UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018
For the quarterly period ended March 31, 2019
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-32335
TX HOLDINGS, INC. (Exact Name of Registrant as Specified in its Charter)
Georgia (State or Other Jurisdiction of Incorporation or Organization)		58-2558702 (I.R.S. Employer Identification No.)
12080 Virginia Blvd., Ashland, KY 41102 (Address of Principal Executive Offices and Zip Code)		(606) 928-1131 (Registrant’s Telephone Number, Including Area Code)
________________________________________ (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Commission File No. 000-32335 TX HOLDINGS, INC. (Exact Name of Registrant as Specified in its Charter)

Georgia (State or Other Jurisdiction of Incorporation or Organization)		58-2558702 (I.R.S. Employer Identification No.)
12080 Virginia Blvd., Ashland, KY 41102 (Address of Principal Executive Offices and Zip Code)		(606) 928-1131 (Registrant’s Telephone Number, Including Area Code)

________________________________________

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES ☒ NO ☐

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

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

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

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

OnSecurities ~~January~~registered ~~25,~~pursuant ~~2019,~~to ~~there~~Section ~~were~~12(b) ~~48,053,084 shares~~ of the ~~registrant’s common stock outstanding.~~Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock- no par value	TXHG	OTC Market
Preferred Stock- no par value	TXHG	OTC Market

On May 13, 2019, there were 48,053,084 shares of the registrant’s common stock outstanding.

TX HOLDINGS, INC.

FORM 10-~~December 31, 2018~~Q

FOR QUARTERLY PERIOD ENDED March 31, 2019

TABLE OF CONTENTS

Forward-Looking Statements

PART I FINANCIAL INFORMATION
	Item 1.	~~Item~~Financial 1.Statements	~~Financial Statements~~
			Balance Sheets as of December 31, 2018, and September 30, 2018 (Unaudited)	4
		Balance Sheets as of March 31, 2019, and September 30, 2018 (Unaudited)	4
			Statements of Operations for the Three Months Ended December 31, 2018 and 2017 (Unaudited)	5
		Statements of Operations for the Three Months and Six Months Ended March 31, 2019 and 2018 (Unaudited)	5
			Statement of Changes in Stockholders’ Deficit for the Three Months Ended December 31, 2018 Unaudited)	6
		Statement of Changes in Stockholders’ Deficit for the Six Months Ended March 31, 2019 and 2018 (Unaudited)	6
			Statements of Cash Flows for the Three Months Ended December 31, 2018 and 2017 (Unaudited)	7
		Statements of Cash Flows for the Six Months Ended March 31, 2019 and 2018 (Unaudited)	7
			Notes to Unaudited Consolidated Financial Statements	8
		Notes to Unaudited Financial Statements	8
	Item 2.	~~Item~~Management’s 2.Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~13	13
	Item 3.	~~Item~~Quantitative 3.and Qualitative Disclosures about Market Risk	~~Quantitative and Qualitative Disclosures about Market Risk~~22	21
	Item 4.	~~Item~~Controls 4.and Procedures	~~Controls and Procedures~~22	21
PART II OTHER INFORMATION
		Item 1.	Legal Proceedings	22
		Item 1A.	Risk Factors	22
		Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
		Item 3.	Defaults Upon Senior Securities	23
		Item 4.	Mine Safety Disclosures	23
		Item 5.	Other Information	23
		Item 6.	Exhibits	24
			SIGNATURES	25

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings	22

	Item 1A.	Risk Factors	22

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Mine Safety Disclosures	24

	Item 5.	Other Information	24

	Item 6.	Exhibits	25

		SIGNATURES	26

FORWARD-LOOKING STATEMENTS

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

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

● cyclical economic conditions affecting the coal mining industry and competitive pressures and changes affecting the coal mining industry, including demand for coal; ● general economic conditions, including those affecting the domestic and global coal mining industry generally; ● changes in environmental laws and regulations promulgated by the Environmental Protection Agency and similar state agencies or their interpretation and enforcement as they affect the mining industry and, in particular, the coal mining industry; ● our ability to generate cash from operations, obtain funding on favorable terms and manage our liquidity needs; ● challenges arising from acquisitions or our development and marketing of new products; ● information concerning possible or assumed future results of operations, trends in financial results and business plans, including those related to earnings, earnings growth, revenue and revenue growth; ● statements about the level of our costs and operating expenses relative to our revenues, and about the expected composition of our revenues; ● statements about expected future sales trends for our products; ● statements about our future capital requirements and the sufficiency of our cash, cash equivalents, and available bank borrowings to meet these requirements; ● other statements about our plans, objectives, expectations and intentions; and ● factors that are described in the Risk Factor section of our Annual Report on Form 10-K for the year ended September 30, 2018, and this report.

●

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

●

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

●

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

●

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

●

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

●

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

●

statements about expected future sales trends for our products;

●

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

●

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

●

factors that are described in the Risk Factor section of our Annual Report on Form 10-K for the year ended September 30, 2018, and this report.

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

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

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

PART 1-FINANCIAL INFORMATION Item 1-Financial Statements ~~TX HOLDINGS, INC. BALANCE SHEETS December 31, 2018 and September 30, 2018~~

	Unaudited
	December 31,			September 30,
	2018			2018
ASSETS
Current assets:
Cash and cash equivalents	$	65,141		$	36,609
Accounts receivable, net of allowance for doubtful accounts of $0 allowance at December 31, 2018 and September 30, 2018		281,908			259,694
Inventory		1,822,693			1,798,540
Other current assets		250			1,100
Total current assets		2,169,992			2,095,943
Property and equipment, net		38,020			39,812
Other	-			-
Total Assets	$	2,208,012		$	2,135,755
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued expenses, primarily to officers	$	379,359		$	416,636
Accounts payable		534,975			529,853
Accrued interest to officer		484,932			459,726
Advances from officer		146,487			92,487
Stockholder/officers advances for operations-warehouse rent		90,000			84,000
Bank-Term Loan-current portion		59,419			59,419
Other current liability		28,731		-
Total current liabilities		1,723,903			1,642,121
Bank-term-loan, less current portion		470,930			489,631
Note payable to officer		2,000,000			2,000,000
Total Liabilities		4,194,833			4,131,752
Commitments and contingecies (Note 7)
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 December 31, 2018 and September 30, 2018		9,293,810			9,293,810
Additional paid-in capital		4,321,329			4,321,329
Accumulated deficit		(15,601,960	)		(15,611,136	)
Total stockholders' deficit		(1,986,821	)		(1,995,997	)
Total Liabilities and Stockholders' Deficit	$	2,208,012		$	2,135,755

TX HOLDINGS, INC.
BALANCE SHEETS
March 31, 2019 and September 30, 2018

	Unaudited
	March 31,			September 30,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	151,694		$	36,609
Accounts receivable, net of allowance for doubtful accounts of $0 at March 31, 2019 and September 30, 2018		460,409			259,694
Inventory		1,730,452			1,798,540
Commission advances		-			-
Other current assets					1,100
Total current assets		2,342,555			2,095,943

