UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 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)

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 ☒

Securities registered pursuant to Section 12(b) of the 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 August 9, 2019, there were 48,053,084 shares of the registrant’s common stock outstanding.

TX HOLDINGS, INC.

FORM 10-Q

FOR QUARTERLY PERIOD ENDED June 30, 2019

TABLE OF CONTENTS

Forward-Looking Statements

PART I FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Balance Sheets as of June 30, 2019, and September 30, 2018 (Unaudited)	4

		Statements of Operations for the Three Months and Nine Months Ended June 30, 2019 and 2018 (Unaudited)	5

		Statements of Changes in Stockholders’ Deficit for the Nine Months June 30, 2019 and 2018 (Unaudited)	6

		Statements of Cash Flows for the Nine Months Ended June 30, 2019 and 2018 (Unaudited)	7

		Notes to Unaudited Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

	Item 4.	Controls and Procedures	22

PART II OTHER INFORMATION

	Item 1.	Legal Proceedings	23

	Item1A.	Risk Factors	23

	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.

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

June 30, 2019 and September 30, 2018

	Unaudited
	June 30,			September 30,
	2019			2018
ASSETS
Current assets:
Cash and cash equivalents	$	7,544		$	36,609
Accounts receivable, net of allowance for doubtful accounts of $0 at June 30, 2019 and September 30, 2018		409,169			259,694
Inventory		1,875,446			1,798,540
Other current assets		158			1,100
Total current assets		2,292,317			2,095,943

Property and equipment, net		16,936			39,812
Total Assets	$	2,309,253		$	2,135,755

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable	$	609,801		$	529,853
Accrued liabilities		323,854			416,636
Accrued interest to officer		534,521			459,726
Advances from officer		143,987			92,487
Stockholder/officers advances for operations-warehouse rent		102,000			84,000
Bank-term loan-current portion		69,011			59,419
Other current liability		1,820			_
Total current liabilities		1,784,994			1,642,121

Bank-term-loan, less current portion		439,078			489,631
Note payable to officer		2,000,000			2,000,000
Total Liabilities		4,224,072			4,131,752

Commitments and Contingencies, (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 June 30, 2019 and September 30, 2018		9,293,810			9,293,810
Additional paid-in capital		4,321,329			4,321,329
Accumulated deficit		(15,529,958	)		(15,611,136	)
Total stockholders' deficit		(1,914,819	)		(1,995,997	)
Total Liabilities and Stockholders' Deficit	$	2,309,253		$	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 Nine Months Ended June 30, 2019 and June 30, 2018

	Unaudited
	THREE MONTHS ENDED						NINE MONTHS ENDED
	June 30,			June 30,			June 30,			June 30,
	2019			2018			2019			2018

Revenue	$	1,028,828		$	1,002,866		$	3,158,569		$	3,100,840

Cost of goods sold		(904,542	)		(832,680	)		(2,664,579	)		(2,578,678	)

Gross profit		124,286			170,186			493,990			522,162

Operating expenses, except items shown separately below		65,045			58,065			172,079			195,569
Commission expense		28,256			44,418			86,634			108,259
Salary expense		35,421			30,814			109,814			87,572
Professional fees		5,212			5,267			5,398			22,167
Bad debt expense		14,621			_			14,621			20
Depreciation expense		1,792			1,792			5,376			5,376
Total operating expenses		150,347			140,356			393,922			418,963

Income from operations		(26,061	)		29,830			100,068			103,199

Other income and (expense)
Other income		93,545			4,215			93,545			10,692
Loss on disposal of property and equipment		(7,000	)		_			(7,000	)		_
Interest expense		(32,803	)		(33,481	)		(105,435	)		(97,396	)

Total other income and (expense), net		53,742			(29,266	)		(18,890	)		(86,704	)

Net income	$	27,681		$	564		$	81,178		$	16,495

Net earnings per common share
Basic and diluted	$	0.00		$	0.00		$	0.00		$	0.00

Weighted average of common shares outstanding-
Basic and diluted		48,053,084			48,053,084			48,053,084			48,053,084

