UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One) 

  x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2014

 

or

 

  ¨ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

For the transition period from                to            

 

Commission File No. 333-149857

 

TEXAS GULF ENERGY, INCORPORATED

(Exact name of registrant as specified in its charter)

 

Nevada   26-0338889
(State of incorporation)   (I.R.S. Employer Identification No.)

 

1602 Old Underwood Road, La Porte, TX 77571

(Address of principal executive offices and zip code)

 

Registrant’s telephone number, including area code: (281) 867-8500

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

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

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes   ¨      No    x

 

As of August 14, 2014 there were 72,137,876 shares of the Company’s common stock, $0.00001 par value per share, issued and outstanding.

 

 
 

 

TABLE OF CONTENTS

 

    PAGE
     
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
  Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2014 and 2013 (Unaudited) 1
     
  Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 (Unaudited) 2
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited) 3
     
  Notes to Consolidated Financial Statements (Unaudited) 4
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 8
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
     
Item 4. Controls and Procedures 10
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 11
     
Item 1A. Risk Factors 11
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
     
Item 3. Defaults Upon Senior Securities 11
     
Item 4. Mine Safety Disclosures 11
     
Item 5. Other Information 11
     
Item 6. Exhibits 12

 

0
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

Texas Gulf Energy, Incorporated

Consolidated Statements of Operations  

(Unaudited)

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2014   2013   2014   2013 
Revenues  $1,237,830   $2,718,386   $2,214,253   $6,105,789 
                     
Cost of revenues   1,014,127    2,334,766    1,885,956    5,114,059 
                     
Gross profit   223,703    383,620    328,297    991,730 
                     
General and administrative expense   559,586    1,541,221    1,224,491    2,616,977 
                     
Loss from operations   (335,883)   (1,157,601)   (896,194)   (1,625,247)
                     
Other income (expense)                    
Interest expense, net   (15,441)   (62,446)   (20,079)   (130,669)
Other income (expense)   (97,172)   -    (97,172)   134,376 
Total other income (expense)   (112,613)   (62,446)   (117,251)   3,707 
                     
Loss from continuing operations before taxes   (448,496)   (1,220,047)   (1,013,445)   (1,621,540)
                     
Income tax benefit (expense)   (362,391)   377,604    (370,225)   516,689 
                     
Loss from continuing operations   (810,887)   (842,443)   (1,383,670)   (1,104,851)
                     
Discontinued operations:                    
Income from discontinued operations, net of tax   -    321,903    -    859,083 
Income from discontinued operations   -    321,903    -    859,083 
                     
Net loss  $(810,887)  $(520,540)  $(1,383,670)  $(245,768)
                     
Earnings (Loss) per share – basic                    
Loss per share from continuing operations   (0.01)   (0.02)  $(0.03)  $(0.02)
Earnings per share from discontinued operations   (0.00)   0.01   $(0.00)  $0.02 
Net loss per share   (0.01)   (0.01)  $(0.03)  $(0.00)
                     
Earnings (Loss) per share - diluted                    
Loss per share from continuing operations   (0.01)   (0.02)  $(0.03)  $(0.02)
Earnings per share from discontinued operations   (0.00)   0.01   $(0.00)  $0.02 
Net income (loss) per share   (0.01)   (0.01)  $(0.03)  $(0.00)
                     
Weighted average shares outstanding                    
Basic   54,908,405    52,072,035    54,232,074    51,033,508 
Diluted   54,908,405    52,072,035    54,232,074    51,033,508 

 

See accompanying notes to the Consolidated Financial Statements. 

 

1
 

  

Texas Gulf Energy, Incorporated

Consolidated Balance Sheets

(Unaudited)

 

   June 30, 
2014
   December 31, 
2013
 
         
Assets          
Current assets:          
Cash and cash equivalents  $7,832   $339,685 
Accounts receivable, net   774,244    2,245,358 
Deferred federal income tax - current   -    313,841 
Federal income tax receivable   17,207    - 
Prepaid expenses and other current assets   114,348    329,686 
Total current assets   913,631    3,228,570 
           
Property and equipment, net   271,368    370,216 
Other assets   178,127    257,437 
Deferred federal income tax – non current   -    45,111 
Total assets  $1,363,126   $3,901,334 
           
Liabilities and stockholders’ equity          
           
Current liabilities:          
Accounts payable  $560,555   $917,351 
Accrued liabilities   87,318    171,945 
Due to related parties, net   25,657    25,657 
Federal income tax payable   -    134,298 
Lines of credit   247,343    714,959 
Note payable   96,000    393,604 
Total current liabilities   1,016,873    2,357,814 
           
Convertible debt   362,622    585,971 
Total liabilities   1,379,495    2,943,785 
           
Commitments and Contingencies          
           
Stockholders’ equity:          
Common stock, $.00001 par value per share; 500,000,000 shares authorized; 54,908,405 and 50,977,165 shares issued and outstanding as of June 30, 2014 and as of December 31, 2013, respectively   549    510 
Preferred stock – par value of $.00001; 100,000,000 shares authorized;          
Series B convertible preferred stock 10,000,000 shares issued and outstanding   100    100 
Additional paid in capital   1,614,272    1,204,559 
Accumulated deficit   (1,631,290)   (247,620)
Total stockholders’ equity   (16,369)   957,549 
Total liabilities and stockholders’ equity  $1,363,126   $3,901,334 

 

See accompanying notes to the Consolidated Financial Statements. 

 

2
 

  

Texas Gulf Energy, Incorporated

Consolidated Statements of Cash Flows

(Unaudited)

 

   Six months ended 
   June 30,
2014
   June 30,
2013
 
         
Cash flows from operating activities          
Loss from continuing operations  $(1,383,670)  $(1,104,851)
Income from discontinued operations   -    859,083 
Net loss   (1,383,670)   (245,768)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation   100,459    321,099 
Bad debt expense   94,759    - 
Stock based compensation   186,300    373,170 
Changes in working capital accounts:          
Accounts receivables   1,376,355    746,742 
Federal income taxes payable   (151,505)   (10,661)
Prepaid expenses and other assets   294,649    470,655 
Accounts payable   (356,693)   (88,970)
Deferred tax asset   358,952    (115,000)
Accrued liabilities   (84,628)   (664,768)
Deferred tax liability   -    (29,000)
Due to related parties   -    (181,331)
Net cash provided by operating activities   434,978    576,168 
           
Cash flows from investing activities          
Purchase of property and equipment   (1,611)   (65,546)
Net cash used in investing activities   (1,611)   (65,546)
           
Cash flows from financing activities          
Proceeds (Repayments) of loans   (297,605)   2,000 
Proceeds (repayments) of lines of credit, net   (467,615)   (533,398)
Net cash used in financing activities   (765,220)   (531,398)
           
Net change in cash and cash equivalents   (331,853)   (20,776)
           
Cash and cash equivalents:          
Beginning   339,685    394,306 
Ending  $7,832   $373,530 
           
Supplemental disclosures of cash flow information          
Cash payments (receipts) for:          
Interest expense  $20,079   $139,916 
Federal income tax  $-   $- 
           
Non-cash transactions:          
Conversion of note payable and accrued interest to common stock  $223,452   $- 

 

 See accompanying notes to the Consolidated Financial Statements. 

 

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Texas Gulf Energy, Incorporated

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 – Basis of Presentation

 

The consolidated financial statements include the accounts of Texas Gulf Energy, Incorporated (the “Company”) and its subsidiaries, all of which are wholly owned. Intercompany balances and transactions have been eliminated in consolidation.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 8-03 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information furnished reflects all adjustments, consisting of normal recurring adjustments and other adjustments described herein that are, in the opinion of management, necessary for a fair statement of the results for the interim periods.

 

The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the fiscal year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for the year then ended. The Company’s business is cyclical due to the scope and timing of projects implemented by its customer base, who are primarily in the energy sector. Planned maintenance projects at many of the Company’s customers’ facilities are typically scheduled in the Spring and the Fall, when the demand for energy is lower. The Company’s business can also be affected by seasonal weather conditions, including hurricanes, snowstorms, abnormally low or high temperatures or other inclement weather, which can result in reduced activities. Accordingly, results for any interim period may not necessarily be indicative of results for the fiscal year or future operating results.

 

Going Concern

 

The financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  The Company has incurred losses resulting in an accumulated deficit of $1,631,290 as of June 30, 2014, and further losses are anticipated in the development of its business, raising substantial doubt about the Company’s ability to continue as a going concern.  The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans and or private placements of common stock.

 

Taxes

 

The effective tax rate was 37% for the six months ended June 30, 2014 from a benefit of 32% for the six months ended June 30, 2013 due to the Company recording a change in the valuation allowance increasing the allowance to 100% for the period ended June 30, 2014. The Company recorded an income tax expense of $370,225 and benefit of $516,689 for the periods ended June 30, 2014 and 2013, respectively.

 

Note 2 – Recently Issued Statements of Financial Accounting Standards

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its unaudited consolidated financial statements.  The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.

 

Note 3 – Convertible Debt

 

Fishbone Notes

 

On February 3, 2012, the Company issued two convertible promissory notes, in the aggregate principal amount of $1,283,126 (the “Notes”), to the owners of Fishbone Solutions, Ltd. (“Fishbone”), in exchange for all of the equity interests in Fishbone. On the closing date of the acquisition of Fishbone, the Company issued the Notes to the equity-holders of Fishbone in the proportional principal amounts directed by the equity-holders. The Notes accrue interest at the rate of 0.19% per annum, and the principal and accrued interest of the Notes are payable only through the conversion of the Notes into shares of the Company’s common stock, par value $ 0.00001 per share (“Common Stock”), at $0.12 per share.

 

Pursuant to the terms of the Notes, the Fishbone equity-holders agreed to limit conversions and sales of the Common Stock issued by the Company upon conversion of the Notes as follows:

 

(a) No conversions or sales until the one year anniversary of the issuance of the Notes (February 3, 2013);
(b) No more than fifteen percent (15%) of the principal amount and accrued interest of each Note from the one year anniversary through the day before the two year anniversary of the issuance of the Notes (February 3, 2014);

 

4
 

 

(c) An additional fifteen percent (15%) from the two year anniversary until the day before the three year anniversary of the issuance of the Notes; (February 3, 2015); and
(d) The entire remaining balance of principal and accrued interest and unpaid interest becoming due, and the Notes automatically converting, on the three year anniversary of issuance of the Notes, at which time all limitations on sale by the holders of the Notes will be lifted.

 

The Notes may also become due and fully convertible in the event of a liquidation event or change of control of the Company. During 2013, the Company sold substantially all of the assets of Fishbone and two other subsidiaries of the Company, pursuant to which the buyer assumed $597,000 in principal amount of the Notes and $103,649 in principal amount the Notes, plus accrued interest of $2,087, was converted into Common Stock at $0.12 per share. On February 6, 2014, the Company issued 1,861,240 shares of Common Stock upon the conversion of $223,349 in principal and $103 in accrued interest of the remaining Note.

 

The Company’s outstanding convertible debt was $362,622 as of June 30, 2014 and $585,971 as of December 31, 2013.

 

Note 4 - Lines of Credit

 

On February 29, 2012, International Plant Services, LLC, a wholly-owned subsidiary of the Company (“IPS”), entered into an accounts receivable purchase and sale agreement with a merchant bank, under which the merchant bank allowed IPS to draw up to $3 million. This facility was most recently renewed on May 1, 2014, with the merchant bank now allowing IPS up to $500,000 in availability. Under the purchase and sale agreement, IPS can sell all right, title and interest in its accounts receivables to the merchant bank for the total face amount of the receivable invoices purchased, less a discount of 15%. Upon collection of a sold receivable, the merchant bank remits a rebate to IPS of between 10% and 14.30% of the receivable invoice face amount, depending on how long it takes to collect the receivable. The sooner a purchased receivable is collected, the greater the rebate received by IPS. If a receivable is not collected within 90 days, IPS may be required to repurchase the unpaid receivable for a price of $0.90 for each $1.00 invoiced. The Company has guaranteed all of the obligations of IPS under the facility. As of June 30, 2014, the balance due under the purchase agreement was $247,343, and $252,657 was available. This agreement can be terminated at any time with written notice by IPS or by the merchant bank without written notice.

 

On September 18, 2013, the Company entered into a receivable purchase and sale agreement with the same merchant bank, under which the merchant allowed the Company to draw up to $1.5 million. Under the purchase and sale agreement, the Company can sell all rights, title and interests in its accounts receivables, which do not include the IPS receivables, for the face amount of the receivable invoices purchased, less a discount of 15%. Upon collection of a sold receivable, the merchant bank was required to remit a rebate to the Company of an amount between 10% and 14.30% of the receivable invoice face amount, depending on how long it takes to collect the receivable. The sooner a purchased receivable is collected, the greater the rebate received by the Company. If a receivable is not collected within 90 days, the Company may be required to repurchase the receivables for $.90 for each $1.00 invoiced. This facility was most recently renewed on May 1, 2014, but the Company has no outstanding balances as of June 30, 2014.

 

Note 5 - Notes Payable

 

The Company assumed a $422,529 loan due to a former shareholder of Fishbone in 2012 that matured in June 2013. That loan was paid in full as of June 30, 2014.

 

The Company financed the purchase of its insurance coverage with a loan with an annual interest rate of 4.45%. That loan was paid in full as of June 30, 2014.

 

On January 1, 2012, the Company entered into a three year consulting agreement with a consultant. The consulting agreement provides for compensation to the consultant of $12,000 per month for the remainder of the term of the agreement, even if the agreement is terminated by the consultant under certain circumstances. The consultant terminated the agreement in December 2013, and demanded payment for the remaining term of the agreement. As a result, even though the Company disputes the basis for such payment and believes that it may have claims against the consultant to offset such amount, the Company recorded a note payable of $144,000 on December 31, 2013, of which there is a balance of $96,000 as of June 30, 2014.

 

Note 6 - Stock Based Compensation

 

The Company charged stock based compensation cost against income in the amount of $186,300 and $373,170 for the six months ended June 30, 2014 and 2013, respectively, for vesting of shares of Common Stock awarded by the Company during prior year.  

 

Note 7 – Earnings (Loss) Per Share

 

Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the periods presented. The calculation of basic earnings per share for the six months ended June 30, 2014 includes the weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, such as convertible preferred stock or convertible debt. Dilutive securities existed for the six months ended June 30, 2014 in the form of 10,000,000 Series B Preferred Stock, convertible into 58,823,529 shares of Common Stock and a convertible note of $362,622, convertible at $0.12 per share into 3,021,850 shares of Common Stock, which could have a dilutive effect on loss per share. However, in periods where losses are reported, the weighted-average number of shares outstanding excludes equivalents, because their inclusion would be anti-dilutive.