Property and equipment, net		36,228			39,812
Total Assets	$	2,378,783		$	2,135,755

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable	$	702,798		$	529,853
Accrued liabilities		329,180			416,636
Accrued interest to officer		509,589			459,726
Advances from officer		148,987			92,487
Stockholder/officers advances for operations-warehouse rent		96,000			84,000
Bank-term loan-current portion		69,011			59,419
Other current liability		13,092			-
Total current liabilities		1,868,657			1,642,121

Bank-term-loan, less current portion		452,626			489,631
Note payable to officer		2,000,000			2,000,000
Total Liabilities		4,321,283			4,131,752


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, 2019 and September 30, 2018		9,293,810			9,293,810
Additional paid-in capital		4,321,329			4,321,329
Accumulated deficit		(15,557,639	)		(15,611,136	)
Total stockholders' deficit		(1,942,500	)		(1,995,997	)
Total Liabilities and Stockholders' Deficit	$	2,378,783		$	2,135,755

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

TX HOLDINGS, INC. STATEMENTS OF OPERATIONS For the Three Months and Six Months Ended ~~December~~March 31, ~~2018~~2019 and ~~2017~~March 31, 2018

	(Unaudited)
	Unaudited
	December 31,			December 31,
	THREE MONTHS ENDED						SIX MONTHS ENDED
	2018			2017
	March 31,			March 31,			March 31,			March 31,
Revenue	$	1,008,744		$	999,476
	2019			2018			2019			2018
Cost of goods sold		(828,696	)		(859,454	)
Revenue	$	1,120,997		$	1,098,590		$	2,129,740		$	2,098,066
Gross profit		180,048			140,022
Cost of goods sold		(931,340	)		(886,544	)		(1,760,036	)		(1,745,998	)
Operating expenses, except items shown separately below		96,098			101,137
Gross profit		189,657			212,046			369,704			352,068
Salary expense		37,676			31,683
Operating expenses, except items shown separately below		69,500			100,208			165,411			201,344
Professional fees	-				11,500
Salary expense		36,717			25,075			74,393			56,758
Depreciation expense		1,792			1,792
Professional fees		-			5,400			186			16,900
Total operating expenses		135,566			146,112
Bad debt expense		-			20		_				20
Net income/(loss) from operations		44,482			(6,090	)
Depreciation expense		1,792			1,792			3,584			3,584
Other income and (expense):
Total operating expenses		108,009			132,495			243,574			278,606
Other income	-				6,476
Income from operations		81,648			79,551			126,130			73,462
Interest expense		(35,306	)		(31,907	)
Other income and (expense)
Total other income and (expense), net		(35,306	)		(25,431	)
Other income		-			-			-			6,476
Net Income/(loss)	$	9,176		$	(31,521	)
Interest expense		(37,326	)		(32,008	)		(72,633	)		(63,916	)
Net Income/(loss) per common share
Total other income and (expense), net		(37,326	)		(32,008	)		(72,633	)		(57,440	)
Basic and diluted	$	0.00		$	0.00
Net income	$	44,322		$	47,543		$	53,497		$	16,022
Weighted average of common shares outstanding-
Net earnings per common share
Basic and diluted	$	~~48,053,084~~0.00		$	~~48,053,084~~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 financial statements.

TX HOLDINGS, INC. ~~STATEMENTS~~STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT For the ~~Three~~Six Months Ended ~~December~~March 31, ~~2018 (UNAUDITED)~~2019

	Preferred Stock				Common Stock				Additional Paid in		Accumulated
	Unaudited
									Additional
	Preferred Stock				Common Stock				Paid in		Accumulated
	Shares		Amount		Shares		Amount		Capital		Deficit			Total
Balance at September 30, 2017		-	$	-		48,053,084	$	9,293,810	$	4,321,329	$	(15,555,936	)	$	(1,940,797	)
Net Income		-		-		-		-		-		16,022			16,022
Balance at March 31, 2018		-	$	-		48,053,084	$	9,293,810	$	4,321,329	$	(15,539,914	)	$	(1,924,775	)
Balance at September 30, 2018		-	$	-		48,053,084	$	9,293,810	$	4,321,329	$	(15,611,136	)	$	(1,995,997	)
Net Income		-		-		-		-		-		953,~~176~~497			953,~~176~~497
Balance at December 31, 2018		-	$	-		48,053,084	$	9,293,810	$	4,321,329	$	(15,601,960	)	$	(1,986,821	)
Balance at March 31, 2019		-	$	-		48,053,084	$	9,293,810	$	4,321,329	$	(15,557,639	)	$	(1,942,500	)

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

TX HOLDINGS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended March 31, 2019 and 2018

STATEMENTS OF CASH FLOWS

	(Unaudited)
	March 31,			March 31,
	2019			2018
Cash flows provided/(used) in operating activities:
Net income	$	53,497		$	16,022
Adjustments to reconcile net income to net cash provided/(used) in operating activities:
Depreciation expense		3,584			3,584
Bad debt expense		-			20
Changes in operating assets and liabilities:
Accounts receivable, net		(200,715	)		(162,660	)
Inventory		68,088			4,441
Commission advances		-			18,680
Other current assets		1,100			836
Other assets		-			500
Accrued liabilities		(87,456	)		(46,858	)
Accrued interest to officer		49,863			49,863
Accounts payable		172,945			87,771
Other current liability		13,092
Stockholder/officers advances for operations		12,000			12,000
Net cash provided/(used) in operating activities		85,998			(15,801	)

Cash flows provided/(used) in investing activities:
Net cash provided/(used) in investing activities		-			-

Cash flows provided(used) in financing activities:
Repayment of bank term loan		(27,413	)		(29,638	)
Proceeds from officer advances		56,500			186,000
Repayment of officer advances		-			(175,500	)
Net cash provided(used) in financing activities		29,087			(19,138	)

Increase/(decrease) in cash and cash equivalents		115,085			(34,939	)
Cash and cash equivalents at beginning of period		36,609			40,345

Cash and cash equivalents at end of period	$	151,694		$	5,406

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for interest	$	16,450		$	12,775

For the Three Months Ended December 31, 2018 and 2017

	(Unaudited)
	December 31,			December 31,
	2018			2017
Cash flows used in operating activities:
Net income/(loss)	$	9,176		$	(31,521	)
Adjustments to reconcile income/(loss) to net cash used in operating activities:
Depreciation expense		1,792			1,792
Changes in operating assets and liabilities:
Accounts receivable, net		(22,214	)		(170,956	)
Inventory		(24,153	)		(40,577	)
Commission advances		-			7,103
Other current assets		850			(39,034	)
Other assets		-			500
Accrued liabilities		(37,277	)		(38,446	)
Accrued interest to officer		25,206			25,205
Accounts payable		5,122			253,424
Other current liability		28,731			-
Stockholder/officers advances for operations-warehouse rent		6,000			6,000
Net cash used in operating activities		(6,767	)		(26,510	)
Cash flows provided by/(used in) investing activities:
Net cash provided by/(used in) investing activities		-			-
Cash flows provided by/(used in) financing activities:
Repayment of bank term loan		(18,701	)		(14,788	)
Proceeds from officer advances		54,000			78,000
Repayment of officer advances		-			(67,500	)
Net cash provided by/(used in) financing activities		35,299			(4,288	)
Increase/(decrease) in cash and cash equivalents		28,532			(30,798	)
Cash and cash equivalents at beginning of period		36,609			40,345
Cash and cash equivalents at end of period	$	65,141		$	9,547
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	8,608		$	7,701

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

TX HOLDINGS, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL STATEMENTS

Basis of Presentation

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

The balance sheet as of September 30, 2018, included herein was derived from audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018. The accompanying unaudited 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, 2019.