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

TX HOLDINGS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Nine Months Ended June 30, 2019 and 2018

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

Balance at September 30, 2017		–	$	–		48,053,084	$	9,293,810	$	4,321,329	$	(15,555,936	)	$	(1,940,797	)

Net Income		–		–		–		–		–		16,495			16,495

Balance at June 30, 2018		–	$	–		48,053,084	$	9,293,810	$	4,321,329	$	(15,539,441	)	$	(1,924,302	)



Balance at September 30, 2018		–	$	–		48,053,084	$	9,293,810	$	4,321,329	$	(15,611,136	)	$	(1,995,997	)

Net Income		–		–		–		–		–		81,178			81,178

Balance at June 30, 2019		–	$	–		48,053,084	$	9,293,810	$	4,321,329	$	(15,529,958	)	$	(1,914,819	)

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

TX HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2019 and 2018

	(Unaudited)
	June 30,			June 30,
	2019			2018
Cash flows provided/(used) in operating activities:
Net income	$	81,178		$	16,495
Adjustments to reconcile net income to net cash provided/(used) in operating activities:
Depreciation expense		5,376			5,376
Bad debt expense		14,621			(20	)
Loss on disposal of property and equipment		7,000			–
Changes in operating assets and liabilities:
Accounts receivable		(164,096	)		80,360
Inventory		(76,906	)		(33	)
Commission advances		–			22,648
Other current assets		942			1,428
Other assets		–			500
Accrued liabilities		(92,782	)		(73,944	)
Accrued interest to officer		74,795			74,795
Accounts payable		79,948			(89,834	)
Other current liability		12,320
Stockholder/officers advances for operations		18,000			18,000
Net cash provided/(used) in operating activities		(39,604	)		55,771

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		(40,961	)		(42,782	)
Proceeds from officer advances		124,500			186,000
Repayment of officer advances		(73,000	)		(197,500	)
Net cash provided/(used) in financing activities		10,539			(54,282	)

Increase/(decrease) in cash and cash equivalents		(29,065	)		1,489
Cash and cash equivalents at beginning of period		36,609			40,345

Cash and cash equivalents at end of period	$	7,544		$	41,834

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for interest	$	28,712		$	22,601

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

TX HOLDINGS, INC.

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 June 30, 2019 and at September 30, 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 June 30, 2019, and September 30, 2018, there were no outstanding options and warrants.

NOTE 3 – RELATED PARTY TRANSACTIONS

Advances from Stockholder and Officer

As of June 30, 2019, and September 30, 2018, Mr. Shrewsbury had outstanding advances owed from the Company of $143,987 and $92,487, respectively. The advances bear no interest and are due on demand.

Accrued Payroll Expenses for Officer

As of June 30, 2019, the Company had accrued $319,179 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 June 30, 2019, the Company has recorded $534,521 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 June 30,2019, the Company had accrued but unpaid lease payments due to Mr. and Mrs. Shrewsbury in the amount of $102,000; 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 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 June 30, 2019 and 2018, such trucking company was paid $16,807 and $24,480, respectively and for the nine months ended June 30, 2019, and 2018 was paid $48,587 and $66,895, respectively, for these trucking services. The freight charges are reported under cost of sales.

Commissions Paid to Company Controlled by Officer and Stockholder

In connection with the transportation and delivery of certain of the Company’s products, the Company utilizes the services of a national transportation company. The chief executive officer of the Company owns and controls a company that is an agent of such transportation company. Such controlled company places orders for such transportation services on behalf of the Company and is paid a commission for such transportation services. During the three months ended June 30, 2019, and 2018, the Company paid commissions of $3,285 and $3,800 respectively and for the nine months ended June 30, 2019 and 2018, was paid $9,052 and $9,203, respectively. The delivery costs are reflected under cost of sales in our financial statements.

NOTE 4 – BANK LOAN

On December 3, 2015, the Company entered into a fixed term loan agreement with the bank of $711,376 the proceeds of which were used to repay its line of credit. The loan is for a term of five years and matures on December 3, 2020. As of June 30, 2019, the loan balance was $508,089.

