SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 15, 2006
EPIC CAPITAL GROUP, INC.
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(Name of Small Business Issuer in its charter)
Colorado 0-31357 94-3363969
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(State of incorporation) (Commission File No.) (IRS Employer
Identification No.)
21 Waterway, Suite 300
The Woodlands, Texas 77380
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(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (281)-362-2730
N/A
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(Former name or former address if changed since last report)
Check appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below)
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-14(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 8.01. Other Events
BUSINESS
The Company was incorporated in Colorado on June 6, 1989. Following its
formation the Company was inactive until April 2000, when the Company decided to
become involved in the mortgage business. The Company planned to generate
mortgage loans, sell the loans to financial institutions and service the loans
on behalf of the financial institutions. During the nine months ended September
30, 2001 the Company discontinued its efforts to become involved in the mortgage
business and until April 4, 2006 was engaged primarily in the evaluation of
acquisition targets and the filing of periodic reports with the SEC.
On March 11, 2005 the shareholders of the Company approved a 1-for-20
forward split of the Company's common stock. Unless otherwise indicated, all per
share data in this Private Offering Memorandum has been revised to reflect this
forward stock split.
On April 4, 2006, the Company sold 44,000,000 shares of its common stock to five
persons, including the Company's new management.
On May 15, 2006 the shareholders of the Company:
o approved amendments to the Company's Articles of Incorporation which
changed the Company's name to Epic Capital Group, Inc., and
o changed the Company's authorized capitalization to 100,000,000 shares
of common stock and 10,000,000 shares of preferred stock.
Between October 1, 2006 and October 31, 2006 the Company sold 481,600
shares of its common stock, at a price of $1.00 per share, to a group of private
investors.
As of October 31, 2006 the Company had 49,741,600 outstanding shares of
common stock
The Company's website address is www.1epic.com or www.oneepic.com
Proposed Operations
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The Company plans to have two divisions which will operate in the
following areas:
o Oil and Gas Exploration and Development - This division will evaluate
undeveloped oil and gas prospects and participate in drilling
activities on prospects which in the opinion of management are
favorable for the production of oil or gas.
o Engineering and Infrastructure Management - This division will consist
of 3 main business units. The Company estimates that this division
will require the services of 100 or more professionals.
1. Engineering and Construction Management - This business unit will
provide services to optimize drilling, completion, field level
work processes, physical plant construction, processing and
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transportation. The Company considers the integration of
construction, operations, and financing to be critical for older
fields with outdated systems and for new projects which lack an
experienced team of professionals dedicated to the project.
2. Engineering Staffing - This business unit will provide to the
industry, on a contract basis, both short term and long term,
experienced and skilled engineers, geologists, and other
technicians. The availability of skilled professionals is quickly
becoming the limiting resource for the oil and gas industry. Both
large and small oil and gas companies do not have the available
human talent to analyze, plan, engineer and execute projects. Of
concern is the growing number of college graduates who opt for
careers outside the oil and gas industry. Enrollment in petroleum
related disciplines at major U.S. universities has only recently
started to increase but is not near the enrollment of the 1980's.
In most oil and gas companies, the average age continues to climb
toward 50 years old, with some studies estimating that less than
30% of the workforce is younger than 40 years old. The Company
intends to address this talent shortage with its Engineering
Staffing division.
3. Energy Infrastructure Management - This business unit will
provide planning, engineering, and consulting services to clients
in both the private and public markets. These services will be
provided to clients in both the private markets and the public
sector.
Oil and Gas Exploration and Development
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The Company plans to evaluate undeveloped oil and gas prospects and
participate in drilling activities on prospects which in the opinion of
management are favorable for the production of oil or gas. If, through its
review, a geographical area indicates geological and economic potential, the
Company will attempt to acquire leases or other interests in the area and
assemble a prospect. The Company may then attempt to sell a portion of its
leasehold interests in a prospect to unrelated third parties, thus sharing the
risks and rewards of the exploration and development of the prospect with the
joint owners pursuant to an operating agreement. One or more wells may be
drilled on a prospect, and if the results indicate the presence of sufficient
oil and gas reserves, additional wells may be drilled on the prospect.
The Company may also acquire producing oil and gas properties which have
the potential to support additional oil and gas wells.
The Company will be dependent upon its ability to economically acquire or
find oil and gas reserves since, in general, the volume of production from
natural gas and oil properties will decline as reserves are depleted. Except to
the extent the Company acquires additional properties containing proved reserves
or conducts successful exploration and development activities, or both, the
proved reserves of the Company will decline as reserves are produced.
Fluctuations in crude oil and natural gas prices will significantly affect
the Company's operations. Cash flow from oil and gas production depends upon the
quantity of production and the price obtained for such production. An increase
in prices will permit the Company to finance its operations to a greater extent
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with internally generated funds, may allow the Company to obtain equity
financing more easily or on better terms, and lessens the difficulty of
attracting financing from industry partners and non-industry investors. However,
price increases heighten the competition for leases increase the costs of
exploration and development activities and, because of potential price declines,
increase the risks associated with the purchase of producing properties during
times that prices are at higher levels.
A decline in oil and gas prices will (i) reduce the cash flow internally
generated by the Company which in turn will reduce the funds available for
servicing debt and exploring for and replacing oil and gas reserves, (ii)
increase the difficulty of obtaining equity and debt financing and worsens the
terms on which such financing may be obtained, (iii) reduce the number of leases
which have reasonable economic terms, (iv) may cause the Company to allow leases
to expire based upon the value of potential oil and gas reserves in relation to
the costs of exploration, (v) result in marginally productive oil and gas wells
being abandoned as non-commercial, and (vi) increase the difficulty of
attracting financing from industry partners and non-industry investors.
The Company needs to raise the funds required to drill oil and gas wells
and acquire oil and gas prospects. The Company may not be successful in raising
the capital needed to drill oil or gas wells and any future wells which may be
drilled by the Company may not be productive of oil or gas.
It is anticipated that capital will be obtained principally through
borrowings from institutional and private lenders (although such additional
financing has not been arranged) and the sale of the Company's common stock or
other equity securities. However, there can be no assurance that additional
capital will be available to the Company on a timely basis, or if available, on
acceptable terms.
Engineering and Construction Management
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Through the late 1950's the early oil and gas companies such as Standard
Oil, Texaco and Mobil were fully vertically integrated enterprises with business
units that included oil and gas drilling, pipeline transportation, refining, gas
stations and motor oils. The consensus was that companies needed to own the
entire chain to control the product and maximize profits.
In the late 1970's a new model emerged with smaller companies being
created that focused on only one aspect of the industry. Independent production
companies were created to find, drill and produce oil and gas. Pipeline
companies were formed to deliver product from producers to refineries and other
end users. Refining companies were organized to refine oil and gas into usable
fuels and products. And, finally retail oriented companies were created to
developed innovative ways to market gasoline (the birth of the gasoline station
as a convenience store!).
The Company sees the next natural progression to be the separation of oil
and gas producers into two groups: those that want to explore and drill for oil
and gas and those that want to focus on the efficient processing of oil and gas
before it is transported.
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Because of increasing demand and prices, major integrated oil companies
and large independents are exploring for new fields in areas such as West
Africa, Brazil, Venezuela, Trinidad, the Caspian, Western Russia and others. The
scale of these projects requires significant financial and human resources.
These projects usually require assembling a large international team consisting
of staff from the oil company, a large engineering firm, a large fabrication and
construction company to build and assemble the structure and processing
equipment, and an operations and maintenance partner to staff the project and
manage the start-up. This rush to large, international, projects is consuming a
substantial portion of the existing engineering and construction capability in
the oil and gas industry. Many of the majors and larger independent oil and gas
companies are exiting the domestic market and turning their capital, manpower
and technology to new, high investment areas around the world. The service
sector, especially the large engineering and construction companies, are
following their main customers to these international projects leaving few
companies to compete for domestic projects. A the same time, record drilling
activity in the US onshore market will require more production, process and
transportation infrastructure.
