SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 10, 2007
EPIC ENERGY RESOURCES, INC.
---------------------------
(Name of Small Business Issuer in its charter)
Colorado 0-31357 94-3363969
- ------------------------ ----------------------- ---------------------
(State of incorporation) (Commission File No.) (IRS Employer
Identification No.)
10655 Six Pines, Suite 210
The Woodlands, Texas 77380
---------------------------- ---------------------------
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (281)-419-3742
N/A
------------------------ ----
(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 1.01 Entry Into a Material Definitive Agreement
In August 2007, the Company acquired The Carnrite Group LLC for 3,177,812
shares of its restricted common stock. In connection with this acquisition,
1,673,036 additional shares of common stock were issued to key officers of The
Carnrite Group as retention shares that will vest in two years from March 28,
2007, which is the effective date of the acquisition. All or part of these
shares will be returned to the Company if one or more officers of Carnrite
voluntarily terminate their employment prior to March 23, 2009.
The Carnrite Group, LLC emerged from Jefferies Energy Consulting, LLC, in
early 2007 facilitated by the decisions of Jefferies Randall & Dewey management
to exit management consulting. The Carnrite consultants have industry experience
that span the upstream, midstream, downstream, and utility sectors of the oil
and gas industry covering reservoir management and drilling to commodity
marketing and trading, and financial analysis and planning to organizational
design.
The Carnrite Group, from its base in Houston, Texas, brings global
experience working with clients spanning domestic North American, to national
and multi-national energy companies, including midstream companies,
petro-chemical companies, service providers, and the investment banking
community. The Carnrite Group team of consultants have completed engagements
ranging from operations effectiveness and optimization, to corporate strategy
and organizational capability in Europe, Mid East, Africa and Asia; conceptual
field development in South America; and gas commercialization and operations
optimization in Australia. Success is achieved by blending a proven project
approach leveraged with multinational teams to achieve a result tailored to suit
the clients' needs.
Item 9.01 Financial Statements and Exhibits
The financial statements of The Carnrite Group LLC, together with the
required proforma financial statements, are filed with this amended report.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Balance Sheet - June 30, 2007 F-3
Income Statement - for the period from March 28, 2007
(inception) through June 30, 2007 F-4
Statement of Members' Equity - for the period from March 28, 2007
(inception) through June 30, 2007 F-5
Statement of Cash Flows - for the period from March 28, 2007
(inception) through June 30, 2007 F-6
Notes to Financial Statements F-7 - F-17
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
The Carnrite Group L.L.C.
We have audited the accompanying balance sheet of The Carnrite Group L.L.C. (the
"Company") as of June 30, 2007, and the related statements of income, members'
equity and cash flows for the period from March 28, 2007 (inception) through
June 30, 2007. 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides 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 The Carnrite Group L.L.C. as of
June 30, 2007, and the results of its operations and cash flows for the period
from March 28, 2007 (inception) through June 30, 2007, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Malone & Bailey, PC
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
October 29, 2007
F-2
THE CARNRITE GROUP L.L.C.
Balance Sheet
June 30, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 48,227
Receivables from clients:
Billed, net of allowance of $0 596,473
Unbilled, at estimated net realizable value 611,410
-----------
TOTAL CURRENT ASSETS 1,256,110
Property and equipment, net 26,442
Other assets 4,901
===========
TOTAL ASSETS $1,287,453
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 309,556
Accounts payable - related party 1,641
Lines of credit 362,000
-----------
TOTAL CURRENT LIABILITIES 673,197
Non-current liabilities 0
-----------
TOTAL LIABILITIES 673,197
Members' Equity 614,256
-----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $1,287,453
===========
The accompanying notes are an integral part of these financial
statements.
F-3
THE CARNRITE GROUP L.L.C.
Income Statement
For the period from March 28, 2007 (inception) through June 30, 2007
REVENUES
Consulting fees $1,222,612
-----------
TOTAL REVENUES 1,222,612
OPERATING EXPENSES
Depreciation and amortization expense 1,089
Professional and subcontracted services 297,698
Compensation and benefits 157,894
Occupancy, communication and other 128,961
General and administrative 21,858
-----------
OPERATING EXPENSES 607,500
INCOME FROM OPERATIONS 615,112
Interest expense 2,106
-----------
OTHER EXPENSES 2,106
-----------
NET INCOME $ 613,006
===========
The accompanying notes are an integral part of these financial
statements.