 

5
 

  

Note 8 – Contingencies

 

Various legal actions, claims, and other contingencies arise in the normal course of our business. Contingencies are recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, “Loss Contingencies”. Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both probable and estimable. We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known, and the known claims as of this date are as follows:

 

Civil Action 4:12-CV-00055; Renato Acain et al vs. International Plant Services LLC et al.

 

IPS was sued by fifty-five (55) Filipino workers, alleging violations of RICO and other fiduciary errors. The suit was instituted on May 27, 2011, and subsequently removed to the United States District Court, Southern District of Texas, Houston Division on January 6, 2012. The plaintiffs are seeking relief in the form of unspecified monetary relief. The United States District Court remanded the case to the 113th District Court of Texas on September 15, 2012. Subsequently, the judge in the 113th District Court dismissed the case. The plaintiffs appealed the dismissal to the Texas Court of Appeals, First District. The matter was submitted on April 29, 2014, with no oral argument permitted. The court has yet to issue a ruling. The Company believes this lawsuit is without merit.

 

Cause No. 4:13-cv-00505, Michael Rushing, Stephanie Rushing, Penn Rushing and Florence Rushing v. Texas Gulf Energy, Inc. on behalf of CS Bankers V, LLC, Texas Gulf Fabricators, Inc., David Mathews, Craig Crawford and Timothy Connolly, United States District Court for the Southern District of Texas.

 

The Company originally filed for a Declaratory Judgment against the Rushings, alleging that the Rushings failed to perform relative to a letter of intent with Texas Gulf Fabricators, Inc., or alternatively, that the letter of intent was not enforceable.  The Company also filed a conversion action against the Rushings for removing property from a fabrication facility.  The Rushing family filed two separate counterclaims in the underlying state court actions before removing both actions to federal court in March 2013.  On April 13, 2013, the Federal Court denied jurisdiction and remanded the matter back to the 270th District Court of Harris County, Texas in proceedings known as: (i) Cause No. 2013-00543; Texas Gulf Energy, Inc. on behalf of CS Bankers V, LLC and Texas Gulf Fabricators, Inc. vs. Penn Rushing, et al and (ii) Cause No. 2013-004690; Texas Gulf Energy, Inc. vs. Penn Rushing, et al. The matters were recently consolidated in Cause No. 2013-004690.  The Rushings' allegations include fraudulent inducement, negligent misrepresentation, breach of fiduciary duty, conversion, equitable estoppel and securities law violations.  

 

These claims relate to a letter of intent and foreclosure proceeding on a fabrication shop in Baytown, Texas.  The Rushings have not disclosed the amount of damages sought. The Company may be required to pay for the defense of former employees of the Company and a former consultant to the Company who are named defendants in the suit. The Company believes the Rushing's claims are without merit and intends to pursue its claims and defenses vigorously.

 

Based on the Company’s knowledge as of the date of this filing, the Company believes that any amounts exceeding its recorded accruals should not materially affect its financial position, results of operations or liquidity. It is the opinion of management that the eventual resolution of the above claims is unlikely to have a material adverse effect on the Company’s financial position or operating results. However, the results of litigation are inherently unpredictable and the possibility exists that the ultimate resolution of one or more of these matters could result in a negative material effect on the Company’s financial position, results of operations or liquidity.

 

The Company has received notification that a legal action has been initiated with the Republic of the Philippines, Department of Labor and Employment, National Labor Relations Commissions by Benjamin A. Villejo against IPS, MBC Human Resources Corporation (“MBC”), a Philippines corporation, and Nida P. Sarmiento, President of MBC. The action alleges that wages and food allowances are owed to Mr. Villejo. MBC is majority owned and controlled by Noureddine Ayed and Karim Ayed, who are majority shareholders of the Company. IPS and the Company have agreements with MBC to provide the training and processing of guest workers from the Philippines and to pay MBC a fee based upon hours worked by the guest workers. The Company believes that Mr. Villejo’s claim is without merit and intends to vigorously defend IPS.

 

Note 9 – Related Party Transactions  

 

The Company's two majority owners as of June 30, 2014 maintain a 74.8 % voting control of the Company. The Company utilizes corporations owned by the majority stockholders to provide certain services to the Company, which include the following:

 

  Testing
  Recruiting
  Mobilization
  Training

 

6
 

 

  Lodging
  Facilities
  Foreign payroll

 

Management believes that the amounts paid for these services are at or below those rates that the Company would pay to unrelated third parties and that the interests of the Company’s stockholders are best served by continuing to use these services provided by these companies.

 

The Company primarily utilizes a foreign company affiliated by common ownership for testing, recruiting, mobilization and training the Company’s foreign workforce for construction projects. The Company pays $ 1.40 per hour billed by these employees for all of these services. Total charges these services for the six months ended June 30, 2014 was $2,600.

 

Note 10 – Significant Customers

 

During the six months ended June 30, 2014, the Company derived a significant amount of revenue from three customers, comprising 29%, 27%, and 14% of the total revenue for the period, respectively, compared to three customers during the six months ended June 30, 2013, comprising 14%, 10%, and 8% of the total revenue for the period, respectively.

 

Note 11 – Dispositions

 

On November 22, 2013, the Company closed a disposition pursuant to an Asset Purchase Agreement (the “Agreement”), by and among the Company, two of its subsidiaries at the time, Fishbone Solutions, Inc. (“FSI”) and Texas Gulf Industrial Services, Inc. (“TGIS”), and TGE Industrial Services, LLC (the “Buyer”). Pursuant to the terms of the Agreement, the Company sold substantially all of the assets of FSI and TGIS to the Buyer.

 

   Six Months Ended 
   June 30,
2014
   June 30,
2013
 
         
Discontinued operations:          
Net Revenues  $-   $7,954,254 
Income from discontinued operations, net of tax   -    859,083 
Gain on sale of discontinued operations, net of tax   -    - 
Income from discontinued operations  $-   $859,083 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Certain statements in our Management’s Discussion and Analysis of Financial Condition and Results of Operations, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “Forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the word “believe”, “project”, “expect”, “anticipate”, “estimate”, “intend”, “strategy”, “plan”, “may”, “should”, “will”, “would”, “will be”, “will continue”, “will likely result”, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and elsewhere in this Form 10-Q. We undertake no obligations to update or revise publicly any forward-looking statements whether as a result of new information, future events, or otherwise.

 

OVERVIEW

 

Through our two subsidiaries, International Plant Services, LLC and Texas Gulf Specialty Services, Inc., we provide specialty constructions services to a wide range of industrial and energy sector customers. We provide most of our services through International Plant Services, LLC, or IPS, which includes managing and executing major capital and turnaround projects, the provision of project management personnel, and other construction project resources, such as project planners/schedulers, engineers, welders, fitters and millwrights. A significant portion of the engineers and skilled personnel that IPS provides are foreign nationals working as guest workers pursuant to visas granted by the United States government. Our project experience includes turnarounds, retrofits, modifications to existing facilities, as well as construction of new facilities in the refinery, petrochemical, mining, and power production industries.

 

CRITICAL ACCOUNTING ESTIMATES

 

There have been no material changes in our critical accounting policies from those reported in our Annual Report on Form 10-K for our fiscal year ended December 31, 2013. For more information on our critical accounting policies, see Part II, Item 7 of that Annual Report on Form 10-K.

 

RESULTS OF OPERATIONS

 

Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013

 

Our consolidated revenues were $2,214,253 for the six months ended June 30, 2014, a decrease of approximately $3.9 million, or approximately 64%, from consolidated revenues of approximately $6 million in the same period in the prior fiscal year. The decrease in consolidated revenues was primarily a result of a decrease in the personnel available to IPS due to the recent lack of availability of guest worker visas from the United States government.

 

Our consolidated gross profit was $328,297 for the six months ended June 30, 2014, a decrease of approximately $663,433, or approximately 67% from consolidated gross profit of $991,730 in the same period in the prior fiscal year. The decrease in consolidated gross profit was primarily a result of a decrease in gross revenue of the company

 

Our consolidated general and administrative expenses were $1,224,491 in the six months ended June 30, 2014, compared to $2,616,977 in the same period a year earlier. The decrease of $1,392,486, or approximately 53%, was primarily due to decreased business volumes and fewer strategic initiatives, such as acquisitions, in 2014, resulting in lower finance and legal expenses in that period. These expenses in the six months ended June 30, 2014 included non-cash compensation of $186,300, compared to $373,170 in such expenses in the same period of 2013. General and administrative expenses as a percentage of revenue increased to approximately 55% for the six months ended June 30, 2014, compared to approximately 43% for the same period in the prior fiscal year.

 

Our consolidated net loss was $1,383,670 for the six months ended June 30, 2014, compared to a net loss of $245,768 for the six months ended June 30, 2013. The increase in losses of $1,137,902 was primarily due to the loss of gross profit generated by the operations we sold in 2013 and a decrease in revenue at IPS. Our gross profit decreased to $328,297, approximately 15% of revenue, for the six months ended June 30, 2014, compared to $991,730, or approximately 16% of revenue, in the same period in the prior year.

 

Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013

 

Our consolidated revenue were $1,237,830 for the three months ended June 30, 2014, a decrease of $1,480,556, or approximately 54%, from consolidated revenue of $2,718,386 in the same period in the prior fiscal year. The decrease in consolidated revenue was a result of decreased headcount at IPS resulting from the unavailability of guest worker visas.

 

Consolidated gross profit decreased from $383,620 for the three months ended June 30, 2013 to $223,703 for the three months ended June 30, 2014. The decrease of almost $160,000, or 42%, was primarily due to decreased revenues at IPS. However, the consolidated gross margin increased from approximately 14% in the three months ended June 30, 2013 to approximately 18% in the same period of the current year. We believe that the increase is attributable to higher gross margins on projects completed in 2014.

 

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Consolidated general and administrative expenses were $559,586 in the three months ended June 30, 2014, compared to $1,541,221 in the same period a year earlier. The decrease of $981,635, or approximately 64%, was primarily due to lower salaries and legal expenses in the second quarter of fiscal 2014. General and administrative expense as a percentage of revenue decreased to approximately 45% in the three months ended June 30, 2014, compared to approximately 57% in the same period in the prior fiscal year.

 

The effective tax rate was 37% for the six months ended June 30, 2014 from a benefit of 32% for the six months ended June 30, 2013 due to the Company recording a change in the valuation allowance increasing the allowance to 100% for the period ended June 30, 2014. The Company recorded an income tax expense of $370,225 and benefit of $516,689 for the periods ended June 30, 2014 and 2013, respectively.

 

FINANCIAL CONDITION AND LIQUIDITY

 

Overview

 

We define liquidity as the ongoing ability to pay our liabilities as they become due, fund business operations and meet all monetary contractual obligations. Our primary sources of liquidity for the six months ended June 30, 2014 were cash generated from operations, cash on hand at the beginning of the period and our accounts receivable purchase facility. We had cash of $7,832 and working capital deficit of $103,242 as of June 30, 2014. We expect to fund our operations for the next twelve months with cash generated from operations. However, there can be no assurance that we will achieve our forecasted cash flow.

 

Factors that routinely impact our short-term liquidity include, but are not limited to:

 

·Capital expenditures;

 

·Changes in levels of our working capital components;

 

·Terms of our contracts regarding the timing of our billing our customers and the collection of those billings;

 

·We bill some of our cost plus and fixed price contract based on milestones achieved, which may require us to incur significant expenditures prior to collections from our customers;

 

·We normally bill our time and material contracts in arrears, which routinely requires us to cover the costs associated with those contracts until they can be billed and collected; and

 

Some of our large construction projects may require significant retentions or security in the form of letters of credit. Other factors that may impact both our short-term and long-term liquidity include:

 

·Strategic investments in new operations;

 

·Our inability to obtain guest worker visas for skilled workers needed for the business of IPS;

 

·Costs of litigation against us and those for whom we may have to provide indemnification; and

 

·Contract disputes or collection issues.

 

Cash Flow Results

 

Net cash provided by our operating activities was $434,978 for the six months ended June 30, 2014, compared to $576,168 of net cash provided by operating activities for the six months ended June 30, 2013, a decrease of $141,190. The decrease in net cash provided by operating activities was due primarily to the higher net loss in 2014, net of items not affecting cash, in fiscal 2013, partially offset by a favorable variance in cash provided by working capital accounts in 2014, primarily through the reduction in our accounts receivable of $1,376,355.

 

Net cash used in investment activities for the six months ended June 30, 2014 consisted of purchases of property and equipment of $1,611, compared to net cash used for such purchases in 2013 of $65,546.

 

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Our financing activities used $765,220 of net cash for the six months ended June 30, 2014, primarily for repayment of debt, compared to $531,398 of net cash used in financing activities for the six months ended June 30, 2013.

 

Going Concern

 

The independent auditors' audit report accompanying our December 31, 2013 audited consolidated financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

 

Outlook

 

We saw improvement in our construction services business in 2013, and believe that growth in this business continues to be in our best interest. Apart from the limited construction opportunities in portions of our downstream petroleum market, we believe that the overall outlook for our core markets is positive. However, our reliance on foreign temporary workers as a primary revenue driver is inhibiting us from taking advantage of the positive growth in this market.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, an evaluation of the effectiveness of our “disclosure controls and procedures” (as that term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded, as of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified in the Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow decisions regarding the required disclosure.

 

Changes in Internal Control over Financial Reporting

 

Changes in our internal control over financial reporting described below occurred during the quarter ended June 30, 2014 that materially affected, or was reasonably likely to materially affect, our internal control over financial reporting. On April 24, 2014, our board of directors dismissed our chief financial officer at the time and appointed our then serving controller to the position of chief financial officer. As a result of this change, our management concluded that there was a material weakness in our internal control over financial reporting as of June 30, 2014. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the issuer’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness related to the lack of monitoring or review of work performed by our management and lack of segregation of duties. As of June 30, 2014, in the preparation of our financial statements, footnotes and financial data, all of our financial reporting was carried out by a small group of individuals, our principal financial officer also performed the duties of our controller and we did not have an audit committee to monitor and review the work performed. The lack of segregation of duties resulted from lack of adequate accounting staff with accounting technical expertise necessary for an effective system of internal control. To address the material weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

Limitations on the Effectiveness of Internal Controls

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

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PART II

 

OTHER INFORMATION

 

Item 1. Legal Proceedings

 

 

Various legal actions, claims, and other contingencies arise in the normal course of our business. Contingencies are recorded in our consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, “Loss Contingencies”. We provide for specific reserves for loss contingencies to the extent we conclude that a loss is both probable and estimable. We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known. There was no known material developments regarding any claim against us during the period covered by this report.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On May 5, 2014, we issued 60,000 shares of our common stock to an employee as part of his employment compensation. The shares of common stock were offered to our employee, who we reasonably believed to be an “accredited investor,” as such term is defined in Rule 501 under the Securities Act.  The offer and sale was made without registration under the Securities Act, or applicable state securities laws, in reliance on the exemptions provided by Section 4(2) of the Securities Act and in reliance on similar exemptions under applicable state laws.  No general solicitation or general advertising was used in connection with the offering of the common stock.  We disclosed to the employee that the shares of common stock could not be sold unless they are registered under the Securities Act or unless an exemption from registration is available, and the certificates representing the shares included a legend to that effect.

