UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D. C. 20549
FORM
10-Q
☒ |
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period
ended December 31, 2015 |
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TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission
File No. 000-32335 |
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TX
HOLDINGS, INC. |
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(Exact Name of Registrant
as Specified in its Charter) |
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Georgia |
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58-2558702 |
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(State or Other Jurisdiction
of Incorporation or |
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(I.R.S. Employer Identification
No.) |
Organization) |
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12080
Virginia Blvd., Ashland, KY 41102 |
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(606)
928-1131 |
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(Address of Principal Executive
Offices and Zip Code) |
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(Registrant’s Telephone
Number, Including Area Code) |
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(Former Name, Former Address
and Former Fiscal Year, if Changed Since Last Report) |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO
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Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer, “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☐
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Smaller reporting company ☒ |
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES ☐ NO ☒
On
January 25, 2016, there were 48,053,084 shares of the registrant’s common stock outstanding.
TX
HOLDINGS, INC.
FORM
10-Q
FOR
THE QUARTER ENDED DECEMBER 31, 2015
TABLE
OF CONTENTS
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PART I
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets as of December 31, 2015 and September 30, 2015 (Unaudited) |
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Consolidated Statements of Operations for the Three Months Ended December 31, 2015 and 2014 (Unaudited) |
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Consolidated Statement of Changes in Stockholders’ Deficit for the Three Months Ended December 31, 2015 (Unaudited) |
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Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2015 and 2014 (Unaudited) |
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Notes to Unaudited Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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13 |
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Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
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21 |
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Item 4. |
Controls and Procedures |
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22 |
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PART II
OTHER INFORMATION | |
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Item 1. |
Legal Proceedings |
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23 |
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Item 1A. |
Risk Factors |
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23 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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24 |
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Item 3. |
Defaults Upon Senior Securities |
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24 |
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Item 4. |
Mine Safety Disclosures |
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24 |
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Item 5. |
Other Information |
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24 |
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Item 6. |
Exhibits |
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25 |
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SIGNATURES |
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26 |
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure
and analysis in this report as well as information relating to us contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of
1934, as amended (“Exchange Act”), and other applicable law, which provide our current expectations or forecasts of
future events. Forward-looking statements in this report include, without limitation:
| · | cyclical
economic conditions affecting the coal mining industry and competitive pressures and
changes affecting the coal mining industry, including demand for coal; |
| · | general
economic conditions, including those affecting the domestic and global coal mining industry
generally; |
| · | changes
in environmental laws and regulations or their interpretation and enforcement as they
affect the mining industry and, in particular, the coal mining industry. |
| · | our
ability to generate cash from operations, obtain funding on favorable terms and manage
our liquidity needs; |
| · | challenges
arising from acquisitions or our development and marketing of new products; |
| · | information
concerning possible or assumed future results of operations, trends in financial results
and business plans, including those related to earnings, earnings growth, revenue and
revenue growth; |
| · | statements
about the level of our costs and operating expenses relative to our revenues, and about
the expected composition of our revenues; |
| · | statements
about expected future sales trends for our products; |
| · | statements
about our future capital requirements and the sufficiency of our cash, cash equivalents,
and available bank borrowings to meet these requirements; |
| · | other
statements about our plans, objectives, expectations and intentions; and |
| · | other
statements that are not historical fact. |
Forward-looking
statements generally can be identified by the use of forward-looking terminology such as “believes,” “expects,”
“may,” “will,” “intends, “plans,” “should,” “seeks,” “pro
forma,” “anticipates,” “estimates,” “continues,” or other variations thereof (including
their use in the negative), or by discussions of strategies, plans or intentions. Such statements include but are not limited
to statements under Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2015, Part II, Item 1A –
Risk Factors of this report, Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations in this report, and elsewhere in this report. A number of factors could cause results to differ materially from those
anticipated by such forward-looking statements. The absence of these words does not necessarily mean that a statement is not forward-looking.
Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions
that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual
results could differ materially from those anticipated in the forward-looking statements for many reasons, including factors described
in Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2015, and Part II, Item 1A –
Risk Factors of this report. You should carefully consider the factors described in Part II, Item 1A - Risk Factors of our Form
10-K for the year ended September 30, 2015, and Part II, Item 1A – Risk Factors of this report, in evaluating our forward-looking
statements.
You
should not unduly rely on these forward-looking statements, which speak only as of the date of this report. We undertake no
obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this report,
or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the
reports we file from time to time with the Securities and Exchange Commission (“SEC”). Notwithstanding the above,
Section 27A of the Securities Act and Section 21E of the Exchange Act expressly state that the safe harbor for forwarding
looking statements does not apply to companies that issue penny stocks. Because we may from time to time be considered an
issuer of penny stock, the safe harbor for forward looking statements under such provisions may not be applicable to us at
certain times.
We obtained
certain statistical data, market data and other industry data and forecasts used in this Form 10-Q from publicly available information.
While we believe that such data is reliable, we have not independently verified the data, and we do not make any representation
as to the accuracy of the information.
PART 1-FINANCIAL INFORMATION |
Item 1-Financial Statements |
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TX
HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
December
31, 2015 and September 30, 2015
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Unaudited |
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December 31, |
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September 30, |
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2015 |
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2015 |
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ASSETS | |
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Current assets: | |
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Cash and cash equivalents | |
$ | 2,000 | | |
$ | 61,564 | |
Accounts receivable, net of allowance for doubtful accounts of $13,643 at December 31, 2015 and September 30, 2015 | |
| 460,803 | | |
| 585,043 | |
Inventory | |
| 2,467,268 | | |
| 2,223,037 | |
Commission advances | |
| 58,996 | | |
| 48,338 | |
Note receivable-current | |
| 10,000 | | |
| 10,000 | |
Other current assets | |
| 28,604 | | |
| 27,674 | |
Total current assets | |
| 3,027,671 | | |
| 2,955,656 | |
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Inventory, non-current | |
| 300,000 | | |
| 300,000 | |
Property and equipment, net | |
| 64,126 | | |
| 66,575 | |
Note receivable, less current portion | |
| 19,983 | | |
| 19,983 | |
Other | |
| 500 | | |
| 500 | |
Total Assets | |
$ | 3,412,280 | | |
$ | 3,342,714 | |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
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Current liabilities: | |
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Accrued liabilities | |
$ | 698,175 | | |
$ | 696,624 | |
Accounts payable | |
| 956,924 | | |
| 946,576 | |
Advances from officer | |
| 157,637 | | |
| 124,637 | |
Bank-Line of Credit | |
| – | | |
| 712,449 | |
Bank-Term Loan | |
| 706,484 | | |
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Total current liabilities | |
| 2,519,220 | | |
| 2,480,286 | |
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Note payable to officer | |
| 2,000,000 | | |
| 2,000,000 | |
Total Liabilities | |
| 4,519,220 | | |
| 4,480,286 | |
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Commitments and contingencies | |
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Stockholders’ deficit: | |
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Preferred stock: no par value, 1,000,000 shares authorized no shares outstanding | |
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Common stock: no par value, 250,000,000 shares authorized, 48,053,084 shares issued
and outstanding at December 31, 2015 and September 30, 2015 | |
| 9,293,810 | | |
| 9,293,810 | |
Additional paid-in capital | |
| 4,321,329 | | |
| 4,321,329 | |
Accumulated deficit | |
| (14,722,079 | ) | |
| (14,752,711 | ) |
Total stockholders’ deficit | |
| (1,106,940 | ) | |
| (1,137,572 | ) |
Total Liabilities and Stockholders’ Deficit | |
$ | 3,412,280 | | |
$ | 3,342,714 | |
The accompanying
notes are an integral part of the consolidated financial statements.
TX
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Three Months Ended December 31, 2015 and 2014
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(Unaudited) |
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December 31, |
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December 31, |
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2015 |
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2014 |
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Revenue | |
$ | 782,265 | | |
$ | 640,788 | |
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Cost of goods sold | |
| (543,846 | ) | |
| (523,346 | ) |
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Gross profit | |
| 238,419 | | |
| 117,442 | |
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Operating expenses, except items shown separately below | |
| 120,702 | | |
| 153,764 | |
Commission expense | |
| 27,831 | | |
| 40,573 | |
Professional fees | |
| 21,346 | | |
| 40,097 | |
Bad debt expense | |
| 1,926 | | |
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Depreciation expense | |
| 2,449 | | |
| 2,816 | |
Total operating expenses | |
| 174,254 | | |
| 237,250 | |
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Income (loss) from operations | |
| 64,165 | | |
| (119,808 | ) |
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Other income and (expense): | |
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Other income | |
| – | | |
| 6,173 | |
Interest expense | |
| (33,533 | ) | |
| (31,648 | ) |
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Total other income and (expense), net | |
| (33,533 | ) | |
| (25,475 | ) |
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Income (loss) before provision for income taxes | |
| 30,632 | | |
| (145,283 | ) |
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Provision for income taxes | |
| 12,283 | | |
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Utilization of net operating loss carry forward | |
| (12,283 | ) | |
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Net income (loss) | |
$ | 30,632 | | |
$ | (145,283 | ) |
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Net earnings (loss) per common share | |
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Basic and Diluted | |
$ | – | | |
$ | – | |
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Weighted average of common shares outstanding- | |
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Basic and Diluted | |
| 48,053,084 | | |
| 48,053,084 | |
The accompanying
notes are an integral part of the consolidated financial statements.
TX
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For
the Three Months Ended December 31, 2015 (UNAUDITED)
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Additional | | |
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Preferred Stock | | |
Common Stock | | |
Paid in | | |
Accumulated | | |
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Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
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Balance at | |
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September 30, 2015 | |
| – | | |
$ | – | | |
| 48,053,084 | | |
$ | 9,293,810 | | |
$ | 4,321,329 | | |
$ | (14,752,711 | ) | |
$ | (1,137,572 | ) |
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Net income | |
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| 30,632 | | |
| 30,632 | |
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Balance at | |
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December 31,
2015 | |
| – | | |
$ | – | | |
| 48,053,084 | | |
$ | 9,293,810 | | |
$ | 4,321,329 | | |
$ | (14,722,079 | ) | |
$ | (1,106,940 | ) |
The accompanying
notes are an integral part of the consolidated financial statements.
