TX Holdings, Inc. (Form: 10-Q, Received: 05/03/2013 12:33:32)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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


For the quarterly period ended March 31, 2013

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

Commission File No. 000-32335

TX HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

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

	12080 Virginia Blvd., Ashland, KY 41102			( 606) 928-1131
(Address of principal executive offices and zip code)			(Registrant’s telephone number, including area code)

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

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

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

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o

Smaller reporting company x

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

On May 3, 2013, there were 48,053,084 shares of the registrant’s common stock outstanding.

TX Holdings, Inc.

Form 10-Q

For the Quarter Ended March 31, 2013

Table of Contents

PART I FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Balance Sheets as of March 31, 2013 and of September 30, 2012 (Unaudited)	4
		Statements of Operations for the Three Months and Six Months Ended March 31, 2013 and 2012 (Unaudited)	5
		Statement of Changes in Stockholders’ Deficit for the Six Months Ended March 31, 2013 (Unaudited)	6
		Statements of Cash Flows for the Six Months Ended March 31, 2013 and 2012 (Unaudited)	7
		Notes to Unaudited Financial Statements	8
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
	Item 4.	Controls and Procedures	24

PART II OTHER INFORMATION
	Item 1.	Legal Proceedings	25
	Item 1A.	Risk Factors	25
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
	Item 3.	Defaults upon Senior Securities	29
	Item 4.	Mine Safety Disclosures	29
	Item 5.	Other Information	29
	Item 6.	Exhibits	29
		SIGNATURES	31

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this report contains forward-looking statements which provide our current expectations or forecasts of future events. Forward-looking statements in this report include, without limitation:

●

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;

●

statements about oil and natural gas realized prices, the timing and amount of future production of oil and natural gas, the amount, nature and timing of capital expenditures, drilling of wells, marketing of oil and natural gas, exploitation or property acquisitions, and the costs of exploiting and developing our properties;

●

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

●

and other statements that are not historical fact.

Forward-looking statements generally can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “intends, “plans,” “should,” “seeks,” “pro forma,” “anticipates,” “estimates,” “continues,” or other variations thereof (including their use in the negative), or by discussions of strategies, plans or intentions. Such statements include but are not limited to statements under Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2012, Part I, Item 1A – Risk Factors of this report, Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report, and elsewhere in this report. A number of factors could cause results to differ materially from those anticipated by such forward-looking statements. The absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including factors described in Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2012, and Part I, Item 1A – Risk Factors of this report,. You should carefully consider the factors described in Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2012, and Part I, Item 1A – Risk Factors of this report, in evaluating our forward-looking statements.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report, or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission (“SEC”).

Item 1. Financial Statements

TX Holdings, Inc.
BALANCE SHEETS (Unaudited)
March 31, 2013 and September 30, 2012
	March 31,			September 30,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	23,100		$	3,135
Accounts receivable		350,470			200,275
Inventory		1,512,901			771,977
Commission advances		63,926			56,375
Notes receivable-current		10,000			10,000
Other current assets		19,199			43,771
Total current assets		1,979,596			1,085,533

Property and equipment, net		55,051			55,797
Notes receivable, less current portion		30,000			30,000
Other		200			50,200

Total Assets	$	2,064,847		$	1,221,530

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Notes payable to a stockholder	$	1,351,997		$	1,351,997
Accrued liabilities		846,178			788,185
Accounts payable		604,301			279,655
Advances from stockholders/officers		526,583			307,082
Bank-Line of Credit		248,500		–
Total current liabilities		3,577,559			2,726,919

Asset retirement obligation	–				5,000
Total Liabilities		3,577,559			2,731,919

Commitments and contingencies (Note 3)

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 and 46,553,084 shares issued and outstanding at March 31, 2013 and September 30, 2012, respectively		9,293,810			9,233,810
Additional paid-in capital		4,304,280			4,304,280
Accumulated deficit		(15,110,802	)		(15,048,479	)
Total stockholders’ deficit		(1,512,712	)		(1,510,389	)

Total Liabilities and Stockholders’ Deficit	$	2,064,847		$	1,221,530

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

TX HOLDINGS, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three and Six Months Ended March 31, 2013 and 2012

	THREE MONTHS ENDED						SIX MONTHS ENDED
	March 31,			March 31,			March 31,			March 31,
	2013			2012			2013			2012

Revenue	$	954,074		$	916,579		$	1,730,321		$	1,028,516

Cost of goods sold		681,709			719,856			1,273,757			813,753

Gross profit		272,365			196,723			456,564			214,763

Operating expenses, except items shown separately below		75,460			87,446			208,743			206,713
Commission expense		96,986			74,198			168,765			74,198
Professional fees		47,971			59,286			87,309			115,715
Stock-Based Compensation		–			27,040			–			27,040
Loss on settlement of accounts payable		–			–			–			–
Depreciation expense		4,445			2,731			8,890			3,879
Total operating expenses		224,862			250,701			473,707			427,545

Income (loss) from operations		47,503			(53,978	)		(17,143	)		(212,782	)

Other income and (expense):
Gain on extinguishment of debt		–			62,719			–			62,719
Gain on disposal of fixed assets		–			–			500			–
Other income		–			125			–			3,763
Interest expense		(22,759	)		(32,043	)		(45,680	)		(64,616	)

Total other income and (expense), net		(22,759	)		30,801			(45,180	)		1,866

Net income/(loss)	$	24,744		$	(23,177	)		(62,323	)	$	(210,916	)

Gain/(loss) per common share
Basic	$	–		$	–		$	–		$	–
Diluted		–			–			–			–
Total	$	–		$	–		$	–		$	–

Weighted average of common shares outstanding-
Basic		48,053,084			53,271,897			47,731,655			53,271,897
Diluted		–			–			–			–
Total		48,053,084			53,271,897			47,731,655			53,271,897

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

TX HOLDINGS, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)

For Six Months Ended March 31, 2013

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

Balance at September 30, 2012		–		–		46,553,084	$	9,233,810	$	4,304,280	$	(15,048,479	)	$	(1,510,389	)

Common stock issued for professional service						1,500,000		60,000							60,000

Net loss												(62,323	)		(62,323	)

Balance at March 31, 2013		–		–		48,053,084	$	9,293,810	$	4,304,280	$	(15,110,802	)	$	(1,512,712	)

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

TX HOLDINGS, INC.

STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Six Months Ended March 31, 2013 and 2012

	Six Months Ended
	March 31,			March 31,
	2013			2012
Cash flows used by operating activities:
Net loss	$	(62,323	)	$	(210,916	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		8,890			3,879
Gain on extinguishment of debt	–				(62,719	)
Loss on settlement of accounts payable		10,116		–
Gain on sale of equipment		(500	)	–
Accounting for warrants issued to an officer and the Board	–				27,040

Changes in operating assets and liabilities:
Commission advances		(7,551	)		(63,787	)
Deposits		50,000			(50,200	)
Finished goods inventory		(740,924	)		(744,783	)
Other current assets		24,572		–
Accounts receivable		(150,195	)		(297,898	)
Accrued liabilities		57,993			162,061
Accounts payable		374,530			270,762
Stockholder advances for operations		12,000		–
Net cash used in operating activities		(423,392	)		(966,561	)

Cash flows used in investing activities:
Purchase of equipment		(13,144	)		(19,000	)
Proceeds received on sale of equipment		500		–
Net cash used in investing activities		(12,644	)		(19,000	)

Cash flows provided by financing activities:
Proceeds from line of credit		248,500		–
Proceeds from stockholder/officer advances		281,501			1,011,583
Payments of stockholders advances		(74,000	)	–
Net cash provided by financing activities		456,001			1,011,583

Increase in cash and cash equivalents		19,965			26,022
Cash and cash equivalents at beginning of period		3,135			3,019

Cash and cash equivalents at end of period	$	23,100		$	29,041

Non-cash investing and financing activities:
Accounts payable exchanged for common stock	$	49,884		$	–

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

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL STATEMENTS

The accompanying interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. The 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, 2012, included herein was derived from audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s 2012 Annual Report on Form 10-K. 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, 2013.

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

CAUTIONARY NOTE TO U.S. INVESTORS

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION PERMITS OIL AND GAS COMPANIES, IN THEIR FILINGS WITH THE SEC, TO DISCLOSE ONLY PROVED RESERVES THAT A COMPANY HAS DEMONSTRATED BY ACTUAL PRODUCTION OR CONCLUSIVE FORMATION TESTS TO BE ECONOMICALLY AND LEGALLY PRODUCIBLE UNDER EXISTING ECONOMIC AND OPERATING CONDITIONS. WE USE CERTAIN TERMS HEREIN, SUCH AS “ PROBABLE”, “POSSIBLE”, “RECOVERABLE”,AND “RISKED,” AMONG OTHERS, THAT THE SEC ’ S GUIDELINES STRICTLY PROHIBIT US FROM INCLUDING IN FILINGS WITH THE SEC. READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE BY US WHICH ATTEMPT TO ADVISE INTERESTED PARTIES OF THE ADDITIONAL FACTORS WHICH MAY AFFECT OUR BUSINESS

OVERVIEW OF BUSINESS

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

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES CONT’D

OVERVIEW OF BUSINESS CONT’D

Commencing in December 2011, the Company’s business was expanded to include the distribution of rail material and mining supplies consumed in the coal mining industry. The Company distributes and sells its products through two independent sales agents who are compensated based on commission.

In connection with the Company’s business expansion, Mr. William Shrewsbury, the Company’s Chairman and CEO, provided financing in the form of a revolving promissory note for the amount of $1,062,000. The note bears interest at the rate of 5% per annum and becomes due and payable on demand or on April 30, 2015 whichever shall first occur. The new financing is secured by a lien on the Company’s assets. Effective September 30, 2011 a note payable was issued to William Shrewsbury in the amount of $289,997 to cover the principal due on certain advances from Mr. Shrewsbury. The note bears interest at the rate of 10% per year and is due on the earlier of the date demanded or April 15, 2015. As of March 31, 2013 Mr. Shrewsbury has also advanced the Company an additional $526,582, which is not interest bearing. The notes and advances due to Mr. Shrewsbury are subordinate to the Company’s bank indebtedness.

Commencing in December 2004, the Company began focusing its business on oil and gas exploration and production. In February and April 2006, the Company acquired certain oil and gas leases and began development of a plan for oil and gas producing operations. The Company continues to be actively engaged in pursuing crude oil and natural gas opportunities.

On February 2006, The Company acquired an 8.5% working interest on the Contract Area-1 lease in the counties of Callahan and Eastland, Texas. The lease included a total of 247 acres and a total of 36 wells. After repeated unsuccessful attempts over several years, the Company elected to cease operation of the Contract area-1 lease resulting in impairment of the lease. The Company wrote-off the asset and recorded a loss of $252,181 for the year ended September 30, 2010 related to the lease and an impairment loss of $315,866 in 2009.

The Company owned a 100% working interest and was the operator of the 843 acre Williams lease acquired in February, 2006 and located in Callhan County, Texas. A dispute with the land owner of the lease had prevented the Company from operating or reporting any production on this lease. On September 30, 2009, the Company elected to cease operation of the Williams lease resulting in impairment of the lease. The Company recorded an impairment loss of $68,222 for the year ended September 30, 2009 related to this lease.

In November 2006, the Company entered into a Purchase and Sale Agreement with Masada Oil & Gas, Inc. ( “ Masada) to acquire a 75% working interest in the Parks lease located in the Callahan County, Texas. The Parks lease covered 320 acres and had 22 wells which were considered capable of minimal production rates (2 to 3 bbls per day). On January 28, 2011, the company purchased from Masada Oil the remaining 25% working interest and thereby increasing the Company working interest on the Parks lease to 100%. In addition to the 25% working interest, the Company purchased 2 acres of land and a 1,400 square foot storage building on the property. In consideration for the purchase, the Company paid $10,400 cash, relinquished an 8.5% working interest on the Contract Area 1(non-producing ) lease with a book Value of $0 and, assumed a $17,000 liability previously owed by the 25% prior lease owner. The Company also adjusted the recorded asset retirement obligation by $27,969 for the release of the liability for Contract Area 1 and the increase in the liability for the Parks lease.

On May 30, 2012, the Company sold 100% of the interest in the Parks lease for $80,000. The Company received a down payment of $40,000 and a note for the balance of $40,000. The Note is secured by future Park’s lease production.

On or about May 7, 2007, the Company entered into a Strategic Alliance Agreement with Hewitt Energy Group, LLC (“Hewitt”), a company owned by Douglas C. Hewitt, a Director of TX Holdings, Inc. at the time of the transaction. The Strategic Alliance Agreement provided that TX Holdings, Inc. would acquire a 50% Working Interest in eight projects in Kansas and Oklahoma. The purchase and development of all of the prospects were estimated at approximately $15,000,000 in cash and stock to be paid over a six month period. Mr. Hewitt resigned as a director on July 27, 2007. Subsequently, the Company and Hewitt mutually agreed to terminate the Strategic Alliance Agreement and, negotiate the participation in individual projects. As one of the projects, the Company acquired an 8% interest on the Perth Lease which was relinquished as part of a legal settlement in May, 2012. On September 30, 2011 and September 30, 2010, the Company recorded impairment losses on the Perth lease of $50,000 and $302,560 respectively.

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES CONT’D

OVERVIEW OF BUSINESS CONT’D

The Company plans to continue using a combination of debt and equity financing to acquire new oil fields and to develop those fields. Currently, management cannot provide any assurance regarding the successful acquisition and development of any future fields.

The Company ceased to be a “development stage company” on March 31, 2012.

REVENUE RECOGNITION

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

Currently, the Company has no revenue from oil and gas operations. Revenue from oil and gas operations is recognized upon delivery of the oil and gas to the purchaser of the oil and gas.

GOING CONCERN CONSIDERATIONS

The unaudited financial statements included in this report have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm’s reports on the financial statements included in our annual report on Form 10-K for the year ended September 30, 2012, contains an explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or become our stockholder.

The Company has suffered recurring losses while devoting substantially all of its efforts to raising capital and identifying and pursuing business opportunities. Currently, management believes that its best opportunities lie in the oil and gas industry and the distribution of rail material and mining supplies consumed in the coal mining industry. The Company’s total liabilities exceed its total assets and the Company is reliant upon loans and advances furnished to the Company by its Chairman, William Shrewsbury in an aggregate amount of $1,878,580. One of the loans from Mr. Shrewsbury in the amount of $1,062,000 is secured by a lien on all of the Company’s assets.

On November 7, 2012 the Company obtained a loan in the amount of $250,000 from a bank. The loan is secured by a priority security interest in the Company’s inventory and, matures on November 7, 2013. Interest on the loan is payable monthly and is calculated on the basis of an independent variable indexed rate which is currently 3.250% per annum. The loan is guaranteed as to principal, interest and all collection costs and legal fees by Mr. Shrewsbury. All notes and other indebtedness due to Mr. Shrewsbury by the Company are subordinated to the bank loan including with regard to the Company’s inventory and assets.

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 be unable to continue as a going concern.

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 2 – STOCKHOLDERS’ DEFICIT

In May 2012, 6,718,813 shares of the Company’s common stock were returned to the Company as part of a legal settlement with the Company’s former Chief Executive Officer and certain other co-defendants and subsequently cancelled. See Note 3.

On November 9, 2012, 1,500,000 shares of common stock were issued by the Company as payment for a legal fee obligation arising from the May 18, 2012, legal settlement with the Company’s prior CEO and several other co-defendants. The Company recognized a loss on settlement of accounts payable of $10,116.

POTENTIALLY DILUTIVE OPTIONS AND WARRANTS

At March 31, 2013, the Company had outstanding 1,400,000 common stock purchase warrants which were not included in the three months and six months ended March 31, 2013 calculation of diluted net gain/loss per share. The warrants’ exercise price exceeds the average market price for the periods and inclusion of the warrants would be anti-dilutive.

On May 16, 2012 the Board of Directors authorized the issuance of an aggregate of 400,000 common stock purchase warrants to a sales agent, Mr. Tom Chafin. Over a period of four years, Mr. Chafin is expected to receive every six months, 50,000 warrants for an aggregate of 400,000 warrants. The warrants are exercisable at price of $0.10 per share, become exercisable upon issuance, and expire two years after the date of issuance. The initial tranche of 50,000 warrants are issuable effective July 1, 2012. On January 1, 2013 an additional 50,000 warrants were issuable to Mr. Chafin pursuant to the agreement. The warrants were not included in the calculation of diluted net gain/loss per share since the inclusion would be anti-dilutive.

