EPiC Energy Resources Announces Second Quarter Results

(1)

This earnings release contains references to the non-GAAP financial measure of earnings (net income) before interest, taxes, depreciation and amortization, or "EBITDA."  EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.  However, Epic believes EBITDA is a useful supplemental financial measure used by its management and directors and by external users of its financial statements, such as investors, to assess:

• The financial performance of its assets without regard to financing methods, capital structure or historical cost basis;

• The ability of its assets to generate cash sufficient to pay interest on our indebtedness; and

• Its operating performance and return on invested capital as compared to those of other companies in the well servicing industry, without regard to financing methods and capital structure.

EBITDA has limitations as an analytical tool and should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Limitations to using EBITDA as an analytical tool include:

• EBITDA does not reflect its current or future requirements for capital expenditures or capital commitments;

• EBITDA does not reflect changes in, or cash requirements necessary to service interest or principal payments on, its debt;

• EBITDA does not reflect income taxes;

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

• Other companies in its industry may calculate EBITDA differently than Epic does, limiting its usefulness as a comparative measure.

Six months ended

Quarter ended

June 30,

June 30,

2010

2009

2010

2009

(Unaudited)

(Unaudited)

Reconciliation of Net Income to EBITDA:

Net Loss

($14,032)

($4,949)

($8,397)

($3,929)

  Interest expense

2,351

3,870

1,090

1,790

  Derivative Loss

791

2,626

0

2,421

  Other Expense

4,694

-1,377

5,644

581

  Depreciation and amortization

1,090

1,861

584

738

  Impairment charges

4,090

-

-

-

  Income taxes

-1,351

-

-

-

EBITDA

($2,367)

$2,031

($1,079)

$1,601

EPIC ENERGY RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

June 30,

December 31,

2010

2009

ASSETS

(unaudited)

Current Assets

   Cash and cash equivalents

$  129

$  153

   Accounts receivable:

       Billed, net of allowance of $301 and $185, respectively

2,907

6,348

       Unbilled

546

760

   Prepaid expenses and other current assets

451

407

            Total current assets

4,033

7,668

Property and equipment, net

1,836

2,231

Other assets

27

39

Debt issuance costs, net of accumulated amortization of $1,121 and $913, respectively

908

1,116

Goodwill

7,933

8,919

Other intangible assets, net

4,049

8,906

Total assets

$  18,786

$  28,879

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities

  Accounts payable

$  2,274

$  2,506

  Accrued liabilities

1,788

3,753

  Deferred revenue

-

2,593

  Customer deposits

1

949

  Current portion of long-term debt

4,019

7,416

      Total current liabilities

8,082

17,217

Long-term debt

11,928

4,561

Derivative liability

-

1,965

Deferred tax liability

-

1,351

Total liabilities

20,010

25,094

STOCKHOLDERS' EQUITY (DEFICIT)

Preferred stock, no par value: 20,000,000 authorized, 4,258,393 and
 0 shares issued and outstanding, respectively

4,258

-

Common stock, no par value: 300,000,000 authorized; 82,654,594 and
 44,105,781 shares issued and outstanding, respectively

37,862

33,639

  Additional paid-in capital

2,467

1,924

  Accumulated deficit

(45,811)

(31,778)

Total stockholders' equity (deficit)

(1,224)

3,785

Total liabilities and stockholders' equity (deficit)

$  18,786

$  28,879

EPIC ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data and per share data)

Three months ended June 30,

Six months ended June 30,

2010

2009

2010

2009

REVENUES

 Consulting fees

$  3,373

$  6,771

$  7,279

$  13,967

 Reimbursed expenses

1,794

3,411

3,728

4,636

   Total revenues

5,167

10,182

11,007

18,603

OPERATING EXPENSES

 Reimbursed expenses

710

1,823

1,958

2,826

 Compensation and benefits

3,358

4,608

7,018

9,707

 General and administrative

1,083

1,074

2,269

1,908

 Professional and subcontracted services

944

886

1,646

1,867

 Occupancy, communication and other

266

292

540

584

 Depreciation and amortization

540

727

1,090

1,838

 Impairment charges

-

480

4,033

480

   Total operating expenses

6,901

9,890

18,554

19,210

Income (loss) from operations

(1,734)