F-4
THE CARNRITE GROUP L.L.C.
Statement of Members' Equity For the period from
March 28, 2007 (inception) through June 30, 2007
BALANCE, March 28, 2007 $ -
Members' contributions 1,250
Net income 613,006
----------
BALANCE, June 30, 2007 $ 614,256
==========
The accompanying notes are an integral part of these financial
statements.
F-5
THE CARNRITE GROUP L.L.C.
Statement of Cash Flows
For the period from March 28, 2007 (inception) through June 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 613,006
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 1,089
Changes in operating assets and
liabilities:
Accounts receivable (1,207,88)
Other assets (4,901)
Accounts payable 311,197
-----------
NET CASH USED IN OPERATING ACTIVITIES (287,492)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (27,531)
----------
NET CASH USED IN INVESTING ACTIVITIES (27,531)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from members' contributions 1,250
Borrowings under lines of credit 362,000
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 363,250
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 48,227
CASH AND CASH EQUIVALENTS, March 28, 2007 -
-----------
CASH AND CASH EQUIVALENTS, June 30, 2007 $ 48,227
===========
The accompanying notes are an integral part of these financial
statements.
F-6
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
- -----------------------------------
The Carnrite Group L.L.C. (the Company) is a Texas Limited Liability Company
focused on providing strategic and operational consulting services to the broad
energy industry. The Company's consultants have industry experience that spans
the upstream, midstream, downstream, and utility sectors of the energy industry.
The Company covers areas that include reservoir management, project management,
commodity marketing and trading, financial analysis, acquisition due diligence,
and organizational design. The Company is currently engaged with several
multi-national companies on assignments both domestically and internationally.
Basis of Presentation
- ---------------------
These financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America ("US GAAP").
Use of Estimates
- ----------------
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Cash and cash equivalents
- -------------------------
For purposes of the statement of cash flow, cash and cash equivalents include
demand deposits, time deposits and short-term liquid investments such as
certificates of deposit with a maturity of three months or less when purchased.
The Company maintains deposits at one financial institution, the balance of
which may at times exceed amounts covered by insurance provided by the U.S.
Federal Deposit Insurance Corporation ("FDIC"). However, the Company has not
experienced any losses in such accounts and does not believe it is exposed to
any significant credit risks from these excess deposits.
Receivables From Clients
- ------------------------
Billed receivables from clients are presented at their billed amount less an
allowance for doubtful accounts. Unbilled receivables are stated at net
realizable value less an allowance for non-billable amounts.
F-7
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company provides an allowance for doubtful accounts on receivables based on
historical collection experience and a specific review of each customer's
receivable balance. As of June 30, 2007, management determined that no allowance
for doubtful accounts was required based on management's assessment of the
collect ability of these items. No accounts were written off during the period
from March 28, 2007 (inception) through June 30, 2007.
Property and Equipment
- ----------------------
Property and equipment consists of office equipment and furniture and are stated
at cost. Depreciation is computed on a straight-line basis over estimated useful
lives ranging from three to five years.
Impairment
- ----------
The Company has adopted SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" and periodically evaluates, using independent appraisals
and projected undiscounted cash flows, the carrying value of its long-lived
assets and whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. There were no impairment
charges during the period from March 28, 2007 (inception) through June 30, 2007.
Revenue Recognition
- -------------------
Revenue includes fees primarily generated from consulting services provided. The
Company recognizes revenue from these consulting engagements when hours are
worked, either on a time-and-materials basis or on a fixed-fee basis, depending
on the terms and conditions defined at the inception of an engagement with a
client. The terms of the contracts with clients are fixed and determinable and
may change based upon agreement by both parties. Individual consultants' billing
rates are principally based on a multiple of salary and compensation costs.
