be disrupted or experience a security breach from computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems.  Our security measures may not be adequate to protect against highly targeted sophisticated cyber-attacks, or other improper disclosures of confidential and/or sensitive information.  Additionally, we may have access to confidential or other sensitive information of our customers, which, despite our efforts to protect, may be vulnerable to security breaches, theft, or other improper disclosure, any of which could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5.

OTHER INFORMATION

 

None.

 

25

 

 

ITEM 6.

EXHIBITS

 

The following exhibits are filed or “furnished” herewith:

 

   

Incorporated by

Reference From

 

 

Exhibit

No.

 

Exhibit

Description

     

Form

 

Filing Date

Filed/

Furnished

Herewith

         
         

31.1

Certification by Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO)

   

X

         

31.2

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO)

   

X

         

32.1

Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)

   

X

         

32.2

Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)

   

X

         

101.INS

XBRL Instance Document **

   

X

         

101.SCH

XBRL Taxonomy Extension Schema Document **

   

X

         

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document **

   

X

         

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document **

   

X

         

101.LAB

XBRL Taxonomy Extension Label Linkbase Document **

   

X

         

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document **

   

X

 

**

 

 

26

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

TX HOLDINGS, INC.

 
By:

/s/ William L. Shrewsbury

William L. Shrewsbury

Chief Executive Officer

(Principal Executive Officer)

 

Dated: July 23, 2018

By:

/s/ Jose Fuentes

Jose Fuentes

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

Dated:  July 23, 2018 

 

 

 

27

 

  

 

EX-31.1 2 ex_117998.htm EXHIBIT 31.1 ex_117998.htm

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002, AS AMENDED

 

I, William L. Shrewsbury, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of TX Holdings, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

   

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

   

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: July 23, 2018

Signed:

/s/William L. Shrewsbury

 

Name:

William L. Shrewsbury

 

Title:

Chief Executive Officer (Principal Executive Officer)

 

EX-31.2 3 ex_117999.htm EXHIBIT 31.2 ex_117999.htm

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002, AS AMENDED

 

I, Jose Fuentes, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of TX Holdings, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

   

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

   

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: July 23, 2018

Signed:

/s/Jose Fuentes

 

Name:

Jose Fuentes

 

Title:

Chief Financial Officer (Principal Financial and Accounting Officer)

 

EX-32.1 4 ex_118000.htm EXHIBIT 32.1 ex_118000.htm

Exhibit 32.1

CERTIFICATION

 PURSUANT TO RULE 13a-14(b) or

RULE 15d-14(b) AND 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE

 SARBANES-OXLEY ACT OF 2002, AS AMENDED)

 

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended), the undersigned officer of TX Holdings, Inc., a Georgia corporation (the “Company”), does hereby certify that:

 

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  Date: July 23, 2018

Signed:

/s/William L. Shrewsbury

 

Name:

William L. Shrewsbury

 

Title:

Chief Executive Officer (Principal Executive Officer

 

EX-32.2 5 ex_118001.htm EXHIBIT 32.2 ex_118001.htm

Exhibit 32.2

CERTIFICATION

 PURSUANT TO RULE 13a-14(b) or

RULE 15d-14(b) AND 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE

 SARBANES-OXLEY ACT OF 2002, AS AMENDED)

 

Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended), the undersigned officer of TX Holdings, Inc., a Georgia corporation (the “Company”), does hereby certify that:

 

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  Date: July 23, 2018 

Signed:

/s/Jose Fuentes

 

Name:

Jose Fuentes

 

Title:

Chief Financial Officer (Principal Financial and Accounting Officer)

 

