TX Holdings, Inc.

NOTE

- INCOME TAXES

The tax effects

of temporary differences that give rise to deferred taxes are as

follows at

September 30, 2017

and

2016:

	20 1 7			20 1 6

Deferred tax assets:
Net operating losses	$	2,497,000		$	2,339,000
Accrued expenses		155,000			170,000
Valuation allowance		(2,652,000	)		(2,509,000	)

Total deferred tax assets		-			-

Deferred tax liabilities:
Basis of property and equipment		-			-

Net deferred tax asset	$	-		$	-

et operating losses after

December 12, 2002

through

September 30, 2017

were approximately

$8,110,000.

The Company has total net operating losses available to the Company to offset future taxable income of approximately

$7,334,000.

Following is a reconciliation of the tax benefit at the federal statutory rate to the amount reported in the statement of operations:

	20 1 7						20 1 6
	Amount			Percent			Amount			Percent
Income tax expense at federal statutory rate	$	(57.000	)		(34	%)	$	(134,000	)		(34	%)

Change in estimate		(101,000	)		-			-			-

Non-deductible expenses		15,000			-			(3,000	)		(2	%)

Increase in valuation allowance		143,000			34	%		72,000			36	%

Provision for income taxes, net	$	-			-	%	$	-			-	%

The Company

’s valuation allowance attributable to its deferred tax assets increased by

$42,000

and

$137,000

during the years ended

September 30, 2017

and

2016

The Company

has tax net operating loss carry forwards totaling approximately

$8,110,000,

expiring in

2018

through

2036.

Approximately

$1,200,000

of net operating losses was incurred prior to

December 12, 2002

at which date MA&N acquired

51%

of the Company and are consequently subject to certain limitation described in section

382

of the Internal Revenue Code. The Company estimates that, due to the limitations and expiration dates, only

$424,000

of the net operating losses incurred prior to

December 12, 2002

will be available to offset future taxable income.