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 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 June 30, 2019, the Company was in compliance with all covenants applicable to this loan.

NOTE 5 – NEW ACCOUNTING PRONOUNCEMENTS

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 is 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. 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:

	Three Months Ended				Nine Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Revenue
Rail Products	$	1,012,640	$	905,722	$	2,981,309	$	2,718.812
Mining Products		16,188		97,144		177,260		382,028
Total	$	1,028,828	$	1,002,866	$	3,158,569	$	3,100,840

Direct cost of revenue
Rail Products	$	877,017	$	780,052	$	2,498,756	$	2,238,551
Mining Products		27,525		52,628		165,823		340,127
Total	$	904,542	$	832,680	$	2,664,579	$	2,578,678

NOTE 7 – COMMITMENTS AND CONTINGENCIES

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.

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

Results of Operations – For the three months ended June 30, 2019, versus the three months ended June 30, 2018

Revenues from Operations

Revenues for the third quarter of fiscal 2019 were $1,028,828 as compared to $1,002,866 for the same period in fiscal 2018, an increase of $25,962 or 2.6%. The increase in revenues is attributable to higher sales of our rail products during the current period due to increased or renewed operations at previously downsized or shut-down coal mines.

Cost of Goods Sold

During the quarter ended June 30, 2019, our cost of goods sold was $904,542 as compared to cost of goods sold of $832,680 for the quarter ended June 30, 2018, an increase of $71,862 or 8.6%. The increase in cost of goods sold was due to an increase in sales, and a $19,174 inventory write-off during the current period. As a percentage of sales, cost of goods sold, excluding inventory write-off, increased from 83.0% in 2018 to 86.0% during the current period due to higher sales of a product mix with relatively higher unit cost during the current quarter.

Gross Profit

Gross profit for the period ended June 30, 2019, decreased as a percentage of revenue to 12.1% from 17.0% for the same period of the prior fiscal year. The decrease in gross profit resulted from an unfavorable mix of higher cost rail related products with lower margins and an inventory write-off during the current third quarter.

Operating Expenses

Operating expenses for the three months ended June 30, 2019 were $150,347 as compared to $140,356 for the three months ended June 30, 2018, an increase of $9,991 or 7.1%.

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

	Three Months Ended
	6/30/2019		6/30/2018		$ Change			%Change
Operating Expense
Commission expense	$	28,256	$	44,418	$	(16,162	)		(36.4	)
Salary expense		35,421		30,814		4,607			15.0
Professional fees		5,212		5,267		(55	)		(1.0	)
Bad debt expense		14,621		–		14,621			100.0
Depreciation expense		1,792		1,792		0			0.0
Other operating expense		65,045		58,065		6,980			12.0
Total	$	150,347	$	140,356	$	9,991			7.1

Commission expense for the third quarter ended March 31, 2019 decreased by $16,162 due to a receivable write-off of $14,621 and lower sales margins of rail related products.

Salary expense for the three months ended June 30, 2019, was $35,421 compared to $30,814 for the same period in 2018, an increase of $4,607 or 15.0%. The higher salary expense is the direct result of an additional warehouse staff added to the payroll in the current period.

Professional fees decreased by $55 during the three months ended June 30, 2019 as compared to the same period in 2018. The decrease can be attributed to lower legal expenses related to SEC compliance and other compliance related matters.

Bad Debt Expense were $14,621 during the quarter ended June 30, 2019 which represent a 100% increase over the same period the prior year. The current period expense resulted from customer’s accounts write-off due to bankruptcy.

Depreciation expense during the three months ended June 30, 2019, was $1,792, which compares to the same period the prior year.

During the three months ended June 30, 2019, other operating expenses of $65,045 increased by $6,980 or 12.0% from $58,065 for the same period in 2018. The higher other operating expenses resulted primarily from higher repair and maintenance expenses.

