TXGE Texas Gulf Energy Inc (CE)

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2012 to determine whether our disclosure controls and procedures were (1) effective in that they were designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared, as appropriate to allow timely discussions regarding required disclosure therein and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Pursuant to such evaluation, our management concluded that our disclosure controls and procedures were not effective as of December 31, 2012.

Management’s Report on Internal Control over Financial Reporting

Our management, with the participation of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, 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 and includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company, provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment, management, with the participation of our chief executive officer and chief financial officer, concluded that, as of December 31, 2012, our internal control over financial reporting was not effective based on those criteria, particularly due to those circumstances described under “Changes in Internal Control Over Financial Reporting” set forth below.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting, as management’s report was not subject to attestation by our registered public accounting firm pursuant to the permanent exemption of the SEC that requires us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

We did not effect any change in our internal controls over financial reporting during the period ended December 31, 2012 that materially affected, or that would reasonably be likely to affect materially, our internal control over financial reporting.

However, subsequent to December 31, 2012, changes were made to our internal controls and financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting. Material weaknesses in our internal controls were identified by our management, and reported to our board of directors and auditors in May of 2013. On May 13, 2013, our board of directors concluded, after consulting with management, that our consolidated financial statements for the year ended December 31, 2012 that were initially included in our Annual Report on Form 10-K for the year then ended and the consolidated financial statements for the period ended September 30, 2012 that were included in our Quarterly Report on Form 10-Q for that quarter (collectively, the “Prior Financial Statements”) should no longer be relied upon and should be restated because of an error in the Prior Financial Statements relating to material weaknesses in our internal controls. Such material weaknesses resulted in accounting errors that occurred when we failed to properly reconcile certain accounts when we changed accounting systems in June of 2012, which resulted in a number of accounting entries that were not properly reversed. Additionally, there were related balance sheet accounts that were not properly verified. We have implemented new processes regarding the reconciliation, review and reporting of the accounts on a monthly basis, but there can be no assurance that every error will be detected.