0001571049-16-014912.txt : 20160506 0001571049-16-014912.hdr.sgml : 20160506 20160506080113 ACCESSION NUMBER: 0001571049-16-014912 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 36 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160506 DATE AS OF CHANGE: 20160506 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: 161625914 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 t1600269_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2016

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

	12080 Virginia Blvd., Ashland, KY 41102				(606) 928-1131
(Address of Principal Executive Offices and Zip Code)				(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 x 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 x NO ¨

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company x

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

On May 6, 2016, there were 48,053,084 shares of the registrant’s common stock outstanding.

TX HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2016

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2016 and September 30, 2015 (Unaudited)	5

	Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2016 and 2015 (Unaudited)	6

	Consolidated Statement of Changes in Stockholders’ Deficit for the Six Months Ended March 31, 2016 (Unaudited)	7

	Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2016 and 2015 (Unaudited)	8

	Notes to Unaudited Consolidated Financial Statements	9

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

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this report as well as information relating to us contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and other applicable law, which provide our current expectations or forecasts of future events. Forward-looking statements in this report include, without limitation:

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

other statements that are not historical fact.

Forward-looking statements generally can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “intends, “plans,” “should,” “could,” “seeks,” “pro forma,” “anticipates,” “estimates,” “continues,” or other variations thereof (including their use in the negative), or by discussions of strategies, plans or intentions. Such statements include but are not limited to statements under Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2015, Part II, Item 1A – Risk Factors of this report, Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report, and elsewhere in this report. A number of factors could cause results to differ materially from those anticipated by such forward-looking statements. The absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including factors described in Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2015, and Part II, Item 1A – Risk Factors of this report. You should carefully consider the factors described in Part II, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2015, and Part II, Item 1A – Risk Factors of this report, in evaluating 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 undertake no obligation 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. You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission (“SEC”). Notwithstanding the above, Section 27A of the Securities Act and Section 21E of the Exchange Act 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 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.

PART 1-FINANCIAL INFORMATION

Item 1-Financial Statements

TX HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2016 and September 30, 2015

	Unaudited
	March 31,			September 30,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	1,369		$	61,564
Accounts receivable, net of allowance for doubtful accounts of $13,643 at March 31, 2016 and September 30, 2015		519,944			585,043
Inventory		2,388,672			2,223,037
Commission advances		55,511			48,338
Note receivable-current		10,000			10,000
Other current assets		26,136			27,674
Total current assets		3,001,632			2,955,656

Inventory, non-current		300,000			300,000
Property and equipment, net		61,677			66,575
Note receivable, less current portion		19,983			19,983
Other		500			500
Total Assets	$	3,383,792		$	3,342,714

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accrued liabilities	$	737,929		$	696,624
Accounts payable		902,532			946,576
Advances from officer		204,437			124,637
Bank-Line of Credit		–			712,449
Bank-Term Loan		696,938			–
Total current liabilities		2,541,836			2,480,286

Note payable to officer		2,000,000			2,000,000
Total Liabilities		4,541,836			4,480,286

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 March 31, 2016 and September 30, 2015		9,293,810			9,293,810
Additional paid-in capital		4,321,329			4,321,329
Accumulated deficit		(14,773,183	)		(14,752,711	)
Total stockholders' deficit		(1,158,044	)		(1,137,572	)
Total Liabilities and Stockholders' Deficit	$	3,383,792		$	3,342,714

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

TX HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Six Months Ended March 31, 2016 and March 31, 2015

	Unaudited
	THREE MONTHS ENDED						SIX MONTHS ENDED
	March 31,			March 31,			March 31,			March 31,
	2016			2015			2016			2015

Revenue	$	564,913		$	951,857		$	1,347,178		$	1,592,646

Cost of goods sold		(394,611	)		(784,066	)		(938,457	)		(1,307,412	)

Gross profit		170,302			167,791			408,721			285,234

Operating expenses, except items shown separately below		133,597			136,326			254,297			289,911
Commission expense		35,541			65,361			63,373			105,934
Professional fees		20,075			18,034			41,421			58,310
Bad Debt Expense		–			–			1,926			–
Depreciation expense		2,449			2,390			4,898			5,206
Total operating expenses		191,662			222,111			365,915			459,361

Income (loss) from operations		(21,360	)		(54,320	)		42,806			(174,127	)

Other income and (expense):
Other income		–			6,381			–			12,553
Interest expense		(29,744	)		(34,183	)		(63,278	)		(65,831	)

Total other income and (expense), net		(29,744	)		(27,802	)		(63,278	)		(53,278	)

Net loss	$	(51,104	)	$	(82,122	)	$	(20,472	)	$	(227,405	)

Net earnings (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.

TX HOLDINGS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Six Months Ended March 31, 2016

	Unaudited
									Additional
	Preferred Stock				Common Stock				Paid in		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total

Balance at
September 30, 2015		–	$	–		48,053,084	$	9,293,810	$	4,321,329	$	(14,752,711	)	$	(1,137,572	)

Net loss		–		–		–		–		–		(20,472	)		(20,472	)

Balance at March 31,2016		–	$	–		48,053,084	$	9,293,810	$	4,321,329	$	(14,773,183	)	$	(1,158,044	)

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31, 2016 and 2015

	(Unaudited)
	March 31,			March 31,
	2016			2015
Cash flows used in operating activities:
Net loss	$	(20,472	)	$	(227,405	)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation expense		4,898			5,206
Bad debt expense		1,926
Changes in operating assets and liabilities:
Accounts receivable		63,173			(105,579	)
Inventory		(165,635	)		(89,141	)
Commission advances		(7,173	)		(16,684	)
Other current assets		1,538			18,251
Accrued liabilities		29,305			20,658
Accounts payable		(44,044	)		180,322
Other assets		–			(500	)
Stockholder/officers advances for operations		12,000			–
Net cash used in operating activities		(124,484	)		(214,872	)