Revenue recognized in excess of billings is recorded as unbilled accounts
receivable. Cash collections and invoices generated in excess of revenue
recognized are recorded as deferred revenue until the revenue recognition
criteria are met. Client reimbursable expenses, including those relating to
travel, other out-of-pocket expenses and any third-party costs, are included in
revenue, and an equivalent amount of reimbursable expenses are included in
professional and subcontracted services as a cost of revenue.
Income Taxes
- ------------
The Company is treated as a partnership for federal income tax purposes;
therefore, it is not taxed. Under Subchapter K of the Internal Revenue Code,
each member is taxed separately on their distributive share of the Company's
income whether or not that income is actually distributed.
F-8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
- -----------------------------------
In accordance with the reporting requirements of SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments", the Company calculates the fair
value of its assets and liabilities which qualify as financial instruments under
this statement and includes this additional information in the notes to the
financial statements when the fair value is different than the carrying value of
those financial instruments. The estimated fair value of cash, accounts
receivable and accounts payable approximate their carrying amounts due to the
short maturity of these instruments. The carrying value of short and long-term
debt also approximates fair value since their terms are similar to those in the
lending market for comparable loans with comparable risks. None of these
instruments are held for trading purposes.
Recent Accounting Pronouncements
- --------------------------------
In September 2006, the Financial Accounting Standards Board ("FASB") published
Statement of Financial Accounting Standards No.157, "Fair Value Measurements"
(FAS 157). FAS 157defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. FAS 157 applies under other accounting pronouncements
that require or permit fair value measurements and accordingly, does not require
any new fair value measurements. FAS 157 is effective for fiscal years beginning
after November 15, 2007. The company does not believe the adoption of FAS 157
will have a material impact on its financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109"("FAS 109"), which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FAS No.
109,"Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for fiscal years beginning after
December 15, 2006 so it will be effective for the company in first quarter of
fiscal year 2008, which begins on January 1, 2008. The Company does not believe
the adoption of FIN 48 will have a material impact on its financial statements.
In September 2006, the SEC released Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements When Quantifying
Misstatements in Current Year Financial Statement" ("SAB 108"), which provides
guidance on how companies should quantify financial statement misstatements. SAB
108 requires that the effect of misstatements that were not corrected at the end
of the prior year be considered in quantifying misstatements in the current-year
financial statements. Two techniques were identified as being used by companies
in practice to accumulate and quantify misstatements -- the "rollover" approach
and the "iron curtain" approach. The rollover approach quantifies a misstatement
based on the amount of the
F-9
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
misstatement originating in the current-year income statement. Thus, this
approach ignores the effects of correcting the portion of the current-year
balance sheet misstatement that originated in prior years. The iron curtain
approach quantifies a misstatement based on the effects of correcting the
cumulative misstatement existing in the balance sheet at the end of the current
year, irrespective of the misstatement's year(s) of origination. SAB 108 permits
companies to adjust for the cumulative effect of misstatements relating to prior
years in the carrying amount of assets and liabilities as of the beginning of
the current fiscal year, with an offsetting adjustment to the opening balance of
retained earnings in the year of adoption.
In February 2007, the Financial Accounting Standards Board (the "FASB") issued
FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities -- Including an Amendment of FASB Statement No. 115 ("SFAS 159").
This standard permits an entity to choose to measure many financial instruments
and certain other items at fair value. Most of the provisions in SFAS 159 are
elective; however, the amendment to FASB Statement No. 115, Accounting for
Certain Investments in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities. The FASB's stated objective in
issuing this standard is as follows: "to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions."
The fair value option established by SFAS 159 permits all entities to choose to
measure eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair value
option has been elected in earnings (or another performance indicator if the
business entity does not report earnings) at each subsequent reporting date. The
fair value option: (i) may be applied instrument by instrument, with a few
exceptions, such as investments otherwise accounted for by the equity method;
(ii) is irrevocable (unless a new election date occurs); and (iii) is applied
only to instruments and not to portions of instruments.
SFAS 159 is effective as of the beginning of an entity's first fiscal year that
begins after November 15, 2007. Early adoption is permitted as of the beginning
of the previous fiscal year provided that the entity makes that choice in the
first 120 days of that fiscal year and also elects to apply the provisions of
FASB Statement No. 157, Fair Value Measurements ("SFAS 157"). The Company is
currently assessing the impact of SFAS 159 on its financial statements.