EX-101.INS 6 txhg-20180630.xml XBRL INSTANCE DOCUMENT false --09-30 Q3 2018 2018-06-30 10-Q 0001133798 48053084 Yes Smaller Reporting Company TX Holdings, Inc. No No txhg 400000 P2Y 22648 0.05 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Going Concern Considerations</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm&#x2019;s report on the consolidated financial statements included in the Company&#x2019;s annual report on Form <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">10</div>-K for the year ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2017, </div>contains an explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going concern.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Since the commencement of its mining and rail products distribution business, the Company has relied substantially upon financing provided by Mr. Shrewsbury, the Company&#x2019;s CEO and, from <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> November 2012 </div>to <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">December 2015</div>, </div>a secured bank line of credit in connection with the development and expansion of its business. On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 3, 2015, </div>the Company entered into a new loan agreement with Town Square Bank under which it obtained a term loan in the amount of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$711,376.</div> The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">five</div> years and matures on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 3, 2020.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuing operations and realization of assets and liquidation of liabilities in the ordinary course of business. The Company's ability to continue as a going concern is dependent upon its ability to raise sufficient capital and to implement a successful business plan to generate profits sufficient to become financially viable. The consolidated financial statements do <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> include adjustments relating to the recoverability of recorded assets or the implications of associated bankruptcy costs if the Company is unable to continue as a going concern.</div></div></div></div></div></div></div></div></div> -22648 -36015 18000 24000 2000 50000 385846 0.5 0.2 0.2 2000000 -10000 20 -9095 500 P4Y 564939 654773 377863 458203 492274 548218 4321329 4321329 0 0 500 2153142 2261912 2111538 2214432 2014-11-21 1 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">NOTE <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2</div> &#x2013;</div><div style="display: inline; font-weight: bold;">ACQUISITIONS</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;">On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">November 21, 2014</div>, </div>the Company acquired <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">100%</div> ownership of The Bag Rack, LLC, a Kentucky limited liability company, from the Company&#x2019;s CEO (who prior to the acquisition, owned <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">50%</div> of the membership interest in the acquired company) and the remaining membership interests from an unrelated <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">third</div> party. The acquired company had been recently established and was in the process of initiating the development and distribution of &#x201c;The Bag Rack&#x201d;, a unique patent pending device which enables bags with handles to be stored in the trunk of a car neatly and preventing content spillage. The transaction was completed with the Company paying a purchase price of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$500.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;">The Bag Rack, LLC acquired all rights to the product shortly prior to its acquisition by the Company. Since its formation and at the date of acquisition, the acquired company held <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">no</div> assets or liabilities other than rights to the product which were valued at <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$500</div> as they pertained to a new unproven product. In addition, the Company agreed to pay <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">20%</div> of the net profit for each product sold to a customer by The Bag Rack LLC to the former pending patent holder and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">20%</div> of the net income, after payment to the former pending patent holder, to each of the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">two</div> former members of The Bag Rack, LLC. The payments to the former pending patent holder and prior members of The Bag Rack, LLC will be in perpetuity.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;"></div> <div style=" font-family: 'Times New Roman', Times, serif; font-size: 10pt; margin: 0pt; text-align: left">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;">Since its acquisition, The Bag Rack has <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> generated any revenue and incurred cumulative losses of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$172,553.</div> Accordingly, on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2017, </div>the Company elected to write-off The Bag Rack&#x2019;s inventories and, in the subsequent fiscal quarter, wrote-off the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$500</div> investment.</div></div> 172553 0 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">NOTE <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">1</div>- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">INTERIM FINANCIAL STATEMENTS</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Basis of Presentation</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The accompanying interim unaudited consolidated financial statements and footnotes of TX Holdings, Inc., and its subsidiaries (the &#x201c;Company,&#x201d; &#x201c;we,&#x201d; &#x201c;our,&#x201d; or &#x201c;us&#x201d;), have been prepared in accordance with accounting principles generally accepted in the United States (&#x201c;GAAP&#x201d;) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The balance sheet as of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2017, </div>included herein was derived from audited consolidated financial statements as of that date, but does <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> include all disclosures including notes required by GAAP.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company&#x2019;s Annual Report on Form <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">10</div>-K for the year ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2017. </div>The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> necessarily indicative of the results for any subsequent quarter or the entire year ending <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2018.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the financial statements and accompanying notes. These estimates form the basis for judgments management makes about the carrying values of the Company assets and liabilities, which are <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of share-based awards, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management&#x2019;s knowledge about current events and expectations about actions we <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> may </div>undertake in the future. Actual results could differ materially from those estimates.