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

Overview of Business

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

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivables are generated from our sales of mine and rail related products to our customers. The Company’s practice is to record an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The estimate is based on management’s assessment of the collectability of customer accounts and includes consideration for credit worthiness and financial condition of those customers. The Company reviews historical experience with its customers, the general economic environment and the aging of receivables to determine the adequacy of the allowance. The Company records an allowance to reduce receivables to the amount that can be reasonably expected to be collectible. The allowance for doubtful accounts is $0 at March 31, 2019 and for 2018.

Inventory

The Company’s inventory consists of mine and rail inventory. Inventory is stated at the lower of cost (first-in, first-out) or net realizable value.

Revenue Recognition

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. We have adopted this update. The guidance’s adoption had no impact on our source of revenue from the sale of rail and mining related products or have a material impact on our financial statements.

The Company’s revenue stream is generated from sales of mine and rail related products. Sales are initiated directly from customers' orders or through a sales agent. Revenue is recognized generally upon shipment or delivery to our customers, depending upon the terms of the sales order. Control is considered transferred when title and risk of loss pass, when the customer is obligated to pay and, where required, when the customer has accepted the products.

We recognize shipping fees, if any, received from our customers in revenue. We expense shipping and handling costs as incurred which are included in cost of goods sold on the statements of operations.

Going Concern Considerations

The unaudited financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm’s report on the financial statements included in the Company’s annual report on Form 10-K for the year ended September 30, 2018, contains an explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going concern.

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

These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying 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 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.

NOTE 2 – STOCKHOLDERS’ DEFICIT

Potentially Dilutive Options and Warrants

As of ~~December~~ March 31, ~~2018~~2019, and September 30, 2018, there were no outstanding options and warrants.

NOTE 3 – RELATED PARTY TRANSACTIONS

Advances from Stockholder and Officer

As of ~~December~~ March 31, ~~2018~~2019, and September 30, 2018, Mr. Shrewsbury had outstanding advances owed from the Company of $~~146~~148,~~487~~987 and $92,487, respectively. The advances bear no interest and are due on demand.

9Accrued Payroll Expenses for Officer

As of March 31, 2019, the Company had accrued $329,179 prior period payroll expenses for the CFO. As of September 30, 2018, the accrued prior period payroll was $358,179.

Notes Payable to Officer

On February 25, 2014, the Company and Mr. Shrewsbury consolidated an aggregate of $2,000,000 of indebtedness due to Mr. Shrewsbury, including principal due under a Revolving Demand Note (“Revolving Note”) in the amount of $1,062,000 and accrued but unpaid interest as of January 31, 2014 of $168,905; principal due under a 10% Promissory Note (“10% Note”) in the amount of $289,997 and accrued but unpaid interest as of January 31, 2014 of $93,252; and $385,846 of non-interest bearing advances outstanding as of January 31, 2014. The Company issued in exchange a Consolidated Secured Promissory Note (“Consolidated Note”) in the principal amount of $2,000,000. The Revolving Note and 10% Note were cancelled and Mr. Shrewsbury agreed to waive any prior defaults under the terms of such notes and to release the Company from any claims related thereto. The Consolidated Note bears interest at the rate of 5% per annum or prime rate if higher than 5% per annum, is repayable in full ten years from the date of issuance, and is subject to certain events of default. Payment of the Consolidated Note is to be secured or otherwise payable by the Company out of the death benefit proceeds of key man life insurance of $2 million that has been purchased by the Company on the life of Mr. Shrewsbury. The terms of the debt consolidation and restructuring were unanimously approved by disinterested members of the Board of Directors of the Company. As of ~~December~~ March 31, ~~2018~~2019, the Company has recorded $~~484~~509,~~932~~589 accrued interest on the note.

Lease Agreement with Stockholder and Officer

We lease approximately 4,800 square feet of office and warehouse space and certain land located at 12080 Virginia Blvd, Ashland, Kentucky, from Mr. Shrewsbury, our CEO, and Mrs. Shrewsbury pursuant to the terms of a lease we entered into with them on November 19, 2012, for a monthly lease payment of $2,000. The lease had a two-year term starting October 1, 2012 and ending August 31, 2014. On September 1, 2014 the lease was extended for an additional two years, and on September 1, 2016 and subsequently September 1, 2018, the parties agreed to extend the lease for an additional two years term and one year term, respectively, upon the same terms and conditions. As of ~~December~~ March 31, ~~2018~~2019, the Company had accrued but unpaid lease payments due to Mr. and Mrs. Shrewsbury in the amount of $9096,000; accordingly, the Company may be deemed to be in default under the terms of the lease agreement with Mr. and Mrs. Shrewsbury. However, the Company has not received a notice of default or termination under the lease agreement as of the date of the financial statements. The Company believes that such office, warehouse and land space will be ~~sufficient~~enough for its current needs.

Freight Charges Paid to Company Controlled by Officer and Stockholder

The Company utilizes the services of a trucking company owned and controlled by Mr. Shrewsbury, our Chief Executive Officer, to transport certain of the Company’s products to its customers. During the three months ended ~~December~~ March 31, ~~2018~~2019 and ~~2017~~2018, such trucking company was paid $1714,~~308~~472and $18,724, respectively and for the six months ended March 31, 2019, and 2018 was paid $2331,69780 and $42,415, respectively, for these trucking services. The freight charges are reported under cost of sales.

Commissions Paid to Company Controlled by Officer and Stockholder

In connection with the transportation and delivery of certain of the Company’s products, the Company utilizes the services of a national transportation company. The chief executive officer of the Company owns and controls a company that is an agent of such transportation company. Such controlled company places orders for such transportation services on behalf of the Company and is paid a commission for such transportation services. During the three months ended ~~December~~ March 31, ~~2018~~2019, and ~~2017~~2018, the Company paid commissions of $32,~~148~~619 and $31,~~631~~772 respectively and for the six months ended March 31, 2019 and 2018, was paid $5,767 and $5,403, respectively. The delivery costs are reflected under cost of sales in our financial statements.

NOTE 4 – BANK LOAN

In November 2012, the Company obtained a $250,000 line of credit from a bank and, on August 26, 2014, increased the line of credit to $750,000 and extended the term of the line of credit. The line of credit was secured by a priority security interest in the Company’s inventory and accounts receivable and matured on November 7, 2015. On December 3, 2015, the Company entered into a ~~new~~ fixed term loan agreement with the bank of $711,376 the proceeds of which were used to repay its line of credit. The loan is for a term of five years and matures on December 3, 2020. As of ~~December~~ March 31, ~~2018~~2019, the loan balance was $~~530~~521,~~349~~637.