NOTE 2 - LINES OF CREDIT
The Company's borrowings consist of two lines of credit.
On May 1, 2007, the Company entered into a line of credit agreement with Compass
Bank for a total of $800,000. As of June 30, 2007, the amount outstanding under
the line of credit was $312,000. The loan bears interest at 8.25% and matures
April 30, 2008. Interest is payable monthly and principal is due at maturity.
The credit agreement is secured by all accounts of the Company.
F-10
NOTE 2 - LINES OF CREDIT (Continued)
On May 9, 2007, the Company borrowed $50,000 from Carnrite Consolidated Business
Enterprises Ltd. ("CCBE"). CCBE is owned by Alan Carnrite (principal director at
The Carnrite Group L.L.C.) who had an option to purchase 40% of the Company. The
loan bears interest at 8.25% and matures May 15, 2012. The note is callable by
the lender at any point. The Company must make principal payments in the amount
of 85% of cash in excess of $300,000 at each month end.
NOTE 3 - MEMBERS' EQUITY
On March 28, 2007, the Company issued members' equity to five individuals in
exchange for cash of $1,250.
On March 28, 2007, the Company issued an option to Alan G. Carnrite to purchase
a 40% membership interest in the Company. The option had an exercise price of $1
and a term of two years. The fair value for the option granted was estimated at
the date of grant using the Black-Scholes option-pricing model assuming an
expected life of 2.0 years, a risk-free rate of 4.53% and an expected volatility
of 100%. The Black-Scholes option-pricing model resulted in a total fair value
on the date the option was granted of $499. In August 2007, Alan G. Carnrite
exercised the option.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Leases
- ------
On April 23, 2007, the Company entered into an agreement to lease office
facilities and copier in Houston, Texas leased under a twenty-four month
operating lease agreement. The agreement expires May 1, 2009, and provides for
base monthly rental payments of $2,500 through May 1, 2008, and $2,750 for the
final 12 months of the lease. The lease may be renewed for an additional year at
the option of the Company at a rate of $3,000 per month. During the period from
March 28, 2007 (inception) through June 30, 2007, rent expense totaled $13,183.
Future minimum lease payments for The Carnrite Group operating lease commitments
are:
Fiscal Lease
Year Commitments
- ---------------------------- ------------------
2008 $ 35,240
2009 14,240
2010 3,240
2011 1,215
2012 0
Thereafter 0
------------
Total $ 53,935
==================
F-11
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
We evaluate office capacity on an ongoing basis to meet changing needs in our
markets with a goal of minimizing our occupancy expense.
F-11
License Fee Commitments under License Agreement
- -----------------------------------------------
The Company entered into an agreement to license certain products. These
products are databases containing primarily financial data at the industry and
company level that is used by the Company in connection with the preparation of
presentations, publications, and other materials as part the Company's ordinary
business activities. Under the agreement, the Company is obligated to pay
quarterly license fees of $5,000, through the term year ending May 15, 2008 and
may be renewed on terms agreed to by both parties. As of September 30, 2007, the
Company had paid $10,000 of the annual license fees. Under the terms of the
agreement, the Company has no obligation beyond May 15, 2008 regarding any fees
associated with this licensed products.
Concentrations of Risk
- ----------------------
As of June 30, 2007, two of the Company's customers accounted for 63% and 29% of
total accounts receivable, respectively. For the period from March 28, 2007
(inception) through June 30, 2007, the company's two largest customers accounted
for 37% and 15% of total revenues.
NOTE 5 - SUBSEQUENT EVENTS
In August 2007, the Company was acquired by Epic Energy Resources, Inc. ("Epic")
for 3,177,812 shares of Epic's restricted common stock. In connection with this
acquisition, 1,673,036 additional shares of Epic common stock were issued to key
officers of the Company as retention shares that will vest in two years from
March 28, 2007, which is the effective date of the acquisition. All or part of
these shares will be returned to Epic if one or more officers of the Company
voluntarily terminate their employment prior to March 23, 2009.
F-12
Epic Energy Resources, Inc.