Income from operations

Loss from operations for the quarter ended June 30, 2019, was $26,061 compared to income from operations of $29,830 during the same period in 2018. The decrease in income from operations when compared to the same period the prior year is the direct result of lower sales margins and higher operating expenses in the current period.

Other income and (expense)

Other income and expense for the three months ended June 30, 2019 was a net income of $53,742 as compared to a net expense of $29,266 for the quarter ended June 30,2018 or, an increase of $83,008. The net income increase is the result of a vendor credit of $93,545 for inventory previously written-off, partially offset by a $7,000 loss on disposal of a fixed asset.

Net income

For the quarter ended June 30, 2019, we had net income of $27,681 compared to net income of $564 for the quarter ended June 30, 2018. The $27,117 increase in net income in the current period was the result of a credit for prior written-off material, partially offset by lower sales margins of rail products and higher operating expenses during the current quarter.

Net income per common share

The net income of $27,681 for the quarter ended June 30, 2019, as well as the net income of $564 for the quarter ended June 30, 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 nine months ended June 30, 2019, versus the nine months ended June 30, 2018

Revenues from Operations

Revenues for the nine months of fiscal 2019 were $3,158,569 as compared to $3,100,840 for the same period in fiscal 2018, an increase of $57,729 or 1.9%. 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 nine months period ended June 30, 2019, our cost of goods sold was $2,664,579 as compared to cost of goods sold of $2,578,678 for the same period ended June 30, 2018, an increase of $85,901 or 2.6% due to an increase in sales during the current period and a $19,174 inventory write-off. As a percentage of sales, cost of goods sold increased from 83.2% in 2018 to 84.4% during the current period due to higher sales of a product mix with relatively higher unit cost during the current nine months period. The inventory write-off accounted for 0.6% of the cost of goods sold increase.

Gross Profit

Gross profit for the period ended June 30, 2019, decreased as a percentage of revenue to 15.6% from 16.8% for the same period of the prior fiscal year. The decrease in gross profit resulted from an unfavorable mix of higher cost rail related products with lower margins sold during the current nine months period.

Operating Expenses

Operating expenses for the nine months ended June 30, 2019 were $393,922 as compared to $418,963 for the nine months ended June 30, 2018, a decrease of $25,041 or 6.0%.

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

	Nine Months Ended
	6/30/2019		6/30/2018		$ Change			%Change
Operating Expense
Commission expense	$	86,634	$	108,259	$	(21,625	)		(20.0	)
Salary expense		109,814		87,572		22,242			25.4
Professional fees		5,398		22,167		(16,769	)		(75.6	)
Bad debt expense		14,621		20		14,601			73005.0
Depreciation expense		5,376		5,376		0			0.0
Other operating expense		172,079		195,569		(23,490	)		(12.0	)
Total	$	393,922	$	418,963	$	(25,041	)		(6.0	)

Commission expense for the current nine-month period decrease by $21,625 or 20.0% when compared to the same nine-month period in 2018. The lower commission is a direct result of lower profit margins in our sales of rail and mine products.

Salary expense for the nine months ended June 30, 2019, was $86,634 compared to $108,259 for the same period in 2018, an increase $21,625 or 20.0%. The higher salary expense is the direct result of an additional warehouse staff and an additional salesman added to the payroll in the current period.

Professional fees decreased $16,769 or 75.6% during the nine months ended June 30, 2019 as compared to the same period in 2018. The decrease can be attributed to lower legal expenses related to SEC compliance and other compliance related matters.

Depreciation expense during the nine months ended June 30, 2019, was $5,376, which compares to the same period the prior year.

Bad Debt Expense were $14,621 during the nine months ended June 30, 2019 which increased by $14,601 when compared to the same period the prior year. The current period expense resulted from customer’s accounts write-off due to bankruptcy.

During the nine months ended June 30, 2019, other operating expenses of $172,079 decreased by $23,490 or 12.0% from $195,569 for the same period in 2018. The lower other operating expenses resulted primarily from a $28,918 payroll tax over-accrual reversed in the current period.