Cash flows used in investing activities:
Notes receivable		–			1,306
Purchase of equipment		–			(4,149	)
Net cash used in investing activities		–			(2,843	)

Cash flows provided by financing activities:
Payment on Term Loan		(14,438	)		–
Proceeds from bank line of credit		–			171,049
Repayment of bank line of credit		(1,073	)		–
Proceeds from stockholder/officer advances		79,800			17,300
Repayment of stockholder/officer advances		–			(36,000	)
Net cash provided by financing activities		64,289			152,349

Increase/(decrease) in cash and cash equivalents		(60,195	)		(65,366	)
Cash and cash equivalents at beginning of period		61,564			72,784

Cash and cash equivalents at end of period	$	1,369		$	7,418

Supplemental Disclosure of Cash Flow Information

Cash paid during the year for interest	$	63,278		$	65,831

Suppemental Schedule of Non-Cash investing and Financing Activities

Payments of line of credit through issuance of note payable	$	711,376		$	–

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

TX HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL STATEMENTS

The accompanying interim unaudited consolidated financial statements and footnotes of TX Holdings, Inc., and its subsidiaries (the “Company”), 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, 2015, 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 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, 2015. 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, 2016.

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 we make about the carrying values of our 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 and rail material directly and through other suppliers to the United States’ coal mining industry 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. In addition, on November 21, 2014, and with a view to diversifying its business, the Company acquired all of the membership interest in The Bag Rack, LLC. The acquired company has developed a new product, “The Bag Rack,” and is in the preliminary stages of distributing and selling the new product. 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 expects to market and sell the new product online, through distributors, and through certain national retailers and discount stores. See Note 2.

The Company was incorporated in the State of Georgia on May 15, 2000, under the name HOM Corporation. On January 22, 2003, the Company changed its name to R Wireless, Inc., and, on July 27, 2005, changed its name to TX Holdings, Inc.

REVENUE RECOGNITION

The Company recognizes revenue from direct sales of our products to our customers, including shipping fees. 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 included in this report 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 our annual report on Form 10-K for the year ended September 30, 2015, contains an explanatory paragraph wherein it 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.

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, since November 2012, 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 a 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 the acquisition transaction. 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.

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 is 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 exercisable upon issuance, and expire two years after the date of issuance. The initial tranche of 50,000 warrants were issuable effective July 1, 2012. As of March 31, 2016 Mr. Chafin has 200,000 warrants outstanding and unexercised and 200,000 warrants have expired pursuant to 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 market value of the Company’s shares of Common Stock on the date authorized by the Board of Directors, February 21, 2014. The options expire on March 31, 2017. The options are not included in the calculation of diluted earnings per share since their inclusion will be anti-dilutive.

NOTE 4 – RELATED PARTY TRANSACTIONS

ADVANCES FROM STOCKHOLDER/OFFICER

As of March 31, 2016 and September 30, 2015, Mr. Shrewsbury had outstanding advances to the Company of $204,437 and $124,637, respectively. The advances bear no interest and are due on demand.

NOTES PAYABLE TO A STOCKHOLDER AND OFFICER

On February 25, 2014, the Company and Mr. Shrewsbury consolidated an aggregate of $2,000,000 of the indebtedness to Mr. Shrewsbury, including the principal due under a Revolving Demand Note (“Revolving Note”) in the principal amount of $1,062,000 and accrued but unpaid interest due thereunder as of January 31, 2014 in the amount of $168,905, the principal due under a 10% Promissory Note (“10% Note”) in the amount of $289,997 and accrued but unpaid interest due thereunder as of January 31, 2014 in the amount of $93,252; and $385,846 of non-interest bearing advances outstanding as of January 31, 2014. The Company issued in exchange and in replacement therefor a Consolidated Secured Promissory Note (the “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 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 the disinterested members of the Board of Directors of the Company.

LEASE AGREEMENT WITH STOCKHOLDER AND OFFICER

In November 2012, the Company entered into a lease agreement with William Shrewsbury and Peggy Shrewsbury whereby Mr. Shrewsbury and Mrs. Shrewsbury agreed 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 parties agreed to extend the lease for an additional two years. The lease rental is $2,000 per month payable the first of each month. As of March 31, 2016, the Company has made lease payments, since the beginning of the lease, in the amount of $84,000 and has an outstanding payable on the lease to Mr. Shrewsbury in the amount of $24,000.

FREIGHT PAID TO COMPANY CONTROLLED BY OFFICER/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 and six months ended March 31, 2016 and 2015, such trucking company was paid $16,350 and $8,879 and $28,411 and $17,758, respectively, for such trucking services.

COMMISSIONS PAID TO COMPANY CONTROLLED BY OFFICER/SHAREHOLDER

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 and a principal stockholder 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 and six months ended March 31, 2016 and 2015 the commissions’ amounts were $2,928 and $2,676 and $5,973 and $4,796, respectively.

NOTE 5 – BANK LOAN

In November 2012, the Company obtained a $250,000 line of credit from a bank. On August 26, 2014, the bank increased the Company’s existing bank line of credit from $250,000 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 loan agreement with the 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. As of March 31, 2016, the loan balance is $696,938.

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 amounts due under 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 under the loan;

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 obligation 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.

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 3.50% 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 claims 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.

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 financial statements and notes thereto and schedules appearing elsewhere in this report. Throughout this report when we refer to the “Company” “TX Holdings,” “we,” “our” or “us,” we mean TX Holdings, Inc., a Georgia corporation, and its subsidiaries.

This discussion and analysis of our financial condition and results of operations 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 Management’s Discussion and Analysis 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, 2015, contains an explanatory paragraph wherein 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 Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2015, and Part II, Item 1A – Risk Factors in this report.