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Overview of Business</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The Company is in the business of supplying, distributing and selling drill bits, related tools, and other mining supplies, rail, rail ties, and rail material directly and through other suppliers to United States&#x2019; coal mining companies for use in their production and transportation processes. The products are supplied to the Company by various manufacturers and suppliers. The products are warehoused and distributed from the Company&#x2019;s principal business location in Ashland, Kentucky or shipped directly to its customers.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">In addition, on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> November 21, 2014, </div>and with a view to diversifying its business, the Company acquired all of the membership interests in The Bag Rack, LLC. The acquired company has developed a new product, &#x201c;The Bag Rack.&#x201d; <div style="display: inline; font-weight: bold;"> </div>The Bag Rack is a unique device that enables bags with handles to be stored in the trunk of a car preventing the bags from tipping over and causing spillage. The Company has <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> generated any revenue from the sale of the new product and wrote-off all the Bag Rack inventories as of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2017. </div>See Note <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family: 'Times New Roman', Times, serif; font-size: 10pt; margin: 0pt; text-align: left"></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Revenue Recognition</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The Company recognizes revenue from direct sales of our products to our customers, including shipping fees. Revenue is recognized when title passes to the customer (usually upon shipment or delivery, depending upon the terms of the sales order) when persuasive evidence of an arrangement exists; when sales amounts are fixed or determinable; and when collectability is reasonably assured. The Company expenses shipping and handling costs as incurred which are included in cost of goods sold on the consolidated statements of operations.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Going Concern Considerations</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm&#x2019;s report on the consolidated financial statements included in the Company&#x2019;s annual report on Form <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">10</div>-K for the year ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2017, </div>contains an explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going concern.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Since the commencement of its mining and rail products distribution business, the Company has relied substantially upon financing provided by Mr. Shrewsbury, the Company&#x2019;s CEO and, from <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> November 2012 </div>to <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">December 2015</div>, </div>a secured bank line of credit in connection with the development and expansion of its business. On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 3, 2015, </div>the Company entered into a new loan agreement with Town Square Bank under which it obtained a term loan in the amount of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$711,376.</div> The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">five</div> years and matures on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 3, 2020.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuing operations and realization of assets and liquidation of liabilities in the ordinary course of business. The Company's ability to continue as a going concern is dependent upon its ability to raise sufficient capital and to implement a successful business plan to generate profits sufficient to become financially viable. The consolidated financial statements do <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> include adjustments relating to the recoverability of recorded assets or the implications of associated bankruptcy costs if the Company is unable to continue as a going concern.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Principles of Consolidation</div></div><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;">The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.</div></div> 40345 3062 41834 3689 1489 627 0.10 400000 0 0 250000000 250000000 48053084 48053084 48053084 48053084 9293810 9293810 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Principles of Consolidation</div></div><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;">The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.</div></div></div></div></div></div></div></div></div> 24480 17243 66895 37888 832680 657126 2578678 1858902 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;"><div style="display: inline; font-weight: bold;">NOTE </div><div style="display: inline; font-weight: bold;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">5</div></div><div style="display: inline; font-weight: bold;"> &#x2013; </div><div style="display: inline; font-weight: bold;">BANK</div><div style="display: inline; font-weight: bold;"> LOAN</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">In <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> November 2012, </div>the Company obtained a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$250,000</div> line of credit from a bank and, on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> August 26, 2014, </div>increased the line of credit to <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$750,000</div> and extended the term of the line of credit. The line of credit was secured by a priority security interest in the Company&#x2019;s inventory and accounts receivable and matured on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> November 7, 2015. </div>On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 3, 2015, </div>the Company entered into a new fixed term loan agreement with the bank of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$711,376</div> the proceeds of which were used to repay its line of credit. The loan is for a term of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">five</div> years and matures on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 3, 2020. </div>As of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>the loan balance was <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$563,223.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">During the term of the loan, the Company has agreed to make equal <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">monthly</div> repayments of principal and interest of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$6,967</div> commencing <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">January 3, 2016</div>, </div>and to make a final payment on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">December 3, 2020</div>, </div>of the outstanding balance of the interest and principal then due, estimated to be approximately <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$391,896.