I found the best process with TEXT to Mobi (I have a Kindle) was:
1) Import TEXT into word processor (I used Star Office)
2) Save as RFT
3) Import RFT into Calibre
4) Convert to your favorite format
I spent a lot of time with TEXT input into Calibre. My TEXT file had each "line" as a paragraph too. I really needed NO manual changes to get acceptable formatting for the final product.
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