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

None

 

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Item 6. Exhibits

 

EXHIBIT

NO.

  DESCRIPTION
3.1*  

Certificate of Amendment to Articles of Incorporation filed with the Nevada Secretary of State on January 9, 2012.

 

3.2*  

Certificate of Correction filed with the Nevada Secretary of State on February 3, 2012.

 

3.3*  

Certificate of Designations of Series B Convertible Preferred Stock filed with the Nevada Secretary of State on January 4, 2012.

 

10.1*  

Purchase and Sale Agreement between Catalyst Finance, L.P. and International Plant Services, LLC.

 

31.1*   Certification by Principal Executive Officer pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2*   Certification by Principal Financial and Accounting Officer pursuant to Rule 13a-14(a)/ 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1**   Certifications of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section - 906 of the Sarbanes-Oxley Act of 2002.
     
101*  

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes. 

 

 

*Filed herewith.

**Furnished herewith.

 

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Signature

 

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.

 

  Texas Gulf Energy, Incorporated
   
Date: August 14, 2014 By: /s/    Karim Ayed    
   

Karim Ayed

Interim Chief Executive Officer

 

 

 

Exhibit 3.1

 

 

 
 

 

 

 

 

 

 

Exhibit 3.2

 

 

 
 

 

 

 

 

 

 

Exhibit 3.3

 

 

 
 

 

 

 

 

 

Exhibit 10.1

 

CLOSING DOCUMENT AND FACTORING GUIDELINES

 

With regard to our factoring agreement all documents have been completed, signed and approved. CATALYST FINANCE, L.P (Catalyst) is in receipt of this documentation and the following check list and guidelines will help establish an orderly transition into your factoring activities.

 

Copies of the following documents have been presented to Rilene Burgess on May 1, 2014.

 

CLOSING DOCUMENT AND FACTORING GUIDELINES

PURCHASE AND SALE AGREEMENT

CORPORATE RESOLUTIONS

PERSONAL GUARANTIES

BILL OF SALE

REPURCHASE AGREEMENT

SPECIAL POWER OF ATTORNEY

SCHEDULE A (copy only)

UCC-1 (and UCC-3 if applicable)

 

When invoices and/or claims are submitted to Catalyst they should be accompanied by a completed and properly executed Schedule A.

 

Payments for all invoices and/or claims are to be mailed to P.O. Box 3586, Houston, Texas 77253. In the event that a factored payment is made to you, it is imperative that Catalyst is notified and the payment be forwarded immediately to Catalyst.

 

To insure a continuing and satisfying relationship, it is important that Catalyst receives quarterly financial statements from your company on a timely basis. At times Catalyst may ask for monthly financial reporting which should not be a problem as to your willingness and capability.

 

Prior to closing these procedures have been fully explained and understood, and copies of the aforementioned documents have been received.

 

 

/s/ Rilene Burgess   5/1/2014
     
Rilene Burgess   May 1, 2014

 

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PURCHASE AND SALE AGREEMENT

 

THIS AGREEMENT is made by and between Catalyst Finance, L.P. (Catalyst) whose address is 1136 N. Kirkwood Rd., Houston, Texas 77043 and International Plant Services, L.L.C. whose address is 1602 Old Underwood Road, La Porte, Texas 77511.

 

RECITALS

WHEREAS, Catalyst is engaged in the business of purchasing accounts receivable, claims and other rights to payment from persons or firms selling goods or rendering services to others, and Seller desires from time to time to sell accounts receivable and other rights to Catalyst pursuant to the terms of this Agreement

 

DEFINITIONS

 

"Account Debtor "shall mean the party or parties obligated to pay a Receivable.

 

"Agreement" shall mean this Purchase and Sale Agreement, together with the Schedules attached hereto.

 

"Collateral" shall mean the items set forth in Section 8(a)-8(g) of this Agreement.

 

"Dispute" shall mean any dispute, deduction, claim, offset, defense or counterclaim of any kind asserted by an Account Debtor and pertaining to a Receivable or the goods or services giving rise thereto.

 

"Legal Holiday" shall mean any day on which national banks doing business in the State of Texas are closed for regular business.

 

"Purchase Price" shall have the meaning as defined in Section 6 of this Agreement.

 

"Receivables" shall mean the accounts receivable, claims and other forms of rights to payment described on Schedule A attached hereto or as set forth on a supplemental Schedule A to be attached in the future and signed by Catalyst and Seller.

 

"Reserve Account" shall have the meaning as defined in Section 7 of this Agreement.

 

"Reserve Payment Worksheet" shall have the meaning as defined forth in Section 12 of this Agreement.

 

"Repurchase Agreement" shall mean the agreement between:Catalyst and Seller providing for Seller's repurchase of certain Receivables after 90 days.

 

"Seller" shall mean the entity or individual executing this Agreement as the "Seller" on the signature page hereof and its affiliates, assigns, subsidiaries, predecessors, successors, designated entities, and related companies.

 

"Catalyst" shall mean Catalyst Finance, L.P., a Texas Limited Partnership "UCC" shall mean the Texas Uniform Commercial Code

 

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AGREEMENT

 

For and consideration of the mutual promises herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Catalyst and Seller hereby agree as follows:

 

1.          Purchase and Sale of Accounts Receivable, Claims and other Rights. Seller hereby sells, assigns, transfers, conveys and delivers to Catalyst, as an outright conveyance and not as a security interest, and Catalyst hereby purchases and accepts delivery from Seller, all rights, title and interests of Seller in the Receivables and other forms of rights to payment described on Schedule A attached hereto and made a part hereof. Seller represents and warrants that true and correct copies of the invoices and/or claims for the Receivables are attached to Schedule A. Future purchases and sales of accounts receivable and other rights will be based on the completion and execution of additional schedules in form similar to Schedule A. Upon execution by both Catalyst and Seller of such a schedule, the accounts receivable described therein shall become Receivables subject in all respects to the terms of this Agreement.

 

2.          Returned Receivables. Seller has herein represented and warranted to Catalyst that all Receivables are free and clear of any Disputes. Seller hereby acknowledges that Catalyst would not purchase any Receivable if Catalyst had knowledge that the same was subject to a Dispute. Seller agrees that should Seller or Catalyst discover that any Receivables are subject to a Dispute, Catalyst shall have the right to return such Receivables to Seller in accordance with this Section 2 and other applicable Sections of the Agreement. Seller must immediately notify Catalyst of any Disputed Accounts upon receipt of its knowledge thereof. Upon Catalyst's election to return and charge-back a Receivable subject to a Dispute, Seller shall pay to Catalyst the face amount of the invoice less any payments previously received on such, invoice by Catalyst or, upon return, Catalyst may, at its option, take any one or more of the following actions: (a) charge the Reserve Account for such amount, (b) subtract such amount from the Purchase Price for the next Receivable sold by Seller to Catalyst, or (c) otherwise invoice Seller for such amount, with such invoice being payable upon receipt. Upon payment to Catalyst of such amount, Catalyst shall assign, transfer, convey and deliver such Receivable to Seller without recourse. Returned Receivables that are not subject to the terms of the Repurchase Agreement shall be charged a discount fee in accordance to the rates defined in Section 6 of the Purchase and Sale Agreement.

 

3.          Transfer of Related Interests. In addition to the Receivables, Seller hereby sells, assigns, transfers, conveys and delivers to Catalyst and all other rights, title and interests (but not obligations) now or hereafter existing in connection with the Receivables, including, but not limited to, liens, security interests and guarantees securing payment of the Receivables, Seller's interest in returned goods arising with respect to the Receivables, and all other rights and remedies of Seller related to the Receivables such as rights of stoppage in transit, replevin, reclamation and lawsuits to collect the Receivables. If any Receivable is ever represented by a promissory note or other written evidence of obligation, Seller shall endorse and deliver the same to Catalyst and take any other action requested by Catalyst to effectuate such transfer.

 

4.          Further Assurances. Seller agrees to execute and deliver to Catalyst such notices of assignment and other documents as Catalyst may reasonably request from time to time to further document the sale and assignment of Receivables hereunder.

 

5.          Terms - Seller's Customers. Except as may otherwise be agreed to from time to time, the terms of all Receivables shall be as follows: Net 30 Days. Seller shall not vary the terms of sale, terms of payment, or location of payment set forth in the invoice and/or claim relating to any Receivable without Catalyst's prior written consent, it being understood that any Receivable is the property of Catalyst.

 

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6.          Purchase Price; Discounts. The Purchase Price (herein so called) for the Receivables shall be the gross amount of the invoice or claim, including any miscellaneous charges such as sales taxes, delivery charges, and installation charges, less any early payment or special discounts offered to Seller's customers as previously disclosed to Catalyst. Catalyst shall deduct from the Purchase Price a discount equal to 15% from invoices from which prompt payment can be expected. When invoice payments are received, Catalyst will remit a rebate as follows. If Catalyst receives payment of an invoice within 15 days of the purchase thereof, a rebate of 14.30% will be remitted to Seller; If Catalyst receives payment of an invoice within 30 days of the purchase date thereof, a rebate of 13.60% will be remitted to Seller; if. Catalyst receives payment of an invoice within 45 days of the purchase date thereof, a rebate of 12.90% will be remitted to Seller, if Catalyst receives payment of an invoice within 60 days of the purchase date thereof, a rebate of 12.20% will be remitted to Seller, if Catalyst receives payment of an invoice within 75 days of the purchase date thereof, a rebate of 11.50% will be remitted to Seller; if Catalyst receives payment of an invoice within 90 days of the purchase date thereof, a rebate of 10.80% will be remitted to Seller and if Catalyst receives payment of an invoice after 90 days of the purchase date thereof, a rebate of 10.00% will be remitted to Seller only after execution by Seller and Catalyst of a Schedule covering such Receivable. Notwithstanding the term above, a minimum discount fee of $15.00 will be retained by Catalyst from the rebate on each invoice.

 

7.          Payments on Accounts Purchased; Reserve Account. Pursuant to the discount set forth in Section 6 hereof, Catalyst shall always deduct from the Purchase Price of each Receivable an amount equal to 15% of the gross amount of the Receivable, to be placed in a Reserve Account (herein so called) under the exclusive control of Catalyst. The balance in the Reserve Account shall at all times be maintained in a minimum amount equal to no less than 15% of the aggregate gross amount of all Receivables outstanding at any particular time, and the 15% deduction from the Purchase Price described in the immediately preceding sentence may be increased as necessary to maintain such minimum balance. Upon preparation of the Reserve Payment Worksheet (as such term is defined in Section 12 hereof), Catalyst shall release to Seller amounts, if any, in the Reserve Account in excess of the balance required pursuant to this Section 7. The Reserve Account shall accrue no interest.

 

8.          Offset; Security Interest. Catalyst is authorized to offset and charge against the Reserve Account any amount for which. Seller may become obligated to Catalyst at any time under this Agreement or otherwise. In addition to such right of offset and for the purpose of securing Catalyst in the payment of any and all sums of money that may become due and owing to Catalyst from Seller, Seller hereby grants a first priority lien and security interest to Catalyst in all of the following, now owned or hereafter acquired by Seller:

 

(a)All accounts receivable, claims, contract rights, notes, drafts, acceptances and general intangibles as they relate to such accounts owned by Seller, whether liquidated or unliquidated.

 

(b)The balance of any deposit accounts, reserve accounts, credit balances or other reserves of any kind maintained by Seller with or by Catalyst for the benefit of Seller.

 

(c)All present and future accounts receivable, general intangibles, chattel paper, documents, instruments, cash and non-cash proceeds, monies, deposit accounts, income, benefits, judgments, claims, rights to payment, law suits and other disposition of, or collections with respect to, or insurance proceeds payable with respect to, or claims against any other person or entity with respect to, all or any part of the Collateral.

 

(d)The Reserve Account.

 

(e)All present and future security for the payment to Seller of any of the Collateral and goods, which gave or will give rise to any such Collateral or are evidenced, identified, or represented therein or thereby.

 

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(f)Proceeds and products of any of the foregoing, in any form for secured party.

 

(g)All furniture, fixtures, inventory and equipment now owned and hereafter acquired.

 

Terms used in clauses (a) through (g) above have the meanings as defined in the UCC. Catalyst shall have all the rights and remedies provided under the UCC. In the event a Receivable is charged-back as provided in Section 2 hereof, such account shall then constitute Collateral and be then subject to a new security interest in favor of Catalyst. Seller agrees to execute financing statements from to time to time to perfect Catalyst's security interest in the Collateral.

 

9.          Verification and Collection of Accounts. Seller hereby authorizes Catalyst to contact any Account Debtors at any time for purposes of verification or collection of Receivables. Seller shall cooperate with Catalyst to the maximum extent possible to provide information necessary for Catalyst to accomplish verification or collection of any Receivable. Seller shall provide the original invoice and any necessary copies required by Account Debtor and one copy to Catalyst ready for mailing with the required postage to the Account. Debtor. All invoices shall direct that payment be made to a post office box owned and controlled by Catalyst, to be provided by Catalyst. If requested by Catalyst, Seller agrees to furnish evidence of shipment of the related merchandise, performance of services rendered and a written assignment and bill of sale of such Receivable, all in a form satisfactory to Catalyst, including the original purchase order from the Account Debtor. If requested by Catalyst, all invoices for Receivables shall plainly state on their faces in language acceptable to Catalyst that the amount payable thereunder have been sold to and are payable directly to Catalyst. Catalyst is hereby authorized, irrevocably as long as any Receivable remains uncollected, to open, cash, endorse and otherwise collect all checks and other forms of payment tendered in payment for each Receivable, in the name of and as attorney-in-fact for Seller in the event that such payment is not made payable to Catalyst. This power of attorney is irrevocable and coupled with an interest. If payment is made to Seller under any circumstances, such payment shall be held in trust by Seller for Catalyst and shall not be negotiated or commingled in any way with any of Seller's funds. Seller shall, within 24 hours after receipt, deliver any such payments to Catalyst in the original form as received by Seller. In the event the form of such payment is made payable to Seller, Seller shall endorse such instrument to the order of Catalyst and deliver to Catalyst. Seller agrees to furnish Catalyst, upon request, any and all papers, documents or records of whatever nature related directly or indirectly, to any Receivables.

 

If payment Is made to Seller under any circumstances, such payment shall be held in trust by Seller for Catalyst and shall not be negotiated or commingled In any way with any of Seller's funds. Seller agrees to deliver, within 24 hours after receipt the following business day, any such payments to Catalyst in their original form as received by Seller. In the event the form of such payment is made payable to Seller, Seller shall endorse such instrument to the order of Catalyst and deliver to Catalyst. Seller agrees that, should Seller fail to deliver to Catalyst any such payments on factored Invoices in their original form, a discount fee of 15% of the invoice amount shall be paid to Catalyst by Seller.