Because of the high operating costs and low production rates of many older
oil and gas fields, most producers have been limited in their ability to
maintain the operating condition of pipelines, compressor stations, gathering
systems, SCADA systems, secondary recovery injection plants, and similar
equipment.
The Company's Engineering and Construction Management division will focus
on developing new and cost effective production systems and processes for oil
and gas producers and other energy related projects. This division consists of
three business units. The Company estimates that this division will require the
services of 100 or more professionals.
The first business unit will provide services to optimize drilling,
completion, field level work processes, physical plant construction, processing
and transportation. The Company considers the integration of construction,
operations, and financing to be critical for older fields with outdated systems
and for new projects which lack an experienced team of professionals dedicated
to the project.
The second business unit will provide to the industry, on a contract
basis, both short term and long term, experienced and skilled engineers,
geologists, and other technicians. The availability of skilled professionals is
quickly becoming the limiting resource for the oil and gas industry. Both large
and small oil and gas companies do not have the available human talent to
analyze, plan, engineer and execute projects. Of concern is the growing number
of college graduates who opt for careers outside the oil and gas industry.
Enrollment in petroleum related disciplines at major U.S. universities has only
recently started to increase but is not near the enrollment of the 1980's. In
most oil and gas companies, the average age continues to climb toward 50 years
old, with some studies estimating that less than 30% of the workforce is younger
than 40 years old. The Company intends to address this talent shortage with its
Engineering Staffing services.
The third business unit will provide planning, developing, implementing
and managing facility and infrastructure programs. It will provide advice and
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guidance to public, private and federal sector clients on program development
issues which focus on financial and cumulative impacts of proposed programs,
policies and projects. It will develop and utilize commercial "best in
discipline" products and services to support clients in meeting their respective
challenges.
Services Offered:
o Program Management
o Process Improvement / Six Sigma Implementation
o Capital Planning and Programming
o Operations Planning
o Master Planning
o Budget Optimization
o Facility Economic Analysis
o Energy Management
o Real Estate Services
- Enhanced Use Leasing
- Site Analysis
- Market Analysis
o Facility Automation
- GIS
- FMS
- CMMS
o Range Planning
This business unit will operate competitively between the traditional
architectural, engineering (URS, KBR, PBSJ), consulting (Booz Allen Hamilton,
Bearing Point) and energy (Johnson Control, Honeywell, Siemans) firms. This unit
will focus on the effective and economic delivery of value which will provide
the Company with the opportunity to secure long term engagements with well
budgeted clients.
Government Regulation
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Various state and federal agencies regulate the production and sale of oil
and natural gas. All states in which the Company plans to operate impose
restrictions on the drilling, production, transportation and sale of oil and
natural gas.
Under the Natural Gas Act of 1938, the Federal Energy Regulatory
Commission (the "FERC") regulates the interstate transportation and the sale in
interstate commerce for resale of natural gas. The FERC's jurisdiction over
interstate natural gas sales has been substantially modified by the Natural Gas
Policy Act under which the FERC continued to regulate the maximum selling prices
of certain categories of gas sold in "first sales" in interstate and intrastate
commerce.
Effective January 1, 1993, however, the Natural Gas Wellhead Decontrol Act
(the "Decontrol Act") deregulated natural gas prices for all "first sales" of
natural gas. Because "first sales" include typical wellhead sales by producers,
all natural gas produced from the Company's natural gas properties is sold at
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market prices, subject to the terms of any private contracts which may be in
effect. The FERC's jurisdiction over natural gas transportation is not affected
by the Decontrol Act.
The Company's sales of any natural gas will be affected by intrastate and
interstate gas transportation regulation. Beginning in 1985, the FERC adopted
regulatory changes that have significantly altered the transportation and
marketing of natural gas. These changes are intended by the FERC to foster
competition by, among other things, transforming the role of interstate pipeline
companies from wholesale marketers of natural gas to the primary role of gas
transporters. All natural gas marketing by the pipelines is required to divest
to a marketing affiliate, which operates separately from the transporter and in
direct competition with all other merchants. As a result of the various omnibus
rulemaking proceedings in the late 1980s and the individual pipeline
restructuring proceedings of the early to mid-1990s, the interstate pipelines
must provide open and nondiscriminatory transportation and
transportation-related services to all producers, natural gas marketing
companies, local distribution companies, industrial end users and other
customers seeking service. Through similar orders affecting intrastate pipelines
that provide similar interstate services, the FERC expanded the impact of open
access regulations to intrastate commerce.
More recently, the FERC has pursued other policy initiatives that have
affected natural gas marketing. Most notable are (1) the large-scale divestiture
of interstate pipeline-owned gas gathering facilities to affiliated or
non-affiliated companies; (2) further development of rules governing the
relationship of the pipelines with their marketing affiliates; (3) the
publication of standards relating to the use of electronic bulletin boards and
electronic data exchange by the pipelines to make available transportation
information on a timely basis and to enable transactions to occur on a purely
electronic basis; (4) further review of the role of the secondary market for
released pipeline capacity and its relationship to open access service in the
primary market; and (5) development of policy and promulgation of orders
pertaining to its authorization of market-based rates (rather than traditional
cost-of-service based rates) for transportation or transportation-related
services upon the pipeline's demonstration of lack of market control in the
relevant service market. The Company does not know what effect the FERC's other
activities will have on the access to markets, the fostering of competition and
the cost of doing business.
As a result of these changes, sellers and buyers of natural gas have
gained direct access to the particular pipeline services they need and are
better able to conduct business with a larger number of counter parties. The
Company believes these changes generally have improved the access to markets for
natural gas while, at the same time, substantially increasing competition in the
natural gas marketplace. The Company cannot predict what new or different
regulations the FERC and other regulatory agencies may adopt or what effect
subsequent regulations may have on production and marketing of natural gas from
the Company's properties.
In the past, Congress has been very active in the area of natural gas
regulation. However, as discussed above, the more recent trend has been in favor
of deregulation and the promotion of competition in the natural gas industry.
Thus, in addition to "first sales" deregulation, Congress also repealed
incremental pricing requirements and natural gas use restraints previously
applicable. There are other legislative proposals pending in the Federal and
State legislatures which, if enacted, would significantly affect the petroleum
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industry. At the present time, it is impossible to predict what proposals, if
any, might actually be enacted by Congress or the various state legislatures and
what effect, if any, these proposals might have on the production and marketing
of natural gas by the Company. Similarly, and despite the trend toward federal
deregulation of the natural gas industry, whether or to what extent that trend
will continue or what the ultimate effect will be on the production and
marketing of natural gas by the Company cannot be predicted.
Federal, state, and local agencies have promulgated extensive rules and
regulations applicable to the Company's oil and natural gas exploration,
production and related operations. Most states require permits for drilling
operations, drilling bonds and the filing of reports concerning operations and
impose other requirements relating to the exploration of oil and natural gas.
Many states also have statutes or regulations addressing conservation matters
including provisions for the unitization or pooling of oil and natural gas
properties, the establishment of maximum rates of production from oil and
natural gas wells and the regulation of spacing, plugging and abandonment of
such wells. The statutes and regulations of some states limit the rate at which
oil and natural gas is produced from the Company's properties. The federal and
state regulatory burden on the oil and natural gas industry increases the
Company's cost of doing business and affects its profitability. Because these
rules and regulations are amended or reinterpreted frequently, the Company is
unable to predict the future cost or impact of complying with those laws.
