UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2008
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________.
Commission File Number 0-31357
EPIC ENERGY RESOURCES, INC.
Colorado 94-3363969
- -------------------------- ----------------------------------
State or other jurisdiction (I.R.S.) Employer Identification No.
of incorporation
1450 Lake Robbins Drive, Suite 160
The Woodlands, TX 77380
Address of principal executive offices
(281) 419-3742
-----------------------------
Registrant's telephone number
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the proceeding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days:
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer" and "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
YES [ ] NO [X]
As of November 4, the Company had 43,375,160 issued and outstanding shares of
common stock.
EPIC ENERGY RESOURCES INC.
Table of Contents
PART I -- FINANCIAL INFORMATION Page
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of September 30, 2008 and
December 31, 2007 2
Unaudited Consolidated Statements of Operations for the three and
nine months ended September 30, 2008 and 2007 3
Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 2008 and 2007 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13 Item 4T. Controls and Procedures 16
PART II -- OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 6. Exhibits 18
Signatures 19
Certification Pursuant to Section 302 20
Certification Pursuant to Section 302 21
Certification Pursuant to Section 906 22
Certification Pursuant to Section 906 23
EPIC ENERGY RESOURCES INC
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September December
30, 31,
2008 2007
(unaudited) (audited)
------------ ---------
ASSETS
Current Assets
Cash and cash equivalents $ 3,486 $ 3,483
Restricted cash - 3,400
Accounts receivable:
Billed, net of allowance for doubtful
accounts of $1,297 and $636, respectively 20,340 11,335
Unbilled 2,212 3,447
Other - 640
Prepaid expenses and other current assets 286 309
-------- ---------
Total Current Assets 26,324 22,614
Proved oil and gas properties, (full cost method),
net of accumulated depletion and impairments
of $5,260 and $5,260, respectively 5,248 5,248
Other mineral reserves 783 783
Property and equipment, net 5,782 10,597
Asset held for sale 4,205 -
Other assets 52 209
Debt issuance costs, net of accumulated
amortization of $369 and $29, respectively 1,660 1,690
Goodwill 30,982 32,624
Other Intangible assets, net 6,005 985
-------- ---------
Total Assets $81,041 $74,750
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $11,166 $ 4,066
Bank overdrafts - 3,442
Accrued liabilities 4,404 2,949
Customer deposits 2,846 1,358
Deferred revenue 2,214 -
Current portion of long term debt 7,768 3,208
-------- ---------
Total Current Liabilities 28,398 15,023
Asset retirement obligations 140 133
Long-term debt 12,973 13,929
-------- ---------
Total Liabilities 41,511 29,085
-------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, no par value: 100,000,000
authorized; 43,375,160 and 42,948,921 shares
issued and outstanding, respectively 41,863 40,699
Additional paid-in capital 14,488 13,417
Accumulated deficit (16,821) (8,451)
-------- ---------
Total Stockholders' Equity 39,530 45,665
-------- ---------
Total Liabilities and Stockholders' Equity $81,041 $74,750
-------- ---------
See accompanying notes to the unaudited consolidated financial statements.
2
EPIC ENERGY RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- -----------------------
2008 2007 2008 2007
---------- ---------- ---------- -----------
REVENUES
Consulting fees $10,296 $ 1,571 $31,192 $ 1,666
Reimbursed expenses 10,985 - 24,164 -
Oil and gas revenue - - - 10
-------- -------- -------- --------
Total Revenues 21,281 1,571 55,356 1,676
OPERATING EXPENSES
General and administrative 1,475 479 6,761 1,328
Professional and subcontracted
services 1,449 504 5,430 504
Compensation and benefits 5,979 259 19,375 259
Reimbursed expenses 10,391 - 22,092 -
Occupancy, communication and
other 340 75 1,001 75
Lease operating expenses 102 80 258 203
Depreciation, amortization and
depletion 1,032 - 1,967 -
Accretion expense 2 - 7 9
Impairment of oil and gas
properties - - - 1,339
-------- -------- -------- --------
Total Operating Expenses 20,770 1,397 56,891 3,717
Income (Loss) from Operations 511 174 (1,535) (2,041)
OTHER INCOME (EXPENSE)
Interest and other income (expense) (2,167) - (2,109) 7
Interest expense (1,629) (217) (4,715) (298)
-------- -------- -------- --------
Total Other Expense, net (3,796) (217) (6,824) (291)
-------- -------- -------- --------
Loss Before Taxes (3,285) (43) (8,359) (2,332)
Income tax expense 11 - 11 -
-------- -------- -------- --------
Net Loss $(3,296) $ (43) $(8,370) $(2,332)
-------- -------- -------- --------
LOSS PER COMMON SHARE -
Basic and Diluted $ (0.08) $ (0.00) $ (0.19) $ (0.06)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - Basic and Diluted 43,041,827 33,901,262 42,993,378 38,946,918
See accompanying notes to the unaudited consolidated financial statements
3
EPIC ENERGY RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine Months Ended
September 30,
--------------------------
2008 2007
------------ -----------
OPERATING ACTIVITIES:
Net loss $ (8,370) $(2,332)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, amortization and depletion 1,967 -
Loss on sale of property and equipment 485 -
Impairment of oil and gas properties - 1,339
Accretion expense 7 9
Amortization of debt discount and debt
issuance costs 2,624 -
Lease operating expense 258 203
Reserve for doubtful accounts 661 -
Stock-based compensation expense 875 276
Imputed interest on acquisition - 115
Changes in operating assets and liabilities:
Accounts receivable (7,508) 85
Prepaid expenses and other current assets 28 109
Other non-current assets 157 (305)
Accounts payable 7,027 (200)
Accrued liabilities 1,450 367
Customer deposits 1,488 -
Deferred revenue 2,214 -
---------- ---------
Net cash provided by (used in) operating
activities 3,363 (334)
---------- ---------
INVESTING ACTIVITIES:
Decrease in restricted cash 2,491 -
Investment in joint venture - (23)
Acquisition of property and equipment (1,352) (1)