 

10.         Collection by Catalyst. Catalyst is authorized, but not obligated, to collect, sue for and give releases for all moneys or other items of value due on all Receivables. Catalyst is hereby specifically authorized to endorse all checks, drafts or other forms for trade acceptances tendered in payment of Receivables and made payable to Seller, Seller hereby waives notice on nonpayment of any Receivables as well as all other notices, demands or presentations for payment hereunder, and Seller expressly agrees that Catalyst may extend or renew from time to time the payment of any Receivable without notice to or consent by Seller. In the event it becomes necessary for Catalyst to employ an attorney and incur other expenses to collect any Receivable or to enforce any of the terms of this Agreement by reason of a breach or default by Seller, Seller agrees to pay to Catalyst an amount equal to all attorneys' fees, expenses and costs incurred by Catalyst. In the event any merchandise represented by a Receivable shall be returned to or repossessed by the Seller, such merchandise shall be held by the Seller in trust for Catalyst, separate and apart from the Seller's own property, and subject to Catalyst's directions and control. With respect to any returned or repossessed merchandise, Seller shall, at its sole cost and expense, (a) provide proper storage therefore, (b) maintain adequate insurance coverage thereon, (c) prepare the same for sale, (d) defend title thereto, (e) take any other action necessary for the protection thereof, (f) pay freight and related shipping costs, and (g) be responsible for any other costs or expenses incurred in connection with the foregoing, including, without limitation, attorneys' fees. Prior to collection action, Catalyst, may, at its option, provide Seller the option of substituting a new Invoice(s) for any invoice(s) in which a collection action is being considered. Catalyst shall allow Seller three (3) working days to substitute a new invoice(s) for the invoice(s) in question. This allowance may be expressed verbally or may be evidenced in writing with reference given to the invoice(s) considered for collection.

 

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11.         Representations and Warranties of Seller. Seller hereby represents warrants and guarantees to Catalyst that the information contained in the application previously submitted by Seller, Seller's financial statements and any other materials previously submitted in connection herewith is true, correct and complete in all respects; that all federal, state and local tax returns and payments of any kind due or owing have been filed or paid, and no part of the purchase price for any Receivable shall be used to pay any wage or salary unless appropriate withholdings have been deposited; that assignment of each Receivable will thereby vest in Catalyst's absolute ownership of, each Receivable free from any liens, claims or equities of third parties; that Seller is the sole owner of and has good, free and unencumbered title to each Receivable; that execution and performance of this Agreement has been fully authorized by all necessary actions; that no assignment, pledge, security interest or encumbrance exists with respect to any Receivable; that each Receivable is based upon a bona fide sale of goods or services, or represents a completed delivery or completed furnishing of property or services in fulfillment of all the terms and provisions of a fully executed and un-expired contract with the Account Debtor and is a valid and enforceable obligation of the Account Debtor; that each Account Debtor has accepted goods or services covered by the applicable Receivable; that each applicable Receivable has not been paid in whole or in part, is outstanding in the amounts reflected in Schedule A and is not and will not be subject to any dispute or claim as to price, quality, quantity, physical condition, workmanship, delay in shipment, set off, counterclaim or other defense and that no product or service was provided on a guaranteed-sale basis or buy-back agreement, and the Account Debtor has not and will not claim any defense of any kind or character or object for any reason whatsoever against payment of such Receivable; that Seller's office and the location where all books and records pertaining to each Receivable are kept are at the address shown below for notice to Seller; and no Receivable is subject to a Dispute. Seller further represents and warrants that Seller is solvent, properly licensed and authorized to operate the business under the trade name represented within the meaning of any and all applicable federal, state of local laws; that no petition in bankruptcy has been filed by or against Seller nor has Seller filed any petition seeking an arrangement of its debts or for any other relief under the Bankruptcy Code of the United Sates; that no application for appointment of a receiver or trustee for all or a substantial part of Seller's property is pending; and that Seller has made no assignment for the benefit of creditors. Seller further warrants that Seller does not own, control or exercise dominion over, in any way whatsoever, the business of any Account Debtor and that the Account Debtor(s) is/are solvent to the best knowledge and information of Seller. Seller will not sell or factor accounts except to Catalyst for the period of this Agreement. All warranties made by Seller in this paragraph or elsewhere in this Agreement shall be deemed reaffirmed by Seller upon execution of each supplemental Schedule A hereto. Seller acknowledges that any known or reckless error or omission made by Seller in the representations and warranties made herein may subject Seller to civil and criminal penalties, in addition to civil liability.

 

12.         Reserve Payment Worksheet. Catalyst shall prepare and mail to Seller weekly Reserve Payment Worksheets (herein so called) showing aggregate outstanding Receivables as of the end of the applicable period, total collections during the period, debits and credits to: the Reserve Account, present balance of the Reserve Account and Discounts charged.

 

6
 

 

 

13.         Disputes; No Assumption of Liability by Catalyst; Indemnification. Seller shall immediately notify Catalyst of the assertion by any Account Debtor of any Dispute. Seller has heretofore represented to Catalyst that no Receivable is subject to a Dispute. Therefore, Seller shall settle, at its own expense, all Disputes, subject to Catalyst's approval, but Catalyst shall have the right, in its discretion, to settle any Dispute directly with the Account Debtor involved upon such terms, as Catalyst may deem advisable and at Seller's expense. Seller specifically acknowledges and agrees that Catalyst is not assuming any liability or obligation of any kind to any Account Debtor or in any way relating to the Receivables. Seller hereby represents and warrants to Catalyst that no Receivable, or any invoice, credit application, bill, billing memorandum, correspondence, or any other documents relating to a Receivable contracts for or charge anything of value that constitutes interest in excess of the maximum non-usurious rate allowed to be charged such Account Debtor pursuant to applicable law. Seller acknowledges that Catalyst, as the owner of a Receivable, may be subject to a claim of usury by an Account Debtor in the event an invoice, credit application, bill, billing memorandum, correspondence or other document provides for the payment of interest or any other charge or fee which may deemed to be interest, which is in excess of the maximum non-usurious rate allowed by applicable law. In the event an Account Debtor raises a claim of usury in connection with a Receivable, such Receivable shall be deemed to be subject to a Dispute and subject to the charge-back provisions of this Agreement. Seller shall promptly indemnify and hold harmless Catalyst from and against any and all claims, causes of action, counterclaims and other liabilities and costs of any kind (including attorneys' fees incurred by Catalyst in connection therewith) that may be asserted against Catalyst by any Account Debtor or otherwise arising in connection with the Receivables, except as may be based on the acts or omissions of Catalyst.

 

14.         Books and Records. Seller agrees to permit Catalyst access to all books and records of Seller during normal business hours that relate to the Collateral.

 

15,         Taxes. All taxes and governmental charges imposed with respect to the sales of the related merchandise shall be charged to Seller, and Seller shall be liable for and responsible for all sales taxes and other taxes due in connection with any sale or rendering of services resulting in a Receivable.

 

18.         Termination. This Agreement shall become effective upon full execution hereof and shall continue in full force and in effect unless terminated by Seller as.to Receivables not yet purchased.by delivering written notice of termination to Catalyst. Catalyst may immediately terminate this Agreement as to future transactions, without notice and without cause within its sole discretion, and nothing contained in this Agreement shall constitute an agreement or commitment to purchase any accounts until such accounts have been approved by Catalyst and a supplemental .Schedule 'A" describing such Receivables has been executed by Catalyst and Seller. In the event Seller shall have breached any provision of this Agreement or any other agreement with Catalyst, or if this Agreement shall have been terminated, the Reserve Account and any other moneys, balances or credits otherwise due by Catalyst to the Seller may be retained and applied by Catalyst from time to time to reduce such obligations. The balance in the Reserve Account shall not be released to Seller unless all of Seller's obligations hereunder have been paid in full. Seller acknowledges that it has the obligation hereunder to sell to Catalyst only. Receivables that are free and clear of any Dispute. As provided in. Section 2(a) hereof, Catalyst has the right to charge the Reserve Account for any Receivables that are returned and charged-back to Seller as a result of a Dispute. Accordingly, in: the event any Receivable remains uncollected by Catalyst at the date of termination hereof, the Reserve Account shall not be released to Seller until such time as Catalyst has determined, in its sole discretion, that there are no uncollected Receivables subject to a Dispute. Likewise, the security interest granted to Catalyst by Seller pursuant to Section 8 hereof shall be released by Catalyst upon determination by Catalyst, in its sole discretion, that no uncollected Receivable is subject to a Dispute. Termination of this Agreement shall not affect the rights and obligations of the parties accruing with respect to prior transactions.

 

7
 

  

17.         Waiver. Any failure by Catalyst to exercise any of its rights hereunder shall not be deemed to be a waiver by Catalyst of such or any other rights, nor in any manner impair the subsequent exercise of the same or any other right, and any waiver by Catalyst of any default shall not constitute a waiver of any subsequent default.

 

18.         Choice of Law. This Agreement shall be construed according to the laws of the State of Texas,

 

19.         Entire Agreement. This Agreement represents the entire Agreement between the parties, and may not be amended or modified except by written instrument executed by Catalyst and Seller. This Agreement supersedes and replaces any prior agreement among the parties, oral or written.

 

20.         Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective administrators, legal representatives, successors and assigns.

 

21.         Severability. If any provision of this Agreement shall, for any reason, be held to violate any applicable law, then the remaining portion of this Agreement shall remain in full force and effect.

 

22.         Headings, Construction, The headings contained in this Agreement are for reference purposes only and shall not modify or affect the terms of this Agreement in any manner.

 

23.         Saturday, Sunday, or Legal Holiday. If any day provided in this Agreement for the performance of any obligation should fall on a Saturday, Sunday or Legal Holiday, the compliance with such obligation or 'delivery shall be deemed acceptable on the next business day following such day.

 

24.         Notices. Any notice, demand or request permitted, required or desired to be given under this Agreement shall be in writing and shall be deemed effectively given when actually hand delivered or when sent by United States certified or registered mail, return receipt requested, postage prepaid, of sent by private, receipt carrier guaranteeing same-day or next-day delivery, addressed as follows:

 

If to Catalyst: Catalyst Finance, LP.
  1136 N. Kirkwood Rd.
  Houston, Texas 77043
   
If to Seller: International. Plant Services, L.L.C.
  1602 Old Underwood Road La
  Porte, Texas 77511

 

25.         Determination of Purchase Price. The Purchase Price of the Receivables has been determined by the Seller and represents the fair market value thereof, after due consideration has been given to the nature of the Receivable, the probability of prompt collection thereof, the credit worthiness of the Account Debtor, the payment history of the Account Debtor and other economical factors relative to the Receivables. Further, in arriving at the Purchase Price, consideration has been given to services rendered and services that will be rendered in the future by Catalyst in connection with the credit investigations of Account Debtors, supervising the ledgering of accounts purchased, supervising the collection of accounts purchased, and the assumption of certain credit risks. The parties hereto acknowledge that the purchase of the Receivables by Catalyst constitutes an outright conveyance by Seller to Catalyst. Nothing contained herein, nor any course of dealing in the future, shall be construed to be anything other than an outright purchase and sale of such Receivables. All rights, title and interest of the Seller have been conveyed to Catalyst and such transaction is not subject to a security interest in the Receivables and the Purchase Price paid to Seller by Catalyst constitutes consideration for the acquisition of the Receivables and under no 'circumstances shall be construed as .a loan and no consideration herein set forth is for the use, forbearance or detention of money. Nothing contained herein shall be construed as to require the payment of interest; however, should a court of competent jurisdiction rule that any consideration paid hereunder is in fact or in law to be treated as interest, in no event shall Seller be obligated to pay that interest at a rate in excess of the maximum amount permitted by law, and all agreements, conditions, or stipulations contained herein, if any, which may in any event or contingency whatsoever operate to bind, obligate, or compel Seller to pay a rate of interest exceeding the maximum rate of interest permitted by law shall be without binding force or effect at law or in equity to the extent only of the excess of interest over such maximum rate of interest permitted by law. Also in such event, Catalyst may "spread" all charges characterized as interest over the entire term of all transactions with Seller and will refund to Seller the excess of any payments made over the highest lawful rate. It is the intention of the parties hereto that in the construction and interpretation of this Agreement, the foregoing sentence shall be given precedence over any other agreement, condition, or stipulation herein contained which is in conflict with same.

 

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26.         Joint and Several Obligations. If more than one party is executing this Agreement as Seller, each party agrees that its obligations hereunder are joint and several, and that its obligations shall be not released, diminished, impaired or affected by the occurrence of any one or more of the following events, all of which may occur without notice to or consent of any other Seller:

 

(a)Any release, partial release, subordination of loss of any security, guaranty or collateral and any time existing in connection with the obligations contained herein;

 

(b)The death, insolvency, bankruptcy, disability or incapacity of any Seller, guarantor, or any other party now or hereafter obligated herein;

 

(c)Any renewal, extension, and/or rearrangement of all of any portion of the obligations contained herein;

 

(d)Any neglect, delay, omission, failure or refusal of Catalyst to take or prosecute any action for the collection of the obligations provided herein;

 

(e)The unenforceability for any reason of all or any part of the obligations contained herein against any Seller, guarantor or other party:

 

(f)The finding of any payment by any Seller to constitute a preference under bankruptcy or similar debtor relief law;

 

(g)Any release or partial release of liability of any Seller, guarantor or other party; and

 

(h)Any other action that might impair rights in the nature of contribution or subrogation that any Seller might otherwise have.

 

27.         Texas Law to Apply Venue. This Agreement has been executed and delivered in and shall be construed in accordance with and governed by the laws of the State of Texas and of the United States of America. For purposes of any suit relating to this Agreement, Catalyst and Seller submit themselves to the jurisdiction of any county sitting in the State of Texas and further agree that venue in any suit arising out of this :Agreement of any venue shall be fixed in Harris County, Texas. Final judgment in any suit shall be conclusive and may be enforced in any jurisdiction within or outside-the United States of America, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of such liability.

 

9
 

  

28.         No Obligation to Purchase Further Receivables. Seller specifically acknowledges and agrees that, anything herein to the contrary notwithstanding, Catalyst has the right to approve or reject any or all future accounts receivable proposed for sale under this Agreement IN ITS SOLE DISCRETION, and no course of conduct or prior course of dealing shall establish any commitment, obligation or agreement to purchase future accounts receivable.

 

  EXECUTED on the date of May 1, 2014
     
  SELLER:
     
  International Plant Services, L.L.C.
     
  By:       /s/ Rilene Burgess
     
  Name: Rilene Burgess
     
  Title:   President/CEO
     
  BUYER:
     
  Catalyst Finance, L.P.
     