Competition and Marketing
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The Company will be faced with strong competition from many other
companies and individuals engaged in the oil and gas business, many of which are
very large, with substantial capabilities and well established. The Company will
compete with these individuals and companies, many of which have greater
financial resources and larger technical staffs. Although it is nearly
impossible to estimate the number of competitors; it is known that there are a
large number of companies and individuals in the oil and gas business.
Exploration for and production of oil and gas are affected by the
availability of pipe, casing and other tubular goods and certain other oil field
equipment including drilling rigs and tools. The Company depends upon
independent drilling contractors to furnish rigs, equipment and tools to drill
its wells. Higher prices for oil and gas may result in competition among
operators for drilling equipment, tubular goods and drilling crews which may
affect the Company's ability expeditiously to drill, complete, re-complete and
work-over its wells. However, the Company has not experienced and does not
anticipate difficulty in obtaining supplies, materials, drilling rigs, equipment
or tools.
The Company does not refine or otherwise process crude oil and condensate
production. Substantially all of the crude oil and condensate production of the
Company's wells are sold at posted prices under short-term contracts, which is
customary in the industry.
The market for oil and gas is dependent upon a number of factors beyond
the Company's control, which at times cannot be accurately predicted. These
factors include the proximity of wells to, and the capacity of, natural gas
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pipelines, the extent of competitive domestic production and imports of oil and
gas, the availability of other sources of energy, fluctuations in seasonal
supply and demand, and governmental regulation. In addition, there is always the
possibility that new legislation may be enacted which would impose price
controls or additional excise taxes upon crude oil or natural gas, or both.
Oversupplies of natural gas can be expected to recur from time to time and may
result in the gas producing wells being shut-in. Increased imports of natural
gas, primarily from Canada, have occurred and are expected to continue. Such
imports may adversely affect the market for domestic natural gas.
Since the early 1970's the market price for crude oil has been
significantly affected by policies adopted by the member nations of Organization
of Petroleum Exporting Countries ("OPEC"). Members of OPEC establish prices and
production quotas among themselves for petroleum products from time to time with
the intent of controlling the current global supply and price levels. The
Company is unable to predict the effect that OPEC or other countries will have
on the amount of, or the prices received for, crude oil and natural gas produced
and sold from the Company's wells.
Gas prices, which were once effectively determined by government
regulations, are now largely influenced by competition. Competitors in this
market include producers, gas pipelines and their affiliated marketing
companies, independent marketers, and providers of alternate energy supplies,
such as residual fuel oil. Changes in government regulations relating to the
production, transportation and marketing of natural gas have also resulted in
significant changes in the historical marketing patterns of the industry.
Generally, these changes have resulted in the abandonment by many pipelines of
long-term contracts for the purchase of natural gas, the development by gas
producers of their own marketing programs to take advantage of new regulations
requiring pipelines to transport gas for regulated fees, and an increasing
tendency to rely on short-term contracts priced at spot market prices.
General
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As of October 31, 2006, the Company had three full time employees.
The Company's offices are located at 21 Waterway, Suite 300, The
Woodlands, TX 77380. The 200 square feet of office space is occupied under the
lease requiring rental payments of $1,900 per month.
RISK FACTORS
An investment in the Company's common stock is highly speculative and
prospective investors should consider, among others, the following factors
related to the business, operations and financial position of the Company
The Company is in the Development Stage and has Conducted Only Limited
Operations. As of October 31, 2006 the Company:
o Has generated less than $5,000 in revenue,
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o did not have any oil or gas leases or wells, and
o had not established its Engineering and Construction Management
division or its Engineering Staffing division.
The Company has never earned a profit. As of September 30th the Company's
accumulated deficit was approximately $(346,000). The Company expects to incur
additional losses during the foreseeable future. There can be no assurance that
the Company can implement its business plan, that it will be profitable, or that
the shares which may be sold in this Offering will have any value.
If the Company cannot obtain additional capital, the Company may have to delay
or postpone exploration and development and activities. The Company needs
additional capital to fund its operations, to find oil and gas reserves and to
otherwise implement its business plan. The Company estimates that it will need
$4,000,000 to establish its Engineering and Construction Management division.
The failure of the Company to obtain additional capital on terms acceptable to
it, or at all, may significantly restrict the Company's proposed operations.
There can be no assurance that the Company will be able to obtain the funding
which it requires.
The Company's operations will be dependent upon the continued services of its
officers. The loss of any of these officers, whether as a result of death,
disability or otherwise, may have a material adverse effect upon the business of
the Company.
The Company will need the services of a large number of skilled professionals.
The Company's Engineering and Construction Management division will require the
services of a large number of engineers and other oil professionals skilled in
most aspects of the oil and gas industry. The Company's Engineering and
Construction Management division will not be successful if the Company is unable
to retain the services of the number of professionals it will need for these
divisions.
Oil and gas exploration and development is not an exact science, and involves a
high degree of risk. The primary risk lies in the drilling of dry holes or
drilling and completing wells which, though productive, do not produce gas
and/or oil in sufficient amounts to return the amounts expended and produce a
profit. Hazards, such as unusual or unexpected formation pressures, downhole
fires, blowouts, loss of circulation of drilling fluids and other conditions are
involved in drilling and completing oil and gas wells and, if such hazards are
encountered, completion of any well may be substantially delayed or prevented.
In addition, adverse weather conditions can hinder or delay operations, as can
shortages of equipment and materials or unavailability of drilling, completion,
and/or work-over rigs. Even though a well is completed and is found to be
productive, water and/or other substances may be encountered in the well, which
may impair or prevent production or marketing of oil or gas from the well.
Exploratory drilling involves substantially greater economic risks than
development drilling because the percentage of wells completed as producing
wells is usually less than in development drilling. Exploratory drilling itself
can be of varying degrees of risk and can generally be divided into higher risk
attempts to discover a reservoir in a completely unproven area or relatively
lower risk efforts in areas not too distant from existing reservoirs. While
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exploration adjacent to or near existing reservoirs may be more likely to result
in the discovery of oil and gas than in completely unproven areas, exploratory
efforts are nevertheless high risk activities.
Although the completion of oil and gas wells is, to a certain extent, less
risky than drilling for oil and gas, the process of completing an oil or gas
well is nevertheless associated with considerable risk. In addition, even if a
well is completed as a producer, the well for a variety of reasons may not
produce sufficient oil or gas in order to repay the Company's investment in the
well.
The acquisition, exploration and development of oil and gas properties, and the
production and sale of oil and gas are subject to many factors which are outside
the Company's control. These factors include, among others, general economic
conditions, proximity to pipelines, oil import quotas, supply, demand, and price
of other fuels and the regulation of production, refining, transportation,
pricing, marketing and taxation by Federal, state, and local governmental
authorities.
Buyers of the Company's gas, if any, may refuse to purchase gas from the Company
in the event of oversupply. Hence, even if wells which may be drilled by the
Company are productive, the quantities of gas that the Company may be able to
sell may be too small to pay for the expenses of operating the wells. In such a
case, the wells would be "shut-in" until such time, if ever, that economic
conditions permit the sale of gas in quantities which would be profitable.
Interests that the Company will acquire in oil and gas properties may be subject
to royalty and overriding royalty interests, liens incident to operating
agreements, liens for current taxes and other burdens and encumbrances,
easements and other restrictions, any of which may subject the Company to future
undetermined expenses. The Company does not intend to purchase title insurance,
title memos, or title certificates for any leasehold interests it will acquire.
It is possible that at some point the Company will have to undertake title work
involving substantial costs. In addition, it is possible that the Company may
suffer title failures resulting in significant losses to the Company.