Acquisition of Carnrite, net of cash received - 48
Acquisition of EIS, net of cash received (232) -
---------- ---------
Net cash provided by investing activities 907 24
---------- ---------
FINANCING ACTIVITIES:
Bank overdrafts (3,442) -
Payments on debt (825) (103)
Proceeds from debt - -
Net proceeds from issuance of common stock - 524
---------- ---------
Net cash provided by (used in) financing
activities (4,267) 421
---------- ---------
Net Increase in Cash and Cash Equivalents 3 111
Cash and Cash Equivalents, Beginning of period 3,483 590
---------- ---------
Cash and Cash Equivalents, End of period $ 3,486 $ 701
---------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for Interest $ 2,115 $ 6
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for EIS acquisition $ 1,050 $ -
Property and equipment acquired for notes payable $ 488 $ -
Stock issued for acquisition of Carnrite $ - $ 8,305
See accompanying notes to the unaudited consolidated financial statements
4
EPIC ENERGY RESOURCES INC
Notes to Unaudited Consolidated Financial Statements
1. Organization, Operations and Basis of Presentation
Epic Energy Resources, Inc ("Epic") was incorporated in Colorado in 1989.
Epic was relatively inactive until April 2006, when current management
gained control and became focused on energy related activities including
consulting, engineering, and oil and gas production activities. Epic
consists of its wholly owned subsidiaries The Carnrite Group, LLC
("Carnrite"), Pearl Investment Company and its wholly owned subsidiaries
("Pearl"), Epic Integrated Solutions, LLC ("EIS") and Epic Exploration &
Production, LLC ("EE&P"). Epic Energy Resources, Inc and its subsidiaries
(the "Company") is engaged primarily in providing engineering, consulting,
construction management, operations, maintenance, and field and project
management services to the oil, gas and energy industry. Epic also formed
an operational joint venture with a private investor group to co-invest in
infrastructure related projects with Epic's clients. It is expected that
the co-investment projects will primarily be projects in which the Company
provides engineering, design, construction management and operational
services related to pipeline, gathering and compression systems, including
oil and gas processing facilities.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in
the United States of America, or GAAP, for interim financial information
and pursuant to the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
disclosures required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 2008, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2008. The balance sheet at December 31, 2007, has been
derived from the audited financial statements at that date but does not
include all of the information and disclosures required by GAAP for
complete financial statements. For further information, refer to the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2007.
2. Summary of Accounting Policies
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.
5
Receivables from Clients
Billed receivables from clients are presented at their billed amount less
an allowance for doubtful accounts. Unbilled receivables represent revenue
earned in the current period but not billed to the customer until future
dates, usually within one month. Epic 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 September 30,
2008 and December 31, 2007, management determined that an allowance for
doubtful accounts of $1,297,143 and $636,500, respectively, was required
based on management's assessment of the collectability of these items.
Property and Equipment
Property and equipment is stated at cost net of accumulated depreciation.
Depreciation and amortization is provided utilizing the straight-line
method over the estimated useful lives for owned assets, ranging from 3 to
10 years, and the related lease terms for leasehold improvements.
Goodwill and Other Intangible assets
Goodwill represents the excess of the cost of an acquired entity over the
fair value of the net amount assigned to the assets acquired and the
liabilities assumed. The Company will test both acquired goodwill and
indefinite-lived intangible assets for impairment on an annual basis or
when certain triggering events occur as required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets. These
events could include a significant change in the business climate, legal
factors, a decline in operating performance, competition, sale or
disposition of a significant portion of the business, or other factors. As
of September 30, 2008, indefinite-lived intangible asset consists of the
trade names of Epic's subsidiaries.
As of September 30, 2008, amortizable intangible assets consist of
employment contracts, backlog, and customer related intangible assets. The
employment contracts are being amortized on a straight-line basis over
their estimated useful life of 30 months, backlog is being amortized on a
straight-line basis over its estimated useful life of 3 years and the
customer related intangible assets are being amortized on a straight-line
basis over their estimated useful life of 6 years.
Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("FAS 144"). FAS 144 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amounts. In that event, a loss
is recognized based on the amount by which the carrying amount exceeds the
6
fair market value of the long-lived assets. Loss on long-lived assets to
be disposed of is determined in a similar manner, except that fair market
values are reduced for the cost of disposal. Based on its review, the
Company believes that, as of September 30, 2008, there were no significant
impairments of its long-lived assets. At September 30, 2008, the Company
had $4.2 million of assets held for sale related to the Company's
airplane.
Debt Issuance Costs
Debt issuance costs consist of amounts paid to lenders and third parties
in connection with obtaining debt financing. These costs are being
amortized and included in interest expense using the effective interest
method over the related debt agreements. Deferred financing cost
amortization expense for the three months and nine months ended September
30, 2008 was $118,264 and $340,697, respectively.
Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement of Financial
Accounting Standards 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.
Revenue Recognition
Revenue includes fees primarily generated from engineering and consulting
services provided. The Company recognizes revenue from these 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 but 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 included in Unbilled accounts receivable in the
accompanying Unaudited Consolidated Balance Sheets. Cash collections and
invoices generated in excess of revenue recognized are included in
deferred revenue in the accompanying Unaudited Consolidated Balance
Sheets, until the revenue recognition criteria are met. Client
reimbursable expenses, including those relating to materials, travel,
other out-of-pocket expenses and any third-party costs, are recorded gross
with the exception of certain contractual agreements which provide for an
agreed upon percentage mark-up on materials purchased on behalf of
clients. These revenues are included in Reimbursed expense revenue in
accordance with EITF 99-16; and the costs are included in operating
expenses as Reimbursed expenses in the accompanying Unaudited Consolidated
Statements of Operations.
7
Earnings per Share
Earnings per share data for all periods presented have been computed
pursuant to Statement of Financial Accounting Standards No. 128, Earnings
Per Share, that requires a presentation of basic earnings per share (basic
EPS) and diluted earnings per share (diluted EPS). Basic EPS excludes
dilution and is determined by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could
occur if securities and other contracts to issue common stock were
exercised or converted into common stock. As of September 30, 2008, the
Company had outstanding stock options covering an aggregate of 2,019,000
shares of common stock and outstanding warrants covering an aggregate of
23,648,631 shares of common stock. Both the outstanding options and
warrants were excluded from the Company's diluted EPS due to their
anti-dilutive effect.
Reclassification
Certain amounts from prior quarters were reclassified to conform with the
current quarter's financial statement presentation.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations ("FAS 141R"). FAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed by
any noncontrolling interest in the acquiree and the goodwill acquired. FAS
141R also establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. This
statement is effective for business combinations for which the acquisition
date is on or after fiscal years beginning on or after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements--an amendment of Accounting Research
Bulletin No. 51 ("FAS 160"). FAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other
than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parent's ownership
interest, and the valuation of retained noncontrolling equity investments
when a subsidiary is deconsolidated. FAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the interests
of the parent and the interests of the noncontrolling owners. This
statement is effective for fiscal years beginning after December 15, 2008.
The Company has not yet determined the effects of adopting FAS 160 will
have on the consolidated financial statements.
In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination
of Useful Life of Intangible Assets ("FSP FAS 142-3"). FSP FAS 142-3
amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
8
intangible asset under FASB Statement No. 142, "Goodwill and Other
Intangible Assets." FSP FAS 142-3 also requires expanded disclosures
related to the determination of intangible asset useful lives. This
standard applies prospectively to intangible assets acquired and/or
recognized on or after January 1, 2009. Management believes that the
adoption of this standard will not have a material effect on the Company's
financial position, results of operations, or cash flows.
On January 1, 2008, the Company partially adopted SFAS No. 157, Fair Value
Measurements ("FAS 157"). FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair
value measurements. FAS 157 applies under other accounting pronouncements
that require or permit fair value measurements. Accordingly, FAS 157 does
not require any new fair value measurements. However, for some entities,
the application of FAS 157 will change current practice. FASB Staff
Positions SFAS 157-2 delays the effective date of FAS 157 from fiscal
years beginning after November 15, 2007 to fiscal years beginning after
November 15, 2008 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized of disclosed at fair value
in the financial statements on a recurring basis (at least annually). The
partial adoption of FAS 157 had no impact on the Company's financial
position results of operations, or cash flows.
3. Business Combinations
On August 13, 2007, Epic acquired Carnrite for 4,850,844 shares of its
restricted common stock. Of these 4,850,844 shares, 1,673,034 shares were
awarded to key employees of Carnrite and will be required to be returned
to the Company if the employees voluntarily terminate their employment
prior to March 28, 2009. In accordance with EITF No. 95-8 "Accounting for
Contingent Consideration Paid to the Shareholders for an Acquired
Enterprise in a Business Combination" ("EITF 95-8"), the contingent
consideration is considered additional purchase price consideration.
During the nine months ended September 30, 2008, the Company finalized the
purchase price allocation associated with the acquisition of Carnrite. The
value of the common stock at the acquisition date was $16,007,785 or $3.30
per share (Epic's stock price on the acquisition date). In addition Epic
issued 63,556 shares of restricted common stock valued at $209,735, as a
transaction fee to an individual that assisted with the acquisition. The
accompanying Unaudited Consolidated Statements of Operations includes the
operations of Carnrite for the period from July 1, 2007 through September
30, 2007. As the actual purchase date for Carnrite was August 13, 2007,
imputed interest of $115,000 was recorded as of September 30, 2007.
The finalized aggregate purchase price of Carnrite was $16,217,520 and
consisted of 4,914,400 shares of restricted common stock valued at $3.30
per share. The following table presents the finalized allocation of the
purchase price to the assets acquired and the liabilities assumed, based
on fair values (in thousands):
9
Cash $ 48
Receivables from customers 1,208
Property and equipment 26
Other assets 5
Trade name 1,439
Employment contracts 1,147
Backlog 2,524
Customer contracts and relationships 461
Goodwill 10,033
---------
Total assets acquired 16,891
Accounts payable 311
Line of credit 362
---------
Total liabilities assumed 673
---------
Net assets acquired $16,218
=========
On December 5, 2007, Epic acquired Pearl for 1,786,240 shares of its
common stock and cash of $19,020,000. The effective date of the Pearl
acquisition was December 1, 2007. During the nine months ended additional
acquisition costs were incurred for the Pearl acquisition related to tax
distributions.