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 the United States’ coal mining industry for use in their production and transportation processes. The products are supplied to the Company by various manufacturers and suppliers.

We purchase mining supplies from several manufacturers and rail material from several suppliers of such products. Our products are either shipped to our warehouse in Ashland, Kentucky for distribution to our customers or shipped directly to our customers, including products that 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 a Company’ salesman and two independent sales agents who are compensated on a commissioned basis.

Revenues for the three months ended March 31, 2016 was $564,913 as compared to $951,857 for the same period in 2015, a decrease of approximately 40.7%. Revenue for the six months ended March 31, 2016, was $1,347,178 as compared to $1,592,646 for the same period in 2015, a decrease of approximately 15%.

During the six months ended March 31, 2016, we had a net loss of $20,472 as compared to net loss of $227,405 for the same period in 2015.

At March 31, 2016, cash and cash equivalents were $1,369 compared to $61,564 at September 30, 2015.

Net cash used in operating activities was $124,484 during the six months ended March 31, 2016. Net cash used in operating activities during the same six-month period in 2015 was $214,872.

There was no cash flow from investing activities for the six months ended March 31, 2016. Cash flow used in investing activities during the six month period ended March 31,2015 was $2,843.

During the six months ended March 31, 2016, net cash provided by financing activities was $64,289 primarily due to cash advances from our CEO, William Shrewsbury. Cash flow provided by financing activities for the six months ended March 31, 2015 was $152,349 resulting primarily from the Company’s $171,049 drawdown from its line of credit.

Mr. William Shrewsbury, the Company’s Chairman and CEO, has provided financing in the form of demand notes and advances. Effective February 25, 2014, Mr. Shrewsbury agreed to restructure the principal and interest under such demand notes and certain advances due as of January 31, 2014, and we issued in exchange a single Consolidated Secured Promissory Note in the principal amount of $2,000,000 (“Consolidated Note”). The principal and interest thereunder is due ten years from the date of issuance, 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. 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. As of March 31, 2016, Mr. Shrewsbury had also provided non-interest bearing advances to us of $204,437.

In November, 2012, we obtained a bank line of credit in the amount of $250,000 which was subsequently increased to $750,000. The line of credit was secured by a lien on our inventory and account receivable and guaranteed by Mr. Shrewsbury. 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. 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 March 31, 2016, the loan balance is $696,938.

We were incorporated in the State of Georgia in 2000.

Recent Acquisitions

On November 21, 2014, and with a view to diversifying our business, we acquired The Bag Rack, LLC. The acquired company owns all rights to a new product, “The Bag Rack” and was in the preliminary stages of developing the new product. The Bag Rack is a unique device that enables bags with handles to be stored in the trunk of a motor vehicle preventing the bags from tipping over and causing spillage. We expect to market and sell the new product online and through certain national retailers, distributors, and discount stores. The Bag Rack, LLC was acquired from Mr. Shrewsbury, our CEO and Mr. Rickie Hagan, the founding members of The Bag Rack, LLC, who each owned 50% of the company. In addition to a purchase price of $500, as consideration for the acquisition, we agreed to pay 20% of the net profits to each founding member (after royalty payment) of The Bag Rack. The Bag Rack has a provisional patent pending related to the new product and is obligated to pay a royalty to the original developer of the product equal to 20% of the net profit of each product sold.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2016 Compared To Three Months Ended March 31, 2015

Revenues from Operations

Revenue for the three months ended March 31, 2016 was $564,913 as compared to $951,857 for the same period in 2015, a decrease of $386,944 or 40.7%. The decrease in revenue is attributable to overall lower sales demand during the current period.

Cost of Goods Sold

During the quarter ended March 31, 2016, our cost of goods sold was $394,611 as compared to cost of goods sold of $784,066 for the quarter ended March 31, 2015, a decrease of $389,455 or 49.7%. The lower cost of goods sold resulted from lower sales demand during the current period. As a percentage of sales, cost of goods sold decreased from 82.4% in 2015 to 69.9% during the current period, the 12.5% decrease is the direct result of lower cost purchases from a new supplier, and higher sales of a product mix with relatively higher gross margins during the current quarter.

Gross Profit

Gross profit for the period ended March 31, 2016 increased as a percentage of revenue to 30.1% from 17.6% for the same period of the prior year. The increase in gross profit resulted from lower cost of sales from lower cost purchases and, sales of a product mix with relatively higher gross margins during the current quarter

Operating Expenses

Operating expenses for the three months ended March 31, 2016 were $191,662 as compared to $222,111 for the three months ended March 31, 2015, a decrease of $30,449 or 13.7%.

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

	Three Months Ended
	3/31/2016		3/31/2015		$ Change			%Change
Operating Expense
Commission Expense	$	35,541	$	65,361	$	(29,820	)		(45.6	)
Professional fees		20,075		18,034	$	2,041			11.3
Depreciation expense		2,449		2,390	$	59			2.5
Other operating expense		133,597		136,326	$	(2,729	)		(2.0	)
Total	$	191,662	$	222,111	$	(30,449	)		(13.7	)

Commission expense for the three months ended March 31, 2016 was $35,541 compared to $65,361 for the same period in 2015, a decrease of $29,820 or 45.6%. The lower commission expense is a direct result of lower sales and the introduction of revised lower sales commission rates payable to our sales agent in 2015.

Professional fees increased $2,041 or 11.3% during the three months ended March 31, 2016, as compared to the same period in 2015. Higher advertising expense, primarily related to our new Bag Rack business, accounted for an increase of $5,350 over the prior year. Legal fees in the current period of $12,225, were $3,918 lower than the same period the prior year.

Depreciation expenses increased $59 or 2.5% during the quarter ended March 31, 2016, as compared to the same period in 2015.