TX
HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Three Months Ended December 31, 2015 and 2014
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(Unaudited) |
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December 31, |
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December 31, |
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2015 |
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2014 |
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Cash flows used in operating activities: | |
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Net income (loss) | |
$ | 30,632 | | |
$ | (145,283 | ) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |
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Depreciation expense | |
| 2,449 | | |
| 2,816 | |
Bad debt expense | |
| 1,926 | | |
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Changes in operating assets and liabilities: | |
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Accounts receivable | |
| 122,314 | | |
| 5,024 | |
Inventory | |
| (244,231 | ) | |
| 10,069 | |
Commission advances | |
| (10,658 | ) | |
| (14,524 | ) |
Other current assets | |
| (930 | ) | |
| (4,531 | ) |
Accrued liabilities | |
| (4,449 | ) | |
| (5,896 | ) |
Accounts payable | |
| 10,348 | | |
| 1,777 | |
Other assets | |
| – | | |
| (500 | ) |
Stockholder/officers advances for operations | |
| 6,000 | | |
| – | |
Net cash used in operating activities | |
| (86,599 | ) | |
| (151,048 | ) |
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Cash flows used in investing activities: | |
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Notes receivable | |
| – | | |
| 1,306 | |
Purchase of equipment | |
| – | | |
| (2,408 | ) |
Net cash used in investing activities | |
| – | | |
| (1,102 | ) |
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Cash flows provided by financing activities: | |
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Payment on Term Loan | |
| (4,892 | ) | |
| – | |
Proceeds from bank line of credit | |
| – | | |
| 171,049 | |
Repayment of bank line of credit | |
| (1,073 | ) | |
| – | |
Proceeds from stockholder/officer advances | |
| 33,000 | | |
| 3,300 | |
Repayment of stockholder/officer advances | |
| – | | |
| (14,000 | ) |
Net cash provided by financing activities | |
| 27,035 | | |
| 160,349 | |
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Increase/(decrease) in cash and cash equivalents | |
| (59,564 | ) | |
| 8,199 | |
Cash nd cash equivalents at beginning of period | |
| 61,564 | | |
| 72,784 | |
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Cash and cash equivalents at end of period | |
$ | 2,000 | | |
$ | 80,983 | |
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Supplemental Disclosure of Cash Flow Information |
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Cash paid during the year for interest | |
$ | 33,533 | | |
$ | 31,648 | |
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Suppemental Schedule
of Non-Cash investing and Financing Activities |
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Payments of line of credit through issuance of note payable | |
$ | 711,376 | | |
$ | – | |
The accompanying
notes are an integral part of the consolidated financial statements.
TX
HOLDINGS, INC. |
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS |
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NOTE
1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
INTERIM
FINANCIAL STATEMENTS
The accompanying
interim unaudited consolidated financial statements and footnotes of TX Holdings, Inc., and its subsidiaries (the “Company”),
have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and
applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. The consolidated
financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information.
All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make
the information presented not misleading, certain information and footnote disclosures, including a description of significant
accounting policies normally included in financial statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations.
The balance
sheet as of September 30, 2015, included herein was derived from audited consolidated financial statements as of that date, but
does not include all disclosures including notes required by GAAP.
These
consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes
thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015. The accompanying unaudited
consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position,
results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results for any subsequent
quarter or the entire year ending September 30, 2016.
Conformity
with GAAP requires the use of estimates and judgments that affect the reported amounts in the financial statements and accompanying
notes. These estimates form the basis for judgments we make about the carrying values of our assets and liabilities, which are
not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions
that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including,
but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair
value of share-based awards, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful
lives of intangible assets and property and equipment, and income taxes. These estimates are based on management’s knowledge
about current events and expectations about actions we may undertake in the future. Actual results could differ materially from
those estimates.
OVERVIEW
OF BUSINESS
The Company
is in the business of supplying, distributing and selling drill bits, related tools, and other mining supplies, rail and rail
material directly and through other suppliers to the United States’ coal mining industry for use in their production and
transportation processes. The products are supplied to the Company by certain manufacturers and suppliers and warehoused and distributed
from the Company’s principal business location in Ashland, Kentucky. In addition, on November 21, 2014, and with a view
to diversifying its business, the Company acquired all of the membership interest in The Bag Rack, LLC. The acquired company has
developed a new product, “The Bag Rack,” and is in the preliminary stages of distributing and selling the new product.
The Bag Rack is a unique device that enables bags with handles to be stored in the trunk of a car preventing the bags from tipping
over and causing spillage. The Company expects to market and sell the new product online, through distributors, and through certain
national retailers and discount stores. See Note 2.
The Company
was incorporated in the State of Georgia on May 15, 2000, under the name HOM Corporation. On January 22, 2003, the Company changed
its name to R Wireless, Inc., and, on July 27, 2005, changed its name to TX Holdings, Inc.
REVENUE
RECOGNITION
The Company
recognizes revenue from direct sales of our products to our customers, including shipping fees. Title passes to the customer (usually
upon shipment or delivery, depending upon the terms of the sales order) when persuasive evidence of an arrangement exists; when
sales amounts are fixed or determinable; and when collectability is reasonably assured. The Company expenses shipping and handling
costs as incurred which are included in cost of goods sold on the consolidated statements of operations.
GOING
CONCERN CONSIDERATIONS
The unaudited
consolidated financial statements included in this report have been prepared assuming that the Company will continue as a going
concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent
registered public accounting firm’s report on the consolidated financial statements included in our annual report on Form
10-K for the year ended September 30, 2015, contains an explanatory paragraph wherein it expressed an opinion that there is substantial
doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinion should be given in
determining whether to continue or become our stockholder.
Since
the commencement of its mining and rail products distribution business, the Company has relied substantially upon financing provided
by Mr. Shrewsbury, the Company’s CEO and, since November 2012, a secured bank line of credit in connection with the development
and expansion of its business. On December 3, 2015, the Company entered into a new loan agreement with Town Square Bank under
which it obtained a term loan in the amount of $711,376. The Company utilized proceeds of the new loan to repay its line of credit.
The loan is for a term of five years and matures on December 3, 2020.
These
factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated
financial statements have been prepared on a going concern basis, which contemplates continuing operations and realization of
assets and liquidation of liabilities in the ordinary course of business. The Company’s ability to continue as a going concern
is dependent upon its ability to raise sufficient capital and to implement a successful business plan to generate profits sufficient
to become financially viable. The consolidated financial statements do not include adjustments relating to the recoverability
of recorded assets or the implications of associated bankruptcy costs if the Company is unable to continue as a going concern.
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company
transactions and balances have been eliminated in consolidation.
NOTE
2 –ACQUISITIONS
On
November 21, 2014, the Company acquired 100% ownership of The Bag Rack, LLC, a Kentucky limited liability company, from the Company’s
CEO (who prior to the acquisition, owned a 50% of the membership interest in the acquired company) and the remaining membership
interests from an unrelated third party. The acquired company had been recently established and was in the process of initiating
the development and distribution of “The Bag Rack”, a unique patent pending device which enables bags with handles
to be stored in the trunk of a car neatly and preventing content spillage. The transaction was completed with the Company paying
a purchase price of $500.
The
Bag Rack, LLC acquired all rights to the product shortly prior to the acquisition transaction. Since its formation and at the
date of acquisition, the acquired company held no assets or liabilities other than rights to the product which were valued at
$500 as they pertained to a new unproven product. In addition, the Company agreed to pay 20% of the net profit for each product
sold to a customer by The Bag Rack LLC to the former pending patent holder and 20% of the net income, after payment to the former
pending patent holder, to each of the two former member of The Bag Rack, LLC. The payments to the former pending patent holder
and prior members of The Bag Rack LLC will be in perpetuity.
NOTE
3 – STOCKHOLDERS’ DEFICIT
POTENTIALLY
DILUTIVE OPTIONS AND WARRANTS
On
May 16, 2012, the Board of Directors authorized the issuance of an aggregate of 400,000 common stock purchase warrants to a sales
agent, Mr. Tom Chafin. Over a period of four years, Mr. Chafin is expected to receive 50,000 warrants every six months, for an
aggregate of 400,000 warrants. The warrants are exercisable at a price of $0.10 per share, become exercisable upon issuance, and
expire two years after the date of issuance. The initial tranche of 50,000 warrants were issuable effective July 1, 2012. As of
December 31, 2015 Mr. Chafin has 200,000 warrants outstanding and unexercised and 150,000 warrants have expired pursuant to the
agreement. The warrants were not included in the calculation of diluted earnings per share since their inclusion will be anti-dilutive.
On
February 25, 2014, the Company issued 500,000 common stock purchase options to Mr. Shrewsbury. Commencing April 1, 2014, the options
became exercisable at a price of $.0924 per share, the fair market value of the Company’s shares of Common Stock on the
date authorized by the Board of Directors, February 21, 2014. The options expire on March 31, 2017. The options are not included
in the calculation of diluted earnings per share since their inclusion will be anti-dilutive.
NOTE
4 – RELATED PARTY TRANSACTIONS
ADVANCES
FROM STOCKHOLDER/OFFICER
As of
December 31, 2015 and September 30, 2015, Mr. Shrewsbury had outstanding advances to the Company of $157,637 and $124,637, respectively.
The advance bears no interest and is due on demand.
NOTES
PAYABLE TO A STOCKHOLDER AND OFFICER
On February
25, 2014, the Company and Mr. Shrewsbury consolidated an aggregate of $2,000,000 of the indebtedness to Mr. Shrewsbury, including
the principal due under a Revolving Demand Note (“Revolving Note”) in the principal amount of $1,062,000 and accrued
but unpaid interest due thereunder as of January 31, 2014 in the amount of $168,905, the principal due under a 10% Promissory
Note (“10% Note”) in the amount of $289,997 and accrued but unpaid interest due thereunder as of January 31, 2014
in the amount of $93,252; and $385,846 of non-interest bearing advances outstanding as of January 31, 2014. The Company issued
in exchange and in replacement therefor a Consolidated Secured Promissory Note (the “Consolidated Note”) in the principal
amount of $2,000,000. The Revolving Note and 10% Note were cancelled and Mr. Shrewsbury agreed to waive any prior defaults under
the terms of such notes and to release the Company from any claims related thereto. The Consolidated Note bears interest at the
rate of 5% per annum or prime rate if higher than 5% per annum, is repayable in full ten years from the date of issuance, and
is subject to certain events of default. Payment of the Consolidated Note is to be secured or otherwise payable by the Company
out of the death benefit proceeds of key man insurance of $2 million that has been purchased by the Company on the life of Mr.