On February 20, 2008, Epic acquired EIS, for 1,000,000 shares of its
restricted common stock and cash of $600,000. The effective date of the
acquisition was January 1, 2008. In addition, a note payable for
$1,400,000 was issued, which will be paid to the prior owners of EIS in
periodic installments during 2008 and 2009. The Unaudited Consolidated
Statement of Operations includes the operations of EIS for the period from
January 1, 2008 through September 30, 2008.
The aggregate purchase price of EIS was $3,317,000 and consisted of
1,000,000 shares of restricted common stock valued at $1.05 per share,
the closing price on the day of acquisition, a note in the amount of
$1,400,000 to be paid in 18 months, $600,000 of cash and acquisition
costs of $267,000. The following table presents the allocation of the
purchase price to the assets acquired and liabilities assumed, based on
their relative fair values (in thousands):
Cash $ 635
Receivables from clients 233
Property and equipment 117
Other assets 5
Goodwill and intangible assets 2,405
------
Total assets acquired 3,395
------
Accounts payable 73
Accrued liabilities 5
------
Total liabilities assumed 78
------
Net assets acquired $3,317
======
10
Summarized below are the unaudited pro forma statements of operations of
the Company for the three and nine months ended September 30, 2007 had the
acquisitions of Carnrite, Pearl and Epic Integrated taken place as of
January 1, 2007, expressed in thousands except for share amounts:
Three months Nine months
ended ended
September 30, September 30,
2007 2007
-------------- --------------
Revenues $ 16,840 $43,789
Operating
expenses 15,730 41,611
Other income
(expense) 401 (473)
--------- --------
Net income $ 1,511 $ 1,705
========= ========
Net income per share $ 0.04 $ 0.04
The unaudited pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of
operations that actually would have been achieved had the acquisitions
been consummated as of that time, nor is it intended to be a projection of
future results.
The acquisitions and related transactions were treated as purchase
business combinations for accounting purposes, and Carnrite's, Pearl's and
EIS's assets acquired and liabilities assumed were recorded at their fair
values. The allocations of the purchase price to Pearl's and EIS'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 been established for determining
whether intangible assets should be recognized separately from goodwill.
As of September 30, 2008, the Company has not made that determination
related to the Pearl and EIS acquisitions. The Company is currently in the
process of assessing the intangible assets to be recognized separately
from goodwill related to the Pearl and EIS acquisitions.
4. Goodwill and Other Intangible Assets
The Company's intangible assets consist of the following at September 30,
2008 (in thousands):
11
Carrying Accumulated Net book
amount amortization value
----------------------------------
Backlog $ 2,524 $(303) $2,221
Employment contracts 1,147 (181) 966
Customer
relationships 461 (23) 438
Patent 990 (49) 941
Trade name 1,439 - 1,439
-------- ------ ------
Total $ 6,561 $(556) $6,005
======== ====== ======
Amortization expense related to the above intangible assets for the three
months and nine months ended September 30, 2008 was $521,310 and $550,722,
respectively. The aggregate amortization expense associated with
intangible assets for the next five years is estimated to be as follows
(in thousands):
2008 (three months $ 521
remaining)
2009 2,085
2010 917
2011 149
2012 149
---------
Total $ 3,821
=========
Goodwill represents the excess of the purchase price over the fair value
of the net tangible assets. The changes in the carrying amount of goodwill
for the nine months ended September 30, 2008, are as follows (in
thousands):
Balance, January 1, 2008 $32,624
EIS acquisition 2,405
Pearl additional acquisition costs 1,523
Carnrite purchase price allocation
adjustments (5,570)
---------
Balance, September 30, 2008 $30,982
=========
5. Other Mineral Reserves
The Company's proved oil and gas properties in Kansas contain Helium
reserves estimated at between 1% and 2% of the proved gas reserves of the
property. Installation of Nitrogen Rejection Units ("NRU") to remove
Nitrogen and harvest the Helium from the field has been complete. The
field began continual production of pipeline quality gas on September 10,
2008. The average daily net production for the period from September 10
through September 30 averaged 359 MCF per day or total net production of
7,536 MCF. Since restarting production the Company is currently
considering divestment options for this asset.
12
6. Oil and Gas Properties
In December 2006, the Company acquired a 100% working interest
(approximately 82% net revenue interest) in 28,600 acres in Rush County,
Kansas. Located on the acreage were 58 producing gas wells with total
proved reserves at December 31, 2006 of 3,717 barrels of oil and 2,793,000
Mcf of gas. The acreage and wells were acquired for $100,000 in cash, a
$2,500,000 loan from the sellers of the property and 3,200,000 shares of
Epic's common stock valued at $8,480,000 using the closing price of Epic's
common stock at the inception of the agreement. The Company based the
value of the offer on a 2005 engineering reserve report which showed a
value of $10.5 million.
The Company owns a 50% working interest (approximate 40% net revenue
interest) in 6,000 acres in Kay County, Oklahoma. Located on the leased
acreage were one producing gas well and six shut-in gas wells. The three
initial test wells were worked over and have been found to be
uneconomical. Epic will decline participation in future wells associated
within the 6,000 acres in Kay County, Oklahoma.