  By:  
     
  Name: Keary Barnes
     
  Title: Senior Vice President

 

10
 

  

CERTIFIED RESOLUTIONS

 

“RESOLVED, that the agreement dated May 1, 2014, between this company and Catalyst Finance, L.P. and all other agreements and documents connected therewith be, and the same hereby are, approved on the terms and conditions as set forth therein;

 

“RESOLVED, that any officer of this company be, and he/she hereby is authorized and directed to enter into said agreement and all other agreements and documents connected therewith and to execute the same for and on behalf of this company of the terms and conditions set forth therein;

 

“RESOLVED, that any officer of this company be, and he/she is authorized and directed to negotiate, agree upon, execute and deliver, from time to time, in the name of, and on behalf of, this company, such agreements, amendments and COPY supplements to said agreement or any other agreement or document connected therewith, documents, instruments, certificates, notices and further assurances, and to perform any and all such acts and things as may be required by Catalyst Finance, L.P. in connection with said agreement or any other agreement or document connected therewith, or may to him/her seem necessary or proper to implement and effect complete consummation of said agreement or any other agreement or document connected therewith in all respects and the purposes set forth in these resolutions;

 

“RESOLVED, that these regulations shall remain in full force and effect until written notice of their amendment or repeal shall be received by Catalyst Finance, L.P. and until all indebtedness and obligations arising out of said agreement and all other agreements and documents connected therewith shall have been paid and satisfied in full.”

 

The undersigned, _____________ as the duly appointed secretary of International Plant Services, L.L.C. does hereby certify that the foregoing is a true and correct copy of the resolutions duly adopted at a meeting of the Board of Directors of International Plant Services, L.L.C. duly called, noticed and held on or before May 1, 2014, at which meeting there was at all times present and acting a 100% quorum of the members of said Board; or represents the unanimous written consent of said Directors; that said resolutions are in full force and effect and that the following is a true and correct list of present officers of the organization:

 

International Plant Services, L.L.C.

 

President/CEO: /s/ Rilene Burgess
  Rilene Burgess
   
CFO/Secretary: /s/ Maylene Santiago
  Maylene Santiago
   
Date: May 1, 2014

 

11
 

  

GUARANTY AGREEMENT

 

WHEREAS, International Plant Services, L.L.C. with offices at 1602 Old Underwood Road, La Porte, Texas 77511 (hereinafter 'Seller), contemplates entering into a Purchase and Sale Agreement (the "Agreement") with CATALYST FINANCE, L.P, (hereinafter "Purchaser"), pursuant to which Seller will incur certain obligations to Purchaser; and

 

WHEREAS, the undersigned individuals (hereinafter whether one or more, "Guarantor"), in consideration of and to induce Purchaser to enter into the Agreement with Seller, have and do hereby guarantee the payment of all obligations of Seller to Purchaser to the extent herein and hereafter stated;

 

NOW, THEREFORE, KNOW ALL PERSONS BY THESE PRESENTS: That in consideration of the premises:

 

1.          Guarantor, and each of them, unconditionally guarantees the prompt payment to Purchaser, its successors and assigns, of all amounts owing by Seller to Purchaser with respect to the Agreement together with any and all amendments or modifications thereof, whether with or without notice to Guarantor, together with such interest as may accrue pursuant to the Agreement on amounts outstanding under the Agreement, according to its tenor and effect, and reasonable attorney's fees and other expenses if such claim, demand or indebtedness be placed with an attorney for collection, or if collected through the probate or bankruptcy, court, receivership proceedings or any proceeding in federal court, and reorganization in any federal court proceeding, or suit, or suits. The obligations described in this paragraph 1 are herein referred to as the 'Obligations".

 

2.          This guaranty is an absolute, complete and continuing one, and no notice of the Obligations need be given to the Guarantor. Seller and Purchaser may rearrange, amend, and/or modify the Obligations without notice to the Guarantor and in such event Guarantor will remain fully bound hereunder on such Obligations. The Guarantor hereby expressly waives presentment, demand, protest and notice of protest and dishonor on any and all forms of such part of Purchaser being conclusively presumed by its request for this guaranty and delivery of the same to it,

 

3,          Guarantor authorizes Purchaser, without notice or demand and without affecting its liability hereunder, to take and hold security for the payment of this guaranty and/or the Obligations guaranteed, and exchange, enforce, waive and release any such security; and to apply such security and direct the order or manner of sale thereof as Purchaser in its discretion may determine; and to obtain a guaranty of the Obligations from any one or more other persons, corporations or entities whomsoever and at any time or times to enforce, waive, rearrange, modify, limit or release such other persons, corporations or entities from their obligations under such guaranties.

 

4.          Guarantor waives any right to require Purchaser to (a) proceed against the Seller, (b) proceed against or exhaust any security held from the Seller, or (c) pursue any other remedy in Purchaser's power whatsoever. Guarantor waives any defense arising by reason of any disability, lack of corporate authority or power, or other defense of the Seller or any other guarantor of the Obligations, and shall remain liable hereon regardless of whether Seller or any other guarantor be found not liable. hereon forany reason. Until all the Obligations shall have been paid in full, Guarantor shall have no right of subrogation, and waives any right to 'enforce any remedy which Purchaser now has or may hereafter have against Seller, and waives any benefit of and any right to participate in any security now or hereafter held by Purchaser. Guarantor expressly waives all rights, if any, which Guarantor may have under Texas Business and Commerce Code Section 34.02.

 

5.          Guarantor will within five (5) days from date of notice from Purchaser of Seller's failure to pay any of the Obligations when due, pay to Purchaser the amount due and unpaid by said Seller. The failure of Purchaser to give notice shall not in any way release Guarantor hereunder.

 

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6.          It is expressly agreed that the liability of Guarantor for the payment of the Obligations secured hereby shall be primary and not secondary.

 

7.          In all instances herein, the singular shall be construed to include the plural and the masculine to include the feminine.

 

8.          This guaranty is and shall be in eve!), particular available to the successors and assigns of Purchaser and is and shall always be fully binding upon the heirs, administrators, successors and assigns of Guarantor.

 

WITNESS THE EXECUTION HEREOF, this day May 1, 2014

 

/s/ Rilene Burgess  
Rilene Burgess – President/CEO On Behalf Of  
Texas Gulf Energy, Incorporated  
1602 Old Underwood Road  
La Porte, TX 77571  
   
/s/ Maylene Santiago  
Maylene Santiago- CFO/Secretary/Treasurer On Behalf Of  
Texas Gulf Energy, Incorporated  
1602 Old Underwood Road  
La Porte, TX 77571  
   
/s/ Karim Ayed  
Karim Ayed – Chairman of the Board On Behalf Of  
Texas Gulf Energy, Incorporated  
1602 Old Underwood Road  
La Porte, Texas 77571  

 

13
 

 

BILL OF SALE

 

STATE OF TEXAS §
  §   KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS §

 

THAT International Plant Services, L.L.C. (“Seller”) has sold, transferred and conveyed unto, and hereby does sell, transfer and convey, unto CATALYST FINANCE, L.P. (“Catalyst”), a Texas Limited Partnership, the claims receivable, accounts receivable and other forms of rights to payment described on Schedule “A” attached hereto and hereby incorporated (the “Receivables”). This Bill of Sale is executed in connection with that certain Purchase and Sale Agreement dated MAY 1, 2014, between Seller and Catalyst, the terms of which are hereby incorporated herein in full.

 

Executed on this day May 1, 2014.

 

“SELLER”: International Plant Services, L.L.C.
   
By: /s/ Rilene Burgess  
Name: Rilene Burgess
  President/CEO

 

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REPURCHASE AGREEMENT

 

This Agreement is made this day May 1, 2014, by and between International Plant Services, L.L.C. ("Seller") and Catalyst Finance, L.P. ("Catalyst").

 

WHEREAS, Catalyst and Seller have entered into a Purchase and Sale Agreement ("Agreement"), a copy of which is attached hereto; and

 

WHEREAS, the Agreement contains provisions allowing Catalyst to contact customers of Seller regarding credit, collection of delinquent accounts, quality of work performed by Seller, etc.; and

 

WHEREAS, the Agreement also provides that Catalyst is not obligated to purchase or accept any account or claim from Seller and that Catalyst may purchase only those accounts which it chooses at its sole discretion; and

 

WHEREAS, Seller has a personal relationship with its customers and will permit Catalyst to contact customers for any reason (including collection of delinquent accounts); and

 

WHEREAS, Seller knows that some customer accounts that may be purchased by Catalyst pay promptly in less than ninety (90) days;

 

NOW, THEREFORE, in consideration of the premises, of the mutual covenants, agreements, undertakings and forbearances hereinafter set out and of the financial accommodations to be afforded Seller by Catalyst under the Agreement, Seller and Catalyst agree as follows:

 

1.          Catalyst may order credit reports of customers but will primarily rely on Seller to check the credit. Likewise, Catalyst will not ordinarily contact the customers of the Seller for collection unless there is a breach or default in this Repurchase Agreement or in the Agreement between Catalyst and Seller. Catalyst may, from time to time, verify outstanding accounts.

 

2.          Catalyst will be more lenient and will accept for factoring some accounts of Seller that may not meet the exact credit requirements of Catalyst. Catalyst retains the right to accept or reject any account.

 

3.          Catalyst will pay to Seller an agreed percentage of the total accounts as defined in the Purchase and Sale Agreement ("Agreement') executed by and between Catalyst and Seller.

 

4.          Upon request by Catalyst, Seller will purchase and buy from Catalyst any account which Catalyst has purchased from Seller and which has not been paid within 90 days after the date of the invoice and/or claim. Seller agrees to pay and Catalyst agrees to accept 90.00 cents for each $1,00, of the gross invoice amount. Seller will pay said amount to Catalyst within ten (10) working days of notification by Catalyst that payment is due on a particular date.

 

5.          If Company fails to pay Catalyst for an account, claim or invoice as provided for in paragraph 4 herein, Catalyst may withhold payment to Seller of any amounts due under paragraph 3 herein until said obligation to Catalyst is paid in full and/or Catalyst may offset any amounts due from Seller against amounts due to Seller and/or Catalyst may avail itself of any other remedies provided in the Agreement or by law.

 

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6.          This Repurchase Agreement shall not operate as a modification or amendment of any of the terms and provisions of the Agreement or of the Continuing Guaranty and Waiver executed in connection therewith, nor as a waiver of any of Catalyst's rights and remedies thereunder.

 

  EXECUTED on May 1, 2014
     
  International Plant Services, L.L.C.
     
  By: /s/ Rilene Burgess  
    Rilene Burgess
    President/CEO
     
  Catalyst Finance, L.P.
     
  By:    
    Keary Barnes
    Senior Vice President

 

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SPECIAL POWER OF ATTORNEY

 

STATE OF TEXAS §
  §   KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF HARRIS §

 

That the undersigned, a Texas Company, has made, constituted and appointed and by these presents does make, constitute and appoint, CATALYST FINANCE, L.P., a Texas Limited Partnership (“Agent”), its true and lawful agent and attorney-in-fact for the corporation and in its name, place and stead to open, cash, endorse and otherwise transfer and collect all checks and other forms of payment tendered in payment of accounts receivable and other obligations purchased by Agent from the undersigned pursuant to a certain Purchase and Sale Agreement between Agent and undersigned May 1, 2014, as it may be renewed, extended, amended or modified. The undersigned intends hereby to vest in Agent the power of attorney to be exercised in its sole discretion fully and to do all intents and purposes as the undersigned might or could do if it were personally present. Agent, as used herein, shall mean all officers or employees of Agent duly authorized by Agent and acting on behalf of Agent.

 

This special power of attorney and the powers hereby granted may be revoked only upon both (i) termination of the above described Purchase and Sale Agreement and final collection by Agent of all receivables and/or claims purchased thereunder, and (ii) execution by the undersigned of a notice of revocation and recordation of the same in the office of the County Clerk of Harris County, Texas. It is the intention of the undersigned that every person or entity with Agent shall be entitled to rely on the provisions of this paragraph in determining whether or not this special power of attorney has been revoked, and those dealing with Agent are entitled to rely upon the terms and provisions of this paragraph.

 

Agent shall not be liable for anything, which he may do or refrain from doing in connection herewith, except for his own gross negligence or willful misconduct. Agent shall be protected in acting upon any notice, request, waiver, consent or other document delivered by the undersigned, which Agent believes in good faith to be genuine. The undersigned agrees to indemnify and hold harmless Agent against any and all claims, actions, demands, losses, costs and expenses as a result of any claim or legal proceeding relating to the performance or non-performance of any act by Agent hereunder, provided that Agent has not acted or failed to act in good faith or with gross negligence or willful misconduct.

 

This special power of attorney is coupled with an interest as reflected in the terms of the Purchase and Sale Agreement.

 

SELLER:   International Plant Services, L.L.C.
         
Name:        
    /s/ Rilene Burgess   Date:    May 1, 2014
    Rilene Burgess    

 

17
 

  

THE STATE OF TEXAS

COUNTY OF HARRIS

 

This instrument was acknowledged before me on this day, May 1, 2014, by Rilene Burgess of International Plant Services, L.L.C. for and on behalf of said Company.

 

  /s/ Maylene Santiago  
  Notary Public in the State of Texas

 

My Commission Expires: 3/12/18 Printed Name of Notary: Maylene Santiago

 

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CATALYST FINANCE, L.P.

Account Receivable Purchase – Schedule A

 

CLIENT: International Plant Services, L.L.C.

 

    Schedule # _______ of __________
     
FACTOR DATE: _____________________   Page __________ of __________

 

Invoice # Company Name Company Tel. # Amount
       
       
       
       
       
       
       

 

  Total Purchases – this page __________________
  Total Purchases – All pages __________________

 

The undersigned (“Seller”) hereby sells, assigns and transfers all of its rights, title and interests in the accounts receivable (“receivables”) listed above on this document to Catalyst Finance, L.P. Pursuant to that certain PURCHASE AND SALE AGREEMENT between the parties dated May 1, 2014, the terms, conditions and provision of which are incorporated herein by this reference with the same force and effect as if they were fully set forth herein. All representations and warranties of Seller contained therein are true, correct and complete in all respects as of the date hereof. This document is a “Schedule A” to the PURCHASE AND SALE AGREEMENT. Seller represents that true and correct copies of all invoices for the receivables are attached hereto.