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

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

● the Company fails to make any payment when due; ● the Company fails to comply with any term, obligation, covenant or condition in the loan documents or any other agreement between the bank and the Company: ● the Company defaults under any loan, extension of credit, security agreement, purchase or sales agreement or other agreement with any creditor that materially affects the Company’s property or its ability to repay the note or perform its obligations under the note or related documents; ● a warranty, representation or statement made to the bank under the loan document is or becomes materially false or misleading; ● the dissolution or termination of the Company’s existence, or its insolvency, the appointment of a receiver for any part of its property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Company; ● the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan; ● any of the preceding events occurs with respect to any loan guarantor; ● a 25% or more change in the ownership of the Company’s common stock; ● a material adverse change in the Company’s financial condition, or the bank believes the prospect of payment or performance of the loan is impaired; or ● the bank in good faith believes itself insecure.

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

the bank in good faith believes itself insecure.

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

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

● incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course; ● sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of its assets, except for permitted liens; ● sell its accounts receivable, except to the bank; ● engage in business activities substantially different from the Company’s current activities; ● cease operations, liquidate, merge, transfer, acquire or consolidate with another entity, change the Company’s name, dissolve, or sell the inventory or accounts receivable secured under the loan; ● pay any dividend other than in stock; ● lend money, invest or advance money or assets to another person or entity; ● purchase, create or acquire an interest in any other entity; ● incur any obligation as a surety or guarantor other than in the ordinary course; or ● enter into any agreement containing any provision which would be violated or breached by the performance of the Company’s obligations under the loan agreements.

Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 5.50% 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 obligations due from the Company to Mr. Shrewsbury are subordinate to the bank’s indebtedness, including under the Consolidated Note and any advances due to Mr. Shrewsbury. As of December 31, 2018, the Company was in compliance with all covenants applicable to this loan.

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

●

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

●

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

●

sell its accounts receivable, except to the bank;

●

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

●

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

●

pay any dividend other than in stock;

●

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

●

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

●

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

●

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

Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 5.50% 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 obligations due from the Company to Mr. Shrewsbury are subordinate to the bank’s indebtedness, including under the Consolidated Note and any advances due to Mr. Shrewsbury. As of March 31, 2019, the Company was in compliance with all covenants applicable to this loan.

NOTE 5 – NEW ACCOUNTING PRONOUNCEMENTS

In ~~May~~ ~~2014~~February 2016, the FASB issued ASU No.~~2014~~ 2016-0902, ~~Revenue~~Leases ~~from~~(Topic ~~Contracts~~842). The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with ~~Customers~~the ~~(Topic~~liability ~~606)~~for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. ~~This~~Recognition ~~standard~~of ~~provides~~the costs of these leases on the income statement will be dependent upon their classification as either an operating or a ~~single~~financing ~~set~~lease. Costs of ~~guidelines~~an ~~for~~operating ~~revenue~~lease ~~recognition~~will continue to be ~~used~~recognized ~~across~~as ~~all~~a ~~industries~~single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and ~~requires~~recognized ~~additional~~as ~~disclosures~~both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). ItThis standard is effective for ~~annual~~our ~~reporting~~interim and annual periods beginning on or after ~~December~~ 15January1, ~~2017~~2019, ~~including~~and ~~interim~~must ~~reporting~~be ~~periods~~applied ~~within~~on ~~those~~a ~~periods~~modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We currently have a one-year warehouse lease which we consider an operating lease. The new standard ~~permits~~will ~~early~~not ~~adoption,~~have ~~but~~an ~~not~~impact ~~before December~~on ~~15,~~our ~~2016,~~financial statements as the current lease has a one-year term and ~~permits~~therefore, the ~~use~~lease ofwill ~~either~~continue to be recorded on a ~~retrospective~~straight-line orbasis ~~cumulative~~for ~~effect~~the ~~transition~~remaining ~~method~~lease term.

Based on our assessment, we ascertained the new standard does not have a material impact on our financial position and results of operations, and the new standard was adopted commencing the first interim fiscal period of 2019. We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.12

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning on or after January1, 2019, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We currently have a one-year warehouse lease which we consider an operating lease. The new standard will not have an impact on our financial statements as the current lease has a one-year term and therefore, the lease will continue to be recorded on a straight-line basis for the remaining lease term.

NOTE 6 – REVENUE CLASSES

Selected financial information for the Company’s operating revenue classes are as follows:

	For the three months ended
	Three Months Ended				Six Months Ended
	December 31, 2018		December 31, 2017
	March 31, 2019		March 31, 2018		March 31, 2019		March 31, 2018
Revenue
Rail Products	$	~~904~~1,~~783~~063,885	$	~~916~~889,~~008~~174	$	1,968,668	$	1,805,183
Mining Products		~~103~~57,~~961~~112		83209,~~468~~416		161,072		292,883
Total	$	1,~~008~~120,~~744~~997	$	~~999~~1,~~476~~098,590	$	2,129,740	$	2,098,066
Direct cost of revenue
Rail Products	$	~~735~~886,~~489~~250	$	~~778~~680,~~452~~048	$	1,621,739	$	1,458,500
Mining Products		9345,~~207~~090		81206,~~002~~496		138,297		287,498
Total	$	~~828~~931,~~696~~340	$	~~859~~886,~~454~~544	$	1,760,036	$	1,745,998

NOTE 7 – COMMITMENTS AND CONTINGENCIES

~~The Company has no commitments or contingencies to report as of December 31, 2018~~None.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

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

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

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

Our independent registered public accounting firm’s report on the consolidated financial statements included in our Annual Report Form 10-K for the year ended September 30, 2018, contained an explanatory paragraph in which they expressed an opinion that there is substantial doubt about our ability to continue as a going concern.

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

Please refer to and carefully consider the factors described in the Risk Factors section in our Form 10-K for the year ended September 30, 2018, and in this report.

Business and Operational Overview

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

Recent Developments in U.S. Coal Industry

Although, the Company has experienced an increase in sales starting in the second fiscal quarter of 2017 as compared to the two prior years, when the U.S. Coal industry was phasing declining U.S. coal production and bankruptcies and restructurings among certain U.S. coal companies, the demand for, and production of, coal continue to be adversely affected by several factors, including increased environmental regulation in the U.S., declining coal consumption in the electric power sector, increased competition from natural gas, and a strong U.S. dollar.

The U.S. Energy Information Administration (EIA) forecasted in its Short-Term Energy Outlook (STEO) released October 10, 2018, that U. S. coal production will decline by 2% to 756MMst in 2018, despite a 12% (11MMst) increase in coal export. The production decrease is largely attributable to a forecast decline of 4% (26MMst) in domestic coal consumption in 2018. EIA expects coal production to decline by 2% (13MMst) in 2019 because it forecasts that coal exports and coal consumption will decrease by 7% and 5%, respectively.