For the nine months ended September 30, 2008 and 2007, the Company
recorded $0 and $1,338,527 of ceiling test impairments related to these
properties. The Company recorded no depletion expense on these properties
for the three and nine months ended September 30, 2008 and 2007, due to
limited production attributable to a shut in gas plant (see Note 5 above).
7. Property and Equipment
Property and equipment consisted of the following (in thousands):
September December
30, 2008 31, 2007
---------- ----------
Airplane $ - $ 4,633
Vehicles 2,729 2,222
Computer equipment 2,617 859
Leasehold improvements 321 316
Office furniture and equipment 820 577
Construction in progress 378 2,102
--------- -------
6,865 10,709
Less: Accumulated depreciation and
amortization (1,083) (112)
--------- -------
Total property and equipment, net $ 5,782 $10,597
========= =======
Depreciation expense for the three months and nine months ended September
30, 2008 was $510,912 and $1,415,788, respectively.
13
During the three months ended September 30, 2008, management of the
Company decided to sell the airplane. The airplane was used by the Company
through September 2008. At September 30, 2008, the net book value of the
airplane is included in Assets held for sale in the accompanying Unaudited
Consolidated Balance Sheets.
8. Long-Term Debt
The Company has a $2,500,000 note payable secured by the Rush County
Kansas property. The note is for a term of 42 months and bears annual
interest of 10%. The monthly principal and interest payment of this note
is approximately $72,000. Pursuant to the note agreement, if the cash flow
from the property is less than the monthly principal and interest payment,
the deficit is added to the principal amount of the note. If the cash flow
from the property is greater than the monthly principal and interest, the
additional amount reduces the principal of the note. The property had
limited production during nine months ended September 30, 2008 and 2007,
therefore, under these terms, the Company incurred $257,731 and $202,783,
respectively, in lease operating expenses related to the Rush County
property. According to the terms of the loan $257,731 has been added to
the principal balance of the note for the nine months ended September 30,
2008, due to expenses being greater than revenues generated by the wells.
At September 30, 2008, the principal balance of the loan was $3,118,393.
In December 2007, the Company issued $20,250,000 of 10% Secured
Debentures ("The debentures"). The debentures are due on December 5, 2012,
with interest payable quarterly on January 1, April 1, July 1 and October
1. The debentures are secured by liens on all of the Company's assets.
Beginning December 1, 2008, the Company is required to make quarterly
principal payments of $1,265,625. Any overdue accrued and unpaid interest
shall result in a late fee at an interest rate equal to the lesser of 18%
per annum or the maximum rate permitted by law. Prepayment is not allowed
without prior written consent of the holders. The purchasers of the
debentures also received warrants which entitle the holders to purchase up
to 15,954,545 shares of the Company's common stock at $1.65 per share.
Under the Black Scholes method using an expected life of five years,
volatility of 72% and a risk-free interest rate of 3.28%, the Company
determined these warrants associated had a fair value of $13,085,380 as of
the date of the transaction. The fair value of the warrants was recorded
as additional paid in capital with a corresponding amount recorded as a
debt discount. The debt discount is being amortized to interest expense
over the life of the debentures, which matures on December 1, 2012. For
the three and nine months ending September 30, 2008 $874,451 and
$2,283,022, respectively, of debt discount was amortized to interest
expense.
In connection with the acquisition of EIS, the Company issued a
$1,400,000 note payable which will be paid to the prior owners of EIS in
periodic installments during 2008 and 2009. At September 30, 2008,
$1,150,000 of this note is included in the current portion of long term
debt on the accompanying Unaudited Consolidated Balance Sheets.
14
Debt consists of the following (in thousands):
September December 31,
30, 2008 2007
---------- -----------
10% secured debentures $ 20,250 $ 20,250
Debt discount (10,596) (12,879)
---------- --------
10% secured debentures, net 9,654 7,371
---------- --------
Note payable secured by assets 9,687 9,766
acquired
Note payable - EIS acquisition 1,400 -
---------- --------
Total debt 20,741 17,137
Less: current maturities 7,768 3,208
---------- --------
Total long-term debt $ 12,973 $ 13,929
========== ========
9. Stockholders' Equity
On February 20, 2008, the Company acquired EIS for cash and 1,000,000
shares of its restricted common stock. The 1,000,000 shares will vest
annually over a three year period. As of September 30, 2008, 333,333 of
these shares have been distributed to the prior owner's of EIS. All or a
portion of the unvested shares issued to each officer will be forfeited
and returned to the Company if the officer voluntarily terminates his or
her employment prior to February 20, 2011.
During the nine months ending September 30, 2008, the Company issued
92,906 shares of common stock for services. The stock was valued at the
price on the date of issuance which was approximately $68,000. The stock
value is included in compensation expense for the nine months ended
September 30, 2008 in the accompanying Unaudited Consolidated Statement of
Operations. The shares were included in the calculation of weighted
average shares outstanding for the nine months ended September 30, 2008.
During the first quarter of 2008, the Board of Directors updated their
compensation plan for the calendar year 2008. The plan defines
compensation for non-employee directors to include an annual cash retainer
of $21,000 payable quarterly and a grant of 25,000 stock options with an
exercise price equal to the closing price of the Company's common stock on
that date. On January 17, 2008, the Company granted 25,000 stock options
to each member of the Board of Directors (100,000 total options) with an
exercise price equal to the closing price of the Company's common stock on
that date. These options vested immediately and have an expiration date of
January 17, 2018. For the nine months ended September 30, 2008,
approximately $162,000 was expensed related to these options.