NOTE 3 – RELATED PARTY TRANSACTIONS

ADVANCES FROM STOCKHOLDER/OFFICER

As of March 31, 2013, the Company has an outstanding note payable to Mr. Shrewsbury, the Company’s Chairman and CEO, for the amount of $289,997, the note bears a 10% interest and is payable on demand. Interest has been accrued on the notes payables at a rate of 10% per annum.

As of March 31, 2012, Mr. Shrewsbury had advanced an aggregate of $526,583 to the Company.

In the six months ended March 31, 2013 interest expense of $45,680, in the accompanying statements of operations, relates to the promissory notes and the revolving credit arrangement.

PARK’S LEASE

On January 28, 2011 TX Holdings, Inc. entered into an agreement with Masada Oil & Gas Inc. to acquire the remaining 25% working interest in the Park’s lease in which the Company owned a 75% working interest. As part of the agreement, the Company also acquired a storage building and approximately two acres of land. In return, the Company agreed to relinquish an 8.5% working interest which it currently holds in the Contract Area 1 lease, pay the sum of $10,000 and, assume the current 25% lease owners’ liability in the amount of $17,000. On May 30, 2012, the Company sold 100% of the interest on the Parks lease for $80,000. The Company received a down payment of $40,000 and a note for the balance of $40,000. The Note is secured by future Park’s lease production.

NOTES PAYABLE TO A STOCKHOLDER AND OFFICER

On April 30, 2012 TX Holdings, Inc issued a Revolving Promissory Demand Note to Mr. Shrewsbury, the Company’s Chairman and CEO for the amount of $1,062,000. The note bears interest at the rate of 5% per annum and becomes due and payable on demand or on April 30, 2015 whichever shall first occur. The note is secured by a security interest in all of the Company’s assets but is subordinate to the Company’s bank loan including with regard to the Company’s inventory and assets.

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 3 – RELATED PARTY TRANSACTIONS CONT’D

CONVERTIBLE DEBT ISSUED TO STOCKHOLDER AND FORMER OFFICER

In September 2007, Mark Neuhaus, the former Chairman of the Board of Directors and former Chief Executive Officer of the Company, caused the company to issue to him a convertible promissory note in the amount of $1,199,886 (the “Neuhaus Note”) bearing interest at 8% per annum and due and payable within two years for payments in cash and common stock made on behalf of the Company through that date. The conversion price was $0.28 per common share (the market price of the Company’s common stock on the date of the note) which would have automatically converted on the two-year anniversary of the note if not paid in full by the Company. The conversion price was subject to adjustments for anti-dilution.

On November 17, 2009 the Company filed a legal claim in the Eleventh Judicial Circuit Court in and for Miami-Dade County, Florida against Mark Neuhaus, the Company’s prior CEO, Michael Cederstrom, the Company’s prior CFO, Dexter & Dexter, Hewitt Energy Group, LLC, Douglas Hewitt, Mercantile Ascendancy, Inc., Thomas Collins, Global Investment Holdings, LLC, Brian Vollmer, MA & N, LLC, and Nicole Bloom Neuhaus (the “Neuhaus Litigation”). The Company asserted, among other things, that the Neuhaus Note was not supported by consideration and that it was not properly authorized under Georgia law.

During the first half of calendar 2012, the Company retained new legal counsel to represent the Company on current litigation against the defendants listed above. Also, the Company filed a separate but related claim in the United States District Court for the District of Utah against Michael Cederstrom, Dexter and Dexter, and certain other defendants.

On May 18, 2012, the Company reached a settlement with Mark Neuhaus with regard to the Neuhaus Litigation. Pursuant to a settlement agreement among the parties, the Company and Mark Neuhaus agreed to settle the Neuhaus litigation, Neuhaus returned to the Company 6,718,813 shares previously issued to him, Mr. Neuhaus released all claims against the Company related to the Neuhaus Note, including accrued interest along with any other liability owed to him. Mr. Neuhaus was permitted to retain 2,500,000 shares of the Company owned by him. The Company agreed that it would, within ten days of the effective date of the agreement, take steps to lift the restrictions on the transferability or public sale of such shares. The returned shares were canceled by the Company. In return, the Company paid Mr. Neuhaus $100,000. The settlement agreement provided for mutual general releases between the parties, except for claims the Company has or might have against Dexter and Dexter Attorneys At Law, P.C., and Michael Cederstrom. Also, the Company agreed to execute, exchange and deliver mutual general releases with Hewitt Energy Group, LLC, Douglas C. Hewitt, MA&N, LLC, and Nicole Bloom Neuhaus

The Company accounted for the settlement as a “multiple element” transaction consisting of a debt extinguishment element and a stock repurchase element. The $100,000 cash payment was apportioned based on the relative fair value of the debt and repurchased shares. The difference between the cash portion for the debt extinguishment was credited to “additional paid-in capital” pursuant to ASC 470-50-40-2. The difference between the stated value of the

repurchased shares and the cash portion paid to repurchase the shares was credited to “additional paid-in capital” pursuant to ASC 505-30-30-9.

LEASE AGREEMENT WITH STOCKHOLDER AND OFFICER

On November 2012, the Company entered into a lease agreement with William Shrewsbury and Peggy Shrewsbury whereby Mr. Shrewsbury and Mrs. Shrewsbury agreed to lease to the Company real estate and some warehouse space to store the Company’s inventory. The lease has a two year term starting October 1, 2012 and ending August 31, 2014. The lease rental is $2,000 payable the first of each month.

NOTE 4 – NOTES PAYABLE TO THIRD PARTY

On November 7, 2012 the Company obtained a loan in the amount of $250,000 from a bank. The loan is secured by a priority security interest in the Company’s inventory and matures on November 7, 2013. Interest on the loan is payable monthly and is calculated on the basis of an independent variable indexed rate which is currently 3.250% per annum. The loan is guaranteed as to principal and interest, and all collection costs and legal fees by Mr. Shrewsbury. All notes and other indebtedness due to Mr. Shrewsbury by the Company are subordinated to the bank loan including with regard to the Company’s inventory and assets.

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 5 – SEGMENT INFORMATION

ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information,” establishes standards for the manner in which companies report information about operating segments in annual and interim financial statements. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company’s chief operating decision-maker is considered to be the Company’s chief executive officer (“CEO”). The CEO reviews financial information presented on an entity level basis accompanied by disaggregated information about revenues by product type for purposes of making operating decisions and assessing financial performance. The entity level financial information is identical to the information presented in the accompanying statements of operations. The Company has two groups of products and services – mining supplies and oil and gas.

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

	Unaudited			Unaudited
	Six months ended			Six months ended
	March 31, 2013			March 31, 2012

Revenues from unaffiliated customers
Mining	$	1,730,321		$	1,016,927
Oil and Gas	–				11,589
	$	1,730,321		$	1,028,516
Operating profit or loss
Mining	$	66,666		$	(59,895	)
Oil and Gas		(83,809	)		(152,887	)
		(17,143	)		(212,782	)

Other income (expense), net		(45,180	)		1,866
Net income/(loss)	$	(62,323	)	$	(210,916	)

	Unaudited		Unaudited
	March 31, 2013		March 31, 2012
Identifiable assets:
Mining	$	1,970,211	$	1,102,878
Oil and gas		52,137		109,047
Total segment assets	$	2,022,348	$	1,211,925
Total general corporate assets		42,499		9,605
Total Assets	$	2,064,847	$	1,221,530

	Unaudited		Unaudited
	March 31, 2013		March 31, 2012
Capital expenditures:
Mining	$	13,144	$	19,000
Oil and gas	–		–
	$	13,144	$	19,000

Depreciation, Depletion and amortization:
Mining	$	6,980	$	1,583
Oil and gas		1,910		2,296
	$	8,890	$	3,879

TX HOLDINGS, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 6 -- RECENTLY ISSUED ACCOUNTING STANDARDS

During the year ended September 30, 2012 and through April 30, 2013, several new accounting pronouncements were issued by the Financial Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

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

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

This discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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, intangible assets, and contingencies. We base our estimates on historical experience, where available, and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Except for historical information, the statements and other information contained in this Management’s Discussion and Analysis is 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 financial statements included in our Annual Report Form 10-K for the year ended September 30, 2012, contains an explanatory paragraph wherein they expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or become our stockholder.

Please refer to and carefully consider the factors described in Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2012, and Part I, Item 1A – Risk Factors in this report.

Overview

We were incorporated in the State of Georgia in 2000 under the name HOM Corporation. On January 22, 2003, we changed our name to R Wireless, Inc., and, on July 27, 2005, we changed our name to TX Holdings, Inc. We ceased to be a “development stage company” for financial reporting purposes on March 31, 2012.

In December 2011, the Company expanded its business to include the distribution of rail material and mining supplies consumed in the coal mining industry.

The Company purchases its rail material and mining supplies from several manufacturers of such products. The products are shipped to our warehouse in Ashland, Kentucky which we then distribute to our customers.

The Company distributes and sells its products through two independent sales agents who are compensated on a commission basis.

During the quarter ended March 31, 2013, the Company’s had net income of $24,744 as compared to a net loss of $23,177 for the same period in 2012. The quarter ended March 31, 2013, is the first quarter in which the Company has reported net income and reflects the Company’s increased sales activities, its ability to control or obtain reductions in its product costs, and control expenses. The Company’s net loss for the six months ended March 31, 2013, was $62,323 compared to $210,916 for the comparable period in 2012.

Revenues for the quarter ended March 31, 2013, were $954,074 as compared to $916,579 for the same period in 2012, and for the six month ended March 31, 2013, were $1,730,321 as compared to $1,028,516 in 2012 an approximately 68% increase.

Net cash used in operating activities was $ 423,392 during the six months ended March 31, 2013. Operating cash funded by the Company’s credit line and a stockholder’s advance amounted to $248,500 and $207,501 respectively .

In connection with the Company’s new line of business, Mr. William Shrewsbury, the Company’s Chairman and CEO, has agreed to provide financing in the form of a revolving promissory note in the amount of $1,062,000. The promissory note is secured by a lien on the Company’s assets. Also, we have indebtedness due to Mr. Shrewsbury in the amount of $289,997 pursuant to a note, dated effective February 27, 2009, and as of March 31, 2013 advances due to Mr. Shrewsbury in the amount of $526,583. On November, 2012, the Company obtained a bank line of credit in the amount of $250,000 that is secured by a lien on the Company’s inventory.

The Company ’ s success is dependent upon its ability to grow rail products and mining supplies sales. There can be no assurance that the Company will be successful in the new venture.

The Company plans to use all revenues for general corporate purposes, as well as future acquisitions of new oil and gas properties.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2013 Compared To Three Months Ended March 31, 2012

Revenues from Operations

Revenues for the three months ended March 31, 2013 were $954,074 as compared to $916,579 for the same period in 2012, an increase of $ 37,495 or a 4.1%. In December 2011, the Company began expanding its business to include the distribution of rail material and mining supplies consumed in the coal mining industry. The increase in revenue is attributed to our increased sales of mining supplies. The increase in sales can be attributed to higher sales volumes as the Company expands its products and customer base.

Cost of Goods Sold

During the quarter ended March 31, 2013 the Company’s cost of goods sold was $681,709 as compared to cost of goods sold of $719,856 for the quarter ended March 31, 2012, a decrease of $ 38,147 or 5.3 %. The decrease in cost of goods sold resulted from purchasing products for resale from lower cost source providers during the quarter ended March 31, 2013.

Operating Expenses

Operating expenses for the three months ended March 31, 2013 were $224,862 as compared to $250,701 for the three months ended March 31, 2012 a decrease of $25,839 or 10.3%.

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

	Three Months Ended
	3/31/2013		3/31/2012		$ Change			% Change

Commission expense	$	96,986	$	74,198	$	22,788			30.7	%
Professional fees		47,971		59,286		(11,315	)		(19.1	)
Stock-based compensation	–			27,040		(27,040	)		(100.0	)
Depreciation expense		4,445		2,731		1,714			62.8
Other operating expense		75,460		87,466		(12,006	)		(13.7	)
	$	224,862	$	250,721	$	(25,859	)		(10.3	)

Commission expense for the three months ended March 31, 2013 were $96,986 compared to $74,198 for the same period in 2012, a decrease of $ 22,788 or 30.7%. Commission expenses decreased due to an adjustment recorded in the second quarter of 2012 to reflect retroactive sales commissions earned in the first quarter of 2012.

The professional fees decrease of $11,315 or 19.1% for the three months ended March 31, 2013, as compared to the same period the prior year, is the result of lower legal expenses associated with the legal settlement expenses between the Company and Mark Neuhaus and several other defendants recorded in the first half of 2012.

The decrease in stock-based compensation of $27,040 for the three months ended March 31, 2013 as compared to the same period in the prior year, results from stock issued for services by the Company during 2012 and no such stock based compensation expense during the current period.

On September, 2012, the Company purchased a brazing machine to be used in the newly entered rail and mining supplies business. Depreciation of the new brazing machine accounted for an increase in depreciation of $1,250 for the quarter ended March 31, 2013 over the same quarter the prior year.

For the three months ended March 31, 2013, other operating expenses of $75,460 decreased by $12,006 or 13.7% from the $87,466 for the same period in 2012. The lower operating expenses resulted from lower compensation of $22,500 offset by higher equipment rental cost of $9,300 during the period ended March 31, 2013.

Other Income and Expense

Other expense was $22,759 for the three months ended March 31, 2013 as compared to other income of $30,801 for the three months ended March 31, 2012. The increase of $53,560 is the direct result of a reversal of a $62,719 prior period debt in March 31, 2012 partially offset by lower interest expense of $9,284 for the three months ended March 31, 2013. On May, 2012, the Company reached a legal settlement with Mark Neuhaus (prior CEO) and several defendants and, as part of the settlement accrued interest on debt due to Mark Neuhaus was written-off. The lower interest as of March 31, 2013 when compared to the same period during the prior year is a direct result of having recorded no interest on the debt to Mark Neuhaus during 2013.

Net Income or Loss

For the quarter March 31, 2013, the Company had a net income of $24,744 compared to a net loss of $23,177 for the quarter ended March 31, 2012, an increase of $47,921. The increase resulted from higher gross profit generated by sales of mining supplies, over the same period the prior year.

Gross profit for the period ended March 31, 2013 was $272,365, an increase of $75,642 or 38.5% over the gross profit of $196,723 for the three months ended March 31, 2012. The higher gross profit in the current period resulted from higher sales volume arising from the Company expanding its rail and mining supplies product base and lower supplier costs.

In addition to the gross profit increase of $75,462, during the first three months of March 31, 2013 when compared to the same period the prior year, the Company realized a favorable reduction in operating expenses of $25,859 resulting from lower compensation expense partially offset by a gain of $62,719 from the extinguishment of debt recorded in March, 2012.

Six Months Ended March 31, 2013 Compared to Six Months Ended March 31, 2012

Revenues from Operations

Revenues for the six months ended March 31, 2013 were $1,730,321 as compared to $1,028,516 for the same period in 2012, an increase of $ 701,805 or 68%. In December 2011, the Company began expanding its business to include the distribution of rail material and mining supplies consumed in the coal mining industry. The increase in revenue is attributed to our increased sales of rail and mining supplies. The increase in sales was attributable to higher sales volumes as the Company expands its products and customer base.

Cost of Goods Sold

During the six months ended March 31, 2013 the Company’s cost of goods sold was $1,273,757 as compared to cost of goods sold of $813,753 for the six months ended March 31, 2012, an increase of $ 460,004 or 56.5 %. The increase in cost of goods sold is a direct result of the increase in sales volume as the Company continues to expand its products and customer base in the rail material and mining supplies products consumed in the coal mining industry.

Operating Expenses

Operating expenses for the six months ended March 31, 2013 were $473,707 as compared to $427,545 for the six months ended March 31, 2012 an increase of $46,162 or 10.8%.