EIA expects the share of U.S. total utility-scale electricity generation from natural gas to rise from 32% in 2017 to 35% in both 2018 and 2019 and, the forecast for electricity generation share from coal averages 28% in 2018 and 27% in 2019, down from 30% in 2017.

Electricity generators that use fossil fuels continue to be the most common sources of electricity generation in most states. In all but 15 states, coal, natural gas, or petroleum liquids were the most-used electricity generation fuel in 2017. Since 2007, the number of states where coal was the most prevalent electricity generation fuel has fallen as natural gas, nuclear or hydroelectricity have gained market share. In 2017 coal provided the largest generation share in 18 states, down from 28 states in 2007 and natural gas had the largest share in 16 states up from 11 in 2007.

Coal production for the first six months of 2018 was 368 MMst, 16 MMst (4%) lower than in the same period in 2017. Coal production is expected to decrease by 2% in 2018 and by 2% in 2019.

Coal exports for the first six months of 2018 totaled 58 MMst, compared to 44MMst in 2017 or 62% higher than the prior year. EIA expects growth in coal exports for all 2018 forecast at 108 MMst, representing a 12% increase over 2017.

Continued distress in the U.S. coal mining industry will materially affect the demand for our products.

Our Business

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

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

We were incorporated in the State of Georgia in 2000.

Results of Operations

Revenues for the first fiscal quarter of 2019 were $1,008,744 as compared to $999,476 for the same period in 2018, an increase of approximately .93%.

Gross profit during the first fiscal quarter of 2019 was $180,048 compared to $140,022 during the same period in 2018. Gross profit in the current quarter increased by 28.6% when compared to the same period in fiscal 2018.

As a percentage of revenue, gross profit increased to 17.8% during the first quarter of fiscal 2019 from 14.0% during the first quarter of fiscal 2018.

During the first fiscal quarter of 2019, we had net income of $9,176 as compared to a net loss of $31,521 for the same period in fiscal 2018.

Liquidity and Capital Resources

At December 31, 2018, cash and cash equivalents were $65,141 compared to $36,609 at September 30, 2018.

Net cash used in operating activities was $6,767 during the three months ended December 31, 2018. Net cash used in operating activities during the same three-month period in 2017 was $26,510.

There was no cash flow from investing activities for either of the three-month period ended December 31, 2018, or 2017.

During the three months ended December 31, 2018, net cash provided by financing activities was $35,299 due to cash infusion of $54,000 from our CEO, William Shrewsbury partially offset by our loan partial repayment of $18,701.

Mr. William Shrewsbury, our Chairman and CEO, is providing financing to us in the form of a Consolidated Secured Promissory Note of $2,000,000 (“Consolidated Note”) and periodic advances. The principal and interest under the Consolidated Note is due February 24, 2024.The principal bears interest at the rate of 5% per annum or prime rate if higher than 5% per annum and is subject to certain events of default. The Consolidated Note is to be secured or otherwise payable by us out of the death benefit proceeds of key man insurance of $2 million that has been purchased by us on the life of Mr. Shrewsbury. As of December 31, 2018, Mr. Shrewsbury had also provided non-interest-bearing advances to us of $146,487.

In November 2012, we obtained a bank line of credit of $250,000 which was subsequently increased to $750,000. On December 3, 2015, we entered into a new loan agreement with a bank under which we obtained a term loan in the amount of $711,376. The loan is secured by a lien on our inventory and accounts receivable and guaranteed by Mr. Shrewsbury. We utilized proceeds of the new loan to repay our line of credit. The loan is for a term of five years and matures on December 3, 2020. As of December 31,2018, the loan balance was $530,349.

RESULTS OF OPERATIONS

Results of Operations – For the three months ended ~~December~~March 31, ~~2018~~2019, versus the three months ended ~~December~~March 31, ~~2017~~2018

Revenues from Operations

Revenues for the ~~first~~second quarter of fiscal 2019 were $1,~~008~~120,~~744~~997 as compared to $~~999~~1,~~476~~098,590 for the same period in fiscal 2018, an increase of $922,~~268~~407 or 2.930%. The increase in revenues is attributable to higher sales of our rail products during the current period due to increased or renewed operations at previously downsized or shut-down coal mines ~~as the coal industry experiences increased demand, a more favorable regulatory environment, and due to relatively higher natural gas prices~~.

Cost of Goods Sold

During the quarter ended ~~December~~March 31, ~~2018~~2019, our cost of goods sold was $~~828~~931,~~696~~340 as compared to cost of goods sold of $~~859~~886,~~454~~544 for the quarter ended ~~December~~March 31, ~~2017~~2018, aan ~~decrease~~increase of $3044,~~758~~796 or 35.61% due to an increase in sales during the current period. As a percentage of sales, cost of goods sold ~~decreased~~increased from 8680.07% in ~~2017~~2018 to 8283.21% during the current period due to higher sales of a product mix with relatively ~~lower~~higher unit cost during the current quarter.

Gross Profit

Gross profit for the period ended ~~December~~March 31, ~~2018~~2019, ~~increased~~decreased as a percentage of revenue to 1716.89% from 1419.03% for the same period of the prior fiscal year. The ~~increase~~decrease in gross profit resulted from aan ~~favorable~~unfavorable mix of ~~lower~~higher cost rail related products with ~~higher~~lower margins sold during the current ~~first~~second quarter.

1514

Operating Expenses

Operating expenses for the three months ended ~~December~~March 31, ~~2018~~2019 were $~~135~~108,~~566~~009 as compared to $~~146~~132,~~112~~495 for the three months ended ~~December~~March 31, ~~2017~~2018, a decrease of $1024,~~546~~486 or 718.25%. As a percentage of revenues, operating expenses decreased from 14.6% in 2017 to 13.4% in 2018. The decrease is attributable to lower commission and professional fees during the first fiscal quarter of 2019.

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

	Three Months Ended
	12/31/2018		12/31/2017		$ Change			% Change
	3/31/2019		3/31/2018		$ Change			%Change
Operating Expense
Salary expense	$	3736,~~676~~717	$	3125,~~683~~075	$	511,~~993~~642			1846.94
Professional fees		0		115,~~500~~400	$	(115,~~500~~400	)		(100.0	)
Depreciation expense		1,792		1,792	$	0			0.0
Bad debt expense		0		20		(20	)		(100.0	)
Other operating expense		96,098		101,137	$	(5,039	)		(5.0	)
Depreciation expense		1,792		1,792		0			0.0
Total	$	135,566	$	146,112	$	(10,546	)		(7.2	)
Other operating expense		69,500		100,208		(30,708	)		(30.6	)
Total	$	108,009	$	132,495	$	(24,486	)		(18.5	)

Salary expense for the three months ended ~~December~~March 31, ~~2018~~2019, was $3736,~~676~~717 compared to $3125,~~683~~075 for the same period in ~~2017~~2018, an increase of $511,~~993~~642 or 1846.94%. The higher salary expense is the direct result of an additional warehouse staff added to the payroll in the current period.