</div> Early repayment of the loan will <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> affect the monthly repayment amount, unless otherwise agreed to by the bank.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;text-indent:18pt;">An event of default under the loan will occur upon the occurrence of any of the following events:</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">the Company fails to make any payment when due;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">the Company fails to comply with any term, obligation, covenant or condition in the loan documents or any other agreement between the bank and the Company:</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">the Company defaults under any loan, extension of credit, security agreement, purchase or sales agreement or other agreement with any creditor that materially affects the Company&#x2019;s property or its ability to repay the note or perform its obligations under the note or related documents;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">a warranty, representation or statement made to the bank under the loan document is or becomes materially false or misleading;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">the dissolution or termination of the Company&#x2019;s existence, or its insolvency, the appointment of a receiver for any part of its property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Company;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">any of the preceding events occurs with respect to any loan guarantor;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">25%</div> or more change in the ownership of the Company&#x2019;s common stock;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">a material adverse change in the Company&#x2019;s financial condition, or the bank believes the prospect of payment or performance of the loan is impaired; or</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">the bank in good faith believes itself insecure.</div> </td> </tr> </table> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:18pt;margin-right:0pt;margin-top:0pt;text-align:left;"></div> <div style=" font-family: 'Times New Roman', Times, serif; font-size: 10pt; margin: 0pt; text-align: left">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The loan agreements contain certain affirmative covenants, including an obligation to: notify the bank of a material adverse change in the Company&#x2019;s financial condition and of any threatened litigation or claim or other proceeding which could materially affect the Company&#x2019;s financial condition; maintain certain liability insurance in amounts acceptable to the bank; maintain qualified executive and management personnel; comply with applicable environmental laws and perform environmental studies required by the bank; and certify annually to the bank compliance with the representations and warranties in the bank loan documents. The loan agreements contain certain other customary covenants and conditions.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">In addition, the loan agreements contain certain negative covenants, including that the Company will <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not,</div> without the bank&#x2019;s consent:</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of its assets, except for permitted liens;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">sell its accounts receivable, except to the bank;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">engage in business activities substantially different from the Company&#x2019;s current activities;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">cease operations, liquidate, merge, transfer, acquire or consolidate with another entity, change the Company&#x2019;s name, dissolve, or sell the inventory or accounts receivable secured under the loan;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">pay any dividend other than in stock;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">lend money, invest or advance money or assets to another person or entity;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">purchase, create or acquire an interest in any other entity;</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">incur any obligation as a surety or guarantor other than in the ordinary course; or</div> </td> </tr> </table> <table style=";font-family:'Times New Roman', Times, serif;font-size:10pt; min-width: 700px;" cellspacing="0" cellpadding="0" border="0"> <tr> <td style="width:18pt;">&nbsp;</td> <td style="width:18pt;vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">&#x25cf;</div> </td> <td style="vertical-align:top;"> <div style=" font-family:'Times New Roman', Times, serif;margin-right:0pt;margin-top:0pt;text-align:left;margin-bottom:0pt;font-size:10pt;">enter into any agreement containing any provision which would be violated or breached by the performance of the Company&#x2019;s obligations under the loan agreements.</div> </td> </tr> </table> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">5.00%</div> per annum. In the event of a default, interest under the loan <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> may </div>be increased by <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2%.</div> The line of credit is secured by a priority security interest in the Company&#x2019;s inventory and accounts receivable and has been guaranteed by our CEO. Also, all obligations due from the Company to Mr. Shrewsbury are subordinate to the bank&#x2019;s indebtedness, including under the Consolidated Note and any advances due to Mr. Shrewsbury.</div></div> 2016-01-03 711376 2000000 1062000 289997 monthly 168905 93252 0.02 0.1 0.05 2020-12-03 6967 391896 P5Y P10Y 5376 7347 1792 2449 22487 33987 22487 33987 78000 0 0 0 0 170186 195800 522162 414343 -89834 261813 -80360 258902 851 7819 33 -239821 -1428 45 -500 33481 33568 97396 95212 22601 16752 434521 359726 434521 1690383 1690350 P2Y P2Y P2Y 4077444 4202709 2153142 2261912 1597821 1680304 250000 750000 563223 83600 83600 479623 522405 -54282 -146792 55771 147419 16495 -108314 564 6402 16495 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;"><div style="display: inline; font-weight: bold;">NOTE </div><div style="display: inline; font-weight: bold;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">6</div></div><div style="display: inline; font-weight: bold;"> &#x2013; </div><div style="display: inline; font-weight: bold;">NEW ACCOUNTING PRONOUNCEMENT</div><div style="display: inline; font-weight: bold;">S</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">In <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> May 2014, </div>the FASB issued ASU <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">No.</div> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2014</div>-<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">09,</div> <div style="display: inline; font-style: italic;">Revenue from Contracts with Customers</div> (Topic <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">606</div>). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. It is effective for annual and interim reporting periods beginning after <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 15, 2017. </div>This standard permits early adoption, but <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> before <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 15, 2016, </div>and permits the use of either a retrospective or cumulative effect transition method. We evaluated the potential impact of this standard on our financial position and results of operations, as well as our selected transition method. Based on our evaluation, we concluded the new standard does <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> have a material impact on our financial position and results of operations, as we do <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> expect to change the manner or timing of recognizing revenue on a majority of our revenue transactions. We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">In <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> February 2016, </div>the FASB issued ASU <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">No.</div> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2016</div>-<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">02,</div><div style="display: inline; font-style: italic;"> Leases</div> (Topic <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">842</div>). The standard requires all leases that have a term of over <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">12</div> months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> January 1, 2019, </div>and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position, but we do <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> expect it to have a material impact on our results of operations.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;"></div></div></div> -29266 -33568 -86704 -95212 2000000 2000000 140356 155830 418963 427445 29830 39970 103199 -13102 1458 2886 500 88879 106689 260804 308525 4215 10692 3800 3390 9203 7456 84000 500 0 0 1000000 1000000 0 0 186000 111150 5267 4789 22167 12409 41604 46980 -20 -62135 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">NOTE</div><div style="display: inline; font-weight: bold;"> </div><div style="display: inline; font-weight: bold;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">4</div></div><div style="display: inline; font-weight: bold;"> &#x2013; RELATED PARTY TRANSACTIONS</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Advances from Stockholder and Officer</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">As of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2017, </div>Mr. Shrewsbury had outstanding advances owed from the Company of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$22,487</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$33,987,</div> respectively. The advances bear <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">no</div> interest and are due on demand.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Notes Payable to Officer</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> February 25, 2014, </div>the Company and Mr. Shrewsbury consolidated an aggregate of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$2,000,000</div> of indebtedness due to Mr. Shrewsbury, including principal due under a Revolving Demand Note (&#x201c;Revolving Note&#x201d;) in the amount of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$1,062,000</div> and accrued but unpaid interest as of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> January 31, 2014 </div>of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$168,905;</div> principal due under a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">10%</div> Promissory Note (<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">&#x201c;10%</div> Note&#x201d;) in the amount of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$289,997</div> and accrued but unpaid interest as of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> January 31, 2014 </div>of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$93,252;</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$385,846</div> of non-interest bearing advances outstanding as of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> January 31, 2014. </div>The Company issued in exchange a Consolidated Secured Promissory Note (&#x201c;Consolidated Note&#x201d;) in the principal amount of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$2,000,000.</div> The Revolving Note and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">10%</div> Note were cancelled and Mr. Shrewsbury agreed to waive any prior defaults under the terms of such notes and to release the Company from any claims related thereto. The Consolidated Note bears interest at the rate of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">5%</div> per annum or prime rate if higher than <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">5%</div> per annum, is repayable in full <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">ten</div> years from the date of issuance, and is subject to certain events of default. Payment of the Consolidated Note is to be secured or otherwise payable by the Company out of the death benefit proceeds of key man life insurance of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$2</div> million that has been purchased by the Company on the life of Mr. Shrewsbury. The terms of the debt consolidation and restructuring were unanimously approved by disinterested members of the Board of Directors of the Company. As of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>the Company has recorded <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$434,521</div> accrued interest on the note.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Lease Agreement with Stockholder and Officer</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">In <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> November 2012, </div>the Company entered into a lease agreement with William Shrewsbury and Peggy Shrewsbury to lease to the Company real estate and warehouse space to store the Company&#x2019;s inventory. The initial lease had a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">two</div>-year term starting <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> October 1, 2012 </div>and ending <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> August 31, 2014. </div>On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 1, 2014 </div>the lease was extended for an additional <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">two</div> years and on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 1, 2016, </div>further extended for an additional <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">two</div> years. The lease rental is <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$2,000</div> per month payable on the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">first</div> of each month. As of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>since the beginning of the lease, the Company has made lease payments in the amount of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$84,000</div> and has an outstanding payable, reported under accrued liabilities, to Mr. and Mrs. Shrewsbury of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$78,000.