During the three months ended March 31, 2016, other operating expenses of $133,597 decreased by $2,729 or 2.0% from $136,326 for the same period in 2015. The lower other operating expenses resulted primarily from lower travel expenses of $2,971 during the current quarter.

Income (loss) from operations

Loss from operations for the quarter ended March 31, 2016 was $21,360 compared to loss from operations of $54,320 during the same period in 2015. When compared to the loss for the same period in the prior year, the lower loss in the current period is the direct result of lower product cost, sales of a product mix with relatively higher gross margins and lower operating expenses in the current period.

Other income and (expense)

Other income and expense for the three months ended March 31, 2016, reflected a net expense of $29,744 as compared to net expense of $27,802 for the quarter ended March 31, 2015, an increase of $1,942. Gain from scrap sales during the quarter ended March 31, 2015, account for a profit gain of $840.

Net Income or Loss

For the quarter ended March 31, 2016, we incurred a net loss of $51,104 compared to a net loss of $82,122 for the quarter ended March 31. 2015. Lower product cost, sales of a product mix with relatively higher gross margin, and lower operating expenses in the current period account for the lower net loss.

Net earnings (loss) per common share

The net loss $51,104 for the quarter ended March 31, 2016, as well as the net loss of $82,122 for the quarter ended March 31, 2015, when divided by the number of common shares outstanding of 48,053,084 basic shares in both years resulted in a net loss per share, respectively, of less than $0.01 in both periods.

Six Months Ended March 31, 2016 Compared to Six Months Ended March 31, 2015

Revenues from Operations

Revenue for the six months ended March 31, 2016 was $1,347,178 as compared to $1,592,646 for the same period in 2015, a decrease of $245,468 or 15.4%. The decrease in revenue is attributable to overall lower sales demand in the current period.

Cost of Goods Sold

During the six months ended March 31, 2016, the Company’s cost of goods sold was $938,457 as compared to cost of goods sold of $1,307,412 for the six months ended March 31, 2015, a decrease of $368,955 or 28.2 %. The lower cost of goods sold resulted from lower sales demand during the current period. As a percentage of sales, cost of goods decreased from 82.1% in 2015 to 69.6% in 2016, the 12.5% decrease is the direct result of lower cost purchases from a new supplier, and higher sales of a product mix with relatively higher gross margins during the current six-month period.

Gross Profit

Gross profit for the period ended March 31, 2016 increased as a percentage of revenue to 30.3% from 17.9% for the same period the prior year. The increase in gross profit resulted from lower cost of sales from lower cost purchase, sales of product mix with relatively higher gross margins during the current period, and a $55,000 loss from the sale of obsolete inventory sold as scrap during the prior six-month period ended March 31, 2015.

Operating Expenses

Operating expenses for the six months ended March 31, 2016 were $365,915 as compared to $459,361 for the six months ended March 31, 2015, a decrease of $93,446 or 20.3%.

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

	Six Months Ended
	3/31/2016		3/31/2015			$ Change			%Change
Operating Expense
Commission Expense	$	63,373	$	105,934		$	(42,561	)		(40.2	)
Professional fees		41,421		58,310		$	(16,889	)		(29.0	)
Bad Debt Expense		1,926			_	$	1,926			100.0
Depreciation expense		4,898		5,206		$	(308	)		(5.9	)
Other operating expense		254,297		289,911		$	(35,614	)		(12.3	)
Total	$	365,915	$	459,361		$	(93,446	)		(20.3	)

Commission expense for the six months ended March 31, 2016 was $63,373 compared to $105,934 for the same period in 2015, a decrease of $42,561 or 40.2%. The lower commission expense is a direct result of lower sales, the introduction of revised lower sales commission rates payable to our sales agents, and a favorable adjustment to the prior year accrued commission resulting from the resignation of a sales agent.

Professional fees decreased $16,889 or 29.0% during the six months ended March 31, 2016, as compared to the same period in 2015. The lower professional fees resulted from lower legal fees of $18,393 and investor relations expense of $9,150, partially offset by higher advertising expense of $10,654.

Depreciation expenses increased $308 or 5.9% during the six months ended March 31, 2016, as compared to the same period in 2015. Depreciation on a new refurbished delivery truck put into operation the second quarter of 2015 account for the increase.

During the six months ended March 31, 2016, other operating expenses of $254,297 decreased by $35,614 or 12.3% from the $289,911 for the same period in 2015. The lower other operating expenses resulted from lower travel expense of $35,674. The lower travel expense is associated with the prior year overseas travel by an officer and agent to meet with suppliers.

Income (loss) from operations

Income from operations for the six months ended March 31, 2016 was $42,806 compared to loss from operations of $174,127 during the same period in 2015. The favorable income from operations is the result of current period lower cost of sales from lower cost purchase, sales of a product mix with relatively higher gross margins and, lower operating expenses. The favorable increase also results from a $55,000 loss incurred in the prior period from the sale of obsolete inventory sold as scrap.

Other income and (expense)

The other income and expense category for the six months ended March 31, 2016, reflected a net expense of $63,278 as compared to a net expense of $53,278 for the six months ended March 31, 2015, an increase of $10,000. The other expense increase result from miscellaneous income of $12,553 recorded in the six- month period ended March 31, 2015.

Net Income or Loss

For the six months ended March 31, 2016, the Company had a net loss of $20,472 compared to a net loss of $227,405 for the six months ended March 31, 2015. The loss reduction is the result of an increase in the current period income from operation of $216,933 due to lower cost of sales from lower cost purchase, sales of product mix with relatively higher gross margins and lower operating expenses.