Shrewsbury. The terms of the debt consolidation and restructuring were unanimously approved by the disinterested members of the
Board of Directors of the Company.
LEASE
AGREEMENT WITH STOCKHOLDER AND OFFICER
In November
2012, the Company entered into a lease agreement with William Shrewsbury and Peggy Shrewsbury whereby Mr. Shrewsbury and Mrs.
Shrewsbury agreed to lease to the Company real estate and warehouse space to store the Company’s inventory. The initial
lease had a two year term starting October 1, 2012 and ending August 31, 2014. On September 1, 2014 the parties agreed to extend
the lease for an additional two years. The lease rental is $2,000 per month payable the first of each month. As of December 31,
2015, the Company has made lease payments, since the beginning of the lease, in the amount of $84,000 and has an outstanding payable
on the lease to Mr. Shrewsbury in the amount of $18,000.
FREIGHT
PAID TO COMPANY CONTROLLED BY OFFICER/STOCKHOLDER
The Company
utilizes the services of a trucking company owned and controlled by Mr. Shrewsbury, our Chief Executive Officer, to transport
certain of the Company’s products to its customers. During the three months ended December 31, 2015 and 2014, such trucking
company was paid $12,061 and $8,879, respectively, for such trucking services.
COMMISSIONS
PAID TO COMPANY CONTROLLED BY OFFICER/SHAREHOLDER
In connection
with the transportation and delivery of certain of the Company’s products, the Company utilizes the services of a national
transportation company. The chief executive officer and a principal stockholder of the Company owns and controls a company that
is an agent of such transportation company. Such controlled company places orders for such transportation services on behalf of
the Company and is paid a commission for such transportation services. During the three months ended December 31, 2015 and 2014
the commissions’ amounts were $3,045 and $2,120, respectively.
NOTE
5 – BANK LOAN
In November
2012, the Company obtained a $250,000 line of credit from a bank. On August 26, 2014, the bank increased the Company’s existing
bank line of credit from $250,000 to $750,000 and extended the term of the line of credit. The line of credit was secured by a
priority security interest in the Company’s inventory and accounts receivable and matured on November 7, 2015. On December
3, 2015, the Company entered into a new loan agreement with the Bank under which it obtained a term loan in the amount of $711,376.
The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of five years and matures on
December 3, 2020. As of December 31, 2015, the loan balance is $706,484.
During
the term of the loan, the Company has agreed to make equal monthly repayments of principal and interest of $6,967 commencing January
3, 2016, and to make a final payment on December 3, 2020, of the outstanding balance of the interest and principal then due, estimated
to be approximately $391,896. Early repayment of amounts due under the loan will not affect the monthly repayment amount, unless
otherwise agreed to by the bank.
An
event of default under the loan will occur upon the occurrence of any of the following events:
| · | the
Company fails to make any payment when due under the loan; |
| · | the
Company fails to comply with any term, obligation, covenant or condition in the loan
documents or any other agreement between the bank and the Company: |
| · | the
Company defaults under any loan, extension of credit, security agreement, purchase or
sales agreement or other agreement with any creditor that materially affects the Company’s
property or its ability to repay the note or perform its obligation under the note or
related documents; |
| · | a
warranty, representation or statement made to the bank under the loan document is or
becomes materially false or misleading; |
| · | the
dissolution or termination of the Company’s existence, or its insolvency, the appointment
of a receiver for any part of its property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under any bankruptcy
or insolvency laws by or against the Company; |
| · | the
commencement of foreclosure or forfeiture proceedings by any creditor or any governmental
agency against any collateral securing the loan; |
| · | any
of the preceding events occurs with respect to any loan guarantor; |
| · | a
25% or more change in the ownership of the Company’s common stock; |
| · | a
material adverse change in the Company’s financial condition, or the bank believes
the prospect of payment or performance of the loan is impaired; or |
| · | the
bank in good faith believes itself insecure. |
The
loan agreements contain certain affirmative covenants, including an obligation to: notify the bank of a material adverse change
in the Company’s financial condition and of any threatened litigation or claim or other proceeding which could materially
affect the Company’s financial condition; maintain certain liability insurance in amounts acceptable to the bank; maintain
qualified executive and management personnel; comply with applicable environmental laws and perform environmental studies required
by the bank; and certify annually to the bank compliance with the representations and warranties in the bank loan documents. The
loan agreements contain certain other customary covenants and conditions.
In
addition, the loan agreements contain certain negative covenants, including that the Company will not, without the bank’s
consent:
| · | incur
any indebtedness other than to the bank or for trade debt incurred in the ordinary course;
|
| · | sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber
any of its assets, except for permitted liens; |
| · | sell
its accounts receivable, except to the bank; |
| · | engage
in business activities substantially different from the Company’s current activities;
|
| · | cease
operations, liquidate, merge, transfer, acquire or consolidate with another entity, change
the Company’s name, dissolve, or sell the inventory or accounts receivable secured
under the loan; |
| · | pay
any dividend other than in stock; |
| · | lend
money, invest or advance money or assets to another person or entity; |
| · | purchase,
create or acquire an interest in any other entity; |
| · | incur
any obligation as a surety or guarantor other than in the ordinary course; or |
| · | enter
into any agreement containing any provision which would be violated or breached by the
performance of the Company’s obligations under the loan agreements. |
Interest
under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 3.25% per annum. In the event of a
default, interest under the loan may be increased by 2%. The line of credit is secured by a priority security interest in the
Company’s inventory and accounts receivable and has been guaranteed by our CEO. Also, all claims due from the Company to
Mr. Shrewsbury are subordinate to the bank’s indebtedness, including under the Consolidated Note and any advances due to
Mr. Shrewsbury.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
You should read the following summary together with the more
detailed information and financial statements and notes thereto and schedules appearing elsewhere in this report. Throughout this
report when we refer to the “Company” “TX Holdings,” “we,” “our” or “us,”
we mean TX Holdings, Inc., a Georgia corporation, and its subsidiaries.
This discussion and analysis of our financial condition and results
of operations is based upon our consolidated financial statements which have been prepared in accordance with GAAP. The
preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our critical accounting policies and estimates, including those related to revenue recognition and contingencies. We
base our estimates on historical experience, where available, and on various other assumptions we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and
conditions.
Except for historical information, the statements and other information
contained in this Management’s Discussion and Analysis are forward-looking. Our actual results could differ materially from
the results discussed in the forward-looking statements, which include certain risks and uncertainties.
Our independent registered public accounting firm’s report
on the consolidated financial statements included in our Annual Report Form 10-K for the year ended September 30, 2015, contains
an explanatory paragraph wherein they expressed an opinion that there is substantial doubt about our ability to continue as a going
concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or become our stockholder.
Please refer to and carefully consider the factors described
in Part I, Item 1A - Risk Factors of our Form 10-K for the year ended September 30, 2015, and Part II, Item 1A –
Risk Factors in this report.
Overview
We are in the business of supplying, distributing and selling
drill bits, related tools, and other mining supplies, rail and rail material directly and through other suppliers to the United
States’ coal mining industry for use in their production and transportation processes. The products are supplied to the Company
by certain manufacturers and suppliers and warehoused and distributed from our principal business location in Ashland, Kentucky.
We purchase mining supplies from several manufacturers and rail
material from several suppliers of such products. The products are shipped to our warehouse in Ashland, Kentucky and then distributed
to our customers. Our products are transported primarily by ground transportation to our customers. Shipping costs are born by
our customers.
We distribute and sell our products through two independent sales
agents who are compensated on a commissioned basis.
Revenue for the three months ended December 31, 2015, was $782,265
as compared to $640,788 for the same period in 2014, an increase of approximately 22%.
During the three months ended December 31, 2015, we had net income
of $30,632 as compared to net loss of $145,283 for the same period in 2014.
At December 31, 2015, cash and cash equivalents were $2,000 compared
to $61,564 at September 30, 2015.
Net cash used in operating activities was $86,599 during the
three months ended December 31, 2015. Net cash used in operating activities during the same three month period in 2014 was $151,048.
There was no cash flow from investing activities for the three
months ended December 31, 2015. Cash flow used in investing activities during the three months period ended December 31, 2014 was
$1,102.
During the three months ended December 31, 2015, net cash provided
by financing activities was $27,035 primarily due to cash advances from our CEO, William Shrewsbury. Cash flow provided by financing
activities for the three months ended December 31, 2014 was $160,349 resulting primarily from the Company’s $171,049 drawdown
from its line of credit.
Mr. William Shrewsbury, the Company’s Chairman and CEO,
has provided financing in the form of demand notes and advances. Effective February 25, 2014, Mr. Shrewsbury agreed to restructure
the principal and interest under such demand notes and certain advances due as of January 31, 2014, and we issued in exchange a
single Consolidated Secured Promissory Note in the principal amount of $2,000,000 (“Consolidated Note”). The principal
and interest thereunder is due ten years from the date of issuance, the principal bears interest at the rate of 5% per annum or
prime rate if higher than 5% per annum, and is subject to certain events of default. Payment of the Consolidated Note is to be
secured or otherwise payable by us out of the death benefit proceeds of key man insurance of $2 million that has been purchased
by us on the life of Mr. Shrewsbury. As of December 31, 2015, Mr. Shrewsbury had also provided non-interest bearing advances to
us of $157,637.
In November, 2012, we obtained a bank line of credit in the amount
of $250,000 which was subsequently increased to $750,000. The line of credit was secured by a lien on our inventory and account
receivable and guaranteed by Mr. Shrewsbury. On December 3, 2015, we entered into a new loan agreement with a bank under which
it obtained a term loan in the amount of $711,376. We utilized proceeds of the new loan to repay our line of credit. The loan is
for a term of five years and matures on December 3, 2020. As of December 31, 2015, the loan balance is $706,484.
We were incorporated in the State of Georgia
in 2000.
Recent Acquisitions
On November 21, 2014, and with a view to diversifying its business,
we acquired The Bag Rack, LLC. The acquired company owns all rights to a new product, “The Bag Rack” and was in the
preliminary stages of developing the new product. The Bag Rack is a unique device that enables bags with handles to be stored in
the trunk of a motor vehicle preventing the bags from tipping over and causing spillage. We expect to market and sell the new product
online and through certain national retailers, distributors, and discount stores. The Bag Rack, LLC was acquired from Mr. Shrewsbury,
our CEO and Mr. Rickie Hagan, the founding members of The Bag Rack, LLC, who each owned 50% of the company. In addition to a purchase
price of $500, as consideration for the acquisition, we agreed to pay 20% of the net profits to each founding member (after royalty
payment) of The Bag Rack. The Bag Rack has a provisional patent pending related to the new product and is obligated to pay a royalty
to the original developer of the product equal to 20% of the net profit of each product sold.