The drilling of oil and gas wells involves hazards such as blowouts, unusual or
unexpected formations, pressures or other conditions which could result in
substantial losses or liabilities to third parties. Although the Company intends
to acquire adequate insurance, or to be named as an insured under coverage
acquired by others (e.g., the driller or operator), the Company may not be
insured against all such losses because such insurance may not be available,
premium costs may be deemed unduly high, or for other reasons. Accordingly,
uninsured liabilities to third parties could result in the loss of Company funds
or property.
The Company's operations will be affected from time to time and in varying
degrees by the price for oil or gas. The price of oil and gas is often volatile
and influenced by political developments and Federal and state laws and
regulations regarding the development, production and sale of crude oil and
natural gas. These regulations require permits for drilling of wells and also
cover the spacing of wells, the prevention of waste, and other matters. Rates of
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production of oil and gas have for many years been subject to Federal and state
conservation laws and regulations and the petroleum industry is subject to
Federal tax laws. In addition, the production of oil or gas may be interrupted
or terminated by governmental authorities due to ecological and other
considerations. Compliance with these regulations may require a significant
capital commitment by and expense to the Company and may delay or otherwise
adversely affect the Company's proposed operations.
From time to time legislation has been proposed relating to various
conservation and other measures designed to decrease dependence on foreign oil.
No prediction can be made as to what additional legislation may be proposed or
enacted. Oil and gas producers may face increasingly stringent regulation in the
years ahead and a general hostility towards the oil and gas industry on the part
of a portion of the public and of some public officials. Future regulation will
probably be determined by a number of economic and political factors beyond the
control of the Company or the oil and gas industry.
The Company's activities will be subject to existing federal and state laws and
regulations governing environmental quality and pollution control. Compliance
with environmental requirements and reclamation laws imposed by Federal, state,
and local governmental authorities may necessitate significant capital outlays
and may materially affect the earnings of the Company. It is impossible to
predict the impact of environmental legislation and regulations (including
regulations restricting access and surface use) on the Company's operations in
the future although compliance may necessitate significant capital outlays,
materially affect the Company's earning power or cause material changes in its
intended business. In addition, the Company may be exposed to potential
liability for pollution and other damages.
There is, at present, only a limited market for the Company's common stock and
there is no assurance that a market will develop. As of October 31, 2006 there
was only a limited market for the Company's common stock. Trades in the
Company's common stock are subject to Rule 15g-9 of the Securities and Exchange
Commission, which rule imposes certain requirements on broker/dealers who sell
securities subject to the rule to persons other than established customers and
accredited investors. For transactions covered by the rule, brokers/dealers must
make a special suitability determination for purchasers of the securities and
receive the purchaser's written agreement to the transaction prior to sale. The
Securities and Exchange Commission also has rules that regulate broker/dealer
practices in connection with transactions in "penny stocks". Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in that security is provided by the exchange or system). The
penny stock rules require a broker/ dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker/dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker/dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
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effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. These disclosure requirements have the effect
of reducing the level of trading activity in the secondary market for the
Company's common stock. As a result of these rules, investors may find it
difficult to sell their shares.
MARKET FOR COMPANY'S COMMON STOCK
As of October 31, 2006 there were approximately 132 record holders of the
Company's common stock. The Company's common stock began trading on the OTC
Bulletin Board on October 30, 2006 under the symbol "EPCC.OB". Shown below are
the range of high and low quotations for the Company's common stock for the
dates indicated as reported by the NASD. The market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions.
Date High Low
---- ---- ---
10/30/06 $1.50 $1.40
10/31/06 $1.70 $1.50
11/1/06 $1.75 $1.61
11/2/06 $1.87 $1.71
11/3/06 $2.21 $1.81
11/6/06 $2.38 $2.05
11/7/06 $2.43 $2.31
11/8/06 $2.46 $2.42
11/9/06 $2.47 $2.45
11/10/06 $2.53 $2.46
11/13/06 $2.56 $2.53
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors out of legally available funds and, in the
event of liquidation, to share pro rata in any distribution of the Company's
assets after payment of liabilities. The Board of Directors is not obligated to
declare a dividend. The Company has not paid any dividends on its common stock
and the Company does not have any current plans to pay any common stock
dividends.
MANAGEMENT
The following presents certain information concerning the present
management of the Company:
Name Age Position with Company
---- --- ---------------------
Rex Doyle 48 Chief Executive Officer and a Director
John Ippolito 47 President and a Director
David Reynolds 54 Chief Operating Officer, Secretary and a
Director
13
Rex Doyle has been an officer and director of the Company since April 4,
2006. Mr. Doyle was a Vice President of Michael Baker Corporation (AMEX:BKR)
between August 2000 and September 2002. Between September 2002 and April 2004
Mr. Doyle was Vice President of Business Development for Baker Energy, a
subsidiary of Michael Baker Corporation. Between April 2005 and April 2006 Mr.
Doyle was Senior Vice President of Global Operations for Baker Energy and an
officer of Michael Baker Corporation.
John Ippolito has been an officer and director of the Company since April
4, 2006. Mr. Ippolito was Business Development Manager - North and South America
Integrated Project Management Division for Schlumberger Ltd. between 2000 and
August 2003. Between August 2003 and April 2006 Mr. Ippolito was Senior Business
Development Director, Continental U.S., and Business Manager - Large Asset
Management Contracts, for Baker Energy, a subsidiary of Michael Baker
Corporation.
David Reynolds has been an officer and director of the Company since April
4, 2006. Mr. Reynolds was a principal of Orion Oil & Gas L.L.C. between 2003 and
December 2005. Since January 2006 Mr. Reynolds has been working on oil and gas
projects. From 2001 to 2003 Mr. Reynolds was with the Business Development Group
of Union Oil of California.
Mr. Doyle, Mr. Ippolito and Mr. Reynolds do not serve as an officer or
director of any other publicly traded corporation.
As of October 31, 2006 the Company did not have any employment agreements
with any of its officers.
The Company does not yet have a compensation committee. The Company's
Board of Directors acts as the Company's Audit Committee. None of the Company's
directors are a financial experts and one of the Company's directors is
independent as that term is defined Section 121(A) of the Listing Standards of
the American Stock Exchange.
The Company has adopted a Code of Ethics applicable to the Company's
principal executive, financial, and accounting officers and persons performing
similar functions.
Change in Management
On April 4, 2006, Mark W. Moniak, the Company's only officer and director,
appointed Rex Doyle, John Ippolito and David Reynolds as directors of the
Company. Following these appointments Mr. Moniak, resigned as an officer and
director of the Company.
The Company's directors then appointed the following persons to be
officers of the Company:
Name Position
---- --------
Rex Doyle Chief Executive and Principal Financial Officer
John Ippolito President
David Reynolds Executive Vice President and Secretary
14
Executive Compensation
- ----------------------
Between the date of their appointment as officers and directors (April 4,
2006) and October 31, 2006 the Company has collectively paid approximately $
175,000 to its officers and directors.
The following shows the amounts which the Company expects to pay to its
officers and consultants during the twelve month period ending October 31, 2007,
and the time these persons plan to devote to the Company's business. The Company
does not have employment agreements with any of its officers or consultants.
Proposed Time to be Devoted
Name Compensation the Company's Business
---- ------------ ----------------------
Rex Doyle $210,000 100%
John Ippolito $175,000 100%
David Reynolds $150,000 100%
Stock Option and Bonus Plans
- ----------------------------
The Company has adopted stock option and stock bonus plans. A summary
description of these plans follows. In some cases these Plans are collectively
referred to as the "Plans".
Incentive Stock Option Plan. The Company's Incentive Stock Option Plan
authorizes the issuance of shares of the Company's Common Stock to persons that
exercise options granted pursuant to the Plan. Only Company employees may be
granted options pursuant to the Incentive Stock Option Plan.