292

(7,547)

(607)

OTHER INCOME (EXPENSE)

 Derivative loss

-

(2,421)

(791)

(2,626)

 Interest expense

(1,090)

(1,790)

(2,351)

(3,873)

 Interest and other income (expense)

(4,811)

(10)

(3,862)

85

    Total other expense, net

(5,901)

(4,221)

(7,004)

(6,414)

Loss from continuing operations before taxes

(7,635)

(3,929)

(14,551)

(7,021)

Income tax benefit

-

-

1,351

-

Loss from continuing operations

(7,635)

(3,929)

(13,200)

(6,897)

DISCONTINUED OPERATIONS

 Loss from discontinued operations

(762)

-

(832)

(38)

 Gain on sale of oil and gas properties

-

-

-

2,110

  Income (loss) from discontinued operations

(762)

-

(832)

2,072

Net loss

$  (8,397)

$  (3,929)

$  (14,032)

$  (4,949)

Loss per common share - basic and diluted:

 Loss from continuing operations

$  (.10)

$  (.09)

$  (.22)

$  (.16)

 Income (loss) from discontinued operations

$  (.01)

-

$  (.01)

$  .05

Net loss

$  (.11)

$  (.09)

$  (.23)

$  (.11)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - Basic and Diluted

73,452,855

44,105,732

59,219,702

44,041,540

EPIC ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Six Months Ended June 30,

2010

2009

OPERATING ACTIVITIES:

 Net loss

$  (14,032)

$  (4,949)

 Adjustments to reconcile net loss to net cash provided by operating  activities:

  (Income) loss from discontinued operations

832

(2,072)

  Depreciation and amortization

1,090

1,838

  Allowance for doubtful accounts

134

206

  Amortization of debt discount and debt issuance costs

896

2,762

  Stock-based compensation expense

820

25

  Impairment of intangible assets

4,033

-

  Impairment of asset held for sale

-

480

  Loss on sale of accounts receivable

40

-

  Loss on sale of property and equipment

59

173

  (Gain) loss on extinguishment of debt

4,839

(94)

  Non-cash interest expense

620

-

  Derivative loss

791

2,626

  Deferred taxes

(1,351)

-

  Changes in operating assets and liabilities:

   Accounts receivable

1,071

2,964

   Prepaid expenses and other current assets

(44)

1,435

   Other non-current assets

12

3

   Accounts payable

340

(4,668)

   Accrued liabilities

(1,965)

(692)

   Customer deposits

(948)

(3,166)

   Deferred revenue

(2,593)

6,406

Net cash provided by (used in) operating activities

(5,356)

3,277

INVESTING ACTIVITIES:

 Purchases of property and equipment

(205)

(139)

 Proceeds from sale of property and equipment

-

52

Net cash used in investing activities

(205)

(87)

FINANCING ACTIVITIES:

 Proceeds from debt

515

-

 Payments on debt

(442)

(4,615)

 Proceeds from issuance of preferred stock

3,160

-

 Proceeds from sale of accounts receivable

2,410

-

Net cash provided by (used in) financing activities

5,643

(4,615)

DISCONTINUED OPERATIONS:

 Net cash provided by (used in) operating activities

(106)

84

 Net cash used in financing activities

-

(153)

Net cash used in discontinued operations

(106)

(69)

Net decrease in cash and cash equivalents

(24)

(1,494)

Cash and cash equivalents, beginning of period  

153

4,785

Cash and cash equivalents, end of period  

$  129

$  3,291

SUPPLEMENTAL CASH FLOW DISCLOSURES:

Cash paid for interest

$  486

$  1,768

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Settlement of debt through issuance of common and preferred stock

$  4,424

$  -

Settlement of accounts payable through debt issuance

$  573

$  -

Settlement of obligations through sale of oil and gas properties

$  -

$  4,225

Cumulative net effect of change in accounting principle

$  -

$  748