RESULTS OF OPERATIONS
Three Months Ended December 31, 2015
Compared To Three Months Ended December 31, 2014
Revenues from Operations
Revenue for the three months
ended December 31, 2015 was $782,265 as compared to $640,788 for the same period in 2014, an increase of $141,477 or 22.1%. The
increase in revenue is attributable to higher sales demand during the current period.
Cost of Goods Sold
During the quarter ended December
31, 2015, our cost of goods sold was $543,846 as compared to cost of goods sold of $523,346 for the quarter ended December 31,
2014, an increase of $20,500 or 3.9%. The higher cost resulted from the increase in sales demand during the current period. As
a percentage of sales, cost of goods sold decreased from 81.7% in 2014 to 69.5% during the current period, the 12.2% decrease is
the direct result of lower cost purchases from a new supplier, sales of a product mix with relatively higher gross margin, and
lower operating expenses during the current quarter.
Gross Profit
Gross profit for the period ended December 31, 2015 increased as a percentage of revenue to 30.5% from
18.3% for the same period of the prior year. The increase in gross profit resulted from lower cost of sales from lower cost purchase,
sales of product mix with relatively higher gross margins, and lower operating expenses during the current quarter.
Operating
Expenses
Operating
expenses for the three months ended December 31,
2015 were $174,254 as compared to $237,250 for the three months ended December 31, 2014,
a decrease of $62,996 or 26.6%.
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 | |
| |
12/31/2015 | | |
12/31/2014 | | |
$ Change | | |
%Change | |
Operating Expense |
| |
| | | |
| | | |
| | | |
| | |
Commission Expense | |
$ | 27,831 | | |
$ | 40,573 | | |
$ | (12,742 | ) | |
| (31.4 | ) |
Professional fees | |
| 21,346 | | |
| 40,097 | | |
$ | (18,751 | ) | |
| (46.8 | ) |
Depreciation expense | |
| 2,449 | | |
| 2,816 | | |
$ | (367 | ) | |
| (13.0 | ) |
Other operating expense | |
| 122,628 | | |
| 153,764 | | |
$ | (31,136 | ) | |
| (20.2 | ) |
Total | |
$ | 174,254 | | |
$ | 237,250 | | |
$ | (62,996 | ) | |
| (26.6 | ) |
Commission
expense for the three months ended December 31, 2015 was $27,831 compared to $40,573 for the same period in 2014, a decrease of
$12,742 or 31.4%. The lower commission is a direct result of the introduction of revised lower sales commission rates payable
to our sales agent and a favorable adjustment to the prior year accrued commission resulting from the resignation of a sales agent.
Professional
fees decreased $18,751 or 46.8% during the three months ended December 31, 2015, as compared to the same period in 2014. The lower
professional fees result from lower legal fees of $15,084 and lower investor relations cost of $9,150 partially offset by higher
advertising expense of $5,404.
Depreciation
expenses decreased $367 or 13.0% during the quarter ended December 31, 2015, as compared to the same period in 2014.
During
the three months ended December 31, 2015, other operating expenses of $122,628 decreased by $31,136 or 20.2% from $153,764 for
the same period in 2014. The lower other operating expenses resulted primarily from lower travel expenses of $32,503 during the
current quarter compared to higher costs from overseas travel during the three months ended December 31, 2014.
Income
(loss) from operations
Income
from operations for the quarter ended December 31,
2015 was $64,165 compared to loss from operations of $119,808 during the same period in 2014. When compared to the loss for the
same period in the prior year, the income in the current period is the direct result of higher sales, lower product cost, sales
of a product mix with relatively higher gross margins and lower operating expenses in the current period.
Other
income and (expense)
Other
income and expense for the three months ended December 31, 2015, reflected a net expense of $33,533 as compared to net expense
of $25,475 for the quarter ended December 31, 2014, an increase of $8,058. Gain from scrap sales during the quarter ended December
31, 2014, account for a profit gain of $6,173.
Net
Income or Loss
For
the quarter ended December 31, 2015, net income was $30,632 compared to a net loss of $145,283 for the quarter ended December
31. 2014. Higher sales, lower product cost, sales of a product mix with relatively higher gross margin, and lower operating expenses
in the current period account for the net income increase.
Net
earnings (loss) per common share
The
net income of $30,632 for the quarter ended December 31,
2015, as well as the net loss of $145,283 for the quarter ended December 31, 2014, when
divided by the number of common shares outstanding of 48,053,084 basic shares in both years resulted in a net income and loss
per share, respectively, of less than $0.01 in both periods.
LIQUIDITY
AND CAPITAL RESOURCES
The following
table presents a summary of our net cash provided (used) by operating, investing and financing activities:
| |
|
|
|
|
|
| |
| |
Three Months Ended | |
| |
12/31/2015 | | |
12/31/2014 | |
Cash used in operating activities | |
$ | (86,599 | ) | |
$ | (151,048 | ) |
Cash used in investing activities | |
| – | | |
| (1,102 | ) |
Cash provided by financing activities | |
| 27,035 | | |
| 160,349 | |
Net Increase (decrease) in cash | |
$ | (59,564 | ) | |
$ | 8,199 | |
At
December 31, 2015, we had cash and cash equivalents of $2,000 as compared to $61,564 at September 30, 2015, a decrease of $59,564
or 103.4%. The decrease in cash is the direct result of the net cash used for operating activities of $86,599. The decrease in
cash was partially offset by stockholder/officer net advances of $33,000 during the three months ended December 31, 2015.
Cash
Flows Used in Operating Activities
Net
cash used in operating activities for the three months ended December 31, 2015, was $86,599 compared to cash used in operations
of $151,048 in 2014, a decrease of $64,449.
During
the three months ended December 31, 2015, we had net income of $30,632 as compared to a net loss of $145,283 for the same period
during the prior year.
In
the current quarter the company has non-cash expenses for depreciation of $2,449 and bad debt expense of $1,926.
A
decrease in receivable of $122,314, an increase in accounts payable of $10,348 and an increase of stockholder/officers advances
for operations of $6,000 during the period ended December 31, 2015, were more than offset by an increase in inventory of $244,231,
an increase in commission advances of $10,658, an increase in accrued liabilities of $4,449, and an increase in other current
assets of $930.
Cash
Flows Used in Investing Activities
There
was no cash flow from investing activities for the period ended December 31, 2015. During the comparable three month period in
the prior year, we capitalized $2,408 incurred in refurbishing a new truck used for product delivery and, a $1,306 payment was
received as a partial payment on the note receivable held by us arising from the sale of a previously owned oil lease.
Cash
Flows Provided by Financing Activities
During
the three months ended December 31, 2015, cash provided by financing activities was $27,035 compared to cash provided by financing
activities of $160,349 during the same period in 2014. During the current three month period, the Company made payment on its
term loan of $4,892, line of credit of $1,073 and received stockholder advances of $33,000. For the three months ended December
31, 2014, the Company repaid net advances of $10,700 and as a result of cash flows shortfalls, we had increased reliance on advances
from Mr. Shrewsbury to fund operations. Also, we financed our operation during the three-months period ended December 31, 2014,
by drawing-down $171,049 under our bank credit line.
In November
2012, we obtained a $250,000 line of credit from a bank. On August 26, 2014, the bank increased our existing bank line of credit
from $250,000 to $750,000 and extended the term of the line of credit. The line of credit was secured by a priority security interest
in our inventory and accounts receivable and matured on November 7, 2015. Interest on the line of credit was payable monthly and
was calculated on the basis of a variable index. On December 3, 2015, we entered into a new loan agreement with a bank under which
we obtained a term loan in the amount of $711,376. We utilized proceeds of the new loan to repay our line of credit. The loan
is for a term of five years and matures on December 3, 2020. As of December 31, 2015, the loan balance is $706,484. The current
rate of interest under the loan is 3.25% per annum. Principal, interest and collection costs under the loan are guaranteed by
Mr. Shrewsbury.
On February
25, 2014, we and Mr. Shrewsbury entered into an agreement to consolidate an aggregate of $2,000,000 of amounts due to Mr. Shrewsbury,
including $1.062 million due under a Revolving Promissory Demand Note issued to Mr. Shrewsbury on or about April 30, 2012, $289,997
due under a 10% Promissory Note issued to Mr. Shrewsbury on or about February 27, 2009, accrued but unpaid interest of $262,157
as of January 31, 2014, under such notes and advances by Mr. Shrewsbury in the amount of $385,846 as of January 31, 2014, and
issued in replacement a Secured Consolidated Note (“Consolidated Note”) for such amount. The Consolidated Note bears
interest at 5% per annum or prime rate if higher than 5% per annum, principal and interest are repayable ten years from February
25, 2014, and it is subject to customary events of default. Payment of the Consolidated Note is to be secured or otherwise payable
by us out of the death benefit proceeds of key man insurance of $2 million that has been purchased by us on the life of Mr. Shrewsbury.
During
the three months ended December 31, 2015, we received $33,000 cash advance from Mr. Shrewsbury, bringing the total outstanding
advance balance to $157,637. Cash advances from Mr. Shrewsbury are repayable upon demand and do not bear interest.
Financial
Condition and Going Concern Uncertainties
Except
for each of the six consecutive quarters ended June 30, 2014 and the current three months period, since inception, the Company
has not generated sufficient cash to fund its operations and has incurred operating losses. Currently, the Company relies substantially
upon financing provided by Mr. Shrewsbury, the Company’s Chief Executive Officer, and a secured bank loan in connection
with the financing of its business operations. In view of these matters, realization of certain assets in the accompanying balance
sheet is dependent upon continued operations, which, in turn, is dependent upon our ability to meet our financial requirements,
upon the continued provision of financing from Mr. Shrewsbury and under the Company’s bank loan, and the success of our
future operations.
Our independent
registered public accounting firm’s report on the consolidated financial statements included in our Annual Report on Form
10-K for the year ended September 30, 2015, contained an explanatory paragraph wherein they expressed an opinion that there is
a substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinion should
be given in determining whether to continue or to become our stockholder.