Net earnings per common share

The net loss of $20,472 for the six months ended March 31, 2016, as well as the net loss of $227,405 for the six months ended March 31, 2015, when divided by the number of common shares outstanding of 48,053,084 basic and diluted shares in both years resulted in a net loss per share of less than $0.01 in the current six month period and a negligible earnings per share of less than $0.01 for the six months ended March 31, 2015.

LIQUIDITY AND CAPITAL RESOURCES

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

	Six Months Ended
Liquidity and capital resources	3/31/2016			3/31/2015
Net cash used in operating activities	$	(124,484	)	$	(214,872	)
Net cash used in investing activities			_		(2,843	)
Net cash provided by financing activities		64,289			152,349
Net decrease in cash equivalents	$	(60,195	)	$	(65,366	)

At March 31, 2016, we had cash and cash equivalents of $1,369 as compared to $61,564 at September 30, 2015, a decrease of $60,195 or 97.8%. The decrease in cash is the direct result of the net cash used for operating activities of $124,484. The decrease in cash was partially offset by stockholder/officer net advances of $79,800 during the six months ended March 31, 2016.

Cash Flows Used in Operating Activities

Net cash used in operating activities for the six months ended March 31, 2016, was $124,484 compared to cash used in operations of $214,872 in 2015, a decrease of $90,388 or 42.1%.

During the six months ended March 31, 2016, we had a net loss of $20,472 as compared to a net loss of $227,405 for the same period during the prior year.

In the current six-month period the company has non-cash expenses for depreciation of $4,898 and bad debt expense of $1,926.

A decrease in accounts receivable of $63,173, other current assets of $1,538 and, an increase in accrued liabilities of $29,305, and of stockholder/officers advances for operations of $12,000, were more than offset by an increase in inventory of $165,635, an increase in commission advances of $7,173, and a decrease in accounts payable of $44,044.

Cash Flows Used in Investing Activities

There was no cash flow from investing activities for the period ended March 31, 2016. During the comparable six- month period in the prior year, we capitalized $4,149 incurred in refurbishing a new truck used for product delivery and, a $1,306 payment was received as a partial payment on the note receivable held by us arising from the sale of a previously owned oil lease.

Cash Flows Provided by Financing Activities

During the six months ended March 31, 2016, cash provided by financing activities was $64,289 compared to cash provided by financing activities of $152,349 during the same period in 2015. During the current six-month period, the Company made payment on its term loan of $14,438, line of credit of $1,073 and received stockholder advances of $79,800. For the six months ended March 31, 2015, the Company repaid net advances of $18,700 and as a result of cash flows shortfalls, we had increased reliance on advances from Mr. Shrewsbury to fund operations. Also, we financed our operation during the six-months period ended March 31, 2015, by drawing-down $171,049 under our bank credit line.

In November 2012, we obtained a $250,000 line of credit from a bank. On August 26, 2014, the bank increased our existing bank line of credit from $250,000 to $750,000 and extended the term of the line of credit. The line of credit was secured by a priority security interest in our inventory and accounts receivable and matured on November 7, 2015. Interest on the line of credit was payable monthly and was calculated on the basis of a variable index. On December 3, 2015, we entered into a new loan agreement with the bank under which we obtained a term loan in the amount of $711,376. 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 March 31, 2016, the loan balance is $696,938. The current rate of interest under the loan is 3.50% per annum. Principal, interest and collection costs under the loan are guaranteed by Mr. Shrewsbury.

On February 25, 2014, we and Mr. Shrewsbury entered into an agreement to consolidate an aggregate of $2,000,000 of amounts due to Mr. Shrewsbury, including $1.062 million due under a Revolving Promissory Demand Note issued to Mr. Shrewsbury on or about April 30, 2012, $289,997 due under a 10% Promissory Note issued to Mr. Shrewsbury on or about February 27, 2009, accrued but unpaid interest of $262,157 as of January 31, 2014, under such notes and advances by Mr. Shrewsbury in the amount of $385,846 as of January 31, 2014, and issued in replacement a Secured Consolidated Note (“Consolidated Note”) for such amount. The Consolidated Note bears interest at 5% per annum or prime rate if higher than 5% per annum, principal and interest are repayable ten years from February 25, 2014, and it 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 six months ended March 31, 2016, we received $79,800 cash advance from Mr. Shrewsbury, bringing the total outstanding advance balance to $204,437. Cash advances from Mr. Shrewsbury are repayable upon demand and do not bear interest.

Financial Condition and Going Concern Uncertainties

Except for each of the six consecutive quarters ended June 30, 2014 and the first three months period of the current year, since inception, the Company has not generated sufficient cash to fund its operations and has incurred operating losses. Currently, the Company relies substantially upon financing provided by Mr. Shrewsbury, the Company’s Chief Executive Officer, and a secured bank loan in connection with the financing of its business operations. In view of these matters, realization of certain assets in the accompanying balance sheet is dependent upon continued operations, which, in turn, is 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 future 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, 2015, contained an explanatory paragraph wherein they 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 March 31, 2016, we had cash and cash equivalents of $1,369 as compared to $61,564 as of September 30, 2015. The decrease in cash as of March 31, 2016, resulted from an increase in working capital arising from management’s decision to increase inventory levels in anticipation of higher sales demand. The higher inventory was partially offset by a decrease in receivables. During the current six-month period, we had also a net increase in advances from Mr. Shrewsbury of $79,800.

Our accounts receivable was $519,944 as of March 31, 2016, as compared to $585,043 as of September 30, 2015, a decrease of $65,099 or 11.1%. The lower March 31, 2016 receivable balance is the direct result of lower sales due to lower sales demand.

Inventory was $2,388,672 as of March 31, 2016 as compared to $2,223,037 as of September 30, 2015, an increase of $165,635 or 7.5%. The higher inventory is attributable to an anticipated increase in sales demand.