Unaudited Pro forma Condensed Combined Financial Statements
June 30, 2007
The following unaudited pro forma condensed combined balance sheet, unaudited
pro forma condensed combined statement of operations and explanatory notes give
effect to the acquisition of The Carnrite Group L.L.C. ("Carnrite") by Epic
Energy Resources, Inc. ("Epic").
The unaudited pro forma condensed combined balance sheet, unaudited pro forma
condensed combined statement of operations and explanatory notes are based on
the estimates and assumptions set forth in the explanatory notes. The unaudited
pro forma condensed combined balance sheet and the unaudited pro forma condensed
combined statement of operations have been prepared utilizing the historical
financial statements of Carnrite and Epic and should be read in conjunction with
the historical financial statements and notes thereto.
The transaction giving rise to the unaudited pro forma condensed combined
financial statements is the purchase by Epic of a 100% interest in Carnrite on
August 13, 2007 in consideration for 3,177,812 shares of its restricted common
stock. In addition, Epic issued 63,556 shares of its restricted common stock as
a transaction fee to an individual that assisted with the Carnrite acquisition.
In connection with this acquisition, 1,673,036 additional shares of common stock
were issued to key officers of the Carnrite Group as contingent consideration
that will vest in two years from March 28, 2007, which is the effective date of
the acquisition. All or part of these shares will be returned to the Company if
one or more officers of Carnrite voluntarily terminate their employment prior to
March 23, 2009. Based upon management's interpretation of EITF No. 95-8
"Accounting for Contingent Consideration Paid to the Shareholders for an
Acquired Enterprise in a Business Combination", the contingent consideration is
considered compensation cost for post-combination recognition and not additional
purchase price.
The unaudited pro forma condensed combined statement of operations has been
prepared as if the acquisition had been consummated on January 1, 2007. Carnrite
did not commence its operations until March 28, 2007. The unaudited pro forma
condensed combined balance sheet has been prepared as if the acquisition was
consummated on June 30, 2007.
The unaudited condensed combined financial statements are presented for
informational purposes only, are based on certain assumptions that we believe
are reasonable and do not purport to represent our financial condition or our
results of operations had the business combination occurred on or as of the
dates noted above or to project the results for any future date or period. In
the opinion of management, all adjustments have been made that are necessary to
present fairly the unaudited condensed combined financial information.
The acquisition and related transactions will be treated as a purchase business
combination for accounting purposes, and Carnrite's assets acquired and
liabilities assumed will be recorded at their fair value.
The allocations of the purchase price to Carnrite's assets and liabilities are
only preliminary allocations based on estimates of fair value and will change
when the actual fair values are determined. Among the provisions of Statement of
Financial Accounting Standards No. 141, "Business Combinations," criteria have
F-13
been established for determining whether intangible assets should be recognized
separately from goodwill. Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," provides, among other guidelines, that
goodwill and intangible assets with indefinite lives will not be amortized, but
rather are tested for impairment on at least an annual basis.
Epic Energy Resources, Inc.