As of
December 31, 2015, we had cash and cash equivalents of $2,000 as compared to $61,564 as of September 30, 2015. The decrease in
cash as of December 31, 2015, results from an increase in working capital arising from management’s decision to increase
inventory levels in anticipation of higher sales demand. The higher inventory was partially offset by a decrease in receivables.
During the current quarter, we had also a net increase in advances from Mr. Shrewsbury.
Our accounts
receivable were $460,803 as of December 31, 2015, as compared to $585,043 as of September 30, 2015, a decrease of $124,240 or
21.2%. The lower December 31, 2015 receivable balance is the direct result of a late payment due by a major customer in the prior
quarter, received in the current quarter.
Inventory
was $2,467,268 as of December 31, 2015 as compared to $2,223,037 as of September 30, 2015, an increase of $244,231 or 11.0%. The
higher inventory is attributable to an anticipated increase in sales demand.
During
the three months ended December 31, 2015, our accumulated deficit decreased from $14,752,711 to $14,722,079, a decrease of $30,632
or 0.2%. Reported net income due to higher sales of a product mix with relatively higher gross margin and lower operating expenses
during the three months ended December 31, 2015.
During
the three months ended December 31, 2015, the Company’s net income was $30,632 compared to a net loss of $145,283 for the
comparable period in 2014. The net income variance can be directly attributed to higher sales of a product mix with relatively
higher gross margins and lower operating expenses.
Currently,
in addition to funds utilized to purchase inventory, we are spending approximately $60,000 per month on operations. Management
believes that the Company’s available cash, cash flows from operations, the loans and advances provided by Mr. Shrewsbury
and the loan provided by the bank to be sufficient to fund the Company operations during the next 12 months.
We
continue to rely substantially upon financings provided by Mr. Shrewsbury and a bank loan to fund our operations. The terms of
such financings are discussed below.
BANK
LOAN
Under
the terms of a business loan agreement, originally entered on November 7, 2012, and as amended through August 26, 2014, we obtained
a secured revolving line of credit in the amount of $750,000 from Town Square Bank. Interest on the loan was payable monthly in
arrears. Interest under the loan was variable and was based upon Wall Street Journal Prime Rate.
On December
3, 2015, we entered into a new loan agreement with Town Square Bank pursuant to which we obtained a term loan in the amount of
$711,376. We utilized proceeds of the new loan to repay our line of credit. The loan is for a term of five years and matures on
December 3, 2020. As of December 31, 2015, the loan balance is $706,484.
During
the term of the loan, we agreed to make equal monthly repayments of principal and interest of $6,967 commencing January 3, 2016,
and to make a final payment on December 3, 2020, of the outstanding balance of the interest and principal then due, estimated
to be approximately $391,896. Early repayment of amounts due under the loan will not affect the monthly repayment amount, unless
otherwise agreed to by the bank.
An
event of default under the loan will occur upon the occurrence of any of the following events:
| · | we
fail to make any payment when due under the note; |
| · | we
fail to comply with any term, obligation, covenant or condition in the loan documents
or any other agreement with the bank; |
| · | we
default under any loan, extension of credit, security agreement, purchase or sales agreement
or other agreement with any creditor that materially affects our property or our ability
to repay the note or perform our obligation under the note or related documents; |
| · | a
warranty, representation or statement made to the bank under the loan document is or
becomes materially false or misleading; |
| · | the
dissolution or termination of our existence, our insolvency, the appointment of a receiver
for any part of our property, any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency
laws by or against us; |
| · | the
commencement of foreclosure or forfeiture proceedings by any creditor or any governmental
agency against any collateral securing the loan; |
| · | any
of the preceding events occurs with respect to any loan guarantor; |
| · | a
25% or more change in the ownership of our common stock; |
| · | a
material adverse change in our financial condition, or the bank believes the prospect
of payment or performance of the loan is impaired; or |
| · | the
bank in good faith believes itself insecure. |
The
loan agreements contain certain affirmative covenants, including an obligation to: notify the bank of a material adverse change
in our financial condition and of any threatened litigation or claim or other proceeding which could materially affect our financial
condition; maintain certain liability insurance in amounts acceptable to the bank; maintain qualified executive and management
personnel; comply with applicable environmental laws and perform environmental studies required by the bank; and certify annually
to the bank compliance with the representations and warranties in the bank loan documents. The loan agreements contain certain
other customary covenants, terms and conditions.
In
addition, the loan agreements contain certain negative covenants, including that we will not, without the bank’s consent:
| · | incur
any indebtedness other than to the bank or for trade debt incurred in the ordinary course;
|
| · | sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber
any of its assets, except for permitted liens; |
| · | sell
our accounts receivable, except to the bank; |
| · | engage
in business activities substantially different from our current activities; |
| · | cease
operations, liquidate, merge, transfer, acquire or consolidate with another entity, change
our name, dissolve, or sell the inventory or accounts receivable secured under the loan;
|
| · | pay
any dividend other than in stock; |
| · | lend
money, invest or advance money or assets to another person or entity; |
| · | purchase,
create or acquire an interest in any other entity; |
| · | incur
any obligation as a surety or guarantor other than in the ordinary course; or |
| · | enter
into any agreement containing any provision which would be violated or breached by the
performance of our obligations under the loan agreements. |
Interest
under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 3.25% per annum. In the event of a
default, interest under the loan may be increased by 2%. The loan is secured by a priority security interest in the Company’s
inventory and accounts receivable and has been guaranteed by our CEO.
ADVANCES
AND LOANS FROM MR. SHREWSBURY
In connection
with the expansion of our business, Mr. Shrewsbury, the Company’s Chairman and CEO, provided financing to us in the form
of demand notes and advances. On February 25, 2014, we entered into a Note Exchange Agreement (“Exchange Agreement”)
with Mr. Shrewsbury pursuant to which certain outstanding indebtedness due to Mr. Shrewsbury was consolidated and restructured.
Under the terms of the agreement, we and Mr. Shrewsbury consolidated the following indebtedness: the principal due under the Revolving
Promissory Demand Note issued to Mr. Shrewsbury on April 30, 2012 (“Revolving Note”), in the amount of $1,062,000
and accrued but unpaid interest due thereunder as of January 31, 2014, in the amount of $168,905; the principal due under the
10% Promissory Note issued to Mr. Shrewsbury effective February 27, 2009 (the “10% Note”), in the amount of $289,997
and accrued but unpaid interest due thereunder as of January 31, 2014, in the amount of $93,252; and $385,846 of the non-interest
bearing advances previously made by Mr. Shrewsbury and outstanding as of January 31, 2014. We issued in exchange and in replacement
for such indebtedness a Consolidated Secured Promissory Note (the “Consolidated Note) in the principal amount of $2,000,000.
Upon issuance of the Consolidated Note, the Revolving Note and 10%
Note
were cancelled. Mr. Shrewsbury agreed to waive any prior defaults under the terms of such cancelled notes and to release the Company
from any claims related thereto.
The principal
and interest under the Consolidated Note is due and payable ten years from the date of issuance and is to be secured by the proceeds
of key man insurance purchased by us on the life of Mr. Shrewsbury. The Consolidated Note bears interest at the rate of 5% per
annum except that, if the prime rate reported by the Wall Street Journal (“WSJ Prime Rate”) exceeds 5%, then the Consolidated
Note will bear interest at the WSJ Prime Rate.
An event
of default will occur under the Consolidated Note upon:
| · | we
fail to pay when due any principal or interest under the Consolidated Note; |
| · | we
violate any covenant or agreement contained in the Consolidated Note, the Exchange Agreement
or related transaction documents; |
| · | an
assignment for the benefit of creditors by us; |
| · | the
application for the appointment of a receiver or liquidator for us or our property; |
| · | the
filing of a petition in bankruptcy by or against us; |
| · | the
issuance of an attachment or the entry of a judgment against us in excess of $250,000; |
| · | a
default by us with respect to any other indebtedness or with respect to any installment
debt whether or not owing to Mr. Shrewsbury; |
| · | the
sale of all or substantially all of our assets or a transfer
of more than 51% of our equity interests to a person not currently a holder of our equity
interests; |
| · | our
termination of existence or dissolution; |
| · | the
death of Mr. Shrewsbury; or |
| · | the
failure to pay when due any premium under the key man policy required to be purchased
on the life of Mr. Shrewsbury under the Exchange Agreement. |
In addition,
in consideration of Mr. Shrewsbury agreeing to consolidate and restructure the indebtedness, the Company granted to Mr. Shrewsbury
options to purchase an aggregate of 500,000 shares of our common stock pursuant to the terms of a Non-Qualified Stock Option Agreement,
issued February 25, 2014. The options are exercisable commencing April 1, 2014, and for a period of three years thereafter. The
options are exercisable at a price of $0.0924 per share subject to certain anti-dilution adjustments in the event of stock dividends,
subdivisions, capital reorganizations, a consolidation or merger, or sale of all or substantially all of our assets.
As
of December 31, 2015, Mr. Shrewsbury had advanced an aggregate of $157,637 to the Company. The advances do not bear interest and
are repayable upon demand. As of December 31, 2015, the Company also has a payable of $18,000 to Mr. Shrewsbury for warehouse
storage rental.
The
Consolidated Note and advances are subordinate to the Company’s bank indebtedness.
Off-Balance
Sheet Arrangements
We do
not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities
that would be expected to have a material current or future effect upon our financial condition, or results of operations as of
December 31, 2015 and September 30, 2015.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are
a “smaller reporting Company” as defined by Rule 12b-2 under the Exchange Act, and as such, 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 Section 13(a) or 15(d) of the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (“SEC”)
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files or submits under Section 13(a) or 15(d) of the
Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely
decisions regarding required disclosure.
Based
on this evaluation, the Certifying Officers determined that, as of the end of the period covered by this Report, the Company’s
disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Company in the
reports that it files or submits under Section 13(a) or 15(d) of the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by
the Company in the Reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s
management, including the Company’s principal executive and principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding disclosure.
Changes
in Internal Controls
There
were no changes in the Company’s internal controls over financial reporting during the period covered by this Report that
have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
The
Company is not a party to any material pending legal proceeding.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the risks described below (which
supplement and reflect changes to certain of the risk factors we disclosed in our 2015 Annual Report on Form 10-K) and other information
contained in this Report in deciding whether to invest in our common stock. Additional risks not presently known to us or which
we currently consider immaterial may also adversely affect our company. If any of the following risks (or the risk factors we
disclose in our 2015 Form 10-K) actually occur, our business, financial condition and operating results could be materially adversely
affected. In such case, the trading price of our common stock could decline, and you could lose a part or all your investment.