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

	Six Months Ended
	3/31/2013		3/31/2012		$ Change			% Change
Operating expense
Commission expense	$	168,765	$	74,198	$	94,567			127.5	%
Professional fees		87,309		115,715		(28,406	)		(24.5	)
Stock-based compensation	–			27,040		(27,040	)		(100.0	)
Depreciation expense		8,890		3,879		5,011			129.2
Other operating expense		208,743		206,713		2,030			1.0
Total	$	473,707	$	427,545	$	46,162			10.8

Commission expense for the six months ended March 31, 2013 was $168,765 compared to $74,198 for the same period in 2012, an increase of $ 94,657 or 127.1%. The increase in commission expense during the six months ended March 31, 2013 resulted from higher sales as the Company continues to expand its products and customer base in the retail and wholesale distribution of rail and mining supplies business.

The $28,402 or 24.5% decrease in professional fees realized by the Company when comparing the six months ended March 31, 2013 to the professional fees ($115,715) of the six months ended March 31, 2013 resulted from higher litigation expense in 2012 arising from the settlement of litigation between the Company and Mark Neuhaus (prior CEO) and several other defendants.

Stock-based compensation decreased $27,040 during the six months ended March 31, 2013 as compared to the same period in the prior year, and resulted from the issuance of stock for services by the Company during 2012, and no such stock being issued during the six month period ended March 31, 2013.

Depreciation expense of $8,890 for the six months ended March 31, 2013 represents an increase of $5,011 or 129.2% when compared to depreciation expense of $3,879 during the six months ended March 31, 2012. On September, 2012, the Company purchased a brazing machine to be used in the newly entered rail and mining supplies business. Depreciation of the new brazing machine accounted for an increase in depreciation of $2,500 for the six months ended March 31, 2013 over the same six months during the prior year. Higher depreciation of $1,379 resulted from the purchase of new shipping handling equipment.

Other operating expenses increased by $2,030 or 1.0% when comparing the six months ended March 31, 2013 to the same period in the prior year. The increase results from higher contract labor cost ($19,418) and higher equipment rental cost ($9,300) incurred in the six months ended March 31, 2013. The higher contract labor and equipment rental were partially offset by lower cost in several other operating expense categories.

Other Income and Expense

Other expense was $45,180 for the six months ended March 31, 2013 as compared to other income of $1,868 for the six months ended March 31, 2012. The increase is the direct result of a reversal of a $62,719 prior period debt in the six months ended March 31, 2012 partially offset by lower interest expense of $18,396 for the six months ended March 31, 2013. In May, 2012, the Company reached a legal settlement with Mark Neuhaus (prior CEO) and several other defendants and, as part of the settlement interest being accrued on the debt to Mark Neuhaus was written-off. The lower interest as of March 31, 2013 when compared to the same period the prior year is a direct result of no further interest being incurred on the debt to Mark Neuhaus during the six months ended March 31, 2013.

Net Income or Loss

For the six months ended March 31, 2013, the Company had a net loss of $62,323 compared to a net loss of $210,916 for the six months ended March 31, 2012, a decrease of $148,593 or 70.5%. The decrease resulted from higher gross profit generated by sales of mining supplies, over the same period in the prior year.

Gross profit for the six months period ended March 31, 2013 was $456,564, an increase of $241,802 or 112.65% over the gross profit of $214,763 for the six months ended March 31, 2012. The higher gross profit is a result of higher current period sales volume as a result of the Company expanding its rail and mining supplies product base and identifying a new lower cost supplier.

The gross profit increase of $241,802, during the six months ended March 31, 2013 when compared to the same period the prior year, was partially offset by higher operating expenses of $46,162 resulting primarily from higher commission expense due to higher sales in the current period. An increase in other expenses was due to a gain on extinguishment of debt of $62,719 recorded in March of 2012 partially offset by lower interest expense from the write-off of debt to Mark Neuhaus (prior CEO) as part of a legal settlement in May, 2012.

LIQUIDITY AND CAPITAL RESOURCES

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

	Six Months Ended
	3/31/2013			3/31/2012

Cash used in operating activities	$	(423,392	)	$	(966,561	)
Cash used in investing activities		(12,644	)		(19,000	)
Cash provided by financing activities		456,001			1,011,583
Net increase (decrease) in cash	$	19,965		$	26,022

Cash Used in Operating Activities

Cash used in operating activities for the six months ended March 31, 2013 of $423,392 resulted from the continued effort by the Company to increase the finished goods inventory ($740,924) from the prior year-end levels to meet projected increases in sales demand. Cash needs for inventory growth was minimized by an increase in accounts payable ($374,530) on purchases of inventory for resale.

Increase in inventory ($744,783) and receivables ($297,898) during the six months ended March 31, 2012 were the direct result of the Company’s business expansion commencing in December 2011, to include the retail and wholesale distribution of rail fasteners and tooling, engineered components and advanced components and materials consumed by the coal mining industry in the production and transportation processes. The cash needs for the new business was partially mitigated by an increase in accounts payable ($270,762) associated with the purchase of finished goods inventory for resale.

Cash Used in Investing Activities

Cash used in investing activities was for the purchase of operating equipment during the six months ended March 31, 2013 ($12,644) and 2012 ($19,000). The new equipment was required for the shipping and warehousing of finished goods products related to the new rail and mining products business recently entered by the Company.

Cash Provided by Financing Activities

During the six months ended March 31, 2013 and 2012 there were two sources of cash provided by financing activities, a bank credit line and loans and advances from William Shrewsbury ( our Chairman and CEO).

On November 7, 2012 the Company obtained a loan in the amount of $250,000 from a bank. The loan is secured by a priority security interest in the Company’s inventory and, matures on November 17, 2013. Interest on the loan is payable monthly and is calculated on the basis of a variable index. As of March 31, 2013 the Company had borrowed $248,500 under the line of credit and the current rate of interest under the loan is 3.25% per annum.

The second source of cash is from loans and advances to the Company by William Shrewsbury (our Chairman and CEO). As of March 31, 2013, pursuant to the terms of a revolving demand note, the Company had an outstanding loan from Mr. Shrewsbury of $1,062, 000. The revolving demand note bears interest at the rate of 5% per annum and becomes due and payable on demand or on April 30, 2015 whichever shall first occur. As of March 31, 2012 the Company had borrowed $1,011,583 under the loan facility and an additional $50,417 was borrowed in the period ended June 30, 2012. During the six months ended March 31, 2013, Mr. Shrewsbury had also advanced an additional $207,501 to the Company that is repayable upon demand and does not bear interest.

Financial Condition and Going Concern Uncertainties

The Company ceased to be a development stage company effective March 31, 2013 and, following the Company’s decision to enter into the new business of distributing rail material and mining supplies consumed in the coal mining industry.

Since inception and except for the quarter ended March 31, 2013, the Company has not produced sufficient funds for profitable operations and has incurred operating losses. The Company has relied substantially upon financing provided by Mr. Shrewsbury, the Company’s Chief Executive Officer, in connection with the development and expansion of its rail and mining supplies distribution businesss. In view of these matters, realization of certain assets in the accompanying balance sheet is dependent upon continued operations, which, in turn, is dependent upon our ability to meet our financial requirements, upon the continued provision of financing from Mr. Shrewsbury and under the Company’s bank line of credit, and the success of our future 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, 2012, contains an explanatory paragraph wherein they expressed an opinion that there is a substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or to become our stockholder.

As of March 31, 2013, the Company had cash and cash equivalents of $23,100 as compared to $3,135 as of September 30, 2012. The increase in cash as of March 31, 2013 results from cash borrowed from the outstanding bank credit line of $250,000 and advances from William Shrewsbury (our Chairman and CEO).

The Company’s accounts receivable were $350,470 as of March 31, 2013, as compared to $200,275 as of September 30, 2012, an increase of $150,195 or 75%. Higher receivables as of March 31, 2013 are the direct result of the Company’s continued business growth in the rail and mining supplies distribution business. Higher year-to-date sales ($1,730,321 in 2013 vs $1,028,516 in 2012) account for the higher receivable balance.

Inventory was $1,512,901 as of the period end as compared to $771,977 as of the year ended September 30, 2012, an increase of $740,924 or 96%. In anticipation of the continued growth of the rail and mining supply business, The Company has increased the inventory levels to meet anticipated higher sales demand.

During the six months ended March 31, 2013, our stockholders’ deficit increased from $15,048,479 to $15,110,802, an increase of $62,323 or .4%. The reported loss for the six months ended March 31, 2013 accounts for the increase in stockholder’s deficit.

During the quarter ended March 31, 2013, the Company’s net income was $24,474 compared to a net loss of $23,177 for the comparable period in 2012. Our net loss for the six months ended March 31, 2013, was $62,323 as compared to $210,916 for the same period in 2011, a decrease of $148,593 or 70.5%. The loss reduction can be directly attributed to the higher sales revenue ($1,730,321) for the six months ended, March 31, 2013 compared to $1,028,516 for the six months ended March 31, 2012) generated from the Company’s rail and mining supplies distribution business during the six months ended March 31, 2013 when compared with the same period in 2012. Although there can be no assurance, the Company anticipates increases in sales during fiscal 2013 as compared to 2012.

Currently, the Company is spending approximately $120,000 per month on operations. Management believes that the Company’s cash flows from operations, the loans and advances provided by Mr. Shrewsbury and the line of credit provided by the bank to be sufficient to fund the Company operations for the next 12 months.

The Company continues to rely substantially upon financing provided by Mr. Shrewsbury and the bank to fund its operations.

On November 7, 2012, pursuant to the terms of a business loan agreement, the Company obtained a loan in the amount of $250,000 from Home Federal Savings and Loan Association, a federally chartered savings and loans association. Interest on the loan is payable monthly in arrears. Interest under the loan is variable and is based upon Wall Street Journal Prime Rate. An event of default under the loan will occur if the Company fails to make any payment when due under the loan, it fails to comply with any term obligation, covenant or condition in the loan document or any other agreement between the bank and the Company, the Company defaults under any loan or similar agreement, purchase or sales agreement or other agreement with any creditor that materially affects the Company’s property or its ability to repay the loan or perform its obligation under the loan documents; the insolvency or occurrence of bankruptcy event; commencement of foreclosure with regard to any property securing the loan; a 25% or more change in the beneficial ownership of the stock of the Company; a material adverse change in the financial condition of the Company; or the bank in good faith believes itself insecure. The loan is secured by the Company’s inventory and matures on November 7, 2013. The loan is guaranteed as to principal, interest and all collection costs and legal fees by Mr. Shrewsbury. All notes and other indebtedness due to Mr. Shrewsbury by the Company are subordinated to the bank loan including with regard to the Company’s inventory and assets. The loan agreement contains other customary covenants and provisions.

On April 30, 2012 TX Holdings, Inc. issued a Revolving Promissory Demand Note to Mr. Shrewsbury, the Company’s Chairman and CEO, in the principal amount of $1,062,000, covering advances made by William Shrewsbury during the period December 21, 2012. The note bears interest at the rate of 5% per annum. The principal and accrued but unpaid interest becomes due and payable on demand or on April 30, 2015, whichever should first occur. An event of default under the note would occur if the interest or principal under the note is not paid when due; the Company is dissolved, any representation or warranty by the Company in the note or related agreement is false or erroneous in any material respect; the Company fails or omits to perform or observe any agreement in the note or related agreement; a judgment should be entered against the Company in any court of record; any deposit account of the Company is attached or levied upon; any voluntary petition by or involuntary petition against the Company is filed pursuant to bankruptcy law; the Company makes an assignment for the benefit of creditors; there should be any other marshaling of the assets and liabilities of the Company for the benefit of its creditors; or the Company enters in any merger or consolidation or sell, leases or otherwise disposes of all or substantially all of its assets other than in the ordinary course of business. Upon the occurrence of an event of default, the holder may declare the note due and payable and the principal and interest should be immediately due and payable. The note is secured by a security interest in all of the Company’s assets and is subordinated to the bank loan including with regard to claims with regard to the Company’s inventory and assets.

As of March 31, 2013, the Company had an outstanding note payable to Mr. Shrewsbury, the Company’s Chairman and CEO, for the amount of $289,997. The note bears interest at the rate of 10% per year and is due on the earlier of the date demanded or April 15, 2015. An event of default under the note will occur upon a failure to pay when due any principal or interest; a violation of any covenant or agreement contained in the note; an assignment for the benefit of creditors by the Company; an application for the appointment of a receiver or liquidator for the Company or its property; the filing of a petition in bankruptcy by or against the Company; the issuance of an attachment or the entry of a judgment against the Company in excess of $250,000; a default by the Company with respect to any other indebtedness with respect to any installment debt whether or not owing to the holder; the sale of all or substantially all of the Company’s assets or a transfer of more than 51% of the Company’s equity interests to a person not currently a holder of equity interests of the Company; or the termination of existence or the dissolution of the Company Upon the occurrence of an event of default, the holder is required to give written notice to the Company of the default, and the Company will have ten days to cure the default. If the default is not cured within the ten day cure period, the note will be in default and the entire unpaid principal sum hereof, together with accrued interest, will at the option of the holder become immediately due and payable in full. The note is subordinated to the bank loan including with regard to claims with the Company’s inventory and assets.

As of March 31, 2013, Mr. Shrewsbury had advanced an aggregate of $526,583 to the Company. The advances do not bear interest and are repayable upon demand. The advances are subordinate to the Company’s bank indebtedness.

off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition, or results of operations as of March 31, 2013 and September 30, 2012.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is a “smaller reporting Company” as defined by Rule 12b-2 under the Exchange Act, and as such, is 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 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 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 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

Except as discussed below, other than ordinary routine litigation incidental to the business, neither the Company nor any of its subsidiaries is a party to any material pending legal proceeding.

On January 17, 2012, the Company filed a lawsuit in the United States District Court for the District of Utah against Michael Cederstrom (“Cederstrom”), the Company’s former chief financial officer and corporate counsel, Dexter and Dexter Attorneys at Law (“Dexter”), the law firm that employed Mr. Cederstrom, and certain other parties. The Company has asserted claims against Cederstrom that include a claim of fraud in the inducement, breach of fiduciary duty, professional negligence, and negligent misrepresentation by omission or commission. The Company’s claims against Dexter are based substantially upon the same theories and on a theory that Dexter is vicariously liable for the acts of Cederstrom. The claims against Dexter and Cederstrom are based upon allegations that, among other things, in connection with the exchange in December 2007 by Mr. Mark Neuhaus (“Neuhaus”), the Company former Chief Executive Officer, of shares of common stock for shares of preferred stock, Cederstrom misrepresented to the Company that the preferred shares issued to Neuhaus as compensation for work performed in 2004 and 2005 were issued with the proper consent of the previous board of directors of the Company and that Neuhaus performed services for which the shares of preferred stock were issued. The Company also claims breach of contract and seeks an accounting for the fees paid to Dexter and certain shares issued to Cederstrom by the Company. The Company is seeking damages, punitive damages, pre and post judgment interest, attorneys’ fees and costs and other relief the court deems just and proper.

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 2012 Form 10-K) and other information contained in this Report in deciding whether to invest in our common stock, as well as certain risk factors set forth under Part I, Item 1A –Risk Factors of our 2012 Form 10-K. Additional risks not presently known to us or which we currently consider immaterial may also adversely affect our company. If any of the following risks 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 of your investment.

Risks Related to Our Company and Our 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 demand notes due to our chief executive officer if he makes a demand under such note.

As of March 31, 2013, we have incurred debt due to Mr. Shrewsbury in the form of notes and advances in the aggregate amount of $1,878,580, of which $1,351,997 is covered by two notes that are repayable upon demand. We have outstanding accounts payable of $604,301 and other accrued liabilities of $846,178. Also, the Company owes $248,500 under a bank line of credit which is secured by the Company’s inventory and which becomes due on November 7, 2013. We are subject to the risks associated with substantial indebtedness, including insufficient funds to repay the outstanding principal under the demand note due to Mr. Shrewsbury in the event he makes a demand for payment; it may be more expensive and difficult to obtain additional financing; and we are more vulnerable to economic downturns. Also, there can be no assurance that we will be able to extend our bank line of credit.

Our independent registered public accounting firm has expressed uncertainty regarding our ability to continue as a going concern.

In its report on our financial statements for the year ended September 30, 2012, included in our Annual Report on Form 10-K for 2012, our independent registered public accounting firm expressed uncertainty regarding our ability to continue as a going concern. Our financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that might occur if we are unable to continue in business as a going concern.

Our directors and named executive officers own a substantial percentage of our common stock.