Unaudited Pro forma Condensed Combined Balance Sheet
June 30, 2007
Historical Historical Pro Forma
Epic Carnrite Adjustments Pro Forma
---------- ---------- ----------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 513,723 $ 48,227 $ - $ 561,950
Receivables from clients:
Billed, net of allowance of $0 10,000 596,473 - 606,473
Unbilled, at estimated net
realizable value - 611,410 - 611,410
Prepaid expenses and other 64,999 - - 64,999
---------- ---------- ----------- ---------
TOTAL CURRENT ASSETS 588,722 1,256,110 - 1,844,832
Proved oil and gas properties
(full-cost method) 6,075,984 - - 6,075,984
Other mineral reserves 783,474 - - 783,474
Property and equipment, net - 26,442 - 26,442
Other assets - 4,901 - 4,901
Goodwill (Note 1) - - 10,082,252 10,082,252
---------- ---------- ----------- ---------
TOTAL ASSETS $7,448,180 $1,287,453 $10,082,252 $18,817,885
========== ========== =========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 42,092 $ 309,556 $ - $ 351,648
Accounts payable - related party - 1,641 - 1,641
Accrued liabilities 81,862 81,862
Current portion of long term debt 877,046 - - 877,046
Lines of credit - 362,000 - 362,000
---------- ---------- ----------- ---------
TOTAL CURRENT LIABILITIES 1,001,000 673,197 - 1,674,197
Asset retirement obligations 153,081 - - 153,081
Long-term debt 1,750,431 - - 1,750,431
---------- ---------- ----------- ---------
TOTAL LIABILITIES
2,904,512 673,197 - 3,577,709
Members' Equity (Note 1) - 614,256 (614,256) -
Common stock (Note 1) 10,570,157 - 10,696,508 21,056,937
Additional paid in capital 330,912 - - 330,912
Retained deficit (6,357,401) - - (6,357,401)
---------- ---------- ----------- ---------
TOTAL OWNERS' EQUITY 4,543,668 614,256 10,082,252 15,240,176
---------- ---------- ----------- ----------
TOTAL LIABILITIES AND OWNERS' EQUITY $7,448,180 $1,287,453 $10,082,252 $18,817,855
========== ========== ========== ===========
See explanatory notes to unaudited proforma condensed combined
financial statements
F-15
Epic Energy Resources, Inc.
Unaudited Pro forma Condensed Combined Statement of Operations
Six Months Ended June 30, 2007
Historical Historical Pro Forma
Epic Carnrite Adjustments Pro Forma
---------- ---------- ----------- ---------
REVENUES
Consulting fees $ 94,842 $1,222,612 $1,317,454
Oil and gas revenue 9,673 - 9,673
-----------------------------------------------
TOTAL REVENUES 104,515 1,222,612 - 1,327,127
OPERATING EXPENSES
General and administrative 848,016 21,858 869,874
Lease operating expenses 122,555 - 122,555
Professional and subcontracted
services - 297,698 297,698
Compensation and benefits (Note 2) - 157,894 157,894
Occupancy, communication and other - 128,961 128,961
Depreciation, depletion and
amortization expense - 1,089 1,089
Accretion expense 10,738 10,738
Impairment of oil and gas properties 1,338,527 1,338,527
-----------------------------------------------
OPERATING EXPENSES 2,319,836 607,500 - 2,927,336
INCOME (LOSS) FROM OPERATIONS (2,215,321) 615,112 - (1,600,209)
OTHER INCOME (EXPENSE)
Interest and other income 6,710 - 6,710
Interest expense (80,264) (2,106) (82,370)
-----------------------------------------------
OTHER INCOME (EXPENSE) (73,554) (2,106) - (75,660)
-----------------------------------------------
NET INCOME (LOSS) $(2,288,875) $ 613,006 - $(1,675,869)
-----------------------------------------------
Earnings (loss) per share from
continuing operations - Basic and Diluted (.05) (.04)
WAVG shares outstanding - Basic and 41,670,355 41,670,355
Diluted
See explanatory notes to unaudited proforma condensed combined financial
statements
EXPLANATORY NOTES
Pro forma adjustments
1. The adjustment to the balance sheet for the acquisition is to recognize the
consideration for the acquisition, being 3,241,368 shares of Epic common
stock valued at the closing price on August 13, 2007 of $3.30 per share.
The excess purchase price paid over the fair value of the acquired net
assets of Carnrite is recorded as Goodwill. The members' equity of Carnrite
is eliminated as is standard in consolidation of acquired entities. We have
not completed a final assessment of the fair value of assets and
liabilities of Carnrite. The assessment will not be completed until the
full review of the assets has been completed. We expect that the ultimate
purchase price allocation will include adjustments to the fair value of
certain assets and liabilities. Accordingly, to the extent such assessments
indicate that the fair value of the assets and liabilities differ from
their net book value, such differences would be allocated to those assets
and liabilities.
2. No adjustments were made for the employment agreements entered into with
key members of management of Carnrite. Such agreements provide for
compensation of $150,000 per annum to five key employees of Carnrite. Such
amounts were not included in the unaudited pro forma condensed combined
statement of operations.
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 6, 2007 EPIC ENERGY RESOURCES, INC.
By /s/ John Ippolito
-----------------------------
John Ippolito, President