 

    FOR OFFICE USE ONLY:
SELLER: International Plant Services, L.L.C.    
    Date received:  ______________
     
By:    ___/s/ Rilene Burgess______   Time received: _______________
Title: ____CEO-President________   Verified by:      _______________
Date: ____5/1/2014_____________    
Funding instructions: ____________________   Date Funded:   __________________
_____________________________________    
_____________________________________  

Amount Funded: __________________

 

 

19
 

 

UCC-1

FINANCING STATEMENT

 

THIS INSTRUMENT IS PREPARED AS, AND IS INTENDED TO BE, A FINANCING STATEMENT FOR FILING PURSUANT TO AND COMPLYING WITH THE FORMAL REQUISITES AS SET FORTH IN THE TEXAS BUSINESS AND COMMERCE CODE, ARTICLE 9 (ALSO KNOWN AS THE TEXAS UNIFORM COMMERCIAL CODE-SECURED TRANSACTIONS), AND IN PARTICULAR SECTION 9.402 THEREOF.

   

 

DEBTOR'S NAME AND ADDRESS:

 

Entity Type:  Organization   International Plant Services, L.L.C.
Entity Location: Texas   1602 Old Underwood Road
     
Entity 1.D. #:   La Porte, Texas 77511
     
SECURED PARTY NAME AND ADDRESS:
     
    CATALYST FINANCE, L.P.
     
    1136 N. Kirkwood Rd.
    Houston, Texas 77043 ATTN:
    GLEN SHEPARD

 

THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES (OR ITEMS) OF PROPERTY AND INTERESTS, WHETHER NOW OWNED OR HEREAFTER ACQUIRED BY DEBTOR:

 

(A)All accounts receivable, contract rights and general intangibles as they relate to such accounts owned by Debtor, whether liquidated or unliquidated.
(B)The balance of any deposit accounts, reserve accounts, credit balances or other reserves of any kind maintained by Debtor with or by Secured Party for the benefit of Debtor.
(C)All present and future account receivables, general intangibles, chattel paper, documents, instruments, cash and non-cash proceeds, judgments, claims, rights to payment, lawsuits and other disposition of, or collections with respect to, or insurance proceeds payable with respect to, or claims against any other person or entity with respect to, all or any part of the Collateral.
(D)The Reserve Account.
(E)All present and future security for the payment to Debtor of any of the Collateral and goods, which gave or will give rise to any such Collateral or are evidenced, identified, or represented therein or thereby.
(F)Proceeds and products of any of the foregoing, in any form.
(G)All furniture, fixtures, inventory, and equipment now owned and hereafter acquired.

 

DEBTOR HAS SOLD AND ABSOLUTELY CONVEYED SOME OR ALL OF THE ABOVE DESCRIBED PROPERTY AND OTHER INTERESTS TO SECURED PARTY. OWNERSHIP WHICH IS VESTED IN SECURED PARTY HAS GRANTED TO SECURED PARTY A SECURITY INTEREST IN SUCH PROPERTY AND OTHER INTERESTS TO THE EXTENT OF ANY FORM OF OWNERSHIP INTEREST WHICH DEBTOR MAY NOW OR HEREAFTER HAVE OR ACQUIRE. PRODUCTS OF COLLATERAL ARE ALSO COVERED.

 

DEBTOR:     SECURED PARTY:
International Plant Services, L.L.C.   Catalyst Finance, L.P.
         
By: /s/ Rilene Burgess   By: Glen Shepard
Title: President/CEO   Title: President
Date: May 1, 2014   Date: May 1, 2014

 

RETURN CATALYST FINANCE, L.P.
COPY 1136 N. Kirkwood Rd.
TO: Houston, Texas 77043

 

20
 

  

VALIDITY GUARANTY

 

This VALIDITY GUARANTY (the "Guaranty") is made as of May 1, 2014, by International Plant Services, L.L.C. individual whose address is 1602 Old Underwood Road, La Porte, Texas 77571 (the "Guarantor") in favor of Catalyst Finance, L.P., having an office at 1136 N. Kirkwood Rd, Houston, Texas, 77043 (the "Purchaser").

 

BACKGROUND

 

1.          As of the date of this Guaranty, International Plant Services, L.L.C., a Texas organization ("Seller") and Purchaser have entered into a Purchase and Sale Agreement, along with ancillary agreements (jointly referred to as the "Agreement").

 

2.          Pursuant to the Agreement, Purchaser has agreed to purchase accounts receivable, claims and other rights of payment from Seller, conditioned upon the Guarantor's agreement to execute and deliver this Guaranty to the Purchaser.

 

3.          The Guarantor is an Officer/Director of the Seller.

 

4.          The Guarantor has independently determined that execution, delivery, and performance of this Guaranty will directly benefit the Guarantor and are within the best interests of the Guarantor.

 

NOW, THEREFORE, in consideration of these background recitals, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Guarantor and the Purchaser agree as follows:

 

Section A.           Reference to Agreement.

 

1.          Reference is hereby made to the Agreement for a statement of the terms and conditions thereof.

 

2.          All capitalized terms utilized in this Guaranty which are defined in the Agreement and not otherwise defined herein shall have the meanings assigned to them in the Agreement.

 

Section B.           Guaranty of Validity.

 

1.          The Guarantor hereby represents, warrants, covenants, and guarantees as follows:

 

(a)          As to each Receivable now existing or hereafter arising:

 

(i)          Such Receivable is genuine and enforceable in accordance with its terms and represents an undisputed and bona fide indebtedness owing to the Seller by the account debtor obligated thereon.

(ii)         There are no known defenses, setoffs, or counterclaims against such Receivable.

(iii)        No payment has been received on such Receivable, and such Receivable is not subject to any credit or extension or agreements therefore unless written notice specifying such payment, credit, extension, or agreement is delivered to the Purchaser.

(iv)        Each copy of each invoice with respect to such Receivable is a true and genuine copy of the original invoice sent to the Account Debtor named therein and accurately evidences the transaction from which such Receivable arose, and the date payment is due as stated on each such invoice or computed based on the information set forth on each such invoice is correct.

 

 
 

  

(v)         All chattel paper, and all promissory notes, drafts, trade acceptances, and other instruments for the payment of money relating to or evidencing such Receivable, and each endorsement thereon, are true and genuine and in all respects what they purport to be, and are the valid and binding obligation of all parties thereto, and the date or dates stated on all such items as the date on which payment in whole or in part is due is correct.

(vi)        All goods and services described in each invoice evidencing such Receivable has been delivered to, or performed for, the Account Debtor named in such invoice or placed for such delivery in the possession of a carrier not owned or controlled directly or indirectly by the Seller, and is true and genuine.

 

(b)          All proceeds of Receivables required by the terms and conditions of the Agreement to be held by the Seller in trust for the Purchaser or as property of the Purchaser or to be remitted to the Purchaser will be delivered to the Purchaser in the identical form as received by the Seller, or as otherwise requested by the Purchaser, immediately upon receipt but no later than the first business day following receipt thereof by the Seller, and the Seller shall not use any of such proceeds or commingle such proceeds with any of its own funds.

 

2.          Upon breach of any of the covenants, warranties, representations, or guarantees contained in this Guaranty pertaining to the Receivables and Collateral, the Guarantor shall indemnify, save, and hold the Purchaser harmless from and against any loss or damage suffered by the Purchaser as a result of any such breach, and for all fees, costs, and expenses incurred in connection therewith, including, without limitation, attorneys' fees and expenses incurred by the Purchaser in retaining any counsel for advice, suit, or appeal, or for any bankruptcy, insolvency, or similar proceeding under the Federal Bankruptcy Code or otherwise.

 

Section C.           Notice of Inaccuracies.

 

The Guarantor shall immediately inform the Purchaser in writing if he believes that any schedule of Receivables or Collateral, or any other schedule, report, or writing delivered by the Seller to the Purchaser pursuant to the terms and conditions of the Agreement, is not true and accurate in all respects as and when submitted, including, without limitation, quantities, identification of items of inventory, and net cost and sales price thereof.

 

Section D.           Nature of Guaranty: Termination.

 

1.          This Guaranty is a continuing guaranty of the validity of the Receivable and Collateral, as provided herein, independent of and in addition to any other guaranty, endorsement, surety agreement, collateral, or other agreement held by the Purchaser, whether executed or granted by the Guarantor or otherwise. Liability of the Guarantor hereunder shall be absolute and unconditional irrespective of, and the Guarantor waives any defenses which may otherwise arise as a result of, any of the following:

 

(a)          any lack of validity or enforceability of any document, agreement, or writing creating or evidencing any obligation of the Seller, including, without limitation, the lack of validity or enforceability of all or any portion of any lien or security interest securing all or any part of such obligations; and

 

(b)          any non-perfection of any lien on or security interest in the Collateral or any collateral securing all or any part of the obligations of the Seller to the Purchaser under the Agreement or this Guaranty, or any failure by the Purchaser to protect, preserve, or insure the Collateral or any collateral securing all or any part of such obligations or this Guaranty.

 

2.          This Guaranty shall not be affected, impaired, or diminished by the failure of any verification or examination of the Receivables, the other Collateral, or books of the Seller to disclose any irregularities of wrongdoings of the Seller. It is further understood and agreed that the Purchaser shall not be chargeable for, nor shall the Guarantor be relieved from liability hereunder, because of any negligence, mistake, act, or omission of any accountant, examiner, agent, or attorney employed by the Purchaser in making examinations, investigations, collections, or otherwise.

 

 
 

  

3.          The Guarantor shall pay and perform his obligations under this Guaranty upon demand, without requiring any proceedings to be taken against the Seller, any debtor, or any security.

 

4.          This Guaranty shall remain in full force and effect until all of the obligations of the Seller to the Purchaser and all other fees, costs, and expenses payable by the Seller to the Purchaser have been paid or performed in full and the Purchaser has no further obligations or commitments to the Seller to advance funds under the Agreement or otherwise. This Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment of any of such obligations is rescinded, voided, or rendered void or voidable as a preferential transfer, impermissible set-off, or fraudulent conveyance or must otherwise be returned or disgorged by the Purchaser, as if such rescinded, avoided, voided, or voidable payment had not been made.

 

Section E.           Waivers of the Guarantor.

 

The Guarantor hereby agrees that the Guarantor shall not have, and hereby expressly waives forever:

 

1.          any benefit of, and any right to participate in, the Collateral or any collateral securing all or any part of the obligations of the Seller to the Purchaser under the Agreement or this Guaranty or any payment made to the Purchaser or collection by the Purchaser from the Seller;

 

2.          any right to require promptness and diligence on the part of the Purchaser;

 

3.          any right to receive notices, including, without limitation, notice of the acceptance of this Guaranty or the acceptance of all papers, documents, instruments, assignments, schedules of Receivables, inventory, equipment, the incurrence of any obligations by the Seller to the Purchaser, notice of any action taken by the Purchaser, notice of default, notice of the Purchaser's intent to accelerate the Indebtedness or any part thereof, notice of such acceleration, notice of the intended disposition of the Collateral or any collateral securing all or any part of the obligations of the Seller to the Purchaser, notice of nonpayment, partial payment, presentment, demand, protest and all other notices to which the Guarantor might otherwise be entitled; and

 

4.          any right to contest any of the procedures or actions taken by the Purchaser with respect to the Collateral or any collateral securing all or any part of the obligations of the Seller to the Purchaser, pursuant to Section 9-610(b) of the Uniform Commercial Code or otherwise.

 

Section F.           Miscellaneous.

 

1.          No modification, rescission, waiver, release, or amendment of any provision of this Guaranty shall be made, except by a written agreement signed by the Guarantor and a duly authorized officer of the Purchaser.

 

2.          "Seller" and "Guarantor" as used in this Guaranty shall include, respectively:

 

(a)          as to the Seller, any successor, individual, association, partnership, or corporation to which all or a substantial part of the business or assets of the Seller shall have been transferred or any other corporation into which the Seller (if the Seller is a corporation) shall have been merged, consolidated, reorganized, or absorbed; and

 

(b)          as to the Guarantor, any heir, executor, administrator, personal representative or successor of the Guarantor except that the Guarantor shall not have the right to assign its obligations hereunder or any interest herein.

 

 
 

  

3.          "Purchaser" shall include the successors and assigns of the Purchaser.

 

4.          The rights and benefits of the Purchaser hereunder shall, if the Purchaser so agrees, inure to any party acquiring any interest in the Indebtedness or any part thereof.

 

5.          No course of dealing between the Seller or the Guarantor and the Purchaser, and no delay or omission by the Purchaser in exercising any right or remedy hereunder or under the Agreement shall operate as a waiver thereof or of any other right or remedy, and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right or remedy. All rights and remedies of the Purchaser are cumulative.

 

6.          Section headings used in this Guaranty are for convenience only and shall not affect the construction of this Guaranty.

 

7.          The provisions of this Guaranty are independent of and separable from each other, and no such provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other such provision may be invalid or unenforceable in whole or in part. If any provision of this Guaranty is prohibited or unenforceable in any jurisdiction, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition or unenforceability, and such prohibition or unenforceability shall not invalidate the balance of such provision to the extent it is not prohibited or unenforceable not render prohibited or unenforceable such provision in any other jurisdiction.

 

8.          THIS GUARANTY AND THE TRANSACTIONS EVIDENCED HEREBY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, AS THE SAME MAY FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF TEXAS.

 

9.          GUARANTOR ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS GUARANTY IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY WAIVES GUARANTOR'S RIGHTS TO NOTICE AND HEARING UNDER THE TEXAS GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE PURCHASER MAY DESIRE TO USE, AND FURTHER WAIVES GUARANTOR'S RIGHTS TO REQUEST THAT THE PURCHASER POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT GUARANTOR AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY THE PURCHASER. GUARANTOR HEREBY FURTHER EXPRESSLY WAIVES DILIGENCE, DEMAND, PRESENTMENT, PROTEST, NOTICE OF NONPAYMENT OR PROTEST, NOTICE OF THE ACCEPTANCE OF THIS GUARANTY, NOTICE OF ANY RENEWALS OR EXTENSIONS OF THE NOTE AND OF ANY ACCOMMODATIONS MADE OR EXTENSIONS OR OTHER FINANCIAL ACCOMMODATIONS GRANTED TO SELLER OR OTHER ACTION TAKEN IN RELIANCE HEREON AND ALL OTHER DEMANDS AND NOTICES OF ANY DESCRIPTION IN CONNECTION WITH THIS GUARANTY, ANY OF THE LIABILITIES OR OTHERWISE, AND ALL RIGHTS UNDER ANY STATUTE OF LIMITATIONS.

 

10.         This Guaranty may be executed in any number of counterparts and by the Purchaser and the Guarantor on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same Guaranty.

 

 
 

  

IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed by a duly authorized individual(s), s of the date first above written.