Non-Qualified Stock Option Plan. The Company's Non-Qualified Stock Option
Plan authorizes the issuance of shares of the Company's Common Stock to persons
that exercise options granted pursuant to the Plans. The Company's employees,
directors, officers, consultants and advisors are eligible to be granted options
pursuant to the Plans, provided however that bona fide services must be rendered
by such consultants or advisors and such services must not be in connection with
the offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Committee but cannot be less than the market
price of the Company's Common Stock on the date the option is granted.
Stock Bonus Plan. The Company's Stock Bonus Plan allows for the issuance
of shares of Common Stock to it's employees, directors, officers, consultants
and advisors. However bona fide services must be rendered by the consultants or
advisors and such services must not be in connection with the offer or sale of
securities in a capital-raising transaction.
Summary. The following lists, as of October 31, 2006, the options granted
pursuant to the Plans. Each option represents the right to purchase one share of
the Company's common stock.
15
Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ------------ ----------- --------------
Incentive Stock Option Plans 2,000,000 -- N/A 2,000,000
Non-Qualified Stock Option Plans 3,000,000 600,000 N/A 2,400,000
Stock Bonus Plans 1,000,000 N/A 1,000,000
The following lists the options granted as of October 31, 2006. All of the
options listed below were granted pursuant to the Company's Non-Qualified Stock
Option Plan.
Shares Issuable
Upon Exercise Exercise Expiration
Name of Options Price Date
---- ---------------- -------- ------------
Rex Doyle 100,000 (1) $0.50 10/24/08
Rex Doyle 100,000 (2) $3.00 10/24/08 (3)
John Ippolito 100,000 (1) $0.50 10/24/08
John Ippolito 100,000 (2) $3.00 10/24/08 (3)
David Reynolds 100,000 (1) $0.50 10/24/08
David Reynolds 100,000 (2) $3.00 10/24/08 (3)
(1) Options may be exercised at any time prior to 10/25/08
(2) Options to purchase 50,000 shares may be exercised at any time after
1/1/07, and options to purchase 50,000 shares may be exercised at any
time after 1/1/08.
(3) These options will expire on the first to occur of the following: (i)
10/24/08, (ii) the date the option holder is removed from office for
cause, or (iii) the date the option holder resigns as an officer of
the Company.
For the purpose of these options "Cause" means any action by the Option
Holder or any inaction by the Option Holder which constitutes:
(i) fraud, embezzlement, misappropriation, dishonesty or breach of trust;
(ii) a willful or knowing failure or refusal by the Option Holder to
perform any or all of his material duties and responsibilities as an
officer of the Company, other than as the result of the Option
Holder's death or Disability; or
(iii) gross negligence by the Option Holder in the performance of any or
all of his material duties and responsibilities as an officer of the
Company, other than as a result of the Option Holder's death or
Disability;
For purposes of these options "Disability" means any mental or physical
illness, condition, disability or incapacity which prevents the Option Holder
16
from reasonably discharging his duties and responsibilities as an officer of the
Company for a minimum of twenty hours per week.
Transactions with Related Parties and Recent Sales of Unregistered Securities.
- ------------------------------------------------------------------------------
In September 2004 the Company issued 4,000,000 shares of its common stock
(as adjusted for the 1-for-20 forward stock split) to Mark Moniak as
consideration for Mr. Moniak serving as the Company's President. Mr. Moniak
resigned as the Company's President on April 4, 2006.
On April 4, 2006 the Company sold:
o 20,000,000 shares of its common stock to Rex Doyle for $200;
o 20,000,000 shares of its common stock to John Ippolito for $200;
o 4,000,000 shares of its common stock to unrelated third parties for
$40;
Between October 1, 2006 and October 31, 2006 the Company sold 481,600
shares of its common stock to 64 private investors at a price of $1.00 per
share.
The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 in connection with the sale of these shares.
PRINCIPAL SHAREHOLDERS
The following table shows the number of and percentage of outstanding
shares of common stock owned by the Company's officers, directors and those
shareholders owning more than 5% of the Company's common stock as of October 31,
2006.
Shares of
Name and Address Common Stock Percent of Class (1)
- ---------------- ------------ ----------------------
Rex Doyle 20,000,000 40%
30 Fernglen
The Woodlands, TX 77380
John Ippolito 20,000,000 40%
9007 Deerwick Ct.
Tomball, TX 77375
David Reynolds 2,000,000 4%
4311 Candlewood Park
Katy, TX 77494
All Executive Officers
and Directors as a group (3 persons) 42,000,000 84%
17
DESCRIPTION OF SECURITIES
The Company is authorized to issue 100,000,000 shares of Common Stock. As of
October 31, 2006 the Company had 49,741,600 outstanding shares of Common Stock
Holders of Common Stock are each entitled to cast one vote for each share held
of record on all matters presented to shareholders. Cumulative voting is not
allowed; hence, the holders of a majority of the outstanding Common Stock can
elect all directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will be
paid until the Company is in profit.
Holders of Common Stock do not have preemptive rights to subscribe to additional
shares if issued by the Company. There are no conversion, redemption, sinking
fund or similar provisions regarding the Common Stock. All of the outstanding
shares of Common Stock are fully paid and non-assessable and all of the shares
of Common stock offered hereby will be, upon issuance, fully paid and
non-assessable.
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred stock.
The Company's Articles of Incorporation provide that its Board of Directors has
the authority to divide the preferred stock into series and, within the
limitations provided by statute, to fix by resolution the voting power,
designations, preferences, and relative participation, special rights, and the
qualifications, limitations or restrictions of the shares of any series so
established. As of October 31, 2006 the Company had not issued any preferred
shares.
INDEMNIFICATION
The Company's Bylaws provide that the Company will indemnify its directors
and officers against expense and liabilities they incur to defend, settle or
satisfy any civil or criminal action brought against them as a result of their
being or having been the Company directors or officers unless, in any such
action, they have acted with gross negligence or willful misconduct. Officers
and Directors are not entitled to be indemnified for claims or losses resulting
from a breach of their duty of loyalty to the Company, for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law or a transaction from which the director derived an improper personal
benefit. Insofar as indemnification for liabilities arising under the Securities
Act of l933 may be permitted to the Company's directors and officers, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of l933, and is, therefore, unenforceable.
18
San Juan Financial, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 2005
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm F-1
Balance Sheets - December 31, 2005 F-2
Statements of Operations - For the Years Ended
December 31, 2005 and 2004, and for the Period
from Inception (April 10, 2000) to December 31, 2005 F-3
Statements of Cash Flows - For the Years Ended
December 31, 2005 and 2004, and for the Period
from Inception (April 10, 2000) to December 31, 2005 F-4
Statement of Changes in Stockholders' Equity (Deficit) -
For the Period from Inception (April 10, 2000) to
December 31, 2005 F-5 to F-6
Notes to Financial Statements F-7 to F-10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheet of San Juan Financial, Inc. as of
December 31, 2005, and the related statements of operations, cash flows, and
stockholders' equity (deficit) for the years ended December 31, 2005 and 2004,
and for the period from inception (April 10, 2000) to December 31, 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of San Juan Financial, Inc. as of
December 31, 2005, and the results of its operations, its cash flows, and its
changes in stockholders' equity for the years ended December 31, 2005 and 2004,
and for the period from inception (April 10, 2000) to December 31, 2005, in
conformity with generally accepted accounting principles in the United States of
America.
As mentioned in Footnote 2 to the financial statements, the Company has expended
all of its capital, which raises doubt about its ability to continue as a going
concern with an ability to conduct its business plan. The Company's plans are
also discussed in Footnote 2. There is no assurance that such funding will be
available or that the Company will be successful in implementing its business
plan. The accompanying financial statements do not include any adjustments,
which might be necessary if the Company is unable to continue in existence.
Denver, Colorado
April 3, 2006 /s/ Comiskey & Company
PROFESSIONAL CORPORATION
San Juan Financial, Inc.