Risks
Related to Our Company and Our Operations
We
are dependent on financing provided or guaranteed by our CEO to fund our business and ongoing operations. We have incurred substantial
debt which could affect our ability to obtain additional financing and may increase our vulnerability to business downturns. We
may be unable to repay our bank loan when it becomes due.
As of
December 31, 2015, we have incurred debt due to Mr. Shrewsbury in the form of $2 million Consolidated Note and non-interest bearing
advances in the amount of $157,637. We have outstanding accounts payable of $956,924 and other accrued liabilities of $698,175,
including $451,743 due to our CFO, Jose Fuentes, for services. Also, the Company owes $706,484 under a bank term loan which is
secured by the Company’s inventory and accounts receivable and which becomes due on December 3, 2020. We are subject to
the risks associated with substantial indebtedness, including insufficient funds to repay the amounts due to Mr. Fuentes and Mr.
Shrewsbury in the event they make a demand for payment; it may be more expensive and difficult to obtain additional financing;
and we are more vulnerable to economic downturns.
Although
we reported net income for the three months ended December 31, 2015, we have a history of net losses and cannot assure we will
be profitable in the future. Any failure on the part of the Company, due to industry conditions, which will prevent us from achieving
profitability may cause us to reduce or eventually cease operations.
We had
a net income of $30,632 for the three months ended December 31, 2015 and a net loss of $145,283 for the same period in 2014. At
December 31, 2015 and September 30, 2015, we had accumulated deficits of $14,722,079 and $14,752,711, respectively. We may need
to obtain additional financing to expand our wholesale and retail mining supplies business and our recently acquired Bag Rack
business. We may also require additional financing to fund ongoing operations if our sales and revenue growth are insufficient
to meet our operating costs. In the past we have been able to raise financing from our CEO through notes and advances and a bank
loan guaranteed by our CEO. Our inability to obtain necessary capital or financing to fund these needs will adversely affect our
ability to fund operations and continue as a going concern. Additional financing may not be available when needed or may not be
available on terms acceptable to us. If adequate funds are not available, we may be required to delay, scale back or eliminate
one or more of our business strategies, which may affect our overall business results of operations and financial condition.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May
16, 2012, the Board of Directors authorized the issuance of an aggregate 400,000 common stock purchase warrant to a sales agent.
The warrants are issuable over a four year period in equal tranches of 50,000. On each of July 1, 2012, January 1, 2013, July
1, 2013, January 1, 2014 and July 1, 2014, January 1, 2015 and July 1, 2015, 50,000 warrants were issuable to the sales agent.
The warrants are exercisable at a price of $0.10 per share subject to certain anti-dilution adjustments in the event of stock
dividends, subdivisions, capital reorganizations, a consolidation or merger, or the sale of all or substantially all of our assets,
become exercisable upon the date of issuance and expire two years after the date of such issuance. As of December 31, 2015, 150,000
warrants have expired leaving 200,000 warrants outstanding. The warrants will be issuable in reliance upon the exemption from
the registration requirements under the Securities Act set forth in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation
D promulgated thereunder.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
None.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
The following
exhibits are filed or “furnished” herewith:
|
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Incorporated by
Reference From |
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Exhibit
No. |
Exhibit Description |
Form |
Filing Date |
Filed/
“Furnished”
Herewith |
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31.1
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Certification by Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CEO) |
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X |
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31.2 |
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (CFO) |
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X |
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32.1 |
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO) |
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X |
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32.2 |
Certification of Principal Financial Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO) |
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X |
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101.INS |
XBRL Instance Document ** |
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101.SCH |
XBRL Taxonomy Extension Schema Document ** |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document ** |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document ** |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document ** |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document ** |
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** |
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.
|
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TX HOLDINGS, INC. |
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By: |
/s/ William
L. Shrewsbury |
|
By: |
/s/ Jose Fuentes |
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William L. Shrewsbury |
|
Jose Fuentes |
|
Chief Executive Officer |
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Chief Financial Officer |
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(Principal Executive Officer) |
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(Principal Financial and Accounting Officer) |
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Dated: |
January 25, 2016 |
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Dated: |
January 25, 2016 |
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)
OR 15d-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002, AS AMENDED
I, William L. Shrewsbury, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of TX Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any
change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
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Dated: January 25, 2016 |
Signed: |
/s/William L. Shrewsbury |
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Name: |
William L. Shrewsbury |
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|
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Title: |
Chief Executive Officer (Principal Executive Officer) |
|
|
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a)
OR 15d-14(a) UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002, AS AMENDED
I, Jose Fuentes, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of TX Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control
over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of
the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s
board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Dated: January 25, 2016 |
Signed: |
/s/Jose Fuentes |
|
|
Name: |
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 that:
The Quarterly Report on Form 10-Q for the quarter
ended December 31, 2015 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
|
|
|
|
|
|
Date: January 25, 2016 |
Signed: |
/s/William L. Shrewsbury |
|
|
|
Name: |
William L. 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)
Pursuant to 18 U.S.C. Section 1350 (as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended), the undersigned officer of TX Holdings, Inc., a Georgia
corporation (the “Company”), does hereby certify that:
The Quarterly Report on Form 10-Q for the quarter
ended December 31, 2015 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended, and the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: January 25, 2016 |
Signed: |
/s/Jose Fuentes |
|
|
Name: |
Jose Fuentes |
|
|
|
Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) |
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v3.3.1.900
CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
|
Dec. 31, 2015 |
Sep. 30, 2015 |
Current assets: |
|
|
Cash and cash equivalents |
$ 2,000
|
$ 61,564
|
Accounts receivable, net of allowance for doubtful accounts of $13,643 at December 31, 2015 and September 30, 2015 |
460,803
|
585,043
|
Inventory |
2,467,268
|
2,223,037
|
Commission advances |
58,996
|
48,338
|
Note receivable-current |
10,000
|
10,000
|
Other current assets |
28,604
|
27,674
|
Total current assets |
3,027,671
|
2,955,656
|
Inventory, non-current |
300,000
|
300,000
|
Property and equipment, net |
64,126
|
66,575
|
Note receivable, less current portion |
19,983
|
19,983
|
Other |
500
|
500
|
Total Assets |
3,412,280
|
3,342,714
|
Current liabilities: |
|
|
Accrued liabilities |
698,175
|
696,624
|
Accounts payable |
956,924
|
946,576
|
Advances from officer |
157,637
|
124,637
|
Bank-Line of Credit |
|
712,449
|
Bank-Term Loan |
706,484
|
|
Total current liabilities |
2,519,220
|
2,480,286
|
Note payable to officer |
2,000,000
|
2,000,000
|
Total Liabilities |
$ 4,519,220
|
$ 4,480,286
|
Commitments and contingencies |
|
|
Stockholders' deficit: |
|
|
Preferred stock: no par value, 1,000,000 shares authorized no shares outstanding |
|
|
Common stock: no par value, 250,000,000 shares authorized, 48,053,084 shares issued and outstanding at December 31, 2015 and September 30, 2015 |
$ 9,293,810
|
$ 9,293,810
|
Additional paid-in capital |
4,321,329
|
4,321,329
|
Accumulated deficit |
(14,722,079)
|
(14,752,711)
|
Total stockholders' deficit |
(1,106,940)
|
(1,137,572)
|
Total Liabilities and Stockholders' Deficit |
$ 3,412,280
|
$ 3,342,714
|
X |
- DefinitionThe current portion of commission as of the balance sheet date.
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v3.3.1.900
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parentheticals) - USD ($)
|
Dec. 31, 2015 |
Sep. 30, 2015 |
Statement Of Financial Position [Abstract] |
|
|
Allowance for doubtful accounts (in dollars) |
$ 13,643
|
$ 13,643
|
Preferred stock, no par value (in dollars per share) |
$ 0
|
$ 0
|
Preferred stock, shares authorized |
1,000,000
|
1,000,000
|
Preferred stock, shares outstanding |
0
|
0
|
Common stock, no par value (in dollars per share) |
$ 0
|
$ 0
|
Common stock, shares authorized |
250,000,000
|
250,000,000
|
Common stock, shares issued |
48,053,084
|
48,053,084
|
Common stock, shares outstanding |
48,053,084
|
48,053,084
|
X |
- DefinitionA valuation allowance for trade and other receivables due to an Entity within one year (or the normal operating cycle, whichever is longer) that are expected to be uncollectible.
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v3.3.1.900
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
|
3 Months Ended |
Dec. 31, 2015 |
Dec. 31, 2014 |
Income Statement [Abstract] |
|
|
Revenue |
$ 782,265
|
$ 640,788
|
Cost of goods sold |
(543,846)
|
(523,346)
|
Gross profit |
238,419
|
117,442
|
Operating expenses, except items shown separately below |
120,702
|
153,764
|
Commission expense |
27,831
|
40,573
|
Professional fees |
21,346
|
40,097
|
Bad debt expense |
1,926
|
|
Depreciation expense |
2,449
|
2,816
|
Total operating expenses |
174,254
|
237,250
|
Income (loss) from operations |
64,165
|
(119,808)
|
Other income and (expense): |
|
|
Other income |
|
6,173
|
Interest expense |
(33,533)
|
(31,648)
|
Total other income and (expense), net |
(33,533)
|
(25,475)
|
Income (loss) before provision for income taxes |
30,632
|
(145,283)
|
Provision for income taxes |
12,283
|
|
Utilization of net operating loss carry forward |
(12,283)
|
|
Net income (loss) |
$ 30,632
|
$ (145,283)
|
Net earnings (loss) per common share |
|
|
Basic and Diluted (in dollars per share) |
|
|
Weighted average of common shares outstanding- |
|
|
Basic and Diluted (in shares) |
48,053,084
|
48,053,084
|
X |
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v3.3.1.900
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED) - 3 months ended Dec. 31, 2015 - USD ($)
|
Preferred Stock |
Common Stock |
Additional Paid in Capital |
Accumulated Deficit |
Total |
Balance at Sep. 30, 2015 |
|
$ 9,293,810
|
$ 4,321,329
|
$ (14,752,711)
|
$ (1,137,572)
|
Balance (in shares) at Sep. 30, 2015 |
|
48,053,084
|
|
|
|
Increase (Decrease) in Stockholders' Equity [Roll Forward] |
|
|
|
|
|
Net income |
|
|
|
30,632
|
30,632
|
Balance at Dec. 31, 2015 |
|
$ 9,293,810
|
$ 4,321,329
|
$ (14,722,079)
|
$ (1,106,940)
|
Balance (in shares) at Dec. 31, 2015 |
|
48,053,084
|
|
|
|
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- DefinitionA roll forward is a reconciliation of a concept from the beginning of a period to the end of a period.