During the six months ended March 31, 2016, our accumulated deficit increased from $14,752,711 to $14,773,183, an increase of $20,472 or 0.1% due to the reported net loss during the six months ended March 31, 2016.

During the six months ended March 31, 2016, the Company’s net loss was $20,472 compared to a net loss of $227,405 for the comparable period in 2015. The decrease in net loss can be directly attributed to higher sales of a product mix with relatively higher gross margins and lower operating expenses and a $55,000 loss from the sale of obsolete inventory sold as scrap during the six month period ended March 31, 2015.

Currently, in addition to funds utilized to purchase inventory, we are spending approximately $60,000 per month on operations. Management believes that the Company’s available cash, cash flows from operations, the loans and advances provided by Mr. Shrewsbury and the loan provided by the bank to be sufficient to fund the Company 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

Under the terms of a business loan agreement, originally entered on November 7, 2012, and as amended through August 26, 2014, we obtained a secured revolving line of credit in the amount of $750,000 from Town Square Bank. Interest on the loan was payable monthly in arrears. Interest under the loan was variable and was based upon Wall Street Journal Prime Rate.

On December 3, 2015, we entered into a new loan agreement with Town Square Bank pursuant to which we obtained a term loan in the amount of $711,376. We utilized 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 March 31, 2016, the loan balance was $696,938.

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 then due, estimated to be approximately $391,896. Early repayment of amounts due under 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 under the note;

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 obligation 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 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.

The loan agreements contain certain 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 certain other customary covenants, terms and conditions.

In addition, the loan agreements contain certain 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 its 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 3.25% 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

In connection with the expansion of our business, Mr. Shrewsbury, the Company’s Chairman and CEO, 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 pursuant to which certain outstanding indebtedness due to Mr. Shrewsbury was consolidated and restructured. Under the terms of the agreement, we and Mr. Shrewsbury consolidated the following indebtedness: the principal due under the Revolving Promissory Demand Note issued to Mr. Shrewsbury on April 30, 2012 (“Revolving Note”), in the amount of $1,062,000 and accrued but unpaid interest due thereunder as of January 31, 2014, in the amount of $168,905; the principal due under the 10% Promissory Note issued to Mr. Shrewsbury effective February 27, 2009 (the “10% Note”), in the amount of $289,997 and accrued but unpaid interest due thereunder as of January 31, 2014, in the amount of $93,252; and $385,846 of the non-interest bearing advances previously made by Mr. Shrewsbury and outstanding as of January 31, 2014. We issued in exchange and in replacement for such indebtedness a Consolidated Secured Promissory Note (the “Consolidated Note) in the principal amount of $2,000,000. Upon issuance of the Consolidated Note, the Revolving Note and 10%

Note were cancelled. Mr. Shrewsbury agreed to waive any prior defaults under the terms of such cancelled notes and to release the Company from any claims related thereto.

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 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.

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

we fail to pay when due any principal or interest under the Consolidated Note;

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;

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 under the Exchange Agreement.

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 are exercisable commencing April 1, 2014, and for a period of three years thereafter. The options are exercisable at a price of $0.0924 per share subject to certain 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.

As of March 31, 2016, Mr. Shrewsbury had advanced an aggregate of $204,437 to the Company. The advances do not bear interest and are repayable upon demand. As of March 31, 2016, the Company also has a payable of $24,000 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 March 31, 2016 and September 30, 2015.

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.

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 2015 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 our company. If any of the following risks (or the risk factors we disclose in our 2015 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 Company and 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 March 31, 2016, 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 $204,437. We have outstanding accounts payable of $902,532 and other accrued liabilities of $737,929, including $460,410 due to our CFO, Jose Fuentes, for services. Also, the Company owes $696,938 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.

We have a history of net losses and cannot assure 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 a net loss of $20,472 for the six months ended March 31, 2016 and a net loss of $277,405 for the same period in 2015. At March 31, 2016 and September 30, 2015, we had accumulated deficits of $14,773,183 and $14,752,711, respectively. We may need to obtain additional financing to expand our wholesale and retail mining supplies business and our recently acquired Bag Rack business. We may also require additional financing to fund ongoing operations if our sales and revenue growth are 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 overall business results of operations and financial condition.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 16, 2012, the Board of Directors authorized the issuance of an aggregate 400,000 common stock purchase warrant to a sales agent. The warrants are issuable over a four-year period in equal tranches of 50,000. On each of July 1, 2012, January 1, 2013, July 1, 2013, January 1, 2014 and July 1, 2014, January 1, 2015 and July 1, 2015, January 1, 2016, 50,000 warrants were issuable to the sales agent. The warrants are exercisable at a price of $0.10 per share subject to certain anti-dilution adjustments in the event of stock dividends, subdivisions, capital reorganizations, a consolidation or merger, or the sale of all or substantially all of our assets, become exercisable upon the date of issuance and expire two years after the date of such issuance. As of March 31, 2016, 200,000 warrants have expired leaving 200,000 warrants issuable. The warrants will be issuable in reliance upon the exemption from the registration requirements under the Securities Act set forth in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

None.

ITEM 5.

OTHER INFORMATION

None.

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 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

Users of this data are advised pursuant to Rule 406T of Regulation S-X that this interactive data file is deemed not filed or part of a registration statement or prospectus for the purpose of section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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	By:	/s/ Jose Fuentes
	William L. Shrewsbury		Jose Fuentes
	Chief Executive Officer		Chief Financial Officer
	(Principal Executive Officer)		(Principal Financial and Accounting Officer)

Dated:

May 6, 2016

Dated:

May 6, 2016

EX-31.1 2 t1600269_ex31-1.htm EXHIBIT 31.1

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:

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

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;

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;

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

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.