Income from operations

Income from operations for the three quarters ended June 30, 2019, was $100,068 compared to income from operations of $103,199 during the same period in 2018. The decrease in income from operations when compared to the same period the prior year is the direct result of lower sales margins of rail products partially offset by lower operating expenses, in the current period.

Other income and (expense)

Other income and expense for the nine months ended June 30, 2019 was a net expense of $18,890 as compared to a net expense of $86,704 for the nine months ended on June 30,2018 or a loss decrease of $67,814. The lower net expense is the result of a vendor credit of $93,545 for inventory previously written-off, partially offset by a $7,000 loss on disposal of a fixed asset, higher interest on our loan of $8,039 in the current period and a $10,692 gain on sale of scrap during the 2018 period.

Net income

For the three quarters ended June 30, 2019, we had net income of $81,178 compared to net income of $16,495 for the same period ended June 30, 2018. The $64,683 increase in the current period net income resulted primarily from a credit from vendor on inventory previously written-off recorded in the current period.

Net income per common share

The net income of $81,178 for the nine months period ended June 30, 2019, as well as the net income of $16,495 for the nine months ended June 30, 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:

	Nine Months Ended
Liquidity and capital resources	6/30/2019			6/30/2018
Net cash provided/(used) in operating activities	$	(39,604	)	$	55,771
Net cash provided/(used) in investing activities		–			–
Net cash provided/(used) in financing activities		10,539			(54,282	)
Net increase/(decrease) in cash equivalents	$	(29,065	)	$	1,489

At June 30, 2019, we had cash and cash equivalents of $7,544 as compared to $36,609 at September 30, 2018 a decrease of $29,065 or 79.4%.

Cash Flows Provided/(Used) in Operating Activities

Net cash used by operating activities for the nine months ended June 30, 2019, was $39,604 compared to net cash provided by operating activities of $55,771 in the same nine-months in 2018.

During the nine months ended June 30, 2019, we had net income of $81,178 as compared to net income of $16,495 for the same period in the prior year.

In the current nine months period, as well as prior year for the same period, the Company had non-cash expenses for depreciation of $5,376.

Net Cash used by operating activities during the nine months ended June 30, 2019 was $39,604. The increase in cash used in operations resulted from an increase in accounts receivable of $164,096, increase in inventory of $76,906 and a reduction in accrued liabilities of $92,782. The used cash from operations was partially offset primarily by an increase in accounts payable of $79,948, an increase in various liabilities of $105,115 and a net income of $81,178.

Cash Flows Provided/(Used in) Investing Activities

There was no cash flow used in investing activities for the period ended June 30, 2019 or 2018.

Cash Flows Provided/(Used in) Financing Activities

During the nine months ended June 30, 2019, cash provided by financing activities was $10,539 compared to cash used in financing activities of $54,282 during the same period in 2018. During the current nine months period, the Company made payments on its term loan of $40,961 and received advances from our CEO of $124,500.

On December 3, 2015, we entered into a new fixed term loan agreement with a bank of $711,376 the proceeds of which were used to repay our previous line of credit. The loan is for a term of five years and matures on December 3, 2020. As of June 30, 2019, the loan balance was $508,089. 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 February 25, 2014, we issued to Mr. Shrewsbury a Consolidated Secured Promissory Note (“Consolidated Note”) to consolidate an aggregate of $2,000,000 in outstanding debt and unpaid interest due to Mr. Shrewsbury. The Consolidated Note bears interest at 5% per annum or prime rate if higher than 5% per annum and principal and interest are repayable ten years from February 25, 2014. The Consolidated Note is subject to customary events of default. Payment of the Consolidated Note is to be secured or otherwise payable by us out of the death benefit proceeds of key man insurance of $2 million that has been purchased by us on the life of Mr. Shrewsbury.

During the nine months ended June 30, 2019, we received advances of $124,500 from Mr. Shrewsbury and made payments to him of $73,000, bringing the total outstanding advance balance to $143,987. Cash advances from Mr. Shrewsbury are repayable upon demand and do not bear interest.

As of June 30, 2019 the Company had an accrued liability in the amount of $319,179 due to Jose Fuentes, CFO, for past services.