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v3.3.1.900
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
|
3 Months Ended |
Dec. 31, 2015 |
Dec. 31, 2014 |
Cash flows used in operating activities: |
|
|
Net income (loss) |
$ 30,632
|
$ (145,283)
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
Depreciation expense |
2,449
|
2,816
|
Bad debt expense |
1,926
|
|
Changes in operating assets and liabilities: |
|
|
Accounts receivable |
122,314
|
5,024
|
Inventory |
(244,231)
|
10,069
|
Commission advances |
(10,658)
|
(14,524)
|
Other current assets |
(930)
|
(4,531)
|
Accrued liabilities |
(4,449)
|
(5,896)
|
Accounts payable |
10,348
|
1,777
|
Other assets |
|
(500)
|
Stockholder/officers advances for operations |
6,000
|
|
Net cash used in operating activities |
(86,599)
|
(151,048)
|
Cash flows used in investing activities: |
|
|
Notes receivable |
|
1,306
|
Purchase of equipment |
|
(2,408)
|
Net cash used in investing activities |
|
(1,102)
|
Cash flows provided by financing activities: |
|
|
Payment on Term Loan |
(4,892)
|
|
Proceeds from bank line of credit |
|
171,049
|
Repayment of bank line of credit |
(1,073)
|
|
Proceeds from stockholder/officer advances |
33,000
|
3,300
|
Repayment of stockholder/officer advances |
|
(14,000)
|
Net cash provided by financing activities |
27,035
|
160,349
|
Increase/(decrease) in cash and cash equivalents |
(59,564)
|
8,199
|
Cash and cash equivalents at beginning of period |
61,564
|
72,784
|
Cash and cash equivalents at end of period |
2,000
|
80,983
|
Supplemental Disclosure of Cash Flow Information |
|
|
Cash paid during the year for interest |
33,533
|
$ 31,648
|
Supplemental Schedule of Non-Cash investing and Financing Activities |
|
|
Payments of line of credit through issuance of note payable |
$ 711,376
|
|
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v3.3.1.900
BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
|
3 Months Ended |
Dec. 31, 2015 |
Background And Significant Accounting Policies [Abstract] |
|
BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES |
NOTE 1- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying interim unaudited consolidated financial statements and footnotes of TX Holdings, Inc., and its subsidiaries (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to fairly present such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
The balance sheet as of September 30, 2015, included herein was derived from audited consolidated financial statements as of that date, but does not include all disclosures including notes required by GAAP.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015. The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results for any subsequent quarter or the entire year ending September 30, 2016.
Conformity with GAAP requires the use of estimates and judgments that affect the reported amounts in the financial statements and accompanying notes. These estimates form the basis for judgments we make about the carrying values of our assets
and liabilities, which are not readily apparent from other sources. We base our estimates and judgments on historical information and on various other assumptions that we believe are reasonable under the circumstances. GAAP requires us to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, collectability of accounts receivable, contingent liabilities, fair value of share-based awards, fair value of financial instruments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. These estimates are based on management’s knowledge about current events and expectations about actions we may undertake in the future. Actual results could differ materially from those estimates.
OVERVIEW OF BUSINESS
The Company is in the business of supplying, distributing and selling drill bits, related tools, and other mining supplies, rail and rail material directly and through other suppliers to the United States’ coal mining industry for use in their production and transportation processes. The products are supplied to the Company by certain manufacturers and suppliers and warehoused and distributed from the Company’s principal business location in Ashland, Kentucky. In addition, on November 21, 2014, and with a view to diversifying its business, the Company acquired all of the membership interest in The Bag Rack, LLC. The acquired company has developed a new product, “The Bag Rack,” and is in the preliminary stages of distributing and selling the new product. The Bag Rack is a unique device that enables bags with handles to be stored in the trunk of a car preventing the bags from tipping over and causing spillage. The Company expects to market and sell the new product online, through distributors, and through certain national retailers and discount stores. See Note 2.
The Company was incorporated in the State of Georgia on May 15, 2000, under the name HOM Corporation. On January 22, 2003, the Company changed its name to R Wireless, Inc., and, on July 27, 2005, changed its name to TX Holdings, Inc.
REVENUE RECOGNITION
The Company recognizes revenue from direct sales of our products to our customers, including shipping fees. Title passes to the customer (usually upon shipment or delivery, depending upon the terms of the sales order) when persuasive evidence of an arrangement exists; when sales amounts are fixed or determinable; and when collectability is reasonably assured. The Company expenses shipping and handling costs as incurred which are included in cost of goods sold on the consolidated statements of operations.
GOING CONCERN CONSIDERATIONS
The unaudited consolidated financial statements included in this report have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm’s report on the consolidated financial statements included in our annual report on Form 10-K for the year ended September 30, 2015, contains an explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or become our stockholder.
Since the commencement of its mining and rail products distribution business, the Company has relied substantially upon financing provided by Mr. Shrewsbury, the Company’s CEO and, since November 2012, a secured bank line of credit in connection with the development and expansion of its business. On December 3, 2015, the Company entered into a new loan agreement with Town Square Bank under which it obtained a term loan in the amount of $711,376. The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of five years and matures on December 3, 2020.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuing operations and realization of assets and liquidation of liabilities in the ordinary course of business. The Company’s ability to continue as a going concern is dependent upon its ability to raise sufficient capital and to implement a successful business plan to generate profits sufficient to become financially viable. The consolidated financial statements do not include adjustments relating to the recoverability of recorded assets or the implications of associated bankruptcy costs if the Company is unable to continue as a going concern.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.
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v3.3.1.900
ACQUISITIONS
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3 Months Ended |
Dec. 31, 2015 |
Business Combinations [Abstract] |
|
ACQUISITIONS |
NOTE 2 –ACQUISITIONS
On November 21, 2014, the Company acquired 100% ownership of The Bag Rack, LLC, a Kentucky limited liability company, from the Company’s CEO (who prior to the acquisition, owned a 50% of the membership interest in the acquired company) and the remaining membership interests from an unrelated third party. The acquired company had been recently established and was in the process of initiating the development and distribution of “The Bag Rack”, a unique patent pending device which enables bags with handles to be stored in the trunk of a car neatly and preventing content spillage. The transaction was completed with the Company paying a purchase price of $500.
The Bag Rack, LLC acquired all rights to the product shortly prior to the acquisition transaction. Since its formation and at the date of acquisition, the acquired company held no assets or liabilities other than rights to the product which were valued at $500 as they pertained to a new unproven product. In addition, the Company agreed to pay 20% of the net profit for each product sold to a customer by The Bag Rack LLC to the former pending patent holder and 20% of the net income, after payment to the former pending patent holder, to each of the two former member of The Bag Rack, LLC. The payments to the former pending patent holder and prior members of The Bag Rack LLC will be in perpetuity.
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v3.3.1.900
STOCKHOLDERS' DEFICIT
|
3 Months Ended |
Dec. 31, 2015 |
Stockholders' Equity Note [Abstract] |
|
STOCKHOLDERS' DEFICIT |
NOTE 3 – STOCKHOLDERS’ DEFICIT
POTENTIALLY DILUTIVE OPTIONS AND WARRANTS
On May 16, 2012, the Board of Directors authorized the issuance of an aggregate of 400,000 common stock purchase warrants to a sales agent, Mr. Tom Chafin. Over a period of four years, Mr. Chafin is expected to receive 50,000 warrants every six months, for an aggregate of 400,000 warrants. The warrants are exercisable at a price of $0.10 per share, become exercisable upon issuance, and expire two years after the date of issuance. The initial tranche of 50,000 warrants were issuable effective July 1, 2012. As of December 31, 2015 Mr. Chafin has 200,000 warrants outstanding and unexercised and 150,000 warrants have expired pursuant to the agreement. The warrants were not included in the calculation of diluted earnings per share since their inclusion will be anti-dilutive.
On February 25, 2014, the Company issued 500,000 common stock purchase options to Mr. Shrewsbury. Commencing April 1, 2014, the options became exercisable at a price of $.0924 per share, the fair market value of the Company’s shares of Common Stock on the date authorized by the Board of Directors, February 21, 2014. The options expire on March 31, 2017. The options are not included in the calculation of diluted earnings per share since their inclusion will be anti-dilutive.
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v3.3.1.900
RELATED PARTY TRANSACTIONS
|
3 Months Ended |
Dec. 31, 2015 |
Related Party Transactions [Abstract] |
|
RELATED PARTY TRANSACTIONS |
NOTE 4 – RELATED PARTY TRANSACTIONS
ADVANCES FROM STOCKHOLDER/OFFICER
As of December 31, 2015 and September 30, 2015, Mr. Shrewsbury had outstanding advances to the Company of $157,637 and $124,637, respectively. The advance bears no interest and is due on demand.
NOTES PAYABLE TO A STOCKHOLDER AND OFFICER
On February 25, 2014, the Company and Mr. Shrewsbury consolidated an aggregate of $2,000,000 of the indebtedness to Mr. Shrewsbury, including the principal due under a Revolving Demand Note (“Revolving Note”) in the principal amount of $1,062,000 and accrued but unpaid interest due thereunder as of January 31, 2014 in the amount of $168,905, the principal due under a 10% Promissory Note (“10% Note”) in the amount of $289,997 and accrued but unpaid interest due thereunder as of January 31, 2014 in the amount of $93,252; and $385,846 of non-interest bearing advances outstanding as of January 31, 2014. The Company issued in exchange and in replacement therefor a Consolidated Secured Promissory Note (the “Consolidated Note”) in the principal amount of $2,000,000. The Revolving Note and 10% Note were cancelled and Mr. Shrewsbury agreed to waive any prior defaults under the terms of such notes and to release the Company from any claims related thereto. The Consolidated Note bears interest at the rate of 5% per annum or prime rate if higher than 5% per annum, is repayable in full ten years from the date of issuance, and is subject to certain events of default. Payment of the Consolidated Note is to be secured or otherwise payable by the Company out of the death benefit proceeds of key man insurance of $2 million that has been purchased by the Company on the life of Mr. Shrewsbury. The terms of the debt consolidation and restructuring were unanimously approved by the disinterested members of the Board of Directors of the Company.