EX-31.2 3 t1600269_ex31-2.htm EXHIBIT 31.2

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:

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

(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: May 6, 2016	Signed:	/s/Jose Fuentes
	Name:	Jose Fuentes
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1 4 t1600269_ex32-1.htm EXHIBIT 32.1

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 March 31, 2016 (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: May 6, 2016	Signed:	/s/William L. Shrewsbury
	Name:	William L. Shrewsbury
	Title:	Chief Executive Officer (Principal Executive Officer

EX-32.2 5 t1600269_ex32-2.htm EXHIBIT 32.2

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)

Date: May 6, 2016	Signed:	/s/Jose Fuentes
	Name:	Jose Fuentes
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

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<p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"><b>NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES</b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"><b> </b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"><b>INTERIM FINANCIAL STATEMENTS</b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">The accompanying interim unaudited consolidated financial statements and footnotes of TX Holdings, Inc., and its subsidiaries (the “Company”),<font style="color: red;"> </font>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.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">The balance sheet as of September 30, 2015, included herein was derived from audited consolidated financial statements as of that date, but does not include all disclosures including notes required by GAAP.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">These 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, 2015. 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, 2016.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">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 we make about the carrying values of our 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.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"><b>OVERVIEW OF BUSINESS</b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"><b> </b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">The Company is 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 the United States’ coal mining industry 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. In addition, on November 21, 2014, and with a view to diversifying its business, the Company acquired all of the membership interest in The Bag Rack, LLC. The acquired company has developed a new product, “The Bag Rack,” and is in the preliminary stages of distributing and selling the new product. 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 expects to market and sell the new product online, through distributors, and through certain national retailers and discount stores. See Note 2.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">  </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">The Company was incorporated in the State of Georgia on May 15, 2000, under the name HOM Corporation. On January 22, 2003, the Company changed its name to R Wireless, Inc., and, on July 27, 2005, changed its name to TX Holdings, Inc.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"><b>REVENUE RECOGNITION</b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">The Company recognizes revenue from direct sales of our products to our customers, including shipping fees. 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.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify;"><b>GOING CONCERN CONSIDERATIONS</b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">The unaudited consolidated financial statements included in this report 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 our annual report on Form 10-K for the year ended September 30, 2015, contains an explanatory paragraph wherein it 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.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">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, since November 2012, 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.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">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.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;"><b>PRINCIPLES OF CONSOLIDATION</b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;"><b> </b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; 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.</p>

<p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify;"><b>NOTE 5 – BANK LOAN</b></p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px;">In November 2012, the Company obtained a $250,000 line of credit from a bank. On August 26, 2014, the bank increased the Company’s existing bank line of credit from $250,000 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 loan agreement with the 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. As of March 31, 2016, the loan balance is $696,938.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-align: start; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-indent: 0.5in;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;">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 amounts due under the loan will not affect the monthly repayment amount, unless otherwise agreed to by the bank.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left; text-indent: 0.25in;">An event of default under the loan will occur upon the occurrence of any of the following events:</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;"> </p> <table align="center" style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">the Company fails to make any payment when due under the loan;</font></td> </tr> </table> <table align="center" style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">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:</font></td> </tr> </table> <table align="center" style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">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 obligation under the note or related documents;</font></td> </tr> </table> <table align="center" style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">a warranty, representation or statement made to the bank under the loan document is or becomes materially false or misleading;</font></td> </tr> </table> <table align="center" style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">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;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan;</font></td> </tr> </table> <table align="center" style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">any of the preceding events occurs with respect to any loan guarantor;</font></td> </tr> </table> <table align="center" style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">a 25% or more change in the ownership of the Company’s common stock;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">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</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">the bank in good faith believes itself insecure.</font></td> </tr> </table> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px 0px 0px 0.25in; text-align: left;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; 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’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.</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;">In addition, the loan agreements contain certain negative covenants, including that the Company will not, without the bank’s consent:</p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;"> </p> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of its assets, except for permitted liens;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">sell its accounts receivable, except to the bank;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">engage in business activities substantially different from the Company’s current activities;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">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;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">pay any dividend other than in stock;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">lend money, invest or advance money or assets to another person or entity;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">purchase, create or acquire an interest in any other entity;</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">incur any obligation as a surety or guarantor other than in the ordinary course; or</font></td> </tr> </table> <table style="font: 10pt/normal 'times new roman', times, serif; width: 100%; text-transform: none; text-indent: 0px; letter-spacing: normal; margin-top: 0px; margin-bottom: 0px; word-spacing: 0px; widows: 1; font-size-adjust: none; font-stretch: normal; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0.25in;"></td> <td style="width: 0.25in;"><font style="font-family: symbol;">·</font></td> <td style="text-align: left;"><font style="font-family: 'times new roman', times, serif;">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.</font></td> </tr> </table> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;"> </p> <p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: left;">Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 3.50% 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 claims 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.</p>

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Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Mar. 31, 2016	May. 06, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	TX Holdings, Inc.
Entity Central Index Key	0001133798
Trading Symbol	txhg
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		48,053,084
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

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CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Mar. 31, 2016	Sep. 30, 2015
Current assets:
Cash and cash equivalents	$ 1,369	$ 61,564
Accounts receivable, net of allowance for doubtful accounts of $13,643 at March 31, 2016 and September 30, 2015	519,944	585,043
Inventory	2,388,672	2,223,037
Commission advances	55,511	48,338
Note receivable-current	10,000	10,000
Other current assets	26,136	27,674
Total current assets	3,001,632	2,955,656
Inventory, non-current	300,000	300,000
Property and equipment, net	61,677	66,575
Note receivable, less current portion	19,983	19,983
Other	500	500
Total Assets	3,383,792	3,342,714
Current liabilities:
Accrued liabilities	737,929	696,624
Accounts payable	902,532	946,576
Advances from officer	204,437	124,637
Bank-Line of Credit		712,449
Bank-Term Loan	696,938
Total current liabilities	2,541,836	2,480,286
Note payable to officer	2,000,000	2,000,000
Total Liabilities	$ 4,541,836	$ 4,480,286
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 March 31, 2016 and September 30, 2015	$ 9,293,810	$ 9,293,810
Additional paid-in capital	4,321,329	4,321,329
Accumulated deficit	(14,773,183)	(14,752,711)
Total stockholders' deficit	(1,158,044)	(1,137,572)
Total Liabilities and Stockholders' Deficit	$ 3,383,792	$ 3,342,714