Professional fees decreased $1115,~~500~~400 or 100.0% during the three months ended ~~December~~March 31, ~~2018~~2019 as compared to the same period in ~~2017~~2018. The decrease can be attributed to lower legal expenses related to SEC compliance and other compliance related matters.

Depreciation expense during the three months ended ~~December~~March 31, ~~2018~~2019, was $1,792, which compares to the same period the prior year.

During the three months ended ~~December~~March 31, ~~2018~~2019, other operating expenses of $9669,~~098~~500 decreased by $530,~~039~~708 or 530.06% from $91100,~~218~~208 for the same period in ~~2017~~2018. The lower other operating expenses resulted primarily from lower sales commission expense ~~of $6,387~~ and, ~~lower~~a ~~operating~~reversal ~~supplies~~ of $4payroll taxes over-accrual,~~236~~ partially offset by higher ~~delivery~~repair ~~truck~~and maintenance ~~of $5,184~~expense.

Income~~/(loss)~~ from operations

Income from operations for the quarter ended ~~December~~March 31, ~~2018~~2019, was $4481,~~482~~648 compared to ~~loss~~income from operations of $679,~~090~~551 during the same period in ~~2017~~2018. The increase in income from operations when ~~compare~~compared to the same period the prior year is the direct result of ~~higher~~lower operating expenses partially offset by lower sales margins of rail products ~~and a reduction~~ in the current period ~~operating expenses~~.

Other income and (expense)

Other income and expense for the three months ended ~~December~~March 31, ~~2018,~~2019 ~~reflected~~was a net expense of $3537,~~306~~326 as compared to a net expense of $2532,~~431~~008 for the quarter ended ~~December~~March 31,2018 ~~2017~~ or, aan ~~net loss~~ increase of $95,~~875~~318. ~~Profit~~The ~~generated~~increase ~~from~~in ~~the~~net ~~sales~~expense ofis ~~scrap during~~ the ~~period~~result ~~ended December 31, 2017 account for $6,476~~ of ~~the~~higher ~~loss~~interest ~~increase~~expense ~~with~~incurred ~~the~~on ~~remaining~~our ~~variance~~bank ~~resulting~~loan ~~from higher interest expense~~ during the current quarter.

Net income

For the quarter ended March 31, 2019, we had net income of $44,322 compared to net income of $47,543 for the quarter ended March 31, 2018. The $3,221 decrease in net income in the current period was the result of lower sales margins of rail products during the current quarter partially offset by lower operating expense compared to the same quarter the prior year.

Net income per common share

The net income of $44,322 for the quarter ended March 31, 2019, as well as the net income of $47,543 for the quarter ended March 31, 2018, when divided by the number of common shares outstanding of 48,053,084 basic shares in both years resulted in a net income per share of less than $0.01 in both periods.

RESULTS OF OPERATIONS

Results of Operations – For the six months ended March 31, 2019, versus the three months ended March 31, 2018

Revenues from Operations

Revenues for the six months of fiscal 2019 were $2,129,740 as compared to $2,098,066 for the same period in fiscal 2018, an increase of $31,674 or 1.5%. The increase in revenues is attributable to higher sales of our rail products during the current period due to increased or renewed operations at previously downsized or shut-down coal mines.

Cost of Goods Sold

During the six months period ended March 31, 2019, our cost of goods sold was $1,760,036 as compared to cost of goods sold of $1,745,998 for the same period ended March 31, 2018, an increase of $14,038 or 0.8% due to an increase in sales during the current period. As a percentage of sales, cost of goods sold decreased from 83.2% in 2018 to 82.6% during the current period due to higher sales of a product mix with relatively lower unit cost during the current six months period.

Gross Profit

Gross profit for the period ended March 31, 2019, increased as a percentage of revenue to 17.4% from 16.8% for the same period of the prior fiscal year. The increase in gross profit resulted from a favorable mix of lower cost rail related products with higher margins sold during the current six months period.

Operating Expenses

Operating expenses for the six months ended March 31, 2019 were $243,574 as compared to $278,606 for the six months ended March 31, 2018, a decrease of $35,032 or 12.6%.

~~Net~~The ~~income~~table ~~(loss)~~below details the components of operating expenses, as well as the dollar and percentage changes for the comparative six-month periods.

For the quarter ended December 31, 2018, we had net income of $9,176 compared to a net loss of $31,521 for the quarter ended December 31, 2017. The increase in net income in the current period was the result of higher sales margins of rail products during the current quarter and a decrease in operating expense of $10,546 as compared to the same quarter the prior year.

	Six Months Ended
	3/31/2019		3/31/2018		$ Change			%Change
Operating Expense
Salary expense	$	74,393	$	56,758	$	17,635			31.1
Professional fees		186		16,900		(16,714	)		(98.9	)
Bad debt expense		0		20		(20	)		(100.0	)
Depreciation expense		3,584		3,584		0			0.0
Other operating expense		165,411		201,344		(35,933	)		(17.8	)
Total	$	243,574	$	278,606	$	(35,032	)		(12.6	)

~~Net~~Salary ~~income~~expense ~~(loss)~~for ~~per~~the ~~common~~six ~~share~~months ended March 31, 2019, was $74,393 compared to $56,758 for the same period in 2018, an increase of $17,635 or 31.1%. The higher salary expense is the direct result of an additional warehouse staff added to the payroll in the current period.

~~The~~Professional ~~net~~fees ~~income~~decreased of $916,~~176~~714 ~~for~~or ~~the~~98.9% ~~quarter~~during ~~ended December 31, 2018, as well as~~ the ~~net~~six ~~loss~~months ~~of $31,521 for the quarter~~ ended ~~December~~March 31, ~~2017,~~2019 ~~when~~as ~~divided~~compared byto the ~~number~~same ofperiod ~~common~~in ~~shares~~2018. ~~outstanding~~The ofdecrease ~~48,053,084~~can ~~basic~~be ~~shares~~attributed into ~~both~~lower ~~years~~legal ~~resulted~~expenses inrelated ato ~~net~~SEC ~~income~~compliance and ~~loss~~other ~~per~~compliance ~~share~~related ~~of less than $0~~matters.~~01 in both periods.~~

Depreciation expense during the six months ended March 31, 2019, was $3,584, which compares to the same period the prior year.

During the six months ended March 31, 2019, other operating expenses of $165,411 decreased by $35,933 or 17.8% from $201,344 for the same period in 2018. The lower other operating expenses resulted primarily from lower sales commission expense and a reversal of over-accrued payroll taxes, partially offset by higher repair and maintenance expense and higher insurance expense.

Income from operations

Income from operations for the two quarters ended March 31, 2019, was $126,130 compared to income from operations of $73,462 during the same period in 2018. The increase in income from operations when compared to the same period the prior year is the direct result of higher sales and sales margins of rail products and lower operating expenses, in the current period.

Other income and (expense)

Other income and expense for the six months ended March 31, 2019 was a net expense of $72,633 as compared to a net expense of $57,440 for the six months ended on March 31,2018 or a loss increase of $15,193. A $6,476 gain on sale of scrap during the 2018 period and higher interest on our bank loan during the current period account for the higher net expense in the current period.