As of March 31, 2013, our directors and executive officers beneficially owned approximately 20.7 % of our shares of common stock. Our directors, executive officers and a most highly compensated employee are entitled to cast an aggregate of 9,648,817 votes on matters submitted to our stockholders for a vote, or approximately 20.7 % of the total number of votes entitled to be cast at a meeting of our stockholders. These stockholders, if they acted together, could exert substantial control over matters requiring approval by our stockholders. These matters would include the election of directors and the approval of mergers or other business combination transactions. This concentration of ownership may discourage or prevent someone from acquiring our business.

Current shareholdings may be diluted if we make future equity issuances or if outstanding warrants are exercised for shares of common stock.

“Dilution” refers to the reduction in the voting effect and proportionate ownership interest of a given number of shares of common stock as the total number of shares increases. Our issuance of additional stock, convertible preferred stock and convertible debt may result in dilution to the interests of shareholders and may also result in the reduction of your stock price. The sale of a substantial number of shares into the market, or even the perception that sales could occur, could depress the price of the common stock. Also, the exercise of warrants and options may result in additional dilution.

The holders of outstanding options, warrants and convertible securities have the opportunity to profit from a rise in the market price of the common stock, if any, without assuming the risk of ownership, with a resulting dilution in the interests of other shareholders. We may find it more difficult to raise additional equity capital if it should be needed for our business while the options, warrants and convertible securities are outstanding. At any time at which the holders of the options, warrants or convertible securities might be expected to exercise or convert them, we would probably be able to obtain additional capital on terms more favorable than those provided by those securities.

We may undertake acquisitions which pose risks to our business.

As part of our growth strategy, we have and may in the future acquire or enter into joint venture arrangements with, or form strategic alliances with complementary businesses. Any such acquisition, investment, strategic alliance or related effort will be accompanied by the risks commonly encountered in such transactions. These risks may include:

●	Difficulty of identifying appropriate acquisition candidates;

●	Paying more than the acquired company is worth;

●	Difficulty in assimilating the operations of the new business;

●	Costs associated with the development and integration of the operations of the new entity;

●	Existing business may be disrupted;

●	Entering markets in which we have little or no experience;

●	Accounting for acquisitions could require us to amortize substantial intangible assets (goodwill), adversely affecting our results of operations;

●	Inability to retain the management and key personnel of the acquired business;

●	Inability to maintain uniform standards, controls, policies and procedures; or

●	Customer attrition with respect to customers acquired through the acquisition.

We cannot assure you that we would successfully overcome these risks or any other problems associated with any acquisition, investment, strategic alliances, or related efforts. Also, if we use our common stock in connection with an acquisition, your percentage ownership in us will be reduced and you may experience additional dilution.

Investor confidence in the price of our stock may be adversely affected if we are unable to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

As an SEC registrant, we are subject to the rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, which require us to include in our annual report on Form 10-K our management’s report on, and assessment of the effectiveness of, our internal control over financial reporting (“management’s report”). If we fail to achieve and maintain the adequacy of our internal control over financial reporting, there is a risk that we will not comply with all of the requirements imposed by Section 404. Moreover, effective internal control over financial reporting, particularly that relating to revenue recognition, is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss in investor confidence in the reliability of our financial statements, which ultimately could harm our business and could negatively impact the market price of our common stock. Investor confidence and the price of our common stock may be adversely affected if we are unable to comply with Section 404 of the Sarbanes-Oxley Act of 2002.

In order to comply with public reporting requirements, we must continue to strengthen our financial systems and controls, and failure to do so could adversely affect our ability to provide timely and accurate financial statements.

Refinement of our internal controls and procedures will be required as we manage future growth successfully and operate effectively as a public company. Such refinement of our internal controls, as well as compliance with the Sarbanes-Oxley Act of 2002 and related requirements, will be costly and will place a significant burden on management. We cannot assure you that measures already taken, or any future measures, will enable us to provide accurate and timely financial reports, particularly if we are unable to hire additional personnel in our accounting and financial department, or if we lose personnel in this area. Any failure to improve our internal controls or other problems with our financial systems or internal controls could result in delays or inaccuracies in reporting financial information, or non-compliance with SEC reporting and other regulatory requirements, any of which could adversely affect our business and stock price.

Our common stock is subject to the SEC’s Penny Stock Regulations.

Our common stock is subject to the SEC’s “penny stock” rules. These regulations define a “penny stock” to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, these rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to the broker-dealer and the registered underwriter, current quotations for the securities, information on the limited market in penny stocks and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealers’ presumed control over the market. In addition, the broker-dealer must obtain a written statement from the customer that such disclosure information was provided and must retain such acknowledgment for at least three years. Further, monthly statements must be sent disclosing current price information for the penny stock held in the account. The penny stock rules also require that broker-dealers engaging in a transaction in a penny stock make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to the purchase. The foregoing rules may materially and adversely affect the liquidity for the market of our common stock. Such rules may also affect the ability of broker-dealers to sell our common stock, the ability of holders of such securities to obtain accurate price quotations and may therefore impede the ability of holders of our common stock to sell such securities in the secondary market.

Certain provisions of our charter and bylaws may discourage mergers and other transactions.

Certain provisions of our articles of incorporation and bylaws may make it more difficult for someone to acquire control of us. These provisions may make it more difficult for stockholders to take certain corporate actions and could delay or prevent someone from acquiring our business. These provisions could limit the price that certain investors might be willing to pay for shares of our common stock. The ability to issue “blank check” preferred stock are traditional anti-takeover measures. These provisions may be beneficial to our management and the board of directors in a hostile tender offer, and may have an adverse impact on stockholders who may want to participate in such tender offer, or who may want to replace some or all of the members of the board of directors.

Our board of directors may issue additional shares of preferred stock without stockholder approval.

Our certificate of incorporation authorizes the issuance of up to 1,000,000 shares of preferred stock. Accordingly, our board of directors may, without shareholder approval, issue one or more new series of preferred stock with rights which could adversely affect the voting power or other rights of the holders of outstanding shares of common stock. In addition, the issuance of additional shares of preferred stock may have the effect of rendering more difficult or discouraging, an acquisition or change of control of the Company. Although we do not have any current plans to issue any shares of preferred stock, we may do so in the future.

We depend on key personnel.

Our success depends of the contributions of our key management personnel, including Mr. William “Buck” Shrewsbury, Chairman, Chief Executive Officer, and President, Mr. Jose Fuentes, our Chief Financial Officer and Secretary. If we lose the services of any of such personnel we could be delayed in or precluded from achieving our business objectives. We do not have key man life insurance on any of our officers.

In addition, the loss of key members of our sales and marketing teams could jeopardize our positive relations with our customers. Any loss of key technical personnel would jeopardize the stability of our infrastructure and our ability to provide the service levels our customers expect. The loss of any of our key officers or personnel could impair our ability to successfully execute our business strategy, because we substantially rely on their experience and management skills.

We have never paid a cash dividend

We have not declared a cash dividend and we do not anticipate paying such dividends in the foreseeable future.

Risks Related to Our Industries

Product liability claims may occur.

Any failure by our rail material and mining supplies products could expose us to product liability claims for personal injury and wrongful death. Unsuccessful claims could be costly to defend and divert management time and resources. In addition, we cannot make assurances that we will have appropriate insurance available to us in the future at commercially reasonable rates. Insurance can be expensive, and we may not always be able to purchase insurance on commercially acceptable terms, if at all. Claims brought against us that are not covered by insurance or that result in recoveries in excess of our insurance coverage could have a material adverse effect on our business, financial condition and results of operations.

We depend on a small number of customers for a substantial portion of our revenues.

Approximately 73.1% of our revenue for the six months ended March 31, 2013, was derived from seven customers. The loss of any one or more of such customers could have a material affect our business, financial condition and results of operations.

Exchange rate fluctuations could cause a decline in our financial condition and results of operations.

We import most of our products from overseas. Future fluctuations in exchange rate on foreign currencies could adversely affect our results in the event we make purchase and import our products. From time to time, as and when we determine it is appropriate and advisable to do so, we will seek to mitigate the effect of exchange rate fluctuations through the use of derivative financial instruments. We cannot assure you, however, that we will continue this practice or be successful in these efforts.

We are reliant upon third party distributors for the distribution and sale of our products in several domestic or jurisdictions.

We have engaged two independent sales agents to distribute and sell our products in the United States. Approximately 99% of our sales are effected by such independent third party agents.

We operate in a highly competitive environment.

Our operations are subject to significant competitive pressures. We compete directly and indirectly with manufacturers and other suppliers of rail material and mining supplies. Most of our competitors are larger than we are and may have greater access to financial resources or be less leveraged than us. In addition, the industry in which our products are used is a large, fragmented industry that is highly competitive.

Natural disasters or other global or regional catastrophic events could disrupt our operations and adversely affect results.

Despite our concerted effort to minimize risk to our distribution capabilities and corporate information systems and to reduce the effect of unforeseen interruptions to us through business continuity planning, we still may be exposed to interruptions due to catastrophe, natural disaster, pandemic, terrorism or acts of war, which are beyond our control. Disruptions to our facilities or systems, or to those of our key suppliers, could also interrupt operational processes and adversely impact our ability to distribute our products and provide services and support to our customers. As a result, our business, our results of operations, financial position, cash flows and stock price could be adversely affected.

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

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

Exhibit No.	Description	Filed Herewith
3.1	Articles of Amendment to Articles of Incorporation, dated July 25, 2005.	X
3.2	Articles of Amendment to Articles of Incorporation, dated December 24, 2007.	X
10.1	Lease agreement, dated November 19, 2012 by and among the registrant William Shrewsbury and Peggy Shrewsbury.	X
10.2	Business loan agreement and exhibits, dated November 7, 2012, by and between Home Federal Savings and Loan Association.	X
10.3	Promissory Note, dated effective February 27, 2009, issued to Mr. William Shrewsbury.	X
10.4	Promissory Demand Note, dated April 30, 2012, issued to Mr. William Shrewsbury.	X
10.5	Security Agreement dated April 30, 2012, between the registrant and Mr. William Shrewsbury	X
31.1	Certification of 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.	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.	X
32.1	Certification by Principal Executive Officer Pursuant to 18 U.S.C., as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X
32.2	Certification by Principal Financial Officer Pursuant to 18 U.S.C., as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X
101.INS	XBRL Instance Document **	X
101.SCH	XBRL Taxonomy Extension Schema Document **	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document **	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document **	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document **	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document **	X

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

SIGNATURES

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

TX HOLDINGS, INC.

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

Dated: May 3, 2013

Exhibit 3.1

ARTICLES OF AMENDMENT

1.	The name of the corporation is R Wireless, Inc.

2.	The Board of Directors has adopted the following amendment to the Articles of Incorporation:

The name of the corporation shall be changed to TX Holdings, Inc.

3.	The amendment was adopted by the Board of Directors on July 25, 2005.

4.	The amendment was adopted by the Board of Directors without shareholder approval and shareholder approval was not required.

5.	The corporation shall cause a notice of change of corporate name to be published in the Columbia News-Times, the official organ of Columbia Country, Georgia, pursuant to the provisions of O.C.G.A Section 14-2-1006.1.

6.	Executed on behalf of TX Holdings Inc. by Mark Neuhaus on July 25, 2005.

	TX Holdings Inc.

	By:	/s/ Mark Neuhaus
		Mark Neuhaus
		Chairman and CEO
		TX Holdings Inc.

Exhibit 3.2

ARTICLES OF AMENDMENT

TX HOLDINGS, INC.


1.	The name of the Corporation is TX Holdings, Inc.

2.	The Board of Directors has adopted the following amendment to the Articles of Incorporation and the Shareholders have ratified the amendment:

Article Four is amended to read:

The Corporation has the authority to issue not more than 250,000,000 shares of common stock and not more than 1,000,000 shares of preferred stock. The shares of common stock shall have unlimited voting rights and shall be entitled to receive the net assets of the corporation, after providing for payment in full of all amounts payable with respect to preferred stock, upon dissolution. Subject to the provisions of these Articles of Incorporation and to the provisions of the Georgia Business Corporation Code, the Board of may determine (a) the preferred limitations, and relative rights of any class of shares prior to the issuance of any shares of that class and (b) the preferences, limitations and relative rights of one or more series within a class and designate the number of shares within that series prior to the issuance of any shares of that series.


3.	The amendment was adopted by the Board of Directors with shareholder approval on December 24, 2007.

4.	The Corporation shall cause a notice of change and amendment to be published in the Columbia News-Times, the official organ of Columbia County, Georgia, pursuant to the provisions of O.C.G.A. section 14-2-1006.1

5.	Executed on behalf of TX Holdings, Inc. by William “Buck” Shrewsbury on December 24, 2007.

TX Holdings, Inc.

By:	/s/ William Shrewsbury
	William “Buck” Shrewsbury
	Chairman and CEO TX Holdings, Inc.

Exhibit 10.1

LEASE AGREEMENT

This lease made and entered into this 19 th day of November, 2012, by and between WILLIAM L. SHREWSBURY and PEGGY L. SHREWSBURY, his wife, of P. O. Box 1425, Ashland, KY 41105-1425, hereinafter collectively “Lessor”, and TX Holdings, Inc., of 12070 Virginia Blvd., Ashland, KY. 41102, at 606-929-5655.

WITNESSETH:

Whereas, Lessor owns real estate at 12070 Virginia Boulevard, near Ashland, Boyd County, Kentucky, and desires to lease a portion of said real estate to Lessee, its successors and assigns; and

Whereas, Lessee is desirous of leasing said premises, including a Morton Building located thereon:

Now, therefore, the parties hereby agree and covenant as follows:

1. Lessor shall lease to Lessee a tract approximately 150 feet wide by approximately 200 feet deep on the Northwest corner of Lessor’s real estate on 12070 Virginia Boulevard, hereinafter the “premises.”

2. Included as part of the premises is a Morton Building 48’ x 100’ in size. The building includes three offices, two truck docks with 8’ x 10’ doors, two 12’ x 10’ garage doors with electric openers and two restrooms.

3. Lessee shall pay Lessor TWO THOUSAND ($2,000.00) per month on the 1 st day of each month for the lease of said premises.

Lessee agrees to make each monthly payment on time, and if any monthly payment is not paid within 30 days of its due date, Lessor shall have the option to commence eviction proceedings against Lessee at the expense of Lessee.

This lease shall be for a term of 24 consecutive months beginning October 1, 2012, and ending August 31, 2014. Lessee shall have the option to extend the lease for an additional 24 consecutive months upon the same terms and conditions by giving Lessor written notice at least thirty days before August 31, 2014.

Lessee agrees that by executing this lease it is obligating itself to Lessor for lease payments totaling FORTY - EIGHT THOUSAND DOLLARS ($48,000.00), and that the full amount shall be due and owing to Lessor, even if Lessee vacates the premises or is evicted by Lessor under the terms hereof, provided, however, that Lessee shall not be liable for lease payments for any period that the premises cannot be effectively utilized by Lessee due to damage by fire, weather or other cause beyond the control of Lessee.

4. Lessor shall be responsible for maintaining the structural integrity of the building and its plumbing, electrical, natural gas and heating and ventilating systems. Lessee shall contract for all utility service in its name and be responsible for paying all utility bills when due. Lessee shall be responsible for premises upkeep, including, but not limited to, keeping the outside property clean and free of debris, the lawn cut and trimmed at a minimum of an every other week basis, and maintaining the overall appearance of the building.

Lessee shall return the premises to Lessor at the end of the lease in the same condition as when originally leased, normal wear and tear excepted. Any damages to the premises caused by Lessee shall be repaired, and the cost of such repairs shall be the sole responsibility of Lessee.

5. Lessee shall not rent, sublease, or underlet the premises without the advance written consent of Lessor, provided, however, that Lessor agrees that Lessee may rent, sublease or underlet the premises to affiliates in which Lessee or its President, Rick Novack, have an ownership interest.

6. Lessor shall maintain fire insurance on the building and will be responsible for paying all real estate taxes. Lessee shall maintain insurance on its personal property placed in and on the premises, workers’ compensation insurance on all of its employees, and general liability insurance covering the operations of Lessee on the premises, including coverage for injury to, and or damage to the property of, those entering the premises to transact business with Lessee. Such general liability insurance shall show Lessor as a certificate holder.

7. Lessee agrees to pay Lessor’s attorney fees and any court costs incurred for the collection of any lease payments, or for damages to the premises or for the termination of this lease and any required legal eviction procedures. All legal disputes arising under this lease shall be resolved in the appropriate court in the jurisdiction in which the premises are located and in accordance with the law of the State of Kentucky.