On February 11, 2008, 200,000 stock options were granted to the Company's
Chief Financial Officer with an exercise price of $1.03 per share and an
expiration date of February 11, 2018. The options vest over a three-year
period from date of grant. Compensation expense related to these options
15
of approximately $11,000 and $28,000, respectively was recorded for the
three and the nine months ended September 30, 2008. Unrecognized
compensation expense amounting to $104,000 will be recognized over the
remaining service term.
During the nine months ending September 30, 2008, 110,500 stock options
were granted to other key employees of the Company. These options had
exercise prices ranging from $0.69 to $3.00 per share and all have an
expiration date of six years from the day they were granted. These options
vest over a three year period from date of grant. For the three and the
nine months ended September 30, 2008, approximately $2,200 and $2,700,
respectively, of compensation expense was recorded related to these
options. Unrecognized compensation expense amounting to $35,000 will be
recognized over the remaining service term.
The fair value of the options above was estimated on the date of grant
using the Black-Scholes pricing model. The Company used the following
assumptions in determining fair values of the above options:
Dividend yield 0.0%
Expected volatility 58.5% to 81.5%
Risk free interest rate 2.88% to 3.55%
Expected life 5 to 6 years
10. Commitments and Contingencies
Litigation
From time to time, the Company may be involved in litigation or
administrative proceedings relating to claims arising out of our
operations in the normal course of business. The Company is not aware of
any pending of threatened legal proceedings that, if determined in a
manner adverse, could have a material adverse effect on the Company's
business and operations.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in this section contains forward-looking statements.
These statements relate to future events or our future financial
performance. We have attempted to identify forward-looking statements by
terminology such as "anticipate," "believe," "can," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "potential," "predict,"
"should," "would" or "will" or the negative of these terms or other
comparable terminology, but their absence does not mean that a statement
is not forward looking. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors, which could
cause our actual results to differ from those projected in any
forward-looking statements we make This discussion should be read with our
financial statements and related notes included elsewhere in this report.
Overview
Epic Energy Resources, Inc. ("Epic") was incorporated in 1989. Following
its formation, Epic was relatively inactive until April 2006 when its
management changed and it became involved in the oil and gas industry.
Epic acquired certain producing oil and gas properties in December 2006
which were shut-in between January 2007 and August 2008. Epic acquired The
Carnrite Group ("Carnrite") in August 2007 and Pearl Investment Company
("Pearl") in December 2007. Epic's revenues from Carnrite and Pearl are
principally derived from consulting and engineering services to the oil,
gas and energy industry. Carnrite's management consulting services provide
content rich advice to keep companies engaged in the oil and gas sector
competitive in the global market. Pearl provides engineering and
consulting services focused on the design, build, operations, maintenance,
and development of upstream oil and gas assets including associated
gathering, compression and processing facilities.. In February 2008, Epic
acquired Epic Integrated Services LLC ("EIS"), a provider of personnel
training, documentation and data management to the oil, gas and energy
industry. With respect to this discussion, the terms "the Company", "we,"
"us," and "our" refer to Epic Energy Resources, Inc. and our wholly-owned
subsidiaries.
Significant Developments
During 2007, Epic acquired two significant companies (Carnrite and Pearl)
that have increased our annualized consulting revenues substantially.
These companies generated pro forma annual revenues for 2007 of
approximately $59.3 million. In early 2008, Epic acquired EIS which
generated 2007 revenues of approximately $2.9 million. As a result, our
operations are principally related to consulting and engineering services
to the energy industry. We plan to strategically co-invest with our
clients or take up to 100% working interest in surface infrastructure
projects where we are contracted to design, build and operate gathering,
compression and/or processing facilities.
During 2007, Epic raised over $28.9 million in debt and equity capital to
fund our acquisitions and operations. In addition, we issued over 4.7
million shares of our common stock in conjunction with these acquisitions.
17
Critical Accounting Policies
This discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements. The
preparation of these financial statements requires us to make estimates
and assumptions that affect the reported amounts. On an ongoing basis, we
evaluate our estimates, including those related to bad debts, intangible
assets, long-lived assets, income taxes, and contingencies and litigation.
We base our estimates on historical experience and on various other
assumptions and factors that we believe to be reasonable under the
circumstances. Based on our ongoing review, we make adjustments we
consider appropriate under the facts and circumstances. The accompanying
condensed unaudited consolidated financial statements are prepared using
the same critical accounting policies discussed in our 2007 Annual Report
on Form 10-KSB.
Results of Operations
Epic had minimal operations until the acquisition of Carnrite in August
2007 and Pearl in December 2007. Epic's historical operating results and
period to period comparisons are not significant until 2007. All increases
in the Company's revenues and expenses between 2008 and 2007 are
associated with the acquisitions of Carnrite, Pearl and EIS. The results
of operations for the nine months ended September 30, 2008 include the
historical results of EIS from January 1, 2008.
Expenses which are directly related to oil and gas production
are charged to lease operating expenses. All other expenses (except
depletion, accretion and impairment), whether they relate to consulting
services or oil and gas exploration/development, are recorded as general
and administrative expenses.
The Company grew significantly in 2007 through the acquisitions of
Carnrite and Pearl. In February 2008, Epic acquired EIS and we expect to
continue an aggressive acquisition plan in the foreseeable future. We plan
to strategically continue our growth in geographic regions where our
engineering expertise is our strength, such regions including the Rocky
Mountains, Texas, Oklahoma and Kansas. As we build our infrastructure, we
expect to expand our service region throughout the United States and into
foreign countries that are seeking our expertise.