LEASE AGREEMENT WITH STOCKHOLDER AND OFFICER
In November 2012, the Company entered into a lease agreement with William Shrewsbury and Peggy Shrewsbury whereby Mr. Shrewsbury and Mrs. Shrewsbury agreed to lease to the Company real estate and warehouse space to store the Company’s inventory. The initial lease had a two year term starting October 1, 2012 and ending August 31, 2014. On September 1, 2014 the parties agreed to extend the lease for an additional two years. The lease rental is $2,000 per month payable the first of each month. As of December 31, 2015, the Company has made lease payments, since the beginning of the lease, in the amount of $84,000 and has an outstanding payable on the lease to Mr. Shrewsbury in the amount of $18,000.
FREIGHT PAID TO COMPANY CONTROLLED BY OFFICER/STOCKHOLDER
The Company utilizes the services of a trucking company owned and controlled by Mr. Shrewsbury, our Chief Executive Officer, to transport certain of the Company’s products to its customers. During the three months ended December 31, 2015 and 2014, such trucking company was paid $12,061 and $8,879, respectively, for such trucking services.
COMMISSIONS PAID TO COMPANY CONTROLLED BY OFFICER/SHAREHOLDER
In connection with the transportation and delivery of certain of the Company’s products, the Company utilizes the services of a national transportation company. The chief executive officer and a principal stockholder of the Company owns and controls a company that is an agent of such transportation company. Such controlled company places orders for such transportation services on behalf of the Company and is paid a commission for such transportation services. During the three months ended December 31, 2015 and 2014 the commissions’ amounts were $3,045 and $2,120, respectively.
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- DefinitionThe entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
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v3.3.1.900
BANK LOAN
|
3 Months Ended |
Dec. 31, 2015 |
Debt Disclosure [Abstract] |
|
BANK LOAN |
NOTE 5 – BANK LOAN
In November 2012, the Company obtained a $250,000 line of credit from a bank. On August 26, 2014, the bank increased the Company’s existing bank line of credit from $250,000 to $750,000 and extended the term of the line of credit. The line of credit was secured by a priority security interest in the Company’s inventory and accounts receivable and matured on November 7, 2015. On December 3, 2015, the Company entered into a new loan agreement with the Bank under which it obtained a term loan in the amount of $711,376. The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of five years and matures on December 3, 2020. As of December 31, 2015, the loan balance is $706,484.
During the term of the loan, the Company has agreed to make equal monthly repayments of principal and interest of $6,967 commencing January 3, 2016, and to make a final payment on December 3, 2020, of the outstanding balance of the interest and principal then due, estimated to be approximately $391,896. Early repayment of amounts due under the loan will not affect the monthly repayment amount, unless otherwise agreed to by the bank.
An event of default under the loan will occur upon the occurrence of any of the following events:
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· |
the Company fails to make any payment when due under the loan; |
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· |
the Company fails to comply with any term, obligation, covenant or condition in the loan documents or any other agreement between the bank and the Company: |
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· |
the Company defaults under any loan, extension of credit, security agreement, purchase or sales agreement or other agreement with any creditor that materially affects the Company’s property or its ability to repay the note or perform its obligation under the note or related documents; |
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· |
a warranty, representation or statement made to the bank under the loan document is or becomes materially false or misleading; |
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· |
the dissolution or termination of the Company’s existence, or its insolvency, the appointment of a receiver for any part of its property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Company; |
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· |
the commencement of foreclosure or forfeiture proceedings by any creditor or any governmental agency against any collateral securing the loan; |
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· |
any of the preceding events occurs with respect to any loan guarantor; |
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· |
a 25% or more change in the ownership of the Company’s common stock; |
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· |
a material adverse change in the Company’s financial condition, or the bank believes the prospect of payment or performance of the loan is impaired; or |
|
· |
the bank in good faith believes itself insecure. |
The loan agreements contain certain affirmative covenants, including an obligation to: notify the bank of a material adverse change in the Company’s financial condition and of any threatened litigation or claim or other proceeding which could materially affect the Company’s financial condition; maintain certain liability insurance in amounts acceptable to the bank; maintain qualified executive and management personnel; comply with applicable environmental laws and perform environmental studies required by the bank; and certify annually to the bank compliance with the representations and warranties in the bank loan documents. The loan agreements contain certain other customary covenants and conditions.
In addition, the loan agreements contain certain negative covenants, including that the Company will not, without the bank’s consent:
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· |
incur any indebtedness other than to the bank or for trade debt incurred in the ordinary course; |
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· |
sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of its assets, except for permitted
liens; |
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· |
sell its accounts receivable, except to the bank; |
|
· |
engage in business activities substantially different from the Company’s current activities; |
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· |
cease operations, liquidate, merge, transfer, acquire or consolidate with another entity, change the Company’s name, dissolve, or sell the inventory or accounts receivable secured under the loan; |
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· |
pay any dividend other than in stock; |
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· |
lend money, invest or advance money or assets to another person or entity; |
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· |
purchase, create or acquire an interest in any other entity; |
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· |
incur any obligation as a surety or guarantor other than in the ordinary course; or |
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· |
enter into any agreement containing any provision which would be violated or breached by the performance of the Company’s obligations under the loan agreements. |
Interest under the loan is variable and is based upon the Wall Street Journal Prime rate, currently 3.25% per annum. In the event of a default, interest under the loan may be increased by 2%. The line of credit is secured by a priority security interest in the Company’s inventory and accounts receivable and has been guaranteed by our CEO. Also, all claims due from the Company to Mr. Shrewsbury are subordinate to the bank’s indebtedness, including under the Consolidated Note and any advances due to Mr. Shrewsbury.
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v3.3.1.900
BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES (Policies)
|
3 Months Ended |
Dec. 31, 2015 |
Accounting Policies [Abstract] |
|
REVENUE RECOGNITION |
REVENUE RECOGNITION
The Company recognizes revenue from direct sales of our products to our customers, including shipping fees. Title passes to the customer (usually upon shipment or delivery, depending upon the terms of the sales order) when persuasive evidence of an arrangement exists; when sales amounts are fixed or determinable; and when collectability is reasonably assured. The Company expenses shipping and handling costs as incurred which are included in cost of goods sold on the consolidated statements of operations.
|
GOING CONCERN CONSIDERATIONS |
GOING CONCERN CONSIDERATIONS
The unaudited consolidated financial statements included in this report have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. Our independent registered public accounting firm’s report on the consolidated financial statements included in our annual report on Form 10-K for the year ended September 30, 2015, contains an explanatory paragraph wherein it expressed an opinion that there is substantial doubt about our ability to continue as a going concern. Accordingly, careful consideration of such opinion should be given in determining whether to continue or become our stockholder.
Since the commencement of its mining and rail products distribution business, the Company has relied substantially upon financing provided by Mr. Shrewsbury, the Company’s CEO and, since November 2012, a secured bank line of credit in connection with the development and expansion of its business. On December 3, 2015, the Company entered into a new loan agreement with Town Square Bank under which it obtained a term loan in the amount of $711,376. The Company utilized proceeds of the new loan to repay its line of credit. The loan is for a term of five years and matures on December 3, 2020.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuing operations and realization of assets and liquidation of liabilities in the ordinary course of business. The Company’s ability to continue as a going concern is dependent upon its ability to raise sufficient capital and to implement a successful business plan to generate profits sufficient to become financially viable. The consolidated financial statements do not include adjustments relating to the recoverability of recorded assets or the implications of associated bankruptcy costs if the Company is unable to continue as a going concern.
|
PRINCIPLES OF CONSOLIDATION |
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation.
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RELATED PARTY TRANSACTIONS (Detail Textuals 1) - Mr. William Shrewsbury - USD ($)
|
1 Months Ended |
Feb. 25, 2014 |
Jan. 31, 2014 |
Revolving Note |
|
|
Related Party Transaction [Line Items] |
|
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Value of convertible promissory note issued |
$ 1,062,000
|
|
Accrued but unpaid interest due |
|
$ 168,905
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10% Promissory Note |
|
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Related Party Transaction [Line Items] |
|
|
Value of convertible promissory note issued |
$ 289,997
|
|
Interest rate of note payable |
10.00%
|
|
Accrued but unpaid interest due |
|
93,252
|
Outstanding amount non interest bearing promissory notes |
|
$ 385,846
|
Consolidated Note |
|
|
Related Party Transaction [Line Items] |
|
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Value of convertible promissory note issued |
$ 2,000,000
|
|
Debt instrument prime interest rate |
5.00%
|
|
Term of note |
10 years
|
|
Proceeds from keyman insurance policy |
$ 2,000,000
|
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RELATED PARTY TRANSACTIONS (Detail Textuals 2) - USD ($)
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1 Months Ended |
3 Months Ended |
Nov. 30, 2012 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Related Party Transaction [Line Items] |
|
|
|
Lease payments |
|
$ 84,000
|
|
Freight expenses paid |
|
12,061
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$ 8,879
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Commission paid for transportation services |
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3,045
|
$ 2,120
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William Shrewsbury and Peggy Shrewsbury | Lease agreement |
|
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|
|
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Term of lease agreement |
2 years
|
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2 years
|
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$ 2,000
|
|
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Mr. William Shrewsbury |
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$ 18,000
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v3.3.1.900
BANK LOAN (Detail Textuals) - Line of credit - USD ($)
|
1 Months Ended |
3 Months Ended |
|
Aug. 26, 2014 |
Dec. 31, 2015 |
Nov. 07, 2012 |
Line of Credit Facility [Line Items] |
|
|
|
Line of credit from bank |
$ 750,000
|
|
$ 250,000
|
Line of credit expiration date |
Nov. 07, 2015
|
|
|
Line of credit payment term |
|
monthly
|
|
Term loan amount |
|
$ 711,376
|
|
Term of note |
|
5 years
|
|
Loan balance |
|
$ 706,484
|
|
Monthly repayments of principal |
|
6,967
|
|
Outstanding balance of interest and principal |
|
$ 391,896
|
|
Prime rate |
|
|
|
Line of Credit Facility [Line Items] |
|
|
|
Current interest rate per annum |
|
3.25%
|
|
Increase in loan interest |
|
2.00%
|
|
X |
- DefinitionThe average effective interest rate during the reporting period.
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- DefinitionThe cash inflow from a debt initially having maturity due after one year or beyond the operating cycle, if longer.
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Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Financing Activities -URI http://asc.fasb.org/extlink&oid=6513228
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