8. If Lessor makes any additions to the Morton Building, Lessee shall have 60 days first option to lease the additional space at a price to be negotiated at that time.

9. All covenants and agreements herein contained shall inure to the benefit of and bind the respective heirs, personal representatives, successors and assigns, of the parties hereto.

IN TESTIMONY WHEREOF, the parties hereto have hereunto set their hands the day and date aforesaid.


LESSOR:	LESSEE:

/s/ William L. Shrewsbury		TX HOLDINGS, INC.
WILLIAM L. SHREWSBURY

/s/ Peggy L. Shrewsbury	BY:	/s/ Rick Novack
PEGGY L. SHREWSBURY		RICK NOVACK, PRESIDENT

STATE OF KENTUCKY

COUNTY OF BOYD

Subscribed, sworn to and duly acknowledged before me by WILLIAM L. SHREWSBURY and PEGGY L. SHREWSBURY, his wife, this 19 th day of August, 2006.

I, Kimberly J. Houck , a Notary Public in and for the State and County aforesaid, do hereby certify that the foregoing lease between WILLIAM L. SHREWSBURY and PEGGY L. SHREWSBURY, his wife, collectively Lessor, and TX HOLDINGS. INC., Lessee, was this day produced before me in my said County, and duly acknowledged before me by Rick Novack, its President, to be the duly authorized act and deed of TX HOLDINGS, INC.


NOTARY PUBLIC, STATE OF KENTUCKY

My commission expires:		May 14, 2014

SEAL


STATE OF		Kentucky
COUNTY OF		Carter

Subscribed, sworn to and duly acknowledged before me by TX HOLDINGS, INC., by RICK NOVACK, its President, this 19 th day of August, 2006.

I, Kimberly J. Houck , a Notary Public in and for the State and County aforesaid, do hereby certify that the foregoing lease between WILLIAM L. SHREWSBURY and PEGGY L. SHREWSBURY, his wife, collectively Lessor, and TX HOLDINGS, INC., Lessee, was this day produced before me in my said County, and duly acknowledged before me by RICK NOVACK, its President, to be the duly authorized act and deed of TX HOLDINGS, INC.


NOTARY PUBLIC, STATE OF		Kentucky

My commission expires:	May 14, 2014

SEAL

Exhibit 10.2

BUSINESS LOAN AGREEMENT


Principal	Loan Date	Maturity	Loan No	Call/Coll	Account	Officer	Initials
$250,000.00	11-07-2012	11-07-2013	018000025	Inventory		JEP	/ /
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any Item above containing “***” has been omitted due to text length limitations.

Borrower:	TX Holdings, Inc.	Lender:	Home Federal Savings & Loan Association
	P. O. Box 1425		Ashland
	Ashland, KY 41105-1425		1500 Carter Avenue
			P.O. Box 509
			Ashland, KY 41106-0509
			(606) 324-7196

	THIS BUSINESS LOAN AGREEMENT dated November 7, 2012, is made and executed between TX Holdings, Inc. (“Borrower”) and Home Federal Savings & Loan Association (“Lender”) on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in this Agreement: (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender’s sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

	TERM. This Agreement shall be effective as of November 7, 2012, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until November 7, 2013.

	CONDITIONS PRECEDENT TO EACH ADVANCE. Lender’s obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender’s satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

	Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender’s Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) subordinations; (7) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender’s counsel.

	Borrower’s Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.

	Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.

	Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.

	No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists:

	Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validity existing, and in good standing under and by virtue of the laws of the State of Georgia. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 12070 Virginia , Ashland , KY 41102. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower’s state of organization or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower’s business activities.

	Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None .

	Authorization. Borrower’s execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower’s articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower’s properties.

	Financial Information. Each of Borrower’s financial statements supplied to Lender truly and completely disclosed Borrower’s financial condition as of the date of the statement, and there has been no material adverse change in Borrower’s financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

	Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

	Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower’s financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower’s properties free and clear of all Security interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower’s properties are titled in Borrower’s legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.

	BUSINESS LOAN AGREEMENT
Loan No: 018000025	(Continued)	Page 2

	Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower’s ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower’s expense and for Lender’s purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower’s due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender’s acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

	Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower’s financial condition or properties, other than litigation, claims, or other events, i f any, that have been disclosed to and acknowledged by Lender in writing.

	Taxes. To the best of Borrower’s knowledge, all of Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.

	Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower’s Loan and Note, that would be prior or that may in any way be superior to Lender’s Security Interests and rights in and to such Collateral.

	Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

	Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower’s financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

	Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower’s books and records at all reasonable times.

	Financial Statements. Furnish Lender with the following:

	Annual Statements. As soon as available, but in no event later than one-hundred-twenty (120) days after the and of each fiscal year, Borrower’s balance sheet and income statement for the year ended, compiled by a certified public accountant satisfactory to Lender.

	Additional Requirements. Annual accountant audited inventory valuation.

	All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

	Additional Information. Furnish such additional information and statements, as Lender may request from time to time. Additional Requirements . Annual line of credit fee of $300.00.

	Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower’s properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender’s loss payable or other endorsements as Lender may require.

	Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

	Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor named below, on Lender’s forms, and in the amount and under the conditions set forth in those guaranties.

	Name of Guarantor		Amount
	William L. Shrewsbury		$250,000.00

	BUSINESS LOAN AGREEMENT
Loan No: 018000025	(Continued)	Page 3

Subordination. Prior to disbursement of any Loan proceeds, deliver to Lender a subordination agreement on Lender’s forms, executed by Borrower’s creditor named below, subordinating all of Borrower’s indebtedness to such creditor, or such lesser amount as may be agreed to by Lender in writing, and any security interests in collateral securing that indebtedness to the Loans and security interests of Lender.

	Name of Creditor
	William L. Shrewsbury

	Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.

	Loan Proceeds. Use all Loan proceeds solely for Borrower’s business operations, unless specifically consented to the contrary by Lender in writing.

	Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower’s properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legallty of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower’s books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

	Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.

	Operation. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.

	Environmental Studies. Promptly conduct and complete, at Borrower’s expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hezerdous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.

	Compliance w ith Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower’s properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender’s sole opinion, Lender’s interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender’s interest.

	Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower’s other properties and to examine or audit Borrower’s books, accounts, and records and to make copies and memoranda of Borrower’s books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower’s expense.

	Compliance Certificates. Unless waived in writing by Lender, provide Lender within sixty (60) days after the and of each fiscal year, with a certificate executed by Borrower’s chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.

	Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower’s part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower’s part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

	Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security interests.

	RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (A) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (B) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (C) reduce the rate of return on Lender’s capital as a consequence of Lender’s obligations with respect to the credit facilities to which this Agreement relates, than Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender’s written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error.

	LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower’s failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity.

	BUSINESS LOAN AGREEMENT
Loan No: 018000025	(Continued)	Page 4

	CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds If: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower’s financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor’s guaranty of the Loan or any other loan with Lender; or (E) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred.

	RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Kaogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

	DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

		Payment Default. Borrower fails to make any payment when due under the Loan.

		Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

		Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement. in favor of any other creditor or person that may materially affect any of Borrower’s or any Grantor’s property or Borrower’s or any Grantor’s ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.

		False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

		Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s 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 Borrower.

		Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

		Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

		Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the indebtedness.

		Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

		Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.

		Insecurity. Lender in good faith believes itself insecure.

		Right to Cure. If any default, other than a default on indebtedness, is curable and If Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured If Borrower or Grantor, as the case may be, after Lender sends written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, Immediately initiate steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

	EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender’s option, all indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the “Insolvency” subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender’s rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender’s right to declare a default and to exercise its rights and remedies.

	MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

		Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

		Attorneys’ Fees; Expenses. Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

	BUSINESS LOAN AGREEMENT
Loan No: 018000025	(Continued)	Page 5

		Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

		Consent to Loan Participation. Borrower agrees and consents to Lender’s sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that It may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower’s obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

		Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the Commonwealth of Kentucky.

		Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Boyd County, Commonwealth of Kentucky.

		No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender’s rights or of any of Borrower’s or any Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

		Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

		Severability. If a court of competent jurisdiction finds any provision of this Agreement to be Illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision Illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

		Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word “Borrower” as used in this Agreement shall include all of Borrower’s subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower’s subsidiaries or affiliates.

		Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower’s successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower’s rights under this Agreement or any interest therein, without the prior written consent of Lender.

		Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower’s indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner, provided above, whichever is the last to occur.

		Time is of the Essence. Time is of the essence in the performance of this Agreement.

	DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

		Advance. The word “Advance” means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower’s behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.

		Agreement. The word “Agreement” means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.

		Borrower. The word “Borrower” means TX Holdings, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

		Collateral. The word “Collateral” means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

	BUSINESS LOAN AGREEMENT
Loan No: 018000025	(Continued)	Page 6



		Environmental Laws. The words “Environmental Laws” mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

		Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.

		GAAP. The word “GAAP” means generally accepted accounting principles.

		Grantor. The word “Grantor” means each and all of the persons or entities granting a Security interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security interest.

		Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Loan.

		Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

		Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

		Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

		Lender. The word “Lender” means Home Federal Savings & Loan Association, its successors and assigns.

		Loan. The word “Loan” means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

		Note. The word “Note” means the Note dated November 7, 2012 and executed by TX Holdings, Inc. in the principal amount of $250,000.00, together with alt renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

		Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

		Security Agreement. The words “Security Agreement” mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security interest.

		Security Interest. The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

	BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED NOVEMBER 7, 2012.


	BORROWER:

	TX HOLDINGS, INC.

	By:	/s/ William L. Shrewsbury
		William L. Shrewsbury, Chairman of TX Holdings, Inc.

	LENDER:

	HOME FEDERAL SAVINGS & LOAN ASSOCIATION

	By:	/s/ Joan Patrick
		Authorized Officer

PROMISSORY NOTE


Principal	Loan Date	Maturity	Loan No	Call/Coll	Account	Officer	Initials
$250,000.00	11-07-2012	11-07-2013	018000025	Inventory		JEP	/ /
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due to text length limitations.

Borrower:	TX Holdings, Inc.	Lender:	Home Federal Savings & Loan Association
	P. O. Box 1425		Ashland
	Ashland, KY 41105-1425		1500 Carter Avenue
			P.O. BOX 509
			Ashland, KY 41105-0509
			(606) 324-7196

Principal Amount: $250,000.00

Date of Note: November 7, 2012

	PROMISE TO PAY. TX Holdings, Inc. (“Borrower”) promises to pay to Home Federal Savings & Loan Association (“Lender”), or order. In lawful money of the United States of America, the principal amount of Two Hundred Fifty Thousand & 00/100 Dollars ($250,000.00) or so much as may be outstanding, together with Interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

	PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on November 7, 2013. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning December 7, 2012, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; and then to any late charges. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

	VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal Prime Rate, as published In the Money Rates Column of the Well Street Journal (the “Index”). The index is not necessarily the lowest rata charged by Lender on its loans. If the index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current index rata upon Borrower’s request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The index currently is 3.250% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the “INTEREST CALCULATION METHOD” paragraph using a rate equal to the index, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 3.250% per annum based on a year of 360 days. NOTICE: Under no circumstances will the interest rate on this Note be less than 3.250% per annum or more than the maximum rate allowed by applicable law.

	INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis: that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

	PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $10.00. Other than Borrower’s obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment. Lender may accept it without losing any of Lender’s rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Home Federal Savings & Loan Association, Ashland, 1500 Carter Avenue, P.O. Box 509, Ashland, KY 41105-0509.

	LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 2.000% of the regularly scheduled payment or $50.00. whichever is greater.

	INTEREST AFTER DEFAULT. Upon default, at Lander’s option, and if permitted by applicable law, Lender may add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Upon default, the interest rate on this Note shall be increased by adding en additional 2.000 percentage point margin (“Default Rate Margin”). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

	DEFAULT. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

		Payment Default. Borrower fails to make any payment when due under this Note.

		Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

		Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to repay this Note or perform Borrower’s obligations under this Note or any of the related documents.

		False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower’s behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

		Insolvency. The dissolution or termination of Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower’s 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 Borrower.

		Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lander. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

	PROMISSORY NOTE
Loan No: 018000025	(Continued)	Page 2

		Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

		Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

		Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

		Insecurity. Lender in good faith believes itself insecure.

		Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable end necessary steps sufficient to produce compliance as soon as reasonably practical.

	LENDER’S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

	ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s reasonable attorneys’ fees and Lender’s legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

	GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Note has been accepted by Lender in the Commonwealth of Kentucky.

	CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the Jurisdiction of the courts of Boyd County, Commonwealth of Kentucky.

	DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

	RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

	COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein: Inventory described in a Commercial Security Agreement dated November 7, 2012.

	LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender’s office shown above. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender’s internal records, including daily computer print-outs.

	FINANCIAL STATEMENT PROVISION. A financial statement is to be provided annually and failure to provide such statement is considered as an event of default. Lender at its option, if permitted by applicable law, may increase the interest rate on this note by two percentage (2.00%) points. The interest rate will not exceed the maximum rate permitted by law.

	SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower’s heire, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

	NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify Lender if Lender reports any inaccurate information about Borrower’s account(s) to a consumer reporting agency. Borrower’s written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: Home Federal Savings & Loan Association 1500 Carter Avenue Ashland, KY 41101.

	GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not effect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral, or impair, tail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

	PROMISSORY NOTE
Loan No: 018000025	(Continued)	Page 3

	PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS, BORROWER AGREES TO THE TERMS OF THE NOTE.

	BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

	BORROWER:

	TX HOLDINGS, INC.

	By:	/s/ William L. Shrewsbury
		William L. Shrewsbury, Chairman of TX Holdings, Inc.

COMMERCIAL SECURITY AGREEMENT

Principal	Loan Date	Maturity	Loan No	Call/Coll	Account	Officer	Initials
$250,000.00	11-07-2012	11-07-2013	018000025	Inventory		JEP	/ /
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “***” has been omitted due to text length limitations.

Grantor:	TX Holdings, Inc.	Lender:	Home Federal Savings & Loan Association
	P. O. Box 1425		Ashland
	Ashland, KY 41105-1425		1500 Carter Avenue
			P.O. Box 509
			Ashland, KY 41105-0509
			(606) 324-7196

THIS COMMERCIAL SECURITY AGREEMENT dated November 7, 2012, is made and executed between TX Holdings, Inc. (“Grantor”) and Home Federal Savings & Loan Association (“Lender”).

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security Interest In the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word “Collateral” as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security Interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:

All Inventory

In addition, the word “Collateral” also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

(A) All accessions, attachments, accessories, tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now or later.

(B) All products and produce of any of the property described in this Collateral section.

(C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section.

(D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party’s insurer, whether due to judgment, settlement or other process.

(E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor’s right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.

FUTURE ADVANCES. In addition to the Note, this Agreement secures all future advances made by Lender to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

GRANTOR’S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that;

Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender’s security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender’s interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.

Notices to Lender. Grantor will promptly notify Lender in writing at Lender’s address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor’s name; (2) change in Grantor’s assumed business name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor’s principal office address; (6) change in Grantor’s state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or Indirectly relates to any agreements between Grantor and Lender. No change in Grantor’s name or state of organization will take effect until after Lender has received notice.

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

	COMMERCIAL SECURITY AGREEMENT
Loan No: 018000025	(Continued)	Page 2

Location of the Collateral. Except in the ordinary course of Grantor’s business, Grantor agrees to keep the Collateral at Grantor’s address shown above or at such other locations as are acceptable to Lender. Upon Lender’s request. Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor’s operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor’s business, including the sales of Inventory, Grantor shall not remove the Collateral from its existing location without Lender’s prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the Commonwealth of Kentucky, without Lender’s prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

Transactions involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor’s business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security Interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if Junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender’s rights in the Collateral against the claims and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, end to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender’s designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized in Lender’s sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate Surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, reasonable attorneys’ fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obliges under any surety bond furnished in the contest proceedings, Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full end in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized.

Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender’s interest in the Collateral, in Lender’s opinion, is not jeopardized.