(A Development Stage Company)
BALANCE SHEET
As of December 31, 2005
ASSETS
CURRENT ASSETS $ --
---------
Total current assets --
---------
TOTAL ASSETS $ --
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 3,621
---------
Total current liabilities 3,621
STOCKHOLDERS' DEFICIT
Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding --
Common stock, no par value; 750,000,000 shares
authorized; 5,260,000 shares issued and
outstanding at December 31, 2004 68,000
Additional paid-in capital 26,691
Deficit accumulated during the development stage (98,312)
---------
Total shareholders' deficit (3,621)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ --
=========
The accompanying notes are an integral part of the financial statements.
F-2
San Juan Financial, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the period
from inception
For the year For the year (April 10, 2000)
ended ended to
December 31, December 31, December 31,
2005 2004 2005
------------ ------------ ---------------
REVENUES $ -- $ -- $ --
EXPENSES
General and administrative expenses 20,000 15,312 98,312
------------ ------------ ---------------
Total expenses 20,000 15,312 98,312
------------ ------------ ---------------
NET LOSS (20,000) (15,312) (98,312)
Accumulated deficit
Balance, beginning of period (78,312) (63,000) --
------------ ------------ ---------------
Balance, end of period $ (98,312) $ (78,312) $ (98,312)
============ ============ ===============
NET LOSS PER SHARE $ (NIL) $ (0.01)
============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 5,260,000 2,429,399
============ ============
The accompanying notes are an integral part of the financial statements.
F-3
San Juan Financial, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the period
from inception
For the year For the year (April 10, 2000)
ended ended to
December 31, December 31, December 31,
2005 2004 2005
------------ ------------ ---------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (20,000) $ (15,312) $ (98,312)
Adjustments to reconcile net
loss to net cash flows from
operating activities:
Accounts payable 2,614 1,007 3,621
Shares issued for compensation -- 5,000 5,000
------------ ------------ ---------------
Net cash flows from operating
activities (17,386) (9,305) (89,691)
CASH FLOWS FROM INVESTING
ACTIVITIES -- -- --
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from the issuance of
common stock -- -- 63,000
Expenses paid by shareholders 17,386 9,305 26,691
------------ ------------ ---------------
Net cash flows from financing
activities 17,386 9,305 89,691
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS -- -- --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -- -- --
------------ ------------ ---------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ -- $ -- $ --
============ ============ ===============
The accompanying notes are an integral part of the financial statements.
F-4
San Juan Financial, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (April 10, 2000) to December 31, 2005
Deficit
Accumulated
Additional During the Stockholders'
Common Stock Paid-in Development Equity
Shares Amount Capital Stage (Deficit)
------------------------------------------------------------------------------
Issuance of common stock for
cash at $0.05 per share 1,260,000 $ 63,000 $ - $ - $ 63,000
Issuance of common stock no
consideration received 100,000,000 - - - -
Net loss for the period from
inception (April 10, 2000)
to December 31, 2000 - - - (56,711) (56,711)
------------ ----------- ----------- ------------- -----------
Balance, December 31, 2000 101,260,000 63,000 - (56,711) 6,289
Cancellation of stock for
consideration not received (100,000,000) - - - -
Net loss for the year ended
December 31, 2001 - - - (5,825) (5,825)
------------ ----------- ----------- ------------- -----------
Balance, December 31, 2001 1,260,000 63,000 - (62,536) 464
Net loss for the year ended
December 31, 2002 - - - (464) (464)
------------ ----------- ----------- ------------- -----------
Balance, December 31, 2002 1,260,000 63,000 - (63,000) -
The accompanying notes are an integral part of the financial statements.
F-5
San Juan Financial, Inc.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
CONTINUED
For the Period From Inception (April 10, 2000) to December 31, 2005
Deficit
Accumulated
Additional During the Stockholders'
Common Stock Paid-in Development Equity
Shares Amount Capital Stage (Deficit)
------------------------------------------------------------------------------
Net loss for year ended
December 31, 2003 - $ - $ - $ - $ -
------------ ----------- ----------- ------------- -----------
Balance, December 31, 2003 1,260,000 63,000 - (63,000) -
Issuance of common stock for
compensation 4,000,000 5,000 - - 5,000
Expenses paid by shareholders - - 9,305 - 9,305
Net loss for the year ended
December 31, 2004 - - - (15,312) (15,312)
------------ ----------- ----------- ------------- -----------
Balance, December 31, 2004 5,260,000 68,000 9,305 (78,312) (1,007)
Expenses paid by shareholders - - 17,386 - 17,386
Net loss for the year ended
December 31, 2005 - - - (20,000) (20,000)
------------ ----------- ----------- ------------- -----------
Balance, December 31, 2005 5,260,000 $ 68,000 $ 26,691 $ (98,312) $ (3,621)
========= ========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
F-6
San Juan Financial, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
1. Organization and Operations
Background
San Juan Financial, Inc. ("the Company") was incorporated under the laws of
Colorado on June 6, 1989. Following incorporation, the Company remained an
inactive shell company. Effective April 10, 2000, the Company entered the
development stage in accordance with SFAS No. 7. The Company's principal
activities since April 10, 2000 have consisted of organizational matters
and the sale of its no par value common stock.
Amendment to Articles
On April 10, 2000, the Company filed amended articles of incorporation with
the State of Colorado, at which time the Company revised Article XI, Board
of Directors. The Board consists of one director who is also the President
of the Company. On September 15, 2004, Troy Fullmer, the Company's only
officer and director, appointed Mark W. Moniak as a director of the Company
and as the Company's President and Chief Executive Officer. Following the
appointment of Mr. Moniak, Mr. Fullmer resigned as an officer and director
of the Company.
2. Going Concern
The Company has no revenue to date and has incurred operating losses of
$98,312 since inception. Since inception, the Company has been dependent
upon the receipt of capital investment or other financing to fund its
continuing activities. The Company has not identified any business
combination and, therefore, cannot ascertain with any degree of certainty
the capital requirements for any particular transaction. In addition, the
Company is dependent upon certain related parties to provide continued
funding and capital resources. The accompanying financial statements have
been presented on the basis of the continuation of the Company as a going
concern and do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
F - 7
San Juan Financial, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
3. Summary of Significant Accounting Policies
Development Stage Activities
San Juan Financial, Inc. entered the development stage in accordance with
Financial Accounting Standards Board Statements of Financial Accounting
Standards (SFAS) No. 7, "Accounting and Reporting by Development Stage
Enterprises" in 2000, upon commencement of activities. The Company's
original business plan was to operate as a mortgage banking and brokerage
company over the Internet. In 2004, the Company changed its focus to that
of a "blank check" company, whose purpose is to serve as a capital access
corporation which will seek out and acquire an operating company.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109 -
Accounting for Income Taxes. Deferred tax assets and liabilities are
recognized with respect to the tax consequences attributable to differences
between the financial statement carrying values and tax basis of existing
assets and liabilities. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled.
Further, the effect on deferred tax assets and liabilities of changes in
tax rates is recognized in income in the period that includes the enactment
date.
F - 8
San Juan Financial, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
3. Summary of Significant Accounting Policies (cont'd)
Earnings (loss) per Share
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common
stock equivalents. Diluted loss per share utilizes the average market price
per share when applying the treasury stock method in determining common
stock equivalents. However, the Company has a simple capital structure for
the period presented and, therefore, there is no variance between the basic
and diluted loss per share.
Fair Value of Financial Instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has no financial instruments in the accompanying financial
statements.
Stock-Based Compensation
In December 2004 the FASB issued a revised Statement 123 (SFAS 123R),
"Accounting for Stock-Based Compensation" requiring public entities to
measure the cost of employee services received in exchange for an award of
equity instruments based on grant date fair value. The cost will be
recognized over the period during which an employee is required to provide
service in exchange for the award -- usually the vesting period.