As of September 30, 2008, Epic's potential backlog for consulting services
to be performed in the future was approximately $28.3 million. This
compares with a combined backlog of approximately $45.8 million as of June
30, 2008. Our backlog does not include anticipated contracts for 2009
since our clients are currently preparing their 2009 budgets. This backlog
amount could change by macro economic market activity and customer demand
changes.
18
Three Months ended September 30, 2008 compared with Three Months ended
September 30,2007
Revenues were approximately $21.3 million for the quarter ended September
30, 2008 compared to approximately $1.6 million for the quarter ended
September 30, 2007. The increase of $19.7 million was primarily the result
of the acquisitions of Pearl and EIS.
Operating Expenses were approximately $20.8 million for the quarter ended
September 30, 2008 compared to approximately $1.4 million for the quarter
ended September 30, 2007 resulting in an increase of approximately of
$19.4 million. This increase was primarily the result of the acquisitions
of Pearl and EIS.
Income from Operations was approximately $0.5 million for the quarter
ended September 30, 2008 compared to $0.2 million for the quarter ended
September 30, 2007.
Other Expense, net was approximately $3.8 million for the quarter ended
September 30, 2008 compared to approximately $0.2 million for the quarter
ended September 30, 2007. The increase of $3.6 million was primarily due
to an accrual for liquidating damages of $2.2 million and $1.6 million
interest expense and debt discount amortization associated with the
acquisition of Pearl.
Net Loss was $3.3 million or $0.08 per share for the quarter ended
September 30, 2008 compared to $43,333 or $0.00 per share for the quarter
ended September 30, 2007 resulting in an increased loss of $3.3 million.
The primary reasons for the net loss for the three months ended September
30, 2008 was the accrual for liquidating damages of $2.2 million and $1.6
million of interest expense recognized during that period.
Nine Months ended September 30, 2008 compared with Nine Months ended
September 30, 2007
Revenues were approximately $55.4 million for the nine months ended
September 30, 2008 compared to approximately $1.7 million for the nine
months ended September 30, 2007. The increase of $53.7 million was
primarily the result of the acquisitions of Carnrite, Pearl and EIS.
Operating Expenses were approximately $56.9 million for the nine months
ended September 30, 2008 compared to approximately $3.7 million for the
nine months ended September 30, 2007. This increase of $53.2 million was
primarily the result of the acquisitions of Carnrite, Pearl and EIS.
Loss from Operations was approximately $1.5 million for the nine months
ended September 30, 2008 compared to a loss from operations of
approximately $2.0 million for the nine months ended September 30, 2007.
The decrease in the loss from operation of $0.5 million was related to the
impairment of oil and gas properties of $1.3 million recorded in the nine
months ended September 30, 2007.
19
Other Expense, net was approximately $6.8 million for the nine months
ended September 30, 2008 compared to approximately $0.3 million for the
nine months ended September 30, 2007. The increase of $6.5 million was
primarily due to an accrual for liquidating damages of $2.2 million and
$4.7 million of interest expense and debt discount amortization associated
with the acquisition of Pearl.
Net Loss was $8.4 million or $0.19 per share for the nine months ended
September 30, 2008 compared to $2.3 million or $0.06 per share for the
nine months ended September 30, 2007 resulting in an increased loss of
$6.1 million. The primary reasons for the net loss for the nine months
ended September 30, 2008 was the accrual for liquidating damages of $2.2
million $4.7 million of interest expense recognized for that period.
Liquidity and Capital Resources
Between October 2006 and April 2007 Epic raised $1,414,700, net of
commissions, from the sale of 1,455,100 shares of its common stock, plus
491,500 Series A warrants and 963,600 Series B warrants, to private
investors. The Series A warrants expired on December 31, 2007. Each Series
B Warrant entitles the holder to purchase one share of Epic's common stock
at a price of $2.50 per share at any time prior to October 31, 2009.
On December 5, 2007 Epic sold 4,406,334 shares of its common stock to a
group of private investors for gross proceeds of $6,609,501, or $1.50 per
share. The investors also received warrants which entitle the holders to
purchase up to 4,406,334 shares of the Company's common stock. The
warrants are exercisable at a price of $1.50 per share and expire on
December 5, 2012.
On December 31, 2007 Epic sold an additional 1,023,001 shares of its
common stock to a group of private investors for gross proceeds of
$1,534,502 or $1.50 per share. The investors also received warrants which
entitle the holders to purchase up to 1,023,001 shares of Epic's common
stock. The warrants are exercisable at a price of $1.50 per share and
expire on December 5, 2012.
On December 5, 2007 Epic issued $20,250,000 of secured debentures to
another group of private investors. The notes bear interest of 10% per
year. The notes are due and payable on December 5, 2012 and are secured by
liens on all of the Company's assets. The purchasers of the notes also
received Series D warrants which entitle the holders to purchase up to
15,954,545 shares of Epic's common stock. The warrants are exercisable at
a price of $1.65 per share and expire on December 5, 2012. Interest on the
debentures is payable quarterly with the first interest payment due on
January 1, 2008. Beginning December 1, 2008 Epic is required to make
quarterly payments of $1,265,625 toward the principal of the debentures in
cash or in kind.