Hazardous Substances. Grantor represents and warrants that the Collateral never has been, end never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor’s due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for Indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify end defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

Maintenance of Casualty Insurance. Grantor shell procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other Insurance as Lender may require with respect to the Collateral, in form, amounts, coverages end basis reasonably acceptable to Lender and Issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days’ prior written notice to Lender and not including any disclaimer of the insurer’s liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. in connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses “single interest insurance,” which will cover only Lender’s interest in the Collateral.

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor, Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the indebtedness.

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	Insurance Reserves . Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor’s sole responsibility.

	Insurance Reports . Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of Insurance showing such Information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.

	Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender’s security interest. At Lender’s request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender’s security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor’s name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change.

GRANTOR’S RIGHT TO POSSESSION. Until default, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor’s right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender’s security interest in such Collateral. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender’s sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the indebtedness.

LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor’s failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear Interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

	Payment Default. Grantor fails to make any payment when due under the Indebtedness.

	Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.

	Default in Favor of Third Parties. Any guarantor or Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of any guarantor’s or Grantor’s property or ability to perform their respective obligations under this Agreement or any of the Related Documents.

	False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor’s behalf under this Agreement or the Related Documents is false or misleading in any material respect either now or at the time made or furnished or becomes false or misleading at any time thereafter.

	Defective Collateralizatlon. This Agreement or any of the Related Documents ceases to be in full force and effect (Including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

	Insolvency. The dissolution or termination of Grantor’s existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor’s 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 Grantor.

	Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the indebtedness. This includes a garnishment of any of Grantor’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

	Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

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	Adverse Change. A material adverse change occurs in Grantor’s financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired.

	Insecurity. Lender in good faith believes itself insecure.

	Cure Provisions. If any default, other than a default in payment is curable and if Grantor has not been given a notice of a breach of the same provision of this Agreement within the preceding twelve (12) months, it may be cured if Grantor, after Lender sends written notice to Grantor demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable end necessary steps sufficient to produce compliance as soon as reasonably practical.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Kentucky Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:

	Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.

	Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

	Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender’s own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement weiving that person’s right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

	Appoint Receiver. Lender shell have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the Rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the indebtedness. The receiver may serve without bond if permitted by law. Lender’s right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.

	Collect Ravenues. Apply Accounts, Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender’s discretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and receive the payments, rents. Income, and revenues therefrom and hold the same as security for the indebtedness or apply it to payment of the indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

	Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

	Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.

	Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare a default and exercise its remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

	Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

	Attorneys’ Fees; Expenses. Grantor agrees to pay upon demand all of Lender’s costs and expanses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

	Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

	Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the Commonwealth of Kentucky.

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	Choice of Venue. If there is a lawsuit, Grantor agrees upon Lender’s request to submit to the jurisdiction of the courts of Boyd County, Commonwealth of Kentucky.

	No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases Such consent may be granted or withheld in the sole discretion of Lender.

	Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered. when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mall, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

	Power of Attorney. Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender’s security interest in the Collateral.

	Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not effect the legality, validity or enforceability of any other provision of this Agreement.

	Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor’s successors with reference to this Agreement and the indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the indebtedness.

	Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in Full force and effect until Such time as Grantor’s indebtedness shall be paid in full.

	Time is of the Essense. Time is of the essence in the performance of this Agreement.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically Stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

	Agreement. The word “Agreement” means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

	Borrower. The word “Borrower” means TX Holdings, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

	Collateral. The word “Collateral” means all of Grantor’s right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.

	Default. The word “Default” means the Default set forth in this Agreement in the section titled “Default”.

	Environmental Laws. The words “Environmental Laws” mean any and oil state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1900, as amended, 42 U.S.C. Section 9601, et seq. (“CERCLA”), the Superfund Amendments and Reauthorization Act of 1966, Pub. L, No. 99-499 (“SARA”), the Hazardous Materials Transportation Act, 49 U.S.C, Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C, “Section 6901, et . seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

	Event of Default. The words “Event of Default” mean any of the events of default set forth in this Agreement in the default section of this Agreement.

	Grantor. The word “Grantor” means TX Holdings, Inc. .

	Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Indebtedness.

	Guaranty. The word “Guaranty” means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

	Hazardous Substances. The words “Hazardous Substances” mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words “Hazardous Substances” are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term “Hazardous Substances” also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

	Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs end expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, indebtedness includes the future advances set forth in the Future Advances provision, together with all interest thereon and all amounts that may be indirectly secured by the Cross-Collateralizatlon provision of this Agreement.

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	Lender. The word “Lender” means Home Federal Savings & Loan Association, its successors and assigns.

	Note. The word “Note” means the Note dated November 7, 2012 and executed by TX Holdings, Inc. In the principal amount of $250,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

	Property. The word “Property” means all of Grantor’s right, title and interest in and to all the Property as described in the “Collateral Description” section of this Agreement.

	Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgagee, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED NOVEMBER 7, 2012.

GRANTOR:

TX HOLDINGS, INC.


By:	/s/ William L. Shrewsbury
	William L. Shrewsbury, Chairman of TX Holdings, Inc.

LENDER:

HOME FEDERAL SAVINGS & LOAN ASSOCIATION

X	/s/ Joan Patrick
	Authorized Officer

COMMERCIAL GUARANTY

Principal	Loan Date	Maturity	Loan No	Call/Coll Inventory	Account	Officer JEP	Initials / /
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any Item above containing “***” has been omitted due to text length limitations.

Borrower:	TX Holdings, Inc. P. O. Box 1425 Ashland, KY 41105-1425	Lender:	Home Federal Savings & Loan Association Ashland 1500 Carter Avenue P.O. Box 609 Ashland, KY 41105-0609 (606) 324-7196

Guarantor:	William L. Shrawsbury 9413 Collier Road Ashland, KY 41101

GUARANTEE OF PAYMENT AND PERFORMANCE. For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of the indebtedness of Borrower to Lender, and the performance and discharge of all Borrower’s obligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender’s remedies against anyone else obligated to pay the indebtedness or against any collateral securing the indebtedness, this Guaranty or any other guaranty of the indebtedness. Guarantor will make any payments to Lender or its order, on demand, in legal tender of the United States of America, in same-day funds, without set-off or deduction or counterclaim, and will otherwise perform Borrower’s obligations under the Note and Related Documents.

INDEBTEDNESS. The word “Indebtedness” as used in this Guaranty means all of the principal amount outstanding from time to time and at any one or more times, accrued unpaid interest thereon and all collection costs and legal expenses related thereto permitted by law, reasonable attorneys’ fees, arising from any and all debts, liabilities and obligations that Borrower individually or collectively or interchangeably with others, owes or will owe Lender under the Note and Related Documents and any renewals, extensions, modifications, refinancings, consolidations and substitutions of the Note and Related Documents.

If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, Lender’s rights under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. Guarantor’s liability will be Guarantor’s aggregate liability under the terms of this Guaranty and any such other unterminated guaranties.

CONTINUING GUARANTY. THIS GUARANTY ENCOMPASSES A LINE OF CREDIT AND GUARANTOR UNDERSTANDS AND AGREES THAT THIS GUARANTY SHALL BE OPEN AND CONTINUOUS UNTIL THE INDEBTEDNESS IS PAID IN FULL AND THE LENDER DECLARES THAT THE LINE OF CREDIT IS FULLY SATISFIED, PERFORMED AND TERMINATED,

DURATION OF GUARANTY. This Guaranty will take effect wh e n received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all the indebtedness shall have been fully and finally paid and satisfied and all of Guarantor’s other obligations under this Guaranty shall have been performed in full. Release of any other guarantor or termination of any other guaranty of the indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation Lender receives from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. This Guaranty covers a revolving line of credit and it is specifically anticipated that fluctuations will occur in the aggregate amount of the indebtedness, Guarantor specifically acknowledges and agrees that fluctuations in the amount of the indebtedness, even to zero dollars ($ 0.00), shall not constitute a termination of this Guaranty. Guarantor’s liability under this Guaranty shall terminate only upon (A) termination in writing by Borrower and Lender of the line of credit, (B) payment of the indebtedness in full in legal tender, and (C) payment in full in legal tender of all of Guarantor’s other obligations under this Guaranty.

GUARANTOR’S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice or demand and without lessening Guarantor’s liability under this Guaranty, from time to time: (A) to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (B) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of the indebtedness or any part of the indebtedness, including increases and decreases of the rate of interest on the indebtedness; extensions may be repeated and may be for longer than the original loan term; (C) to take and hold security for the payment of this Guaranty or the indebtedness, and exchange, enforce, waive, subordinate, fall or decide not to perfect, and release any such security, with or without the substitution of new collateral; (D) to release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (E) to determine how, when and what application of payments and credits shall be made on the indebtedness; (F) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (G) to sell, transfer, assign or grant participations in all or any part of the indebtedness; and (H) to assign or transfer this Guaranty in whole or in part.

GUARANTOR’S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (A) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (B) this Guaranty is executed at Borrower’s request and not at the request of Lender; (C) Guarantor has full power, right and authority to enter into this Guaranty; (D) the provisions of this Guaranty do not conflict with or result in a default under any agreement or other instrument binding upon Guarantor and do not result in a violation of any law, regulation, court decree or order applicable to Guarantor; (E) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor’s assets, or any interest therein; (F) upon Lender’s request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information which currently has been, and all future financial information which will be provided to Lender is and will be true and correct in all material respects and fairly present Guarantor’s financial condition as of the dates the financial information is provided; (G) no material adverse change has occurred in Guarantor’s financial condition since the date of the most recent financial statements provided to Lender and no event has occurred which may materially adversely affect Guarantor’s financial condition; (H) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Guarantor is pending or threatened; (I) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; and (J) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower’s financial condition, Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor’s risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower.

Loan No: 018000025	COMMERCIAL GUARANTY (Continued)	Page 2

GUARANTOR’S FINANCIAL STATEMENTS. Guarantor agrees to furnish Lender with the following:

	Annual Statements . As soon as available, but in no event later than one-hundred-twenty (120) days after the end of each fiscal year, Guarantor’s balance sheet and income statement for the year ended, prepared by Guarantor.

	Tax Returns . As soon as available, but in no event later than one-hundred-twenty (120) days after the applicable filing date for the tax reporting period ended, Guarantor’s Federal and other governmental tax returns, prepared by a certified public accountant satisfactory to Lender.

All financial reports required to be provided under this Guaranty shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Guarantor as being true and correct.

GUARANTOR’S WAIVERS . Except as prohibited by applicable law, Guarantor waives any right to require Lender (A) to continue lending money or to extend other credit to Borrower; (B) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the indebtedness or in connection with the creation of new or additional loans or obligations; (C) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (D) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (E) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (F) to pursue any other remedy within Lender’s power; or (G) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.

Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of (A) any “one action” or “anti-deficiency” law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender’s commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (B) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor’s subrogation rights or Guarantor’s rights to proceed against Borrower for reimbursement. Including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the indebtedness; (C) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower’s liability from any cause whatsoever, other than payment in full in legal tender, of the indebtedness; (D) any right to claim discharge of the indebtedness on the basis of unjustified impairment of any collateral for the indebtedness; (E) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced, there is outstanding indebtedness which is not barred by any applicable statute of limitations; or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the indebtedness. If payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower’s trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the indebtedness shall be considered unpaid for the purpose of the enforcement of this Guaranty.

Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.

GUARANTOR’S UNDERSTANDING WITH RESPECT TO WAIVERS . Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor’s full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy.

RIGHT OF SETOFF . To the extent permitted by applicable law, Lender reserves a right of setoff in all Guarantor’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Guarantor holds jointly with someone else and all accounts Guarantor may open in the future. However, this does not include any IRA or Kaogh accounts, or any trust accounts for which setoff would be prohibited by law. Guarantor authorizes Lender, to the extent permitted by applicable law, to hold these funds if there is a default, and Lender may apply the funds in these accounts to pay what Guarantor owes under the terms of this Guaranty.

SUBORDINATION OF BORROWER’S DEBTS TO GUARANTOR . Guarantor agrees that the indebtedness, whether now existing or hereafter created, shall be superior to any claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the indebtedness. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring to Lender full payment in legal tender of the indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor, from time to time to file financing statements and continuation statements and to execute documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty.

MISCELLANEOUS PROVISIONS . The following miscellaneous provisions, are a part of this Guaranty.

	Amendments. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

	Attorneys’ Fees; Expenses. Guarantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court.

	Caption Headings. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty.

	Governing Law. This Guaranty will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions.

	Choice of Venue. If there is a lawsuit, Guarantor agrees upon Lender’s request to submit to the jurisdiction of the courts of Boyd County. Commonwealth of Kentucky.

Loan No: 018000025	COMMERCIAL GUARANTY (Continued)	Page 3

	Integration. Guarantor further agrees that Guarantor has read and fully understands the terms of this Guaranty; Guarantor has had the opportunity to be advised by Guarantor’s attorney with respect to this Guaranty; the Guaranty fully reflects Guarantor’s intentions and parol evidence is not required to interpret the terms of this Guaranty. Guarantor hereby indemnifies and holds Lender harmless from all losses, claims, damages, and costs (including Lender’s attorneys’ fees) suffered or incurred by Lender as a result of any breach by Guarantor of the warranties, representations and agreements of this paragraph.

	Interpretation. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words “Borrower” and “Guarantor” respectively shall mean all and any one or more of them. The words “Guarantor,” “Borrower,” and “Lender” include the heirs, successors, assigns, and transferees of each of them. If a court finds that any provision of this Guaranty is not valid or should not be enforced, that fact by itself will not mean that the rest of this Guaranty will not be valid or enforced. Therefore, a court will enforce the rest of the provisions of this Guaranty even if a provision of this Guaranty may be found to be invalid or unenforceable. If any one or more of Borrower or Guarantor are corporations, partnerships, limited liability companies, or similar entities, it is not necessary for Lender to inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, managers, or other agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty.

	Notices. Any notice required to be given under this Guaranty shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, it mailed, when deposited in the United States mall, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Guaranty. Any party may change its address for notices under this Guaranty by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor’s current address. Unless otherwise provided or required by law, if there is more then one Guarantor, any notice given by Lender to any Guarantor is deemed to be notice given to all Guarantors.

	No Waiver by Lender . Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender’s rights or of any of Guarantor’s obligations as to any future transactions, Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

	Successors and Assigns. Subject to any limitations stated in this Guaranty on transfer of Guarantor’s interest, this Guaranty shall be binding upon and inure to the benefit of the parties, their successor and assigns.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Guaranty, Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Guaranty shall have the meanings attributed to such terms in the Uniform Commercial Code:

	Borrower. The word “Borrower” means TX Holdings, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

	GAAP. The word “GAAP” means generally accepted accounting principles.

	Guarantor. The word “Guarantor” means everyone signing this Guaranty, including without limitation William L. Shrewsbury, and in each case, any signer’s successors and assigns.

	Guaranty. The word “Guaranty” means this guaranty from Guarantor to Lender.

	Indebtedness. The word “Indebtedness” means Borrower’s indebtedness to Lender as more particularly described in this Guaranty.

	Lender. The word “Lender” means Home Federal Savings & Loan Association, its successors and assigns.

	Note. The word “Note” means the promissory note dated November 7, 2012, in the original principal amount of $250,000.00 from Borrower to Lender, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the promissory note or agreement.

	Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness.

EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION. EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR’S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED “DURATION OF GUARANTY”, NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED NOVEMBER 7, 2012.

GUARANTOR :


X	/s/ William L. Shrewsbury
	William L. Shrewsbury

SUBORDINATION AGREEMENT

Principal $250,000.00	Loan Date 11-07-2012	Maturity 11-07-2013	Loan No 018000025	Call/Coll Inventory	Account	Officer JEP	Initials / /
References in the boxes above are for Lender’s use only and do not limit the applicability of this document to any particular loan or item. Any item above containing “* * *” has been omitted due to text length limitations.

Borrower:	TX Holdings, Inc. P.O. Box 1425 Ashland, KY 41105-1425	Lender:	Home Federal Savings & Loan Association Ashland 1500 Carter Avenue P.O. Box 609 Ashland, KY 41105-0509 (606) 324-7196

Creditor:	William L. Shrewsbury 9413 Collier Road Ashland, KY 41101

THIS SUBORDINATION AGREEMENT dated November 7, 2012, is made and executed among TX Holdings, Inc. ; P. O. Box 1425; Ashland, KY 41105-1425 (“Borrower”); William L. Shrewsbury, 9413 Collier Road, Ashland, KY 41101 (“Creditor”); and Home Federal Savings & Loan Association, Ashland, 1500 Carter Avenue, P.O. Box 509, Ashland. KY 41105-0509 (“Lender”).