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board
Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements-An Amendment of APB Opinion No.
28." SFAS 154 provides guidance on the accounting for and reporting of
accounting changes and error corrections. It establishes retrospective
application, or the latest practicable date, as the required method for
reporting a change in accounting principle and the reporting of a
correction of an error. SFAS 154 is effective for accounting changes and a
correction of errors made in fiscal years beginning after December 15, 2005
and is required to be adopted by the Company in the first quarter of 2006.
The adoption of this new Statement is not expected to have a material
effect on the Company's current financial position, results or operations,
or cash flows.
F - 9
San Juan Financial, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
4. Stockholders' Equity
Following its original incorporation in June 1989, the Company had issued
100,000,000 shares of its no par value common stock to an officer as
payment for services related to the organization and start-up of the
Company. The value of the transaction could not be objectively measured as
a related party rendered the services. The transaction has been recorded at
no value since the Board of Directors determined that the rendered services
for which these shares had been issued were incomplete. On November 2,
2001, the Board of Directors authorized the cancellation of the original
100,000,000 shares of common stock, as a result of the incomplete
performance.
On April 7, 2000, the Board of Directors authorized an 8-to-1 reverse split
of the Company's no par value common stock, effective on that date. All
share and per share amounts reflect this reverse split.
In May 2000, the Company conducted a private placement offering whereby it
sold 1,260,000 shares of its no par value common stock for $0.05 per share
pursuant to an exemption from registration claimed under Sections 4(2) and
4(6) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder. The Company received net proceeds of $63,000.
On September 15, 2004, Mark W. Moniak was appointed as Director, President,
and Chief Executive Officer of the Company. The Company does not have an
employment agreement with Mr. Moniak. However, the Company has agreed to
issue 4,000,000 shares of its common stock, valued at $5,000, to Mr. Moniak
in return for Mr. Moniak serving as the Company's President until September
15, 2005.
During the year ended December 31, 2004, the Company incurred $9,305 of
expenses which were paid by stockholders and recorded as additional paid-in
capital.
On March 11, 2005, the Company held a special meeting of its shareholders.
At this meeting, the shareholders of the Company held a 1-for-20 forward
stock split of the Company's common stock. Unless otherwise indicated, all
share and per share data has been retroactively restated to reflect this
forward stock split.
During the year ended December 31, 2005, the Company incurred $17,386 of
expenses which were paid by stockholders and recorded as additional paid-in
capital.
F - 10
San Juan Financial, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
5. Income Taxes
A deferred tax asset of $36,375 at December 31, 2005 relates to net
operating losses and deductible temporary differences. Management does not
consider it more likely than not that the entire deferred tax asset will be
realized. Therefore, a full valuation allowance has been established
against the deferred tax asset. The valuation allowance increased by $7,400
and $5,665 for the years ended December 31, 2005 and 2004, respectively.
The net operating losses will expire in years 2020 through 2025.
December 31,
2005
Net operating loss carryforwards $ 36,375
Valuation allowance (36,375)
----------
$ --
===========
The difference between income taxes computed at the statutory federal rate of
34% and the provision for income taxes relates to the following:
Percent of
Pretax
Amount
----------
Provision at federal statutory rate 34%
Effect of state income tax 3%
Increase in valuation allowance (37%)
----
0%
====
6. Merger Agreement
In March 2005, the Company reached an informal agreement with the principal
shareholders of Cookie Club of America, Inc. ("CCA") to acquire all of CCA's
outstanding shares in exchange for 5,890,000 shares of the Company's common
stock. The agreement was never finalized and plans of merger were terminated
in August 2005.
F - 11
San Juan Financial, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
7. Subsequent Events
On April 4, 2006, the Company signed an agreement for the sale of 44,000,000
shares of common stock to five individuals for an aggregate price of $440.
Upon closing of the agreement Mark Moniak, current sole officer and President
of the Company, will appoint Rex Doyle, John Ippolito and David Reynolds as
directors of the Company. Following such appointment, Mr. Moniak will resign.
The agreement specifies that as soon as practicable, the parties to the
agreement will cooperate with each other such that $300,000 will be wire
transferred into a bank account controlled by the Company. This agreement
will not be considered closed until the $300,000 wire transfer has been
received.
F-12
EPIC Capital Group, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
September 30, 2006
EPIC Capital Group, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 2006
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 76,112
---------
Total current assets 76,112
--------
TOTAL ASSETS $ 76,112
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 523
Accrued expenses 1,005
Deposit 20,000
---------
Total current liabilities 21,528
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued and outstanding -
Common stock, no par value; 750,000,000 shares
authorized; 49,260,000 shares issued and outstanding
at September 30, 2006 68,440
Additional paid-in capital 331,712
Deficit accumulated during the development stage (345,568)
---------
Total shareholders' equity 54,584
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 76,112
=========
The accompanying notes are an integral part of these financial
statements.
1
EPIC Capital Group, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
For the period
For the three For the nine from inception
months ended months ended (April 10, 2000)
September 30, September 30, to
2006 2005 2006 2005 September 30, 2006
---- ---- ---- ---- ------------------
REVENUE $ - $ - $ - $ - $ -
OPERATING EXPENSES
General and administrative expenses 143,655 - 249,012 12,404 347,324
--------- -------- -------- --------- -----------
LOSS FROM OPERATIONS (143,655) - (249,012) (12,404) (347,324)
OTHER INCOME (EXPENSE)
Interest income 787 - 1,756 - 1,756
--------- -------- -------- --------- -----------
NET LOSS (142,868) - (247,256) (12,404) (345,568)
Accumulated deficit
Balance, beginning of period (202,700) (90,716) (98,312) (78,312) -
--------- -------- -------- --------- -----------
Balance, end of period $ (345,568) $ (90,716) $(345,568) $(90,716) $ (345,568)
=========== ========== ========== ========== ===========
NET LOSS PER SHARE $ (0.00) $ (0.00) $ (0.01) $ (0.00) $ (0.06)
=========== ========== ========== ========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 49,260,000 5,260,000 34,109,817 5,260,000 5,852,216
=========== ========== ========== ========== ===========
The accompanying notes are an integral part of these financial
statements.
2
EPIC Capital Group, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
For the period
from inception
For the nine months ended (April 10, 2000)
September 30, to
2006 2005 September 30, 2006
---- ---- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (247,256) $ (12,404) $ (345,568)
Adjustments to reconcile
net loss to net cash
flows from operating
activities
Increase(Decrease) in
accounts payable (3,098) 5,208 523
Increase(Decrease) in
accrued expenses 1,005 - 1,005
Increase(Decrease) in
deposit liability 20,000 - 20,000
Common stock issued
for compensation - - 5,000
------------ ------------ -------------
Net cash flows from
operating activities (229,349) (7,196) (319,040)
CASH FLOWS FROM INVESTING
ACTIVITIES - - -
CASH FLOWS FROM FINANCING
ACTIVITIES
Additional paid-in capital 300,000 - 300,000
Proceeds from the issuance
of common stock 440 - 63,440
Expenses paid by shareholders 5,021 7,196 31,712
------------ ------------ -------------
Net cash flows from
financing activities 305,461 7,196 395,152
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 76,112 - 76,112
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - - -
------------ ------------ -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 76,112 $ - $ 76,112
============ ============ =============
The accompanying notes are an integral part of these financial
statements.
3
EPIC Capital Group, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
Note 1 - Management's Representation of Interim Financial Information
The accompanying financial statements have been prepared by EPIC Capital Group,
Inc. without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as allowed by such rules
and regulations, and management believes that the disclosures are adequate to
make the information presented not misleading. These financial statements
include all of the adjustments which, in the opinion of management, are
necessary to a fair presentation of financial position and results of
operations. All such adjustments are of a normal and recurring nature. These
financial statements should be read in conjunction with the audited financial
statements at December 31, 2005.