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"></div> <div style=" font-family: 'Times New Roman', Times, serif; font-size: 10pt; margin: 0pt; text-align: left">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Freight Charges Paid to Company Controlled by Officer and Stockholder</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The Company utilizes the services of a trucking company owned and controlled by Mr. Shrewsbury, our Chief Executive Officer, to transport certain of the Company&#x2019;s products to its customers. During the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">three</div> months ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2017,</div> such trucking company was paid <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$24,480</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$17,243,</div> respectively, and for the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">nine</div> months ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2017</div> was paid <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$66,895</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$37,888,</div> respectively, for these trucking services. The freight charges are reported under cost of sales.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Commissions Paid to Company Controlled by Officer and Stockholder</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">In connection with the transportation and delivery of certain of the Company&#x2019;s products, the Company utilizes the services of a national transportation company. The chief executive officer of the Company owns and controls a company that is an agent of such transportation company. Such controlled company places orders for such transportation services on behalf of the Company and is paid a commission for such transportation services. During the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">three</div> months ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2017,</div> the Company paid commissions of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$3,800</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$3,390</div> respectively, and for the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">nine</div> months ended <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018 </div>and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2017,</div> was paid <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$9,203</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$7,456,</div> respectively. The delivery costs are reflected under cost of sales in our financial statements</div></div> 42782 47242 197500 210700 -15539441 -15555936 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Revenue Recognition</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">The Company recognizes revenue from direct sales of our products to our customers, including shipping fees. Revenue is recognized when title passes to the customer (usually upon shipment or delivery, depending upon the terms of the sales order) when persuasive evidence of an arrangement exists; when sales amounts are fixed or determinable; and when collectability is reasonably assured. The Company expenses shipping and handling costs as incurred which are included in cost of goods sold on the consolidated statements of operations.</div></div></div></div></div></div></div></div></div> 1002866 852926 3100840 2273245 44418 51903 130596 108259 500000 0.0924 48053084 48053084 -1924302 -1940797 9293810 4321329 -15555936 9293810 4321329 -15539441 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:18pt;margin-top:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">NOTE</div><div style="display: inline; font-weight: bold;"> </div><div style="display: inline; font-weight: bold;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">3</div></div><div style="display: inline; font-weight: bold;"> &#x2013; STOCKHOLDERS&#x2019; </div><div style="display: inline; font-weight: bold;">DEFICIT</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-style: italic;"><div style="display: inline; font-weight: bold;">Potentially Dilutive Options and Warrants</div></div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;"><div style="display: inline; font-weight: bold;">&nbsp;</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> May 16, 2012, </div>the Board of Directors authorized the issuance of an aggregate of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">400,000</div> common stock purchase warrants to a sales agent, Mr. Tom Chafin. Over a period of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">four</div> years, Mr. Chafin was expected to receive <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">50,000</div> warrants every <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">six</div> months, for an aggregate of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">400,000</div> warrants. The warrants are exercisable at a price of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$0.10</div> per share, become immediately exercisable, and expire <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">two</div> years after the date of issuance. The initial tranche of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">50,000</div> warrants were issuable effective <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> July 1, 2012. </div>As of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> June 30, 2018, </div>all <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">400,000</div> issuable warrants to Mr. Chafin have expired under the terms of the agreement. The warrants were <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> included in the calculation of diluted earnings per share since their inclusion will be anti-dilutive.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:left;">On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> February 25, 2014, </div>the Company issued <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">500,000</div> common stock purchase options to Mr. Shrewsbury. Commencing <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> April 1, 2014, </div>the options became exercisable at a price of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$.0924</div> per share, the fair value of the Company&#x2019;s shares of Common Stock on the date authorized by the Board of Directors, <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> February 21, 2014. </div>The options expired on <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> March 31, 2017.</div></div></div> 48053084 48053084 48053084 48053084 xbrli:shares xbrli:pure iso4217:USD iso4217:USD xbrli:shares 0001133798 txhg:SalesAgentMember 2012-05-16 2012-05-16 0001133798 txhg:LeaseAgreementMember txhg:WilliamShrewsburyAndPeggyShrewsburyMember 2012-11-01 2012-11-30 0001133798 2012-11-01 2018-06-30 0001133798 txhg:RevolvingPromissoryNotePayableMember us-gaap:ChiefExecutiveOfficerMember 2014-01-01 2014-01-31 0001133798 txhg:The10PercentPromissoryNoteMember us-gaap:ChiefExecutiveOfficerMember 2014-01-01 2014-01-31 0001133798 txhg:ConsolidatedNotesPayableMember us-gaap:ChiefExecutiveOfficerMember 2014-02-01 2014-02-25 0001133798 us-gaap:ChiefExecutiveOfficerMember 2014-02-25 2014-02-25 0001133798 us-gaap:ChiefExecutiveOfficerMember 2014-04-01 2014-04-01 0001133798 txhg:BagRackLLCMember 2014-11-21 2014-11-21 0001133798 txhg:BagRackLLCMember 2014-11-21 2018-06-30 0001133798 txhg:TownSquareBankMember txhg:TermLoanMember 2015-12-03 2015-12-03 0001133798 2016-10-01 2017-06-30 0001133798 us-gaap:CargoAndFreightMember 2016-10-01 2017-06-30 0001133798 2017-04-01 2017-06-30 0001133798 us-gaap:CargoAndFreightMember 2017-04-01 2017-06-30 0001133798 txhg:BagRackLLCMember 2017-09-30 2017-09-30 0001133798 2017-10-01 2018-06-30 0001133798 txhg:BagRackLLCMember 2017-10-01 2018-06-30 0001133798 txhg:TermLoanMember 