REQUESTED FINANCIAL ACCOMMODATIONS. Creditor and Borrower each want Lender to provide financial accommodations to Borrower in the form of (A) new credit or loan advances, (B) en extension of time to pay or other compromises regarding all or part of Borrower’s present indebtedness to Lender, or (C) other benefits to Borrower. Borrower and Creditor each represent and acknowledge to Lender that Creditor will benefit as a result of these financial accommodations from Lender to Borrower, arid Creditor acknowledges receipt of valuable consideration for entering into this Agreement. Based on the representations end acknowledgments contained in this Agreement, Borrower and Creditor agree with Lender as follows:

SUBORDINATED INDEBTEDNESS. The words “Subordinated Indebtedness” as used in this Agreement mean all present and future indebtedness, obligations, liabilities, claims, rights, and demands of any kind which may be now or hereafter owing from Borrower to Creditor. The term “Subordinated Indebtedness” is used in its broadest sense and includes without limitation all principal, ell interest, all costs, reasonable attorneys’ fees, all sums paid for the purpose of protecting the rights of a holder of security, all contingent obligations of Borrower (such as a guaranty), and all other obligations, secured or unsecured, of any nature whatsoever.

SUPERIOR INDEBTEDNESS . The words “Superior Indebtedness” as used in this Agreement mean and include all present and future indebtedness, obligations, liabilities, claims, rights, and demands of any kind which may be now or hereafter owing from Borrower to Lender. The term “Superior Indebtedness” is used in its broadest sense and includes without limitation all principal, all interest, all costs, reasonable attorneys’ fess, all sums paid for the purpose of protecting Lender’s rights in security (such as paying for insurance on collateral if the owner fails to do so), all contingent obligations of Borrower (such as a guaranty), all obligations arising by reason of Borrower’s accounts with Lender (such as an overdraft on a checking account), and all other obligations of Borrower to Lender, secured or unsecured, of any nature whatsoever.

SUBORDINATION . All Subordinated Indebtedness of Borrower to Creditor Is and shall be subordinated in all respects to all Superior Indebtedness of Borrower to Lender. If Creditor holds one or more Security interests, whether now existing or hereafter acquired, in any of Borrower’s real property or personal property, Creditor also subordinates all Creditor’s Security interests to all Security interests held by Lender, whether now existing or hereafter acquired.

PAYMENTS TO CREDITOR . Borrower will not make and Creditor will not accept, at any time while any Superior Indebtedness is owing to Lender, (A) any payment upon any Subordinated Indebtedness, (B) any advance, transfer, or assignment of assets to Creditor in any form whatsoever that would reduce at any time or in any way the amount of Subordinated Indebtedness, or (C) any transfer of any assets as security for the Subordinated Indebtedness, except upon Lender’s prior written consent.

In the event of any distribution, division, or application, whether partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of Borrower’s assets, or the proceeds of Borrower’s assets, in whatever form, to creditors of Borrower or upon any indebtedness of Borrower, whether by reason of the liquidation, dissolution or other winding-up of Borrower, or by reason of any execution sale, receivership, insolvency, or bankruptcy proceeding, assignment for the benefit of creditors, proceedings for reorganization, or readjustment of Borrower or Borrower’s properties, then and in such event, (A) the Superior Indebtedness shall be paid in full before any payment is made upon the Subordinated Indebtedness, and (B) all payments and distributions, of any kind or character and whether in cash, property, or securities, which shall be payable or deliverable upon or in respect of the Subordinated Indebtedness shall be paid or delivered directly to Lender for application in payment of the amounts then due on the Superior Indebtedness until the Superior Indebtedness shall have been paid in full.

In order that Lender may establish its right to prove claims and recover for its own account dividends based on the Subordinated Indebtedness, Creditor does hereby assign all its right, title, and interest in such claims to Lender. Creditor further agrees to supply such information and evidence, provide access to and copies of such of Creditor’s records as may pertain to the Subordinated Indebtedness, and execute such instruments as, may be required by Lender to enable Lender to enforce all such claims and collect all dividends, payments, or other disbursements which may be made on account of the Subordinated Indebtedness. For such purposes, Creditor hereby Irrevocably authorizes Lender in its discretion to make and present for or on behalf of Creditor such proofs of claims on account of the Subordinated Indebtedness as Lender may deem expedient and proper and to vote such claims in any such proceeding and to receive and collect any and all dividends, payments, or other disbursements made thereon in whatever form the same may be paid or Issued and to apply the same on account of the Superior Indebtedness.

Should any payment, distribution, security, or proceeds thereof be received by Creditor at any time on the Subordinated Indebtedness contrary to the terms of this Agreement, Creditor immediately will deliver the same to Lender in precisely the form received (except for the endorsement or assignment of Creditor if necessary), for application on or to secure the Superior Indebtedness, whether it is due or not due, and until so delivered the same shall be held in trust by Creditor as property of Lender. In the event Creditor fails to make any such endorsement or assignment, Lender, or any of its officers on behalf of Lender, is hereby irrevocably authorized by Creditor to make the same.

CREDITOR’S NOTES . Creditor agrees to deliver to Lender, at Lender’s request, all notes of Borrower to Creditor, or other evidence of ths Subordinated Indebtedness, now held or hereafter acquired by Creditor, while this Agreement remains in effect. At Lender’s request, Borrower also will execute and deliver to Creditor a promissory note evidencing any book account or claim now or hereafter owed by Borrower to Creditor, which note also shall be delivered by Creditor to Lender. Creditor agrees not to sell, assign, pledge or otherwise transfer any of such notes except subject to all the terms and conditions of this Agreement.


Loan No: 018000025	SUBORDINATION AGREEMENT (Continued)	Page 2

CREDITOR’S REPRESENTATIONS AND WARRANTIES. Creditor represents and warrants to Lender that: (A) no representations or agreements of any kind have been made to Creditor which would limit or qualify in any way the terms of this Agreement; (B) this Agreement in executed at Borrower’s request and not at the request of Lender; (C) Lender has made no representation to Creditor as to the creditworthiness of Borrower; and (D) Creditor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower’s financial condition. Creditor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Creditor’s risks under this Agreement, and Creditor further agrees that Lender shall have no obligation to disclose to Creditor information or material acquired by Lender in the course of its relationship with Borrower.

CREDITOR’S WAIVERS. Creditor waives any right to require Lender: (A) to make, extend, renew, or modify any loan to Borrower or to grant any other financial accommodations to Borrower whatsoever; (B) to make any presentment, protest, demand, or notice of any kind. including notice of any nonpayment of the Superior Indebtedness or of any nonpayment related to any Security interests, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Superior Indebtedness, or in connection with the creation of new or additional Superior Indebtedness; (C) to resort for payment or to proceed directly or at once against any person, including Borrower; (D) to proceed directly against or exhaust any Security interests held by Lender from Borrower, any other guarantor, or any other person; (E) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (F) to pursue any other remedy within Lender’s power; or (G) to commit any act or omission of any kind, at any time, with respect to any matter whatsoever.

LENDER’S RIGHTS . Lender may take or omit any and all actions with respect to the Superior Indebtedness or any Security interests for the Superior Indebtedness without effecting whatsoever any of Lender’s rights under this Agreement. In particular, without limitation, Lender may, without notice of any kind to Creditor, (A) make one or more additional secured or unsecured loans to Borrower; (B) repeatedly alter, compromise, renew, extend, accelerate, or otherwise change the time for payment or other terms of the Superior Indebtedness or any part thereof, including increases and decreases of the rate or interest on the Superior Indebtedness; extensions may be repeated and may be for longer than the original loan term; (C) take and hold Security interests for the payment of the Superior Indebtedness, and exchange, enforce, waive, and release any such Security interests, with or without the substitution of new collateral; (D) release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, or guarantors on any terms or manner Lender chooses; (E) determine how, when and what application of payments and credits, shall be made on the Superior Indebtedness; (F) apply such security and direct the order or manner of sale thereof, as Lender in its discretion may determine; and (G) assign this Agreement in whole or in part-.

DEFAULT BY BORROWER. If Borrower becomes insolvent or bankrupt, this Agreement shall remain in full force and effect. Any default by Borrower under the terms of the Subordinated Indebtedness also shall constitute en event of default under the terms of the Superior Indebtedness in favor of Lender,

DURATION AND TERMINATION . This Agreement will take effect when received by Lender, without the necessity of any acceptance by Lender, in writing or otherwise, and will remain in full force end effect until Creditor shall notify Lender in writing at the address shown above to the contrary. Any such notice shall not affect the Superior Indebtedness owed Lender by Borrower at the time of such notice, nor shall such notice affect Superior Indebtedness thereafter granted in compliance with a commitment made by Lender to Borrower prior to receipt of such notice, nor shall such notice affect any renewals of or substitutions for any of the foregoing. Such notice shall affect only indebtedness of Borrower to Lender arising after receipt of such notice and not arising from financial assistance granted by Lender to Borrower in compliance with Lender’s obligations under a commitment. Any notes lodged with Lender pursuant to the section titled ‘‘Creditor’s Notes” above need not be returned until this Agreement has no further force or effect.

OTHER TERMS AND CONDITIONS . The following provisions are a part of this Agreement: William L. Shrawsbury subordinates his first lien position on all inventory now owned or hereafter acquired by TX Holdings, Inc..

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys ’ Fees ; Expenses, Creditor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Creditor shall pay the costs and expenses of such enforcement, costs and expanses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (Including efforts to modify or vacate any automatic Stay or injunction), appeals, and any anticipated post-judgment collection services. Creditor also shall pay all court costs and such additional fees as may be directed by the court.

Authority . The person who signs this Agreement as or on behalf of Creditor represents and warrants that he or she has authority to execute this Agreement end to subordinate the Subordinated Indebtedness and the Creditor’s security interests in Creditor’s property, if any.

Caption Headings . Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Governing Law. This Agreement will be governed by federal law applicable to Lender and to the extent not preempted by federal law the laws of the Commonwealth of Kentucky without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the Commonwealth of Kentucky.

Choice of Venue. If there is a lawsuit. Creditor agrees upon Lender’s request to submit to the Jurisdiction of the courts of Boyd County, Commonwealth of Kentucky.

Interpretation. In all cases where there is more than one Creditor, then all words used in this Agreement in the singular shall be deemed to have been used in the plural where the context end construction so require; and where there is more then one Creditor named in this Agreement or when this Agreement is executed by more than one, the words “Creditor” shall mean all and any one or more of them. Reference to the phrase “Creditor” includes the heirs, successors, assigns, and transferees of each of them.

Successors and Assigns. This Agreement shall be understood to be for the benefit of Lender and for such other person or persons as may from time to time become or be the holder or owner of any of the Superior Indebtedness or any interest therein, and this Agreement shall be transferable to the same extent and with the same force and effect as any such Superior Indebtedness may be transferable.

No Waiver by Lender . Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Creditor, shall constitute a waiver of any of Lender’s rights or of any of Creditor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Loan No: 018000025	SUBORDINATION AGREEMENT (Continued)	Page 3

DEFINITIONS . The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

Agreement. The word “Agreement” means this Subordination Agreement, as this Subordination Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Subordination Agreement from time to time.

Borrower. The word “Borrower” means TX Holdings, Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Creditor. The word “Creditor” means William L. Shrewsbury.

Lender. The word “Lender” means Home Federal Savings & Loan Association, its successors and assigns.

Note . The word “Note” means the Note dated November 7, 2012 and executed by TX Holdings, Inc. in the principal amount of $250,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

Related Documents . The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Superior Indebtedness.

Security Interest . The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, Charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

Subordinated Indebtedness. The words “Subordinated Indebtedness” mean the indebtedness described in the section of this Agreement titled “Subordinated Indebtedness”.

Superior Indebtedness . The words “Superior Indebtedness” mean the indebtedness described in the section of this Agreement titled “Superior Indebtedness”.

BORROWER AND CREDITOR EACH ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS SUBORDINATION AGREEMENT, AND BORROWER AND CREDITOR EACH AGREE TO ITS TERMS. THIS AGREEMENT IS DATED NOVEMBER 7, 2012.

BORROWER:


TX HOLDINGS, INC.

By:	/s/ William L. Shrewsbury
	William L. Shrewsbury, Chairman of TX Holdings, Inc.

CREDITOR:

X	/s/ William L. Shrewsbury
	William L. Shrewsbury, Individually

Exhibit 10.3

THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAS BEEN ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH TRANSFER OR DISPOSITION DOES NOT VIOLATE THE ACT, THE RULES AND REGULATIONS THEREUNDER, OR APPLICABLE STATE SECURITIES LAWS.

TX HOLDINGS, INC.

10% PROMISSORY NOTE


Principal Amount: $289,997	Effective: February 27, 2009

FOR VALUE RECEIVED , the undersigned, TX Holdings, Inc., a Georgia corporation, and its subsidiaries, if any (hereinafter referred to as “ Make r”), hereby promises to pay to William L. Shrewsbury or permitted assigns (“ Payee ”), at such place as Payee hereof may from time to time designate in writing, the principal sum of Two Hundred Eighty-Nine Thousand Nine Hundred Ninety-Seven Dollars ($289,997) in one installment due upon the earlier of the following: (i) the earlier of (a)__April 15__, 2015, or (b) the date demanded by Payee (“ Maturity Date ”); or (ii) the date of an occurrence and continuance of an Event of Default as hereinafter defined (the “ Accelerated Maturity Date ”), together with interest from and after the date hereof at the rate of 10% per annum computed on the unpaid principal balance. Interest shall be accrued daily and paid in full on the Maturity Date or Accelerated Maturity Date, whichever shall first occur. Each payment made on this Note shall be credited first to any interest then due and then to the outstanding principal amount hereof.

By acceptance of this 10% Promissory Note (the “ Note ”), Payee represents, warrants, covenants and agrees that it will abide by and be bound by its terms.

1. Presentment . Except as set forth herein, Maker waives presentment, demand and presentation for payment, notice of nonpayment and dishonor, protest and notice of protest.

2. Prepayment, Extension and Notices . The unpaid principal balance outstanding under this Note may be prepaid in part or in full by the Maker without penalty, upon five (5) days’ prior written notice to Payee stating the repayment amount and repayment date (the “ Repayment Date ”) and Payee expressly agrees that this Note or any payment hereunder may be extended from time to time by the Payee without in any way affecting the liability of Maker.

3. Events of Default . Each of the following shall constitute an event of default (an “ Event of Default ”) hereunder: (a) the failure to pay when due any principal or interest hereunder; (b) the violation by Maker of any covenant or agreement contained in this Note; (c) an assignment for the benefit of creditors by Maker; (d) the application for the appointment of a receiver or liquidator for Maker or for property of Maker; (e) the filing of a petition in bankruptcy by or against Maker; (f) the issuance of an attachment or the entry of a judgment against Maker in excess of $250,000; (g) a default by Maker with respect to any other indebtedness or with respect to any installment debt whether or not owing to Payee; (h) the sale of all or substantially all of Maker’s assets or there shall be a transfer of more than 51% of Maker’s equity interests to an person not currently a holder of equity interests of Maker; or (i) the termination of existence or the dissolution of Maker.

Upon the occurrence of any of the foregoing Events of Default, the Holder shall give written notice to the Maker of such default, and Maker shall have ten (10) days within which to cure such default. If the default is not cured within the ten (10) day cure period, then this Note shall be considered to be in default and the entire unpaid principal sum hereof, together with accrued interest, shall at the option of the holder hereof become immediately due and payable in full. Upon the occurrence of an Event of Default which remains uncured as set forth herein, the Maker agrees to pay reasonable collection or enforcement costs and expenses, including reasonable attorneys’ fees and interest from the date of the default at the rate of fifteen percent (15%) per annum computed on the unpaid principal balance.

In addition, at any time before the Accelerated Maturity Date of this Note, Payee may waive any Event of Default hereunder. Such waivers shall be evidenced by written notice or other document specifying the Events of Default being waived and shall be binding on all existing or subsequent holders of this Note.

4. Governing Law . The validity and construction of this Note and all matters pertaining hereto are to be determined in accordance with the laws of the State of Kentucky without reference to the conflicts of law principles thereof.