Note 2 - Summary of Significant Accounting Policies
Development Stage Activities
EPIC Capital Group, Inc. entered the development stage in accordance with
Financial Accounting Standards Board Statements of Financial Accounting
Standards (SFAS) No. 7, "Accounting and Reporting by Development Stage
Enterprises" in 2000, upon commencement of activities. The Company's original
business plan was to operate as a mortgage banking and brokerage company over
the Internet. In 2004, the Company changed its focus to that of a "blank check"
company, whose purpose is to serve as a capital access corporation, which will
seek out and acquire an operating company. After the April 2006 change of
control, the Company plans to engage in oil and gas exploration and production,
engineering construction management, and engineering staffing.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
4
EPIC Capital Group, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109 -
Accounting for Income Taxes. Deferred tax assets and liabilities are recognized
with respect to the tax consequences attributable to differences between the
financial statement carrying values and tax basis of existing assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. Further, the effect on
deferred tax assets and liabilities of changes in tax rates is recognized in
income in the period that includes the enactment date.
Earnings (loss) per Share
The Company reports loss per share using a dual presentation of basic and
diluted loss per share. Basic loss per share excludes the impact of common stock
equivalents. Diluted loss per share utilizes the average market price per share
when applying the treasury stock method in determining common stock equivalents.
However, the Company has a simple capital structure for the period presented
and, therefore, there is no variance between the basic and diluted loss per
share.
Fair Value of Financial Instruments
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
Company has no financial instruments in the accompanying financial statements.
Stock-Based Compensation
In December 2004 the FASB issued a revised Statement 123 (SFAS 123R),
"Accounting for Stock-Based Compensation" requiring public entities to measure
the cost of employee services received in exchange for an award of equity
instruments based on grant date fair value. The cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award -- usually the vesting period.
5
EPIC Capital Group, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions
No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective
for accounting changes and a correction of errors made in fiscal years beginning
after December 15, 2005 and is required to be adopted by the Company in the
first quarter of 2006. The adoption of this new Statement is not expected to
have a material effect on the Company's current financial position, results or
operations, or cash flows.
Note 3 - Stockholder's Equity
On April 4, 2006, the Company signed an agreement for the sale of 44,000,000
shares of common stock to five individuals for an aggregate price of $440. Mark
W. Moniak, the Company's President and only director, appointed Rex Doyle, John
Ippolito and David Reynolds as directors of the Company. Following these
appointments Mr. Moniak, resigned as an officer and director of the Company. The
Company's new directors then appointed the following persons to be officers of
the Company:
Name Position
Rex Doyle Chief Executive and Principal Financial Officer
John Ippolito President
David Reynolds Executive Vice President and Secretary
Note 4 - Change in the Company's Name
On May 15, 2006 the shareholders of the Company approved an amendment to the
Company's Articles of Incorporation which changed the name of the Company to
Epic Capital Group, Inc. Prior to the adoption of this amendment the Company's
name was San Juan Financial, Inc.
6
EPIC Capital Group, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 2006
Note 5 - Liabilities
In April 2006 several non-affiliated shareholders loaned the Company $300,000.
The loans were unsecured, did not bear interest and were to be cancelled at such
time as the Company's common stock became eligible for listing on the OTC
Bulletin Board. In September 2006 the Company's common stock was listed on the
OTC Bulletin Board, the loans were cancelled, and the $300,000 liability was
reclassified as additional paid-in capital.
In July 2006, the Company received $20,000 from an unrelated third party as a
deposit for an oil and gas joint venture. Since the terms of the joint venture
are still under negotiation, the Company has recorded the $20,000 as a liability
which will be refunded to the third party if the joint venture is not
established.
7
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION
The Company was incorporated in Colorado on June 6, 1989. Following its
formation the Company was inactive until April 2000, when the Company decided to
become involved in the mortgage business. The Company planned to generate
mortgage loans, sell the loans to financial institutions and service the loans
on behalf of the financial institutions. During the nine months ended September
30, 2001 the Company discontinued its efforts to become involved in the mortgage
business and until April 4, 2006 was engaged primarily in the evaluation of
acquisition targets and the filing of periodic reports with the SEC.
On March 11, 2005 the shareholders of the Company approved a 1-for-20
forward split of the Company's common stock. Unless otherwise indicated, all per
share data in this Private Offering Memorandum has been revised to reflect this
forward stock split.
On April 4, 2006, the Company sold 44,000,000 shares of its common stock to
five persons, including the Company's new management.
On May 15, 2006 the shareholders of the Company:
o approved amendments to the Company's Articles of Incorporation which
changed the Company's name to Epic Capital Group, Inc., and
o changed the Company's authorized capitalization to 100,000,000 shares
of common stock and 10,000,000 shares of preferred stock.
The Company plans to have two divisions which will operate in the
following areas:
o Oil and Gas Exploration and Development - This division will evaluate
undeveloped oil and gas prospects and participate in drilling
activities on prospects which in the opinion of management are
favorable for the production of oil or gas.
o Engineering and Infrastructure Management - This division will consist
of 3 main business units. The Company estimates that this division
will require the services of 100 or more professionals.
1 Engineering and Construction Management - This business unit will
provide services to optimize drilling, completion, field level
work processes, physical plant construction, processing and
transportation. The Company considers the integration of
construction, operations, and financing to be critical for older
fields with outdated systems and for new projects which lack an
experienced team of professionals dedicated to the project.
2 Engineering Staffing - This business unit will provide to the
industry, on a contract basis, both short term and long term,
experienced and skilled engineers, geologists, and other
technicians. The availability of skilled professionals is quickly
becoming the limiting resource for the oil and gas industry. Both
large and small oil and gas companies do not have the available
human talent to analyze, plan, engineer and execute projects. Of
concern is the growing number of college graduates who opt for
careers outside the oil and gas industry. Enrollment in petroleum
related disciplines at major U.S. universities has only recently
started to increase but is not near the enrollment of the 1980's.
In most oil and gas companies, the average age continues to climb
toward 50 years old, with some studies estimating that less than
30% of the workforce is younger than 40 years old. The Company
intends to address this talent shortage with its Engineering
Staffing division.
3 Energy Infrastructure Management - This business unit will
provide planning, engineering, and consulting services to clients
in both the private and public markets. These services will be
provided to clients in both the private markets and the public
sector.
The Company estimates that it will need $4,000,000 to establish its
Engineering and Construction Management division.
During the nine months ended September 30, 2006 the Company did not
generate any revenue and had a loss of $(247,256).
During the nine months ended September 30, 2006 the Company's operations
used $(229,349) in cash. During this period capital was provided primarily
through loans from shareholders of the Company.
As of October 31, 2006 the Company:
o was negotiating to acquire two engineering and construction management
firms and one engineering staffing firm.
o had signed an agreement with a major energy services corporation to
provide the Company, on an as needed basis, with production engineers,
facilities engineers and procurement managers.
o was working with a major investment bank to obtain financing needed to
acquire producing oil and gas wells in Texas.
o was negotiating to acquire producing and shut-in oil and gas wells,
together with undeveloped acreage, in Kansas and Oklahoma.
o Has engaged in a re-completion of a well in south Texas.
Between October 1, 2006 and October 31, 2006 the Company sold 481,600
shares of its common stock to 64 private investors at a price of $1.00 per
share.
The Company's future activities will depend upon available funding.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 13, 2006 EPIC CAPITAL GROUP, INC.
By: /s/ Rex Doyle
------------------------------
Rex Doyle, Chief Executive Officer