2017-10-01 2018-06-30 0001133798 txhg:TermLoanMember us-gaap:PrimeRateMember 2017-10-01 2018-06-30 0001133798 us-gaap:CargoAndFreightMember 2017-10-01 2018-06-30 0001133798 us-gaap:AdditionalPaidInCapitalMember 2017-10-01 2018-06-30 0001133798 us-gaap:CommonStockMember 2017-10-01 2018-06-30 0001133798 us-gaap:PreferredStockMember 2017-10-01 2018-06-30 0001133798 us-gaap:RetainedEarningsMember 2017-10-01 2018-06-30 0001133798 2018-04-01 2018-06-30 0001133798 us-gaap:CargoAndFreightMember 2018-04-01 2018-06-30 0001133798 txhg:SalesAgentMember 2012-05-16 0001133798 txhg:LeaseAgreementMember txhg:WilliamShrewsburyAndPeggyShrewsburyMember 2012-11-19 0001133798 us-gaap:LineOfCreditMember 2012-11-30 0001133798 txhg:The10PercentPromissoryNoteMember us-gaap:ChiefExecutiveOfficerMember 2014-01-31 0001133798 txhg:ConsolidatedNotesPayableMember us-gaap:ChiefExecutiveOfficerMember 2014-02-25 0001133798 txhg:RevolvingPromissoryNotePayableMember us-gaap:ChiefExecutiveOfficerMember 2014-02-25 0001133798 txhg:The10PercentPromissoryNoteMember us-gaap:ChiefExecutiveOfficerMember 2014-02-25 0001133798 us-gaap:LineOfCreditMember 2014-08-26 0001133798 txhg:LeaseAgreementMember txhg:WilliamShrewsburyAndPeggyShrewsburyMember 2014-09-01 0001133798 txhg:BagRackLLCMember 2014-11-21 0001133798 txhg:TownSquareBankMember txhg:TermLoanMember 2015-12-03 0001133798 txhg:LeaseAgreementMember txhg:WilliamShrewsburyAndPeggyShrewsburyMember 2016-09-01 0001133798 2016-09-30 0001133798 2017-06-30 0001133798 2017-09-30 0001133798 us-gaap:ChiefExecutiveOfficerMember 2017-09-30 0001133798 us-gaap:AdditionalPaidInCapitalMember 2017-09-30 0001133798 us-gaap:CommonStockMember 2017-09-30 0001133798 us-gaap:PreferredStockMember 2017-09-30 0001133798 us-gaap:RetainedEarningsMember 2017-09-30 0001133798 2018-06-30 0001133798 txhg:BagRackLLCMember 2018-06-30 0001133798 txhg:ConsolidatedNotesPayableMember us-gaap:ChiefExecutiveOfficerMember 2018-06-30 0001133798 txhg:TermLoanMember 2018-06-30 0001133798 txhg:TermLoanMember us-gaap:PrimeRateMember 2018-06-30 0001133798 us-gaap:ChiefExecutiveOfficerMember 2018-06-30 0001133798 txhg:WilliamShrewsburyAndPeggyShrewsburyMember 2018-06-30 0001133798 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001133798 us-gaap:CommonStockMember 2018-06-30 0001133798 us-gaap:PreferredStockMember 2018-06-30 0001133798 us-gaap:RetainedEarningsMember 2018-06-30 0001133798 txhg:SalesAgentMember 2018-06-30 0001133798 2018-07-23 EX-101.SCH 7 txhg-20180630.xsd XBRL TAXONOMY EXTENSION SCHEMA 000 - 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Related Party Transactions (Details Textual) link:calculationLink link:definitionLink link:presentationLink 017 - Disclosure - Note 5 - Bank Loan (Details Textual) link:calculationLink link:definitionLink link:presentationLink EX-101.CAL 8 txhg-20180630_cal.xml XBRL TAXONOMY EXTENSION CALCULATION LINKBASE EX-101.DEF 9 txhg-20180630_def.xml XBRL TAXONOMY EXTENSION DEFINITION LINKBASE EX-101.LAB 10 txhg-20180630_lab.xml XBRL TAXONOMY EXTENSION LABEL LINKBASE Document And Entity Information Note To Financial Statement Details Textual Significant Accounting Policies Notes To Financial Statements Notes To Financial Statements [Abstract] txhg_ClassOfWarrantOrRightNumberOfWarrantsOrRightsExercisable Class of Warrant or Right, Number of Warrants or Rights Exercisable This element represents the number of warrants exercisable. Other us-gaap_LiabilitiesCurrent Total current liabilities Title of Individual [Axis] Relationship to Entity [Domain] Revenue us-gaap_BusinessAcquisitionPercentageOfVotingInterestsAcquired Business Acquisition, Percentage of Voting Interests Acquired us-gaap_LesseeOperatingLeaseTermOfContract Lessee, Operating Lease, Term of Contract Depreciation expense Bank-term-loan-current portion us-gaap_AssetsCurrent Total current assets us-gaap_BusinessCombinationProFormaInformationRevenueOfAcquireeSinceAcquisitionDateActual Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual us-gaap_BusinessCombinationProFormaInformationEarningsOrLossOfAcquireeSinceAcquisitionDateActual Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual Stockholders' Equity Note Disclosure [Text Block] Common stock: no par value, 250,000,000 shares authorized, 48,053,084 shares issued and outstanding at June 30, 2018 and September 30, 2017 Adjustments to reconcile income/(loss) to net cash provided by operating activities: Bad debt expense/(recovery) Amount of expense, excluding evaluation allowance related to write-down of receivables to the amount expected to be collected. Includes, but is not limited to, accounts receivable and notes receivable. us-gaap_PaymentsForLeaseCommissions Payments for Lease Commissions Common stock, shares authorized (in shares) Common stock, shares issued (in shares) Common stock, no par value (in dollars per share) us-gaap_ShareBasedCompensationArrangementsByShareBasedPaymentAwardOptionsGrantsInPeriodWeightedAverageExercisePrice Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price Accrued liabilities Accrued interest to officer Accounts payable Product and Service [Axis] Other current assets Product and Service [Domain] Credit Facility [Axis] Credit Facility [Domain] Preferred stock: no par value, 1,000,000 shares authorized no shares outstanding us-gaap_PaymentsForRent Payments for Rent Cash paid during the year for interest us-gaap_PolicyTextBlockAbstract Accounting Policies Preferred stock, no par value (in dollars per share) Commission advances The current portion of commission as of the balance sheet date. Preferred stock, shares authorized (in shares) txhg_IncreaseDecreaseInCommissionAdvances Commission advances The increase (decrease) during the reporting period in the amount of commission advances during the period. txhg_PercentageByControllingOwners Percentage by Controlling Owners Represents percentage by controlling owners company's CEO and major stockholder. txhg_ValueOfPatentRights Value of Patent Rights Represents value of pending patent rights. Stockholder/officers advances for operations The increase (decrease) during the reporting period in the amount of stockholder advances for operations. Going Concern Consideration [Policy Text Block] Disclosure of accounting policy for going concern consideration. txhg_PercentageOfNetIncomeToEachFormerMemberAfterPaymentToPendingPatentHolder Percentage of Net Income to Each Former Member after Payment to Pending Patent Holder Represents percentage of net income to each former member after payment to pending patent holder. txhg_PercentageOfNetProfitToFormerPendingPatentHolderForEachProductSold Percentage of Net Profit to Former Pending Patent Holder for Each Product Sold Represents percentage of net profit to former pending patent holder for each product sold to customers. Inventory txhg_ClassOfWarrantOrRightsExpiryPeriod Class of Warrant or Rights Expiry Period Expiry period of warrants, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. Supplemental Disclosure of Cash Flow Information txhg_WarrantIssuedTerm Warrant Issued Term Period of warrants issued, in 'PnYnMnDTnHnMnS' format, for example, 'P1Y5M13D' represents the reported fact of one year, five months, and thirteen days. txhg_NumberOfWarrantsIssuableEverySixMonths Number of Warrants Issuable Every Six Months This element represents the number of warrants issuable every sixth month. Weighted average of common shares outstanding- Consolidated Notes Payable [Member] Represents information about consolidated notes payable. Revolving