Net income

For the two quarters ended March 31, 2019, we had net income of $53,497 compared to net income of $16,022 for the same period ended March 31, 2018. The $37,475 increase in the current period net income resulted from higher sales and sales margins of rail products and lower operating expenses during the current period.

Net income per common share

The net income of $53,497 for the six months period ended March 31, 2019, as well as the net income of $16,022 for the six months ended March 31, 2018, when divided by the number of common shares outstanding of 48,053,084 basic shares in both years resulted in a net income per share of less than $0.01 in both periods.

LIQUIDITY AND CAPITAL RESOURCES

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

	Three Months Ended
	Six Months Ended
Liquidity and capital resources	123/31/~~2018~~2019			123/31/~~2017~~2018
Net cash used in operating activities	$	(6,767	)	$	(26,510	)
Net cash provided/(used) by operating activities	$	85,998		$	(15,801	)
Net cash used in investing activities		-			-
Net cash provided/(used) by investing activities	_			_
Net cash provided/(used) by financing activities		3529,~~299~~087			(419,~~288~~138	)
Net increase/(decrease) in cash equivalents	$	28115,~~532~~085		$	(3034,~~798~~939	)

At ~~December~~March 31, ~~2018~~2019, we had cash and cash equivalents of $65151,~~141~~694 as compared to $36,609 at September 30, 2018 an increase of $28115,~~532~~085 or 77314.94%.

Cash Flows Provided/(Used) in Operating Activities

Net cash ~~used~~provided inby operating activities for the ~~three-~~six months ended ~~December~~March 31, ~~2018~~2019, was $685,~~767~~998 compared to net cash used inby operating activities of $2615,~~510~~801 in ~~2017,~~the asame ~~decrease~~six-months ofin ~~$19,743 or 74~~2018.~~5%.~~

During the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019, we had net income of $953,~~176~~497 as compared to a net ~~loss~~income of $3116,~~521~~022 for the same period in the prior year.

In the current ~~three-month~~six months period, as well as prior year for the same period, the Company had non-cash expenses for depreciation of $13,~~792~~584.

AnCash provided by operating activities during the six months ended March 31, 2019 from an increase in accounts receivable of $22200,~~214~~715 and ana ~~inventory~~reduction ~~increase~~in accrued liabilities of $2487,~~153~~456 inwere ~~the~~more ~~current~~than ~~period~~offset ~~was~~by ~~partially~~cash ~~offset~~provided by anoperating ~~increase~~activities infrom ~~other~~a ~~current~~reduction ~~liabilities~~in inventory of $2868,~~731. As of December 31~~088, ~~2018,~~an ~~other~~increase ~~current~~in ~~assets increased by $850,~~ accounts payable ~~increased~~of by $5172.945,~~122~~ and ~~officer’s~~an ~~advances~~increase ~~for~~in ~~operations~~other ~~increased~~liabilities byof $674,~~000~~955.

Cash Flows Provided/(Used in) Investing Activities

There was no cash flow used in investing activities for the period ended ~~December~~March 31, ~~2018~~2019 or ~~2017~~2018.

Cash Flows Used in Financing Activities

During the ~~three~~six months ended ~~December~~March 31, 2019 and, 2018, cash provided by financing activities was $3529,~~299~~087 compared to cash used in financing activities of $419,~~288~~138 during the same period in ~~2017~~2018. During the current ~~three-month~~six months period, the Company made payment on its term loan of $1827,~~701~~413 and received advances from our CEO of ~~$54~~56,~~000~~500.

17On December 3, 2015, we entered into a new fixed term loan agreement with a bank of $711,376 the proceeds of which were used to repay our previous line of credit. The loan is for a term of five years and matures on December 3, 2020. As of March 31, 2019, the loan balance was $521,637. The current rate of interest under the loan is 5.50% per annum. Principal, interest and collection costs under the loan are guaranteed by Mr. Shrewsbury.

On December 3, 2015, we entered into a new fixed term loan agreement with a bank of $711,376 the proceeds of which were used to repay our previous line of credit. The loan is for a term of five years and matures on December 3, 2020. As of December 31, 2018, the loan balance was $530,349. The current rate of interest under the loan is 5.50% per annum. Principal, interest and collection costs under the loan are guaranteed by Mr. Shrewsbury.18

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

During the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019, we received advances of $5456,~~000~~500 from Mr. Shrewsbury, bringing the total outstanding advance balance to $~~146~~148,~~487~~987. Cash advances from Mr. Shrewsbury are repayable upon demand and do not bear interest.

As of ~~December~~March 31, ~~2018~~2019 the Company had an accrued liability in the amount of $~~344~~329,179 due to Jose Fuentes, CFO, for past services.

Financial Condition and Going Concern Uncertainties

Since inception, the Company, with a few exceptions has not generated sufficient cash to fund its operations and has incurred operating losses. As of ~~December~~March 31, ~~2018~~2019, the Company’s accumulated deficit was $15,~~601~~557,~~960~~639. Currently, in addition to funds from operations, the Company relies substantially upon financing provided by Mr. Shrewsbury, the Company’s Chief Executive Officer, and a secured bank loan that is guaranteed by Mr. Shrewsbury to finance its business operations. In view of these matters, realization of certain assets in the accompanying balance sheet is dependent upon continued operations which are dependent upon our ability to meet our financial requirements, upon the continued provision of financing from Mr. Shrewsbury and under the Company’s bank loan, and the success of our operations.

Our independent registered public accounting firm’s report on the financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2018, contained an explanatory paragraph in which our auditors expressed an opinion that there is a substantial doubt about our ability to continue as a going concern.

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

As of ~~December~~March 31, ~~2018~~2019, we had cash and cash equivalents of $65151,~~141~~694 as compared to $36,609 as of September 30, 2018.

Our accounts receivable was $~~281~~460,~~908~~409 as of ~~December~~March 31, ~~2018~~2019, as compared to $259,694 as of September 30, 2018, an increase of $22200,~~214~~715 or 877.653%. The higher ~~December~~March 31,. ~~2018~~2019 receivable balance is the direct result of higher sales demand in the current period.

Inventory was $1,~~822~~730,~~693~~452 as of ~~December~~March 31, ~~2018~~2019, as compared to $1,798,540 as of September 30, 2018, ana ~~increase~~decrease of $2468,~~513~~088 or 13.48%.

Accrued expenses were reduced from $416,636 as of September 30, 2018 to $~~379~~329,~~359~~180 as of the ~~three-month~~six months ended ~~December~~March 31, ~~2018~~2019, a reduction of $3787,~~277~~456. A reduction in accrued payroll and payroll taxes account for the lower accrued liabilities balance as of ~~December~~March 31,~~2018~~ 2019.

Accounts payable for the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019, were $~~534~~702,~~975~~798 as compared to $529,853 as of September 30, 2018, an increase of $5172,~~122~~945 or 132.06%.

18During the six months ended March 31, 2019, our accumulated deficit decreased from $15,611,136 to $15,557,639, a decrease of $53,497 due to the reported net income during the six months ended March 31, 2019.