5. Entire Agreement . This Note is intended to and does contain and embody the entire understanding and agreement of Maker and Payee with respect to the subject matter hereof and there exists no oral agreement or understanding, express or implied whereby the absolute, final and unconditional character and nature of this Note shall be in any way invalidated, unempowered or affected.

6. Assignment . This Note shall be binding upon the successors and assigns of the undersigned. Payee of this Note may assign or transfer this Note to any person or entity without notice to, or the consent of, Maker. This Note shall not be assignable, in whole or in part, by Maker without the prior written consent of Payee.

7. Usury Savings Clause . Notwithstanding any other provision herein, in the event that the aggregate interest rate charged under this Note, including all charges or fees in connection therewith deemed in the nature of interest, exceeds the maximum legal rate, then Payee shall have the right to make such adjustments as are necessary to reduce the aggregate interest rate to the maximum legal rate. Maker waives any right to prior notice of such adjustment and further agrees that such adjustment may be made by Payee subsequent to notification from Maker that the aggregate interest charged exceeds the maximum legal rate.

8. Enforceability of Agreement . If any one or more of the provisions of this Note shall be determined to be illegal or unenforceable as to one or more of the parties, all other provisions nevertheless shall remain effective and binding on the parties hereto, to the fullest extent permitted by law.

9. Notice . Any notices, consents, waivers, or other communications required or permitted to be given hereunder must be in writing and will be deemed to have been delivered (a) upon receipt, when delivered personally; (b) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (c) three (3) days after being sent by U.S. certified mail, return receipt requested; or (d) one (1) day after deposit with a nationally recognized overnight delivery service, in each such case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: if to Payee of record, at his address appearing on the books of Maker; and if Maker, to TX Holdings, Inc., 12080 Virginia Blvd., Ashland, Kentucky 41102, Attention: Chief Executive Officer, facsimile number: (606) 929-5727.

No notice, consent, waiver or communication hereunder shall be valid unless signed by Payee of this Note or other holder giving such notice, consent, waiver or communication.

10. Headings . The headings of this Note are for convenience of reference only and are not part of this Note.

[THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY.]

IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly authorized, has executed this Note and affixed its corporate seal effective as of this _27_ day of February_, 2009.


	TX HOLDINGS, INC.

	By:	/s/ Jose Fuentes
	Name:	JOSE FUENTES
	Title:	CHIEF FINANCIAL OFFICER

Exhibit 10.4

REVOLVING PROMISSORY DEMAND NOTE


$1,062,000.00	Ashland, Kentucky
	April 30 , 2012

FOR VALUE RECEIVED, the undersigned, TX HOLDINGS, INC., herein referred to as “Debtor”, promises to pay to the order of WILLIAM L. SHREWSBURY, of 9413 Collier Road, Catlettsburg, KY 41129, herein referred to as “Lender”, the principal sum of ONE MILLION SIXTY-TWO THOUSAND and NO/100 DOLLARS ($1,062,000.00) (or, if less, the unpaid principal balance shown on an attachment to this note or on Lender’s loan account records, this Note evidencing a revolving credit line and the aggregate unpaid principal amount of all advances and/or re-advances to Debtor), together with interest thereon at the rate of FIVE PERCENT (5%) per annum , the entire outstanding indebtedness, together with all interest accrued thereon and other amounts that may then be owing hereunder, shall mature and become due and payable on DEMAND or on April 30, 2015, whichever shall first occur.

Debtor reserves the right to prepay the whole or any part of this Note at any time without penalty or premium.

This Note represents and evidences an arrangement that allows the Debtor to obtain advances without giving Lender a separate note for each advance. Lender will record the date and amount of each advance on an attachment to this Note or on Lender’s loan account records. Debtor agrees that each advance so recorded shall be prima facie evidence that an advance was made on the date and in the amount indicated. The number of advances and the amount of each advance are not limited, except that the principal balance outstanding at any time shall not exceed the face amount of this Note. However, in no event shall Lender be obligated to advance or loan any funds to Debtor. Rather, this Note sets forth the terms of Debtor’s obligations to repay Lender for advances or loans made by Lender to Debtor. Amounts once borrowed and repaid under this Note may be re-borrowed. Debtor acknowledges Lender has advanced the sum of ONE MILLION SIXTY-TWO THOUSAND and NO/100 DOLLARS ($1,062,000.00) to Debtor in accordance with Debtor’s request and Debtor agrees to repay, in accordance with the terms of this Note, said sum as well as any additional advances made by Lender to Debtor after the date hereof, not to exceed the total principal sum of ONE MILLION SIXTY-TWO THOUSAND and NO/100 DOLLARS ($1,062,000.00), including all sums advanced to Debtor by Lender prior to the date hereof.

Prior to maturity, principal and any overdue interest shall bear interest computed daily (on the basis of a 360-day year and actual days elapsed) as herein set forth.

Concurrently with any prepayment of the principal of this Note, Debtor shall pay the unpaid interest accrued on the principal being prepaid.

If Debtor fails to pay any amount due hereunder, or any fee in connection herewith, in full within ten (10) days after its due date, Debtor, in each case, will incur and shall pay a late fee equal to the greater of Twenty Five and No/100 Dollars ($25.00) or Five Percent (5%) of the unpaid amount. The payment of a late charge will not cure or constitute a waiver of any Event of Default under this Note.

Except as otherwise agreed in writing, payments will be applied first to accrued but unpaid interest and fees, in that order, in the order of their respective due dates, until paid in full, then to late charges and then to principal; provided, however, that if a payment so applied would pay the principal of this Note in full, but leave late charges outstanding, such payment shall instead be applied to the principal portion of the final installment.

In its discretion, Lender may, from time to time, unilaterally change any provision for the application of payments by mailing a written notice to Debtor of the change. The notice shall be mailed to the address indicated herein or such other address that Debtor may furnish in writing to Lender and shall be mailed not less than fifteen (15) days prior to the effective date of such change.

If this Note is not paid in full at maturity (whether by Lender’s demand for payment, lapse of time, acceleration of maturity or otherwise), the interest rate otherwise in effect hereunder shall be increased by Three Percent (3%) per annum.

The occurrence of any of the following shall constitute an Event of Default hereunder: (a) this Debt or any part thereof shall not be paid in full promptly when due (whether by Lender’s demand for payment, lapse of time, acceleration of maturity or otherwise); (b) any Obligor shall be dissolved; (c) any representation or warranty made by any Obligor in this Note or any Related Writing shall be false or erroneous in any material respect; (d) any Obligor shall fail or omit to perform or observe any agreement made by that Obligor in this Note or any Related Writing; (e) a judgment shall be entered against any Obligor in any court of record; (f) any deposit account of any Obligor is attached or levied upon; (g) any voluntary petition by or involuntary petition against any Obligor shall be filed pursuant to any chapter of any bankruptcy code or any Obligor shall make an assignment for the benefit of creditors, or there shall be any other marshalling of the assets and liabilities of any Obligor for the benefit of the Obligor’s creditors; or, (h) any Obligor enters into any merger or consolidation or sells, leases or otherwise disposes of all or substantially all of such Obligor’s assets in any manner other than in the ordinary course of business. Upon the occurrence of an Event of Default, the holder of this Note may, in its sole discretion, declare this Note to be due and payable and, if applicable, that Debtor no longer be permitted to obtain advances; and the principal of and interest on this Note shall thereupon become immediately payable in full, without any presentment, demand or notice of any kind, which Debtor hereby waives. Debtor will pay to Lender all costs and expenses of collection of this Note, including, without limitation, attorneys’ fees.

In this Note, (a) Debt means, collectively, all monetary liabilities, and any charges or expenses incurred in connection therewith, now or hereafter owing by the Debtor or Obligor in question, including, without limitation, every such liability whether owing by such Person or one (1) of such Persons alone or jointly, severally or jointly and severally, whether owing absolutely or contingently, or directly or indirectly, and whether created by loan, guaranty or other contract or by quasi-contract, tort, statute or other operation of law; (b) Obligor means any Person who is, or shall become, obligated, or whose property is, or shall serve as, collateral for the payment of the debt evidenced by this Note, or any part hereof in any manner and, in addition to Debtor, includes, without limitation, any maker, endorser, guarantor, subordinating creditor, assignor, pledgor, mortgagor or hypothecator of property; (c) Related Writing means a writing of any form or substance signed by any Obligor (whether as principal or agent) or by any attorney, accountant or other representative of any Obligor and received by Lender in respect of Debtor’s Lender Debt or any part thereof, including, without limitation, the resolution of Debtor’s Board of Directors dated December 10, 2011, all documentation evidencing Lender’s advances made to Debtor since December 12, 2011, and thereafter, any credit application, credit agreement, request for advance, reimbursement agreement, financial statement, promissory note, guaranty, indenture, mortgage, security agreement, authorization, subordination agreement, certificate, opinion or any similar writing, but shall not include any commitment letter issued by Lender, without regard to whether Debtor or any other Person signed or acknowledged receipt thereof; and, (d) Person means a natural person or entity of any kind, including, without limitation, any corporation, partnership, trust, governmental body or any other form or kind of entity.

Debtor hereby authorizes Lender to share all information, including, without limitation, all credit and financial information, and all loan applications and information provided in connection therewith, pertaining or relating to Debtor, with Lender, or with any actual or proposed participant in or assignee of all or any part of Lender’s interest in or rights under this Note, or with any other person or entity reasonably deemed incidental by Lender to the administration of the indebtedness evidenced hereby. Debtor expressly waives, releases and relinquishes any and all claims, demands and/or causes of action against Lender, his successors and/or assigns arising from or pertaining in any way to any such disclosure of information.

In no event shall the interest rate in effect on this Note exceed the maximum rate permissible under the law governing this Note.

If Debtor consists of more than one Person, Debtor shall be jointly and severally liable on this Note.

Any holder’s delay or omission in the exercise of any right under this Note shall not operate as a waiver of that right or of any other right under this Note.

If any provision of this Note is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that determination shall not affect any other provision of this Note, and each such other provision shall be construed and enforced as if the invalid, illegal or unenforceable provision were not contained herein.

This Note and the Related Writings set forth the entire agreement between the parties regarding the transactions contemplated hereby, and supercede all prior agreements, commitments, discussions, representations and understandings, whether written or oral, and any and all contemporaneous oral agreements, commitments, discussions, representations and understandings between the parties relating to the subject matter hereof.

No amendment, modification or supplement to this Note or any Related Writing shall be binding unless executed in writing by all parties thereto, and this provision shall not be subject to waiver by any party and shall be strictly enforced.

This Note shall be governed by the laws of the Commonwealth of Kentucky.


	DEBTOR:

	TX HOLDINGS, INC.

	By	/s/ Richard Novack
		Richard Novack
	Its President

Exhibit 10.5

SECURITY AGREEMENT

This Security Agreement made and entered into this 30th day of April, 2012, between WILLIAM L. SHREWSBURY of 9413 Collier Road, Catlettsburg, KY 41129 (“Lender”) and TX HOLDINGS, INC., a Georgia corporation authorized to do business in and doing business in the Commonwealth of Kentucky, of 12080 Virginia Boulevard, Ashland, KY 41102 (“Debtor”).

WITNESSETH:

WHEREAS, by resolution of the Board of Directors of Debtor approved December 10, 2011, Debtor has requested that Lender provide certain financing to Debtor to be secured by the granting of a security interest in Debtor’s assets, and

WHEREAS, Lender has provided certain financing in consideration of Debtor’s agreement to grant a security interest in Debtor’s assets to secure the debt arising from Lender’s providing said financing; and

WHEREAS, Lender has to date loaned the following sums to Debtor:


$100,000	on	December 12, 2011

$100,000	on	December 16, 2011

$200,000	on	December 29, 2011

$200,000	on	January 6, 2012

$150,000	on	January 20, 2012

$ 2,000	on	February 27, 2012

$ 10,000	on	February 28, 2012

$150,000	on	March 26, 2012

$150,000	on	April 10, 2012

for a total of ONE MILLION SIXTY-TWO THOUSAND and NO/100 DOLLARS ($1,062,000.00); and

WHEREAS, Debtor may request that Lender make additional advances to Debtor and Lender may choose to make additional advances to Debtor in accordance with the Revolving Promissory Demand Note (“Note”) of even date:

NOW, THEREFORE, for the purpose of further documenting the granting of the security interest in and to the Debtor’s assets, and for other valuable consideration, the receipt and sufficiency of which is acknowledged, and in consideration of Lender’s having extended certain financial accommodations to Debtor, and to induce Lender, at his option, to extend additional financial accommodations to or for the account of Debtor, with or without additional security, Debtor has executed the Note of even date payable to Lender; and, as security for the obligations of Debtor under said Note of even date herewith, and under this Security Agreement, Debtor hereby grants to Lender a security interest in and a continuing security interest in: all money, goods, equipment, inventory, instruments, securities, documents, chattel paper, accounts, accounts receivable, proceeds, advance payments, general intangibles, credits, bank accounts, deposits, claims, demands and any other property, rights and interests of Debtor, including the proceeds, products and accessions of the same, owned by Debtor or in which Debtor has an interest or in which Debtor hereafter acquires an interest. The right is granted to Lender, at his discretion, to file one or more financing statements under the Uniform Commercial Code of the Commonwealth of Kentucky naming Debtor as debtor and Lender as secured party, and indicating in the statement the types or describing the items of security specified in this agreement. Without the prior written consent of Lender, Debtor shall not file or authorize or permit to be filed in any jurisdiction any such financing or like statement in which Lender is not named as the sole secured party. Lender shall not be required to take any action to preserve any rights against prior parties to any of the security.

1.	REMEDIES ON DEFAULT

In the event of default under this Security Agreement, the Note, or any other obligation of Debtor to Lender, Debtor shall, at the request of Lender, assemble the security at such place or places as Lender designates in his request. Lender shall have the rights and remedies with respect to the security of a secured party under the Uniform Commercial Code of Commonwealth of Kentucky and all other applicable law. In addition, with respect to the security, or any part of the security, that shall then be or shall subsequently come into the possession or custody of Lender or any of his agents, Lender may sell or cause to be sold, in one or more sales or parcels, at such price as Lender may deem best and for cash or on credit or for future delivery, without assumption of any credit risk, all or any of the security (including any further collateral furnished under Section B), at public or private sale, without demand of performance or notice of intention to sell or of time or place of sale (except such notice as is required by applicable statute and cannot be waived), and Lender or any other person may be the purchaser of any or all of the security so sold and subsequently hold the same absolutely, free from any claim or right of whatsoever kind, including any equity of redemption, any such demand, notice or right and equity being waived and released. Lender shall be deemed to have possession of any of the security in transit to or set apart for it, or to or set apart for any of his agents.

2.	FURTHER COLLATERAL

Debtor shall be obligated, on demand, to furnish such further collateral or to make such payments on account of Debtor’s liabilities under this Security Agreement as Lender shall request. Lender will hold such further collateral as a part of the security for the obligations secured by this instrument, and Debtor shall remain liable for the amount of the guaranteed obligations, and the interest on the same and costs and expenses.

This instrument has been executed at the place and on the date first above mentioned.


	LENDER:

	WILLIAM L. SHREWSBURY

	/s/ William L. Shrewsbury
	William L. Shrewsbury

	DEBTOR:

	TX HOLDINGS, INC., a Georgia
	corporation

	By	/s/ Richard Novack
		Richard Novack
	Its President

EXHIBIT 31.1

CERTIFICATIONS

I, William “Buck” Shrewsbury, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TX Holdings, Inc.;

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

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

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

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

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

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

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

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

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

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

Dated: May 3, 2013	Signed:	/s/ William Shrewsbury
		William Shrewsbury
	Title:	Chief Executive Officer (Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATIONS

I, Jose Fuentes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of TX Holdings, Inc.;

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

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

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

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

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

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

Dated: May 3, 2013	Signed:	/s/ Jose Fuentes
		Jose Fuentes
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO RULE 13a-14(b) or

RULE 15d-14(b) AND 18 U.S.C. SECTION 1350

(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, AS AMENDED)

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

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d), and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 3, 2013	Signed:	/s/ William Shrewsbury
		William Shrewsbury
	Title:	Chief Executive Officer (Principal Executive Officer)

EXHIBIT 32.2

CERTIFICATION

PURSUANT TO RULE 13a-14(b) or

RULE 15d-14(b) AND 18 U.S.C. SECTION 1350

(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, AS AMENDED)

Dated: May 3, 2013	Signed:	/s/ Jose Fuentes
		Jose Fuentes
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)