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parentheticals) - USD ($)	Mar. 31, 2016	Sep. 30, 2015
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts (in dollars)	$ 13,643	$ 13,643
Preferred stock, no par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares outstanding	0	0
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	48,053,084	48,053,084
Common stock, shares outstanding	48,053,084	48,053,084

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Income Statement [Abstract]
Revenue	$ 564,913	$ 951,857	$ 1,347,178	$ 1,592,646
Cost of goods sold	(394,611)	(784,066)	(938,457)	(1,307,412)
Gross profit	170,302	167,791	408,721	285,234
Operating expenses, except items shown separately below	133,597	136,326	254,297	289,911
Commission expense	35,541	65,361	63,373	105,934
Professional fees	20,075	18,034	41,421	58,310
Bad Debt Expense			1,926
Depreciation expense	2,449	2,390	4,898	5,206
Total operating expenses	191,662	222,111	365,915	459,361
Income (loss) from operations	(21,360)	(54,320)	42,806	(174,127)
Other income and (expense):
Other income		6,381		12,553
Interest expense	(29,744)	(34,183)	(63,278)	(65,831)
Total other income and (expense), net	(29,744)	(27,802)	(63,278)	(53,278)
Net loss	$ (51,104)	$ (82,122)	$ (20,472)	$ (227,405)
Net earnings (loss) per common share
Basic and Diluted (in dollars per share)	$ 0.00	$ 0.00	$ 0.00	$ 0.00
Weighted average of common shares outstanding-
Basic and Diluted (in shares)	48,053,084	48,053,084	48,053,084	48,053,084

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited) - 6 months ended Mar. 31, 2016 - USD ($)	Common Stock	Additional Paid in Capital	Accumulated Deficit	Total
Balance at Sep. 30, 2015	$ 9,293,810	$ 4,321,329	$ (14,752,711)	$ (1,137,572)
Balance (in shares) at Sep. 30, 2015	48,053,084
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss			(20,472)	(20,472)
Balance at Mar. 31, 2016	$ 9,293,810	$ 4,321,329	$ (14,773,183)	$ (1,158,044)
Balance (in shares) at Mar. 31, 2016	48,053,084

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows used in operating activities:
Net loss	$ (20,472)	$ (227,405)
Adjustments to reconcile loss to net cash used in operating activities:
Depreciation expense	4,898	5,206
Bad debt expense	1,926
Changes in operating assets and liabilities:
Accounts receivable	63,173	(105,579)
Inventory	(165,635)	(89,141)
Commission advances	(7,173)	(16,684)
Other current assets	1,538	18,251
Accrued liabilities	29,305	20,658
Accounts payable	(44,044)	180,322
Other assets		(500)
Stockholder/officers advances for operations	12,000
Net cash used in operating activities	(124,484)	(214,872)
Cash flows used in investing activities:
Notes receivable		1,306
Purchase of equipment		(4,149)
Net cash used in investing activities		(2,843)
Cash flows provided by financing activities:
Payment on Term Loan	(14,438)
Proceeds from bank line of credit		171,049
Repayment of bank line of credit	(1,073)
Proceeds from stockholder/officer advances	79,800	17,300
Repayment of stockholder/officer advances		(36,000)
Net cash provided by financing activities	64,289	152,349
Increase/(decrease) in cash and cash equivalents	(60,195)	(65,366)
Cash and cash equivalents at beginning of period	61,564	72,784
Cash and cash equivalents at end of period	1,369	7,418
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest	63,278	$ 65,831
Supplemental Schedule of Non-Cash investing and Financing Activities
Payments of line of credit through issuance of note payable	$ 711,376

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BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Mar. 31, 2016

Background And Significant Accounting Policies [Abstract]

BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL STATEMENTS

OVERVIEW OF BUSINESS

REVENUE RECOGNITION

GOING CONCERN CONSIDERATIONS

PRINCIPLES OF CONSOLIDATION

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ACQUISITIONS

6 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

ACQUISITIONS

NOTE 2 –ACQUISITIONS

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

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STOCKHOLDERS' DEFICIT

6 Months Ended

Mar. 31, 2016

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' DEFICIT

NOTE 3 – STOCKHOLDERS’ DEFICIT

POTENTIALLY DILUTIVE OPTIONS AND WARRANTS

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Mar. 31, 2016

RELATED PARTY TRANSACTIONS

NOTE 4 – RELATED PARTY TRANSACTIONS

ADVANCES FROM STOCKHOLDER/OFFICER

As of March 31, 2016 and September 30, 2015, Mr. Shrewsbury had outstanding advances to the Company of $204,437 and $124,637, respectively. The advances bear no interest and are due on demand.

NOTES PAYABLE TO A STOCKHOLDER AND OFFICER

LEASE AGREEMENT WITH STOCKHOLDER AND OFFICER

FREIGHT PAID TO COMPANY CONTROLLED BY OFFICER/STOCKHOLDER

COMMISSIONS PAID TO COMPANY CONTROLLED BY OFFICER/SHAREHOLDER

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References + Details

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BANK LOAN

6 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

BANK LOAN

Dated: May 6, 2016

/s/William L. Shrewsbury

William L. Shrewsbury

Chief Executive Officer (Principal Executive Officer)