During the three months ended December 31, 2018, our accumulated deficit decreased from $15,611,136 to $15,601,960, a decrease of $9,176 due to the reported net income during the three months ended December 31, 2018.19

During the ~~three~~six months ended ~~December~~March 31, ~~2018~~2019, the Company’s net income was $953,~~176~~497 compared to a net ~~loss~~income of $3116,~~521~~022 for the comparable period in ~~2017~~2018. The ~~loss~~net ~~reduction~~income increase is due to increased sales and sales margins of our rail and mining related products and lower operating expenses in the current period..

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

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

Bank Loan

On December 3, 2015, we obtained a term loan from Town Square Bank of $711,376. We used proceeds of the new loan to repay our former line of credit. The loan is for a term of five years and matures on December 3, 2020. As of ~~December~~March 31, ~~2018~~2019, the loan balance was $~~530~~521,~~349~~637.

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

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

● we fail to make any payment when due; ● we fail to comply with any term, obligation, covenant or condition in the loan documents or any other agreement with the bank; ● we default under any loan, extension of credit, security agreement, purchase or sales agreement or other agreement with any creditor that materially affects our property or our ability to repay the note or perform our obligations under the note or related documents; ● a warranty, representation or statement made to the bank under the loan documents is or becomes materially false or misleading; ● the dissolution or termination of our existence, our insolvency, the appointment of a receiver for any part of our property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against us; ● the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan; ● any of the preceding events occurs with respect to any loan guarantor; ● a 25% or more change in the ownership of our common stock; ● a material adverse change in our financial condition, or the bank believes the prospect of payment or performance of the loan is impaired; or ● the bank in good faith believes itself insecure.

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

the bank in good faith believes itself insecure.

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

1920

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

● incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course; ● sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of our assets, except for permitted liens; ● sell our accounts receivable, except to the bank; ● engage in business activities substantially different from our current activities; ● cease operations, liquidate, merge, transfer, acquire or consolidate with another entity, change our name, dissolve, or sell the inventory or accounts receivable secured under the loan; ● pay any dividend other than in stock; ● lend money, invest or advance money or assets to another person or entity; ● purchase, create or acquire an interest in any other entity; ● incur any obligation as a surety or guarantor other than in the ordinary course; or ● enter into any agreement containing any provision which would be violated or breached by the performance of our obligations under the loan agreements.

●

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

●

sell our accounts receivable, except to the bank;

●

engage in business activities substantially different from our current activities;

●

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

●

pay any dividend other than in stock;

●

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

●

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

●

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

●

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

Advances and Loans from Mr. Shrewsbury

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

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

The principal and interest under the Consolidated Note is due and payable ten years from the date of issuance and is to be secured by the proceeds of key man life insurance purchased by us on the life of Mr. Shrewsbury. The Consolidated Note bears interest at the rate of 5% per annum except that, if the prime rate reported by the Wall Street Journal (“WSJ Prime Rate”) exceeds 5%, then the Consolidated Note will bear interest at the WSJ Prime Rate. As of ~~December~~March 31, ~~2018~~2019, accrued interest on the note was $~~484~~509,~~932~~589.

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

● we fail to pay when due any principal or interest; ● we violate any covenant or agreement contained in the Consolidated Note, the Exchange Agreement, or related transaction documents; ● an assignment for the benefit of creditors by us; ● the application for the appointment of a receiver or liquidator for us or our property; ● the filing of a petition in bankruptcy by or against us; ● the issuance of an attachment or the entry of a judgment against us in excess of $250,000; ● 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.

20● 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.

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

As of December 31, 2018, Mr. Shrewsbury had advanced an aggregate of $146,487 to the Company. The advances do not bear interest and are repayable upon demand. As of December 31, 2018, the Company also has a payable of $90,000 to Mr. Shrewsbury for warehouse storage rental.21

As of March 31, 2019, Mr. Shrewsbury had advanced an aggregate of $148, 987 to the Company. The advances do not bear interest and are repayable upon demand. As of March 31, 2019, the Company also has a payable of $96,000 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 ~~December~~March 31, ~~2018~~2019, and September 30, 2018.

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.

2122

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

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

Risks Related to Our Operations

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

As of ~~December~~March 31, ~~2018~~2019, 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 $~~146~~148,~~487~~987. We have outstanding accounts payable of $~~534~~702,~~975~~798 and other accrued liabilities of $~~864~~838,~~291~~769, including $~~344~~329,179 due to our CFO, Jose Fuentes, for services. Also, the Company owes $~~530~~521,~~349~~637 under a bank term loan which is secured by the Company’s inventory and accounts receivable and which becomes due on December 3, 2020. We are subject to the risks associated with substantial indebtedness, including insufficient funds to repay the amounts due to Mr. Fuentes and Mr. Shrewsbury in the event they make a demand for payment; it may be more expensive and difficult to obtain additional financing; and we are more vulnerable to economic downturns. The Company also has a $9096,000 payable for warehouse lease rental due to Mr. and Mrs. Shrewsbury.

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

We had net income of $953,~~176~~497 for the ~~three-~~six months ended ~~December~~March 31, ~~2018~~2019 and a net ~~loss~~income of $3116,~~521~~022 for the same period in ~~2017~~2018. At ~~December~~March 31,. ~~2018~~2019 and September 30, 2018, we had accumulated deficits of $15,~~601~~557,~~960~~639 and $15,611,136, respectively. We may need to obtain additional financing or incur additional debt to expand our wholesale and retail mining supplies business. We may also require additional financing to fund ongoing operations if our revenue is insufficient to meet our operating costs. In the past, we have been able to raise financing from our CEO through notes and advances and a bank loan guaranteed by our CEO. Our inability to obtain necessary capital or financing to fund these needs will adversely affect our ability to fund operations and continue as a going concern. Additional financing may not be available when needed or may not be available on terms acceptable to us. If adequate funds are not available, we may be required to delay, scale back or eliminate one or more of our business strategies, which may affect our results of operations and financial condition.

2223

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

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

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

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

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

None.

ITEM 5.

OTHER INFORMATION

None.

2324

ITEM 6.

EXHIBITS

The following exhibits are filed or “furnished” herewith:

		Incorporated by Reference From	~~Incorporated by Reference From~~
Exhibit No.	Exhibit Description	~~Exhibit~~Form	~~Form~~Filing Date	~~Filing~~Filed/ ~~Date~~“Furnished” Herewith	~~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	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	X
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO)			X	X
32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO)			X	X
101.INS	XBRL Instance Document **			X	X
101.SCH	XBRL Taxonomy Extension Schema Document **			X	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document **			X	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document **			X	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document **			X	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document **			X	X

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SIGNATURES

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

TX HOLDINGS, INC. By: /s/ William L. Shrewsbury William L. Shrewsbury Chief Executive Officer (Principal Executive Officer) Dated: ~~January~~May 2513, 2019 By: /s/ Jose Fuentes Jose Fuentes Chief Financial Officer (Principal Financial and Accounting Officer) Dated: ~~January~~May 2513, 2019

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Filing Compare · TX Rail Products, Inc.