On February 20, 2008, with an effective date of January 1, 2008, Epic
acquired Epic Integrated Solutions, LLC ("EIS"), an unaffiliated entity,
for cash and 1,000,000 shares of its restricted common stock. At closing,
Epic paid $600,000 and issued a note payable for $1,400,000 which will be
paid to the prior owners of EIS in periodic installments during 2008 and
20
2009. The 1,000,000 shares will vest annually over a three year period. As
of September 30, 2008, 333,333 of these shares have been distributed to
the previous owner's of EIS. Also, additional acquisition costs of
approximately $267,000 were incurred in the second quarter of 2008.
Operating activities provided cash of $3.4 million for the nine months
ended September 30, 2008 compared to approximately $0.3 million of cash
used in operations for the nine months ended September 30, 2007. We had a
net loss of $8.4 million for the nine months ended September 30, 2008
which was offset by changes in assets and liabilities of approximately
$4.9 million. In addition during the nine months ended September 30, 2008,
we had approximately $2.6 million of amortization of debt discount and
debt issuance costs, $2.0 million of depreciation, amortization and
depletion, $0.9 million of non-cash stock based compensation expense, and
$661,000 expense for bad debts. For the nine months ended September 30,
2007, we had a net loss of $2.3 million which was offset by $1.3 million
in impairment of oil and gas properties, changes in assets and liabilities
of approximately $56,000 and other non-cash items of approximately $0.6
million.
For the nine months ended September 30, 2008, we had investing activities
that provided cash of $0.9 million primarily as a result of the decrease
in restricted cash of $2.5 million offset by acquisition of property and
equipment of $1.4 million. For the nine months ended September 30, 2007,
we had investing activities that provided cash of approximately $24,000
primarily due to $48,000 net cash received in the Carnrite acquisition off
set by $23,000 used for investment in a joint venture.
For the nine months ended September 30, 2008, we used $4.3 million of cash
flows for financing activities related to a decrease in bank overdrafts of
$3.4 million and debt payments of $0.8 million. For the nine months ended
September 30, 2007, we had cash provided by financing activities of
approximately $0.4 million primarily due to proceeds of $0.5 million from
the issuance of common stock.
As of September 30, 2008, we had working capital deficit of $2.0 million
compared with working capital of $7.6 million at December 31, 2007.
At September 30, 2008, average collection of accounts receivable was
approximately 86 days. Excluding one customer the average collection of
accounts receivable was approximately 69 days. The Company is closely
monitoring this customer who primarily operates in the Power River Basin,
as they are having liquidity issues. The Company is communicating with
this customer on a weekly basis to ensure our receivables are protected.
As a result of the acquisition of Carnrite, Pearl and EIS, Epic believes
that cash provided by its operations will satisfy its future capital and
debt service requirements.
21
Contractual Commitments
There have been no material changes to Epic's contractual commitments
during the third quarter of 2008. Please see Note 8 and the Company's
Annual Report on Form 10-KSB for December 31, 2007 for a complete
discussion of the Company's lease obligations.
Except for the commitments arising from our operating leases arrangements,
we have no other off-balance sheet arrangements that are reasonably likely
to have a material effect on our financial statements.
Safety
Working safely is a major objective at Epic. We believe this
organization-wide objective provides for a safer work environment for
employees, reduces our costs and enhances our reputation. Furthermore,
striving to be a world-class leader in safety provides a platform for all
employees to understand and apply the resolve necessary to be a
high-performing organization. We measure our progress on safety based on
Recordable Incidence Rate ("RIR") as defined by OSHA. For the nine month
period ending September 30, 2008, we continued to increase the number of
training hours and worked judiciously to reduce the RIR's.
ITEM 4T. CONTROLS AND PROCEDURES
Rex Doyle, Epic's Chief Executive Officer and Michael Kinney, Epic's Chief
Financial Officer, evaluated the effectiveness of Epic's disclosure
controls and procedures (as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934) as of the end of the period covered by this report.
In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving
the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in
evaluating the benefits of possible controls and procedures relative to
their costs. Based upon their evaluation, Mesrs. Doyle and Kinney have
concluded that the Company's internal control over financial reporting was
effective as of September 30, 2008.
At December 31, 2007, the Company concluded that there was a material
weakness in their internal controls. The Company determined that
disclosure controls and procedures were not effective to ensure that
information required to be disclosed by Epic in the reports that files or
submits under the Securities Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
During the period ended September 30, 2008, there were significant changes
in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the 1934 Act), which improved our internal
control over financial reporting. The Company added a Chief Financial
Officer and Controller during the first quarter of 2008. We have also
performed the risk assessment, controls documentation, controls analysis
22
and controls testing as required by Section 404 of the Sarbanes-Oxley Act
of 2002. Our testing indicated that our financial reporting controls are
effective. In addition, we have completed converting our accounting and
production processes to the Microsoft Dynamics AX enterprise system.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 20, 2008, Epic acquired Epic Integrated Solutions, LLC, an
unaffiliated entity, for cash of $600,000 and 1,000,000 shares of its
restricted common stock. Epic relied upon the exemption provided by
Section 4(2) of the Securities Act of 1933 in connection with the sale of
these shares.
ITEM 6. EXHIBITS
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
November 7, 2008. EPIC ENERGY RESOURCES, INC.
(Company)
/s/ Rex Doyle
----------------------------
Rex Doyle
Chief Executive Officer
/s/ Michael Kinney
----------------------------
Michael Kinney
Chief Financial Officer and
Principal Accounting Officer