 

/s/ Rilene Burgess  
Rilene Burgess  
   
/s/ Maylene Santiago  
Maylene Santiago  
   
/s/ Karim Ayed  
Karim Ayed  
   
   
Joseph Ghantous  

 

 

 

 

Exhibit 31.1 – CEO 302 Certification

Texas Gulf Energy, Incorporated. Certification for Quarterly Report on Form 10-Q

 

I, Karim Ayed, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Texas Gulf Energy, Incorporated for the period ended June 30, 2014;

 

  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 our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

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

 

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

 

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

 

  5. The registrant's other certifying officer(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 the registrant's board of directors (or persons performing the equivalent functions):

 

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

 

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

 

Date:  August 14, 2014 /s/ Karim Ayed
  Karim Ayed
  Interim Chief Executive Officer

 

 

 

Exhibit 31.2 – CFO 302 Certification

Texas Gulf Energy, Incorporated. Certification for Quarterly Report on Form 10-Q

 

I, Maylene Santiago, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Texas Gulf Energy, Incorporated for the period ended June 30, 2014;

 

  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 our consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

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

 

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

 

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

 

  5. The registrant's other certifying officer(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 the registrant's board of directors (or persons performing the equivalent functions):

 

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

 

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

 

Date: August 14, 2014 /s/ Maylene Santiago
  Maylene Santiago
  Chief Financial Officer
   

 

 

 

 

Exhibit 32.1 – CEO 906 Certification

 

Certification Pursuant to 18 U.S.C. Section 1350 As Adopted to Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report on Form 10-Q of Texas Gulf Energy, Incorporated (the “Company”) for the quarterly period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Karim Ayed, as Chief Executive Office of the Company, and Maylene Santiago, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section §906 of the Sarbanes-Oxley Act of 2002, that, to the best of each such officer’s knowledge:

 

(1.) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

 

(2.)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ KARIM AYED
Karim Ayed

Interim Chief Executive Officer 

 

/s/ MAYLENE SANTIAGO
Maylene Santiago

Chief Financial Officer

 

Date: August 14, 2014

 

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 

v2.4.0.8
Significant Customers (Details Textual)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Customer One [Member]
   
Concentration Risk [Line Items]    
Concentration Risk, Percentage 29.00% 14.00%
Customer Two [Member]
   
Concentration Risk [Line Items]    
Concentration Risk, Percentage 27.00% 10.00%
Customer Three [Member]
   
Concentration Risk [Line Items]    
Concentration Risk, Percentage 14.00% 8.00%

v2.4.0.8
Lines of Credit
6 Months Ended
Jun. 30, 2014
Line Of Credit Facility [Abstract]  
Line Of Credit Facilities [Text Block]
 Note 4 - Lines of Credit
 
On February 29, 2012, International Plant Services, LLC, a wholly-owned subsidiary of the Company (“IPS”), entered into an accounts receivable purchase and sale agreement with a merchant bank, under which the merchant bank allowed IPS to draw up to $3 million. This facility was most recently renewed on May 1, 2014, with the merchant bank now allowing IPS up to $500,000 in availability. Under the purchase and sale agreement, IPS can sell all right, title and interest in its accounts receivables to the merchant bank for the total face amount of the receivable invoices purchased, less a discount of 15%. Upon collection of a sold receivable, the merchant bank remits a rebate to IPS of between 10% and 14.30% of the receivable invoice face amount, depending on how long it takes to collect the receivable. The sooner a purchased receivable is collected, the greater the rebate received by IPS. If a receivable is not collected within 90 days, IPS may be required to repurchase the unpaid receivable for a price of $0.90 for each $1.00 invoiced. The Company has guaranteed all of the obligations of IPS under the facility. As of June 30, 2014, the balance due under the purchase agreement was $247,343, and $252,657 was available. This agreement can be terminated at any time with written notice by IPS or by the merchant bank without written notice.
  
On September 18, 2013, the Company entered into a receivable purchase and sale agreement with the same merchant bank, under which the merchant allowed the Company to draw up to $1.5 million. Under the purchase and sale agreement, the Company can sell all rights, title and interests in its accounts receivables, which do not include the IPS receivables, for the face amount of the receivable invoices purchased, less a discount of 15%. Upon collection of a sold receivable, the merchant bank was required to remit a rebate to the Company of an amount between 10% and 14.30% of the receivable invoice face amount, depending on how long it takes to collect the receivable. The sooner a purchased receivable is collected, the greater the rebate received by the Company. If a receivable is not collected within 90 days, the Company may be required to repurchase the receivables for $.90 for each $1.00 invoiced. This facility was most recently renewed on May 1, 2014, but the Company has no outstanding balances as of June 30, 2014.

v2.4.0.8
Convertible Debt
6 Months Ended
Jun. 30, 2014
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]
Note 3 – Convertible Debt
 
Fishbone Notes
 
On February 3, 2012, the Company issued two convertible promissory notes, in the aggregate principal amount of $1,283,126 (the “Notes”), to the owners of Fishbone Solutions, Ltd. (“Fishbone”), in exchange for all of the equity interests in Fishbone. On the closing date of the acquisition of Fishbone, the Company issued the Notes to the equity-holders of Fishbone in the proportional principal amounts directed by the equity-holders. The Notes accrue interest at the rate of 0.19% per annum, and the principal and accrued interest of the Notes are payable only through the conversion of the Notes into shares of the Company’s common stock, par value $ 0.00001 per share (“Common Stock”), at $0.12 per share.
 
Pursuant to the terms of the Notes, the Fishbone equity-holders agreed to limit conversions and sales of the Common Stock issued by the Company upon conversion of the Notes as follows:
 
(a)
No conversions or sales until the one year anniversary of the issuance of the Notes (February 3, 2013);
(b)
No more than fifteen percent (15%) of the principal amount and accrued interest of each Note from the one year anniversary through the day before the two year anniversary of the issuance of the Notes (February 3, 2014);
  
(c)
An additional fifteen percent (15%) from the two year anniversary until the day before the three year anniversary of the issuance of the Notes; (February 3, 2015); and
(d)
The entire remaining balance of principal and accrued interest and unpaid interest becoming due, and the Notes automatically converting, on the three year anniversary of issuance of the Notes, at which time all limitations on sale by the holders of the Notes will be lifted.
 
The Notes may also become due and fully convertible in the event of a liquidation event or change of control of the Company. During 2013, the Company sold substantially all of the assets of Fishbone and two other subsidiaries of the Company, pursuant to which the buyer assumed $597,000 in principal amount of the Notes and $103,649 in principal amount the Notes, plus accrued interest of $2,087, was converted into Common Stock at $0.12 per share. On February 6, 2014, the Company issued 1,861,240 shares of Common Stock upon the conversion of $223,349 in principal and $103 in accrued interest of the remaining Note.
 
The Company’s outstanding convertible debt was $362,622 as of June 30, 2014 and $585,971 as of December 31, 2013.

v2.4.0.8
Consolidated Statements of Operations (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Revenues $ 1,237,830 $ 2,718,386 $ 2,214,253 $ 6,105,789
Cost of revenues 1,014,127 2,334,766 1,885,956 5,114,059
Gross profit 223,703 383,620 328,297 991,730
General and administrative expense 559,586 1,541,221 1,224,491 2,616,977
Loss from operations (335,883) (1,157,601) (896,194) (1,625,247)
Other income (expense)        
Interest expense, net (15,441) (62,446) (20,079) (130,669)
Other income (expense) (97,172) 0 (97,172) 134,376
Total other income (expense) (112,613) (62,446) (117,251) 3,707
Loss from continuing operations before taxes (448,496) (1,220,047) (1,013,445) (1,621,540)
Income tax benefit (expense) (362,391) 377,604 (370,225) 516,689
Loss from continuing operations (810,887) (842,443) (1,383,670) (1,104,851)
Discontinued operations:        
Income from discontinued operations, net of tax 0 321,903 0 859,083
Income from discontinued operations 0 321,903 0 859,083
Net loss $ (810,887) $ (520,540) $ (1,383,670) $ (245,768)
Earnings (Loss) per share - basic        
Loss per share from continuing operations (in dollars per share) $ (0.01) $ (0.02) $ (0.03) $ (0.02)
Earnings per share from discontinued operations (in dollars per share) $ 0.00 $ 0.01 $ 0.00 $ 0.02
Net loss per share (in dollars per share) $ (0.01) $ (0.01) $ (0.03) $ 0.00
Earnings (Loss) per share - diluted        
Loss per share from continuing operations (in dollars per share) $ (0.01) $ (0.02) $ (0.03) $ (0.02)
Earnings per share from discontinued operations (in dollars per share) $ 0.00 $ 0.01 $ 0.00 $ 0.02
Net income (loss) per share (in dollars per share) $ (0.01) $ (0.01) $ (0.03) $ 0.00
Weighted average shares outstanding        
Basic (in shares) 54,908,405 52,072,035 54,232,074 51,033,508
Diluted (in shares) 54,908,405 52,072,035 54,232,074 51,033,508

v2.4.0.8
Basis of Presentation
6 Months Ended
Jun. 30, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
Note 1 – Basis of Presentation
 
The consolidated financial statements include the accounts of Texas Gulf Energy, Incorporated (the “Company”) and its subsidiaries, all of which are wholly owned. Intercompany balances and transactions have been eliminated in consolidation.
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 8-03 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information furnished reflects all adjustments, consisting of normal recurring adjustments and other adjustments described herein that are, in the opinion of management, necessary for a fair statement of the results for the interim periods.
 
The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the fiscal year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for the year then ended. The Company’s business is cyclical due to the scope and timing of projects implemented by its customer base, who are primarily in the energy sector. Planned maintenance projects at many of the Company’s customers’ facilities are typically scheduled in the Spring and the Fall, when the demand for energy is lower. The Company’s business can also be affected by seasonal weather conditions, including hurricanes, snowstorms, abnormally low or high temperatures or other inclement weather, which can result in reduced activities. Accordingly, results for any interim period may not necessarily be indicative of results for the fiscal year or future operating results.
 
Going Concern
 
The financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  The Company has incurred losses resulting in an accumulated deficit of $1,631,290 as of June 30, 2014, and further losses are anticipated in the development of its business, raising substantial doubt about the Company’s ability to continue as a going concern.  The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans and or private placements of common stock.
 
Taxes
 
The effective tax rate was 37% for the six months ended June 30, 2014 from a benefit of 32% for the six months ended June 30, 2013 due to the Company recording a change in the valuation allowance increasing the allowance to 100% for the period ended June 30, 2014. The Company recorded an income tax expense of $370,225 and benefit of $516,689 for the periods ended June 30, 2014 and 2013, respectively.

v2.4.0.8
Stock Based Compensation (Details Textual) (USD $)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Stock Based Compensation [Line Items]    
Stock based compensation $ 186,300 $ 373,170

v2.4.0.8
Related Party Transactions (Details Textual) (USD $)
6 Months Ended
Jun. 30, 2014
Related Party Transaction [Line Items]  
Service Charges Due To Related Party $ 2,600
TGE [Member]
 
Related Party Transaction [Line Items]  
Rate Per Hour For Services Rendered 1.40
Two Majority Owners [Member]
 
Related Party Transaction [Line Items]  
Percentage Of Voting Right Owned 74.80%

v2.4.0.8
Recently Issued Statements of Financial Accounting Standards
6 Months Ended
Jun. 30, 2014
Accounting Changes and Error Corrections [Abstract]  
Accounting Changes and Error Corrections [Text Block]
Note 2 – Recently Issued Statements of Financial Accounting Standards
 
The Company has implemented all new accounting pronouncements that are in effect and that may impact its unaudited consolidated financial statements.  The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.

v2.4.0.8
Consolidated Balance Sheets (USD $)
Jun. 30, 2014
Dec. 31, 2013
Current assets:    
Cash and cash equivalents $ 7,832 $ 339,685
Accounts receivable, net 774,244 2,245,358
Deferred federal income tax - current 0 313,841
Federal income tax receivable 17,207 0
Prepaid expenses and other current assets 114,348 329,686
Total current assets 913,631 3,228,570
Property and equipment, net 271,368 370,216
Other assets 178,127 257,437
Deferred federal income tax - non current 0 45,111
Total assets 1,363,126 3,901,334
Current liabilities:    
Accounts payable 560,555 917,351
Accrued liabilities 87,318 171,945
Due to related parties, net 25,657 25,657
Federal income tax payable 0 134,298
Lines of credit 247,343 714,959
Note payable 96,000 393,604
Total current liabilities 1,016,873 2,357,814
Convertible debt 362,622 585,971
Total liabilities 1,379,495 2,943,785
Commitments and Contingencies      
Stockholders' equity:    
Common stock, $.00001 par value per share; 500,000,000 shares authorized; 54,908,405 and 50,977,165 shares issued and outstanding as of June 30, 2014 and as of December 31, 2013, respectively 549 510
Additional paid in capital 1,614,272 1,204,559
Accumulated deficit (1,631,290) (247,620)
Total stockholders’ equity (16,369) 957,549
Total liabilities and stockholders’ equity 1,363,126 3,901,334
Series B Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock - par value of $.00001; 100,000,000 shares authorized; Series B convertible preferred stock 10,000,000 shares issued and outstanding $ 100 $ 100

v2.4.0.8
Dispositions (Tables)
6 Months Ended
Jun. 30, 2014
Assets of Disposal Group, Including Discontinued Operation [Abstract]  
Closed Block Operations, Net Results [Table Text Block]
 
 
Six Months Ended
 
 
 
June 30,
2014
 
June 30,
2013
 
 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Net Revenues
 
$
-
 
$
7,954,254
 
Income from discontinued operations, net of tax
 
 
-
 
 
859,083
 
Gain on sale of discontinued operations, net of tax
 
 
-
 
 
-
 
Income from discontinued operations
 
$
-
 
$
859,083
 

v2.4.0.8
Document And Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 14, 2014
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2014  
Document Fiscal Year Focus 2014  
Document Fiscal Period Focus Q2  
Trading Symbol TXGE  
Entity Common Stock, Shares Outstanding   72,137,876
Entity Registrant Name Texas Gulf Energy Inc  
Entity Central Index Key 0001429627  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  

v2.4.0.8
Basis of Presentation (Details Textual) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Basis of Presentation [Line Items]          
Retained Earnings (Accumulated Deficit), Total $ (1,631,290)   $ (1,631,290)   $ (247,620)
Effective Income Tax Rate Reconciliation, Change in Deferred Tax Assets Valuation Allowance, Percent     100.00%    
Effective Income Tax Rate Reconciliation, Percent     37.00% 32.00%  
Income Tax Expense (Benefit) $ 362,391 $ (377,604) $ 370,225 $ (516,689)  

v2.4.0.8
Consolidated Balance Sheets [Parenthetical] (USD $)
Jun. 30, 2014
Dec. 31, 2013
Common stock, par value (in dollars per share) $ 0.00001 $ 0.00001
Common stock, shares authorized 500,000,000 500,000,000
Common stock, shares issued 54,908,405 50,977,165
Common stock, shares outstanding 54,908,405 50,977,165
Preferred stock, par value (in dollars per share) $ 0.00001 $ 0.00001
Preferred stock, shares authorized 100,000,000 100,000,000
Series B Preferred Stock [Member]
   