Promissory Note Payable [Member] Represents information about revolving promissory note payable. Current liabilities: us-gaap_Assets Total Assets Term Loan [Member] Represents information about a term loan. Cash flows provided by operating activities: Town Square Bank [Member] Represents information about Town Square Bank. Bag Rack, LLC [Member] Represents information about Bag Rack, LLC. Revenue Recognition, Policy [Policy Text Block] Statement [Line Items] Allowance for doubtful accounts Accounts receivable, net of allowance for doubtful accounts of $0 at June 30, 2018 and September 30, 2017 The 10 Percent Promissory Note [Member] Represents information about the 10% Promissory Note. Additional paid-in capital Stockholders' deficit: txhg_DebtInstrumentPrimeInterestRate Debt Instrument Prime Interest Rate Represent prime interest rate on note. txhg_OutstandingNoninterestBearingPromissoryNotesPayable Outstanding NonInterest Bearing Promissory Notes Payable This element represents amount outstanding in connection with non interest bearing promissory notes payable. Lease Agreement [Member] Represents information about Lease Agreement. William Shrewsbury and Peggy Shrewsbury [member] Represents information about William Shrewsbury and Peggy Shrewsbury. txhg_ProceedsFromKeymanInsurancePolicy Proceeds from Keyman Insurance Policy Represent amount received from discharge of keyman insurance policy. us-gaap_NonoperatingIncomeExpense Total other income and (expense), net Business Description and Accounting Policies [Text Block] txhg_LeaseRentalPaymentPerMonth Lease Rental Payment Per Month Represents lease rental expense payment per month. Other income Current assets: Net income Net income/(loss) Net income (loss) us-gaap_NetCashProvidedByUsedInFinancingActivities Net cash used in financing activities us-gaap_Liabilities Total Liabilities Commitments and contingencies us-gaap_OperatingIncomeLoss Income (loss) from operations us-gaap_NetCashProvidedByUsedInOperatingActivities Net cash provided by operating activities Other income and (expense): Net cash provided/(used) in investing activities us-gaap_CashAndCashEquivalentsPeriodIncreaseDecrease Increase in cash and cash equivalents us-gaap_GrossProfit Gross profit us-gaap_CostOfGoodsAndServicesSold Cost of Goods and Services Sold, Total Cost of goods sold us-gaap_DueToRelatedPartiesCurrentAndNoncurrent Due to Related Parties, Total Business Combination Disclosure [Text Block] Property and equipment, net us-gaap_InterestPayableCurrentAndNoncurrent Interest Payable Long-term Debt, Type [Axis] Long-term Debt, Type [Domain] Cash flows provided/(used) in investing activities: Retained Earnings [Member] Additional Paid-in Capital [Member] Common Stock [Member] Related Party Transactions Disclosure [Text Block] Preferred Stock [Member] Line of Credit [Member] us-gaap_IncreaseDecreaseInAccruedLiabilities Accrued liabilities Equity Components [Axis] Equity Component [Domain] us-gaap_LongTermDebt Long-term Debt, Total us-gaap_IncreaseDecreaseInAccountsPayable Accounts payable us-gaap_ClassOfWarrantOrRightExercisePriceOfWarrantsOrRights1 Class of Warrant or Right, Exercise Price of Warrants or Rights us-gaap_ClassOfWarrantOrRightNumberOfSecuritiesCalledByWarrantsOrRights Class of Warrant or Right, Number of Securities Called by Warrants or Rights us-gaap_OperatingExpenses Total operating expenses us-gaap_DebtInstrumentTerm Debt Instrument, Term us-gaap_DebtInstrumentIncreaseAccruedInterest Debt Instrument, Increase, Accrued Interest Cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period us-gaap_RepaymentsOfRelatedPartyDebt Repayment of officer advances Amendment Flag Accounting Policies [Abstract] us-gaap_DebtInstrumentMaturityDate Debt Instrument, Maturity Date us-gaap_DebtInstrumentPeriodicPayment Debt Instrument, Periodic Payment, Total us-gaap_DebtInstrumentDateOfFirstRequiredPayment1 Debt Instrument, Date of First Required Payment us-gaap_DebtInstrumentPeriodicPaymentTermsBalloonPaymentToBePaid Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid us-gaap_DebtInstrumentFrequencyOfPeriodicPayment Debt Instrument, Frequency of Periodic Payment us-gaap_SharesOutstanding Balance (in shares) Balance (in shares) Common stock, shares outstanding (in shares) Preferred stock, shares outstanding (in shares) Proceeds from officer advances us-gaap_IncreaseDecreaseInOtherOperatingAssets Other assets Current Fiscal Year End Date us-gaap_DebtInstrumentInterestRateStatedPercentage Debt Instrument, Interest Rate, Stated Percentage us-gaap_DebtInstrumentInterestRateIncreaseDecrease Debt Instrument, Interest Rate, Increase (Decrease) Lease Arrangement, Type [Axis] Lease Arrangement, Type [Domain] Document Fiscal Period Focus Document Fiscal Year Focus Consolidation, Policy [Policy Text Block] Document Period End Date us-gaap_DebtInstrumentFaceAmount Debt Instrument, Face Amount Document Type us-gaap_AssetImpairmentCharges Asset Impairment Charges, Total Document Information [Line Items] Document Information [Table] Entity Filer Category Entity Current Reporting Status Entity Voluntary Filers Entity Well-known Seasoned Issuer Note payable to officer Variable Rate [Domain] us-gaap_RepaymentsOfBankDebt Repayment of bank term loan Basic and Diluted (in shares) Prime Rate [Member] Variable Rate [Axis] us-gaap_IncreaseDecreaseInAccountsReceivable Accounts receivable Basic and Diluted (in dollars per share) Entity Central Index Key Advances from officer Due to Officers or Stockholders, Current Entity Registrant Name Entity [Domain] Legal Entity [Axis] Statement [Table] Scenario [Axis] Statement of Financial Position [Abstract] Scenario, Unspecified [Domain] Business Acquisition [Axis] Business Acquisition, Acquiree [Domain] Net income/(loss) per common share Statement of Cash Flows [Abstract] Entity Common Stock, Shares Outstanding (in shares) Statement of Stockholders' Equity [Abstract] Income Statement [Abstract] us-gaap_IncreaseDecreaseInOtherCurrentAssets Other current assets Professional fees us-gaap_IncreaseDecreaseInInventories Inventory Trading Symbol us-gaap_BusinessAcquisitionDateOfAcquisitionAgreement1 Business Acquisition, Date of Acquisition Agreement us-gaap_TableTextBlock Notes Tables us-gaap_LineOfCreditFacilityMaximumBorrowingCapacity Line of Credit Facility, Maximum Borrowing Capacity New Accounting Pronouncements and Changes in Accounting Principles [Text Block] Chief Executive Officer [Member] Related Party [Axis] Related Party [Domain] us-gaap_ProvisionForDoubtfulAccounts Bad debt expense Commission expense us-gaap_ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsGrantsInPeriodGross Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross Cash flows used in financing activities: Line of Credit Facility, Lender [Domain] Cargo and Freight [Member] Lender Name [Axis] us-gaap_LiabilitiesAndStockholdersEquity Total Liabilities and Stockholders' Deficit Operating expenses, except items shown separately below Accumulated deficit Debt Disclosure [Text Block] us-gaap_InterestExpense Interest expense Changes in operating assets and liabilities: us-gaap_StockholdersEquity Total stockholders' deficit Balance Balance us-gaap_DisclosureTextBlockAbstract Notes to Financial Statements Class of Stock [Axis] Bank-term-loan, less current portion us-gaap_PaymentsToAcquireBusinessesGross Payments to Acquire Businesses, Gross Sales Agent [Member] Represents the sales agent of the company. 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