Financial Condition and Going Concern Uncertainties

Since inception, the Company, with a few exceptions has not generated sufficient cash to fund its operations and has incurred operating losses. As of June 30, 2019, the Company’s accumulated deficit was $15,529,958. 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 June 30, 2019, we had cash and cash equivalents of $7,544 as compared to $36,609 as of September 30, 2018.

Our accounts receivable was $409,169 as of June 30, 2019, as compared to $259,694 as of September 30, 2018, an increase of $149,475 or 57.6%. The higher June 30. 2019 receivable balance is the direct result of higher sales during the last two weeks of the current period.

Inventory was $1,875,446 as of June 30, 2019, as compared to $1,798,540 as of September 30, 2018, an increase of $76,906 or 4.3%.

Accrued expenses were reduced from $416,636 as of September 30, 2018 to $323,854 as of the nine- months ended June 30, 2019, a reduction of $92,782. A reduction in accrued payroll and payroll taxes account for the lower accrued liabilities balance as of June 30, 2019.

Accounts payable for the nine-months ended June 30, 2019, were $609,801 as compared to $529,853 as of September 30, 2018, an increase of $79,948 or 15.1%.

During the nine-months ended June 30, 2019, our accumulated deficit decreased from $15,611,136 to $15,529,958, a decrease of $81,178 due to the reported net income during the nine months ended June 30, 2019.

During the nine months ended June 30, 2019, the Company’s net income was $81,178 compared to a net income of $16,495 for the comparable period in 2018. The net 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 June 30, 2019, the loan balance was $508,089.

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.

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

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

●

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

●

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

●

sell our accounts receivable, except to the bank;

●

engage in business activities substantially different from our current activities;

●

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

●

pay any dividend other than in stock;

●

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

●

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

●

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

●

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

Advances and Loans from Mr. Shrewsbury

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

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

The principal and interest under the Consolidated Note is due and payable ten years from the date of issuance and is to be secured by the proceeds of key man life insurance purchased by us on the life of Mr. Shrewsbury. The Consolidated Note bears interest at the rate of 5% per annum except that, if the prime rate reported by the Wall Street Journal (“WSJ Prime Rate”) exceeds 5%, then the Consolidated Note will bear interest at the WSJ Prime Rate. As of June 30, 2019, accrued interest on the note was $534,521.

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

●

we fail to pay when due any principal or interest;

●

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

●

an assignment for the benefit of creditors by us;

●

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

●

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

●

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

●

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

●

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

●

our termination of existence or dissolution;

●

the death of Mr. Shrewsbury; or

●

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

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

As of June 30, 2019, Mr. Shrewsbury had advanced an aggregate of $143, 987 to the Company. The advances do not bear interest and are repayable upon demand. As of June 30, 2019, the Company also has a payable of $102,000 to Mr. Shrewsbury for warehouse storage rental.

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

Off-Balance Sheet Arrangements

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

PART II - OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

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

Risks Related to Our Operations

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

As of June 30, 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 $143,987. We have outstanding accounts payable of $609,801 and other accrued liabilities of $858,375, including $319,179 due to our CFO, Jose Fuentes, for services. Also, the Company owes $508,089 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 $102,000 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 $81,178 for the nine months ended June 30, 2019 and net income of $16,495 for the same period in 2018. At June 30. 2019 and September 30, 2018, we had accumulated deficits of $15,529,958 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.

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.

ITEM 6.

EXHIBITS

The following exhibits are filed or “furnished” herewith:

		Incorporated by Reference From
Exhibit No	Exhibit Description	Form	Filing Date	Filed/ “Furnished” Herewith

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

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

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

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

101.INS	XBRL Instance Document **			X

101.SCH	XBRL Taxonomy Extension Schema Document **			X

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document **			X

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document **			X

101.LAB	XBRL Taxonomy Extension Label Linkbase Document **			X

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document **			X

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: August 9, 2019

By: /s/ Jose Fuentes

Jose Fuentes

Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: August 9, 2019

TX Holdings, Inc. 10-Q