Preferred stock, issued 10,000,000 10,000,000
Preferred stock, outstanding 10,000,000 10,000,000

v2.4.0.8
Earnings (Loss) Per Share
6 Months Ended
Jun. 30, 2014
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block]
Note 7 – Earnings (Loss) Per Share
 
Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the periods presented. The calculation of basic earnings per share for the six months ended June 30, 2014 includes the weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, such as convertible preferred stock or convertible debt. Dilutive securities existed for the six months ended June 30, 2014 in the form of 10,000,000 Series B Preferred Stock, convertible into 58,823,529 shares of Common Stock and a convertible note of $362,622, convertible at $0.12 per share into 3,021,850 shares of Common Stock, which could have a dilutive effect on loss per share. However, in periods where losses are reported, the weighted-average number of shares outstanding excludes equivalents, because their inclusion would be anti-dilutive.

v2.4.0.8
Stock Based Compensation
6 Months Ended
Jun. 30, 2014
Share-Based Compensation [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Note 6 - Stock Based Compensation
 
The Company charged stock based compensation cost against income in the amount of $186,300 and $373,170 for the six months ended June 30, 2014 and 2013, respectively, for vesting of shares of Common Stock awarded by the Company during prior year.  

v2.4.0.8
Earnings (Loss) Per Share (Details Textual) (USD $)
0 Months Ended 6 Months Ended
Feb. 06, 2014
Dec. 31, 2013
Jun. 30, 2014
Common Stock [Member]
Jun. 30, 2014
Series B Preferred Stock [Member]
Earnings Loss Per Share [Line Items]        
Conversion of Stock, Shares Converted     58,823,529 10,000,000
Debt Conversion, Converted Instrument, Amount     $ 362,622  
Debt Instrument, Convertible, Conversion Price   $ 0.12 $ 0.12  
Debt Conversion, Converted Instrument, Shares Issued 1,861,240   3,021,850  

v2.4.0.8
Convertible Debt (Details Textual) (USD $)
0 Months Ended 12 Months Ended 6 Months Ended
Feb. 06, 2014
Dec. 31, 2013
Jun. 30, 2014
Jun. 30, 2014
Fishbone Solutions Ltd [Member]
Feb. 03, 2012
Fishbone Solutions Ltd [Member]
Debt Conversion [Line Items]          
Promissory Note Current         $ 1,283,126
Debt Instrument, Interest Rate, Stated Percentage         0.19%
Common Stock, Par or Stated Value Per Share   $ 0.00001 $ 0.00001   $ 0.00001
Debt Instrument, Convertible, Conversion Price   $ 0.12     $ 0.12
Debt Instrument Convertible Conversion Percentage In Two Years       15.00%  
Convertible Notes Payable   597,000      
Debt Conversion, Original Debt, Amount   103,649      
Interest Payable   2,087      
Debt Conversion, Converted Instrument, Shares Issued 1,861,240        
Debt Instrument, Face Amount 223,349        
Debt Instrument, Increase, Accrued Interest 103        
Convertible Debt   $ 585,971 $ 362,622    
Debt Instrument Convertible Conversion Percentage In Three Years       15.00%  

v2.4.0.8
Significant Customers
6 Months Ended
Jun. 30, 2014
Risks and Uncertainties [Abstract]  
Concentration Risk Disclosure [Text Block]
Note 10 – Significant Customers
 
During the six months ended June 30, 2014, the Company derived a significant amount of revenue from three customers, comprising 29%, 27%, and 14% of the total revenue for the period, respectively, compared to three customers during the six months ended June 30, 2013, comprising 14%, 10%, and 8% of the total revenue for the period, respectively.

v2.4.0.8
Contingencies
6 Months Ended
Jun. 30, 2014
Loss Contingency [Abstract]  
Contingencies Disclosure [Text Block]
Note 8 – Contingencies
 
Various legal actions, claims, and other contingencies arise in the normal course of our business. Contingencies are recorded in the consolidated financial statements, or are otherwise disclosed, in accordance with ASC 450-20, “Loss Contingencies”. Specific reserves are provided for loss contingencies to the extent we conclude that a loss is both probable and estimable. We use a case-by-case evaluation of the underlying data and update our evaluation as further information becomes known, and the known claims as of this date are as follows:
 
Civil Action 4:12-CV-00055; Renato Acain et al vs. International Plant Services LLC et al.
 
IPS was sued by fifty-five (55) Filipino workers, alleging violations of RICO and other fiduciary errors. The suit was instituted on May 27, 2011, and subsequently removed to the United States District Court, Southern District of Texas, Houston Division on January 6, 2012. The plaintiffs are seeking relief in the form of unspecified monetary relief. The United States District Court remanded the case to the 113th District Court of Texas on September 15, 2012. Subsequently, the judge in the 113th District Court dismissed the case. The plaintiffs appealed the dismissal to the Texas Court of Appeals, First District. The matter was submitted on April 29, 2014, with no oral argument permitted. The court has yet to issue a ruling. The Company believes this lawsuit is without merit.
 
Cause No. 4:13-cv-00505, Michael Rushing, Stephanie Rushing, Penn Rushing and Florence Rushing v. Texas Gulf Energy, Inc. on behalf of CS Bankers V, LLC, Texas Gulf Fabricators, Inc., David Mathews, Craig Crawford and Timothy Connolly, United States District Court for the Southern District of Texas.
 
The Company originally filed for a Declaratory Judgment against the Rushings, alleging that the Rushings failed to perform relative to a letter of intent with Texas Gulf Fabricators, Inc., or alternatively, that the letter of intent was not enforceable.  The Company also filed a conversion action against the Rushings for removing property from a fabrication facility.  The Rushing family filed two separate counterclaims in the underlying state court actions before removing both actions to federal court in March 2013.  On April 13, 2013, the Federal Court denied jurisdiction and remanded the matter back to the 270th District Court of Harris County, Texas in proceedings known as: (i) Cause No. 2013-00543; Texas Gulf Energy, Inc. on behalf of CS Bankers V, LLC and Texas Gulf Fabricators, Inc. vs. Penn Rushing, et al and (ii) Cause No. 2013-004690; Texas Gulf Energy, Inc. vs. Penn Rushing, et al. The matters were recently consolidated in Cause No. 2013-004690.  The Rushings' allegations include fraudulent inducement, negligent misrepresentation, breach of fiduciary duty, conversion, equitable estoppel and securities law violations.  
 
These claims relate to a letter of intent and foreclosure proceeding on a fabrication shop in Baytown, Texas.  The Rushings have not disclosed the amount of damages sought. The Company may be required to pay for the defense of former employees of the Company and a former consultant to the Company who are named defendants in the suit. The Company believes the Rushing's claims are without merit and intends to pursue its claims and defenses vigorously.
 
Based on the Company’s knowledge as of the date of this filing, the Company believes that any amounts exceeding its recorded accruals should not materially affect its financial position, results of operations or liquidity. It is the opinion of management that the eventual resolution of the above claims is unlikely to have a material adverse effect on the Company’s financial position or operating results. However, the results of litigation are inherently unpredictable and the possibility exists that the ultimate resolution of one or more of these matters could result in a negative material effect on the Company’s financial position, results of operations or liquidity.
 
The Company has received notification that a legal action has been initiated with the Republic of the Philippines, Department of Labor and Employment, National Labor Relations Commissions by Benjamin A. Villejo against IPS, MBC Human Resources Corporation (“MBC”), a Philippines corporation, and Nida P. Sarmiento, President of MBC. The action alleges that wages and food allowances are owed to Mr. Villejo. MBC is majority owned and controlled by Noureddine Ayed and Karim Ayed, who are majority shareholders of the Company. IPS and the Company have agreements with MBC to provide the training and processing of guest workers from the Philippines and to pay MBC a fee based upon hours worked by the guest workers. The Company believes that Mr. Villejo’s claim is without merit and intends to vigorously defend IPS.

v2.4.0.8
Related Party Transactions
6 Months Ended
Jun. 30, 2014
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]
Note 9 – Related Party Transactions  
  
The Company's two majority owners as of June 30, 2014 maintain a 74.8 % voting control of the Company. The Company utilizes corporations owned by the majority stockholders to provide certain services to the Company, which include the following:
 
 
Testing
 
Recruiting
 
Mobilization
 
Training
 
Lodging
   
 
Facilities
 
Foreign payroll
 
 Management believes that the amounts paid for these services are at or below those rates that the Company would pay to unrelated third parties and that the interests of the Company’s stockholders are best served by continuing to use these services provided by these companies.
 
The Company primarily utilizes a foreign company affiliated by common ownership for testing, recruiting, mobilization and training the Company’s foreign workforce for construction projects. The Company pays $ 1.40 per hour billed by these employees for all of these services. Total charges these services for the six months ended June 30, 2014 was $2,600.

v2.4.0.8
Dispositions
6 Months Ended
Jun. 30, 2014
Assets of Disposal Group, Including Discontinued Operation [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
Note 11 – Dispositions
 
On November 22, 2013, the Company closed a disposition pursuant to an Asset Purchase Agreement (the “Agreement”), by and among the Company, two of its subsidiaries at the time, Fishbone Solutions, Inc. (“FSI”) and Texas Gulf Industrial Services, Inc. (“TGIS”), and TGE Industrial Services, LLC (the “Buyer”). Pursuant to the terms of the Agreement, the Company sold substantially all of the assets of FSI and TGIS to the Buyer.
 
 
 
Six Months Ended
 
 
 
June 30,
2014
 
June 30,
2013
 
 
 
 
 
 
 
 
 
Discontinued operations:
 
 
 
 
 
 
 
Net Revenues
 
$
-
 
$
7,954,254
 
Income from discontinued operations, net of tax
 
 
-
 
 
859,083
 
Gain on sale of discontinued operations, net of tax
 
 
-
 
 
-
 
Income from discontinued operations
 
$
-
 
$
859,083
 

v2.4.0.8
Notes Payable (Details Textual) (USD $)
1 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Jan. 31, 2012
Consultant [Member]
Jun. 30, 2014
Fishbone Solutions [Member]
Notes Payable [Line Items]        
Debt Instrument, Fee Amount       $ 422,529
Debt Instrument, Interest Rate, Effective Percentage       4.45%
Compensation     12,000  
Notes Payable, Total $ 96,000 $ 144,000    

v2.4.0.8
Dispositions (Details) (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Discontinued operations:        
Net Revenues     $ 0 $ 7,954,254
Income from discontinued operations, net of tax 0 321,903 0 859,083
Gain on sale of discontinued operations, net of tax     0 0
Income from discontinued operations $ 0 $ 321,903 $ 0 $ 859,083

v2.4.0.8
Consolidated Statements of Cash Flows (USD $)
6 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Cash flows from operating activities    
Loss from continuing operations $ (1,383,670) $ (1,104,851)
Income from discontinued operations 0 859,083
Net loss (1,383,670) (245,768)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation 100,459 321,099
Bad debt expense 94,759 0
Stock based compensation 186,300 373,170
Changes in working capital accounts:    
Accounts receivables 1,376,355 746,742
Federal income taxes payable (151,505) (10,661)
Prepaid expenses and other assets 294,649 470,655
Accounts payable (356,693) (88,970)
Deferred tax asset 358,952 (115,000)
Accrued liabilities (84,628) (664,768)
Deferred tax liability 0 (29,000)
Due to related parties 0 (181,331)
Net cash provided by operating activities 434,978 576,168
Cash flows from investing activities    
Purchase of property and equipment (1,611) (65,546)
Net cash used in investing activities (1,611) (65,546)
Cash flows from financing activities    
Proceeds (Repayments) of loans (297,605) 2,000
Proceeds (repayments) of lines of credit, net (467,615) (533,398)
Net cash used in financing activities (765,220) (531,398)
Net change in cash and cash equivalents (331,853) (20,776)
Cash and cash equivalents:    
Beginning 339,685 394,306
Ending 7,832 373,530
Supplemental disclosures of cash flow information    
Cash payments (receipts) for: Interest expense 20,079 139,916
Cash payments (receipts) for: Federal income tax 0 0
Non-cash transactions:    
Conversion of note payable and accrued interest to common stock $ 223,452 $ 0

v2.4.0.8
Notes Payable
6 Months Ended
Jun. 30, 2014
Debt Disclosure [Abstract]  
Long-term Debt [Text Block]
Note 5 - Notes Payable
 
The Company assumed a $422,529 loan due to a former shareholder of Fishbone in 2012 that matured in June 2013. That loan was paid in full as of June 30, 2014.
 
The Company financed the purchase of its insurance coverage with a loan with an annual interest rate of 4.45%. That loan was paid in full as of June 30, 2014.
 
On January 1, 2012, the Company entered into a three year consulting agreement with a consultant. The consulting agreement provides for compensation to the consultant of $12,000 per month for the remainder of the term of the agreement, even if the agreement is terminated by the consultant under certain circumstances. The consultant terminated the agreement in December 2013, and demanded payment for the remaining term of the agreement. As a result, even though the Company disputes the basis for such payment and believes that it may have claims against the consultant to offset such amount, the Company recorded a note payable of $144,000 on December 31, 2013, of which there is a balance of $96,000 as of June 30, 2014.

v2.4.0.8
Lines of Credit (Details Textual) (USD $)
1 Months Ended 1 Months Ended 1 Months Ended
Jun. 30, 2014
Sep. 18, 2013
Merchant Bank [Member]
Feb. 29, 2012
Merchant Bank [Member]
May 01, 2014
Merchant Bank [Member]
Feb. 29, 2012
Loan One [Member]
Feb. 29, 2012
Loan One [Member]
Merchant Bank [Member]
Sep. 18, 2013
Loan Two [Member]
Line of Credit Facility [Line Items]              
Line Of Credit Facility Purchase Agreement   $ 1,500,000   $ 500,000   $ 3,000,000  
Line Of Credit Facility Discounting Factor   15.00% 15.00%        
Discounting Factor Of Receivable Invoices Minimum         10.00%   10.00%
Discounting Factor Of Receivable Invoices Maximum         14.30%   14.30%
Line of Credit Facility, Interest Rate Description         Upon collection of a sold receivable, the merchant bank remits a rebate to IPS of between 10% and 14.30% of the receivable invoice face amount, depending on how long it takes to collect the receivable. The sooner a purchased receivable is collected, the greater the rebate received by IPS. If a receivable is not collected within 90 days, IPS may be required to repurchase the unpaid receivable for a price of $0.90 for each $1.00 invoiced.   Upon collection of a sold receivable, the merchant bank was required to remit a rebate to the Company of an amount between 10% and 14.30% of the receivable invoice face amount, depending on how long it takes to collect the receivable. The sooner a purchased receivable is collected, the greater the rebate received by the Company. If a receivable is not collected within 90 days, the Company may be required to repurchase the receivables for $.90 for each $1.00 invoiced.
Line of Credit Facility, Remaining Borrowing Capacity 252,657            
Line of Credit Facility, Fair Value of Amount Outstanding $ 247,343