UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K


(Mark
One)


x           ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
Fiscal Year Ended December 31, 2008


OR


 ̈           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





Commission
File No. 0-31357





EPIC
ENERGY RESOURCES, INC.


(Exact
name of registrant as specified in its charter)





Colorado
                                    
                                    94-3363969(State
      of incorporation)
                                    
                                    (IRS
      EmployerIdentification
      No.)1450
      Lake Robbins, Suite 160The
      Woodlands, Texas
                                    
                                    77380(Address
      of Principal Executive Office)
                                    
                                    Zip
      Code





Registrant's
telephone number, including Area Code: (281)-419-3742 Securities registered
pursuant to Section 12(b) of the Act: None Securities registered pursuant to
Section 12(g) of the Act:





Common
Stock








Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


 ̈
Yes  x
No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.





 ̈
Yes  x
No




Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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.





x
Yes   ̈
No




Indicate
by check mark if disclosure  of  delinquent filers in
response to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.





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





Large
      accelerated filer  ̈
            Accelerated
      filer oNon-accelerated
      filer  ̈ (Do not check if a smaller
      reporting company)
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-25 of the Exchange Act):


 ̈
Yes  x
No




The
aggregate market value of the voting stock held by non-affiliates* of the
Company as of June 30, 2008 was approximately $13,532,267.





As of
March 14, 2009 the Company had 44,105,481 outstanding shares of common
stock.





* Without
asserting that any of the issuer’s directors or executive officers, or the
entities that own shares of common stock are affiliates, the shares of which
they are beneficial owners have been deemed to be owned by affiliates solely for
this calculation.





TABLE OF
CONTENTS





PagePART
      IITEM
      1.
                        
                        BUSINESS
                        
                        3ITEM
      1A.
                        
                        RISK
      FACTORS
                        
                        7ITEM
      2.
                        
                        PROPERTIES
                        
                        10ITEM
      3.
                        
                        LEGAL
      PROCEEDINGS
                        
                        12PART
      IIITEM
      5.
                        
                        MARKET
      FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                        
                        13ITEM
      7.
                        
                        MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                        
                        13ITEM
      8.
                        
                        FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                        
                        22ITEM
      9.
                        
                        CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.
                        
                        22ITEM
      9A.
                        
                        CONTROLS
      AND PROCEDURES
                        
                        22ITEM
      9B.
                        
                        OTHER
      INFORMATION
                        
                        23PART
      IIIITEM
      10.
                        
                        DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                        
                        24ITEM
      11.
                        
                        EXECUTIVE
      COMPENSATION
                        
                        26ITEM
      12.
                        
                        SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                        
                        28ITEM
      13.
                        
                        CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                        
                        31ITEM
      14.
                        
                        PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                        
                        31PART
      IVITEM
      15.
                        
                        EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
                        
                        32SIGNATURES
                        
                        
                        
                        34




2




ITEM
1.     DESCRIPTION OF BUSINESS





Overview





Through
its subsidiaries, the Carnrite Group, LLC (the “Carnrite Group”), Pearl
Investment Company (“Pearl”) and Epic Integrated Solutions, LLC (“EIS”), Epic
provides the following consulting services to the oil, gas and energy
industry:





o
            monitoring
      performance of wells and
reservoirs,


o
            techniques
      to improve well productivity and increase recoverable
      reserves,


o
            drilling
      and completion of oil and gas
wells,


o
            reservoir
      and formation evaluation,


o
            integration
      of data workflows and operational
processes,


o
            oilfield
      project management,


o
            design
      of energy and petrochemical
projects,


o
            construction
      management,


o
            commodity
      marketing and trading,


o
            financial
      analysis,


o
            organizational
      design,


o
            specialized
      training,


o
            operations
      documentation,


o
            data
      management.


Unless
otherwise indicated, all references to Epic include the operations of the
Carnrite Group, Pearl and EIS, subsequent to the dates that Epic acquired these
companies.





Epic also
plans to evaluate undeveloped oil and gas prospects and participate in drilling
activities on prospects which in the opinion of management are favorable for the
production of oil or gas. Epic may also acquire other producing oil and gas
properties which have the potential to support additional oil and gas
wells.  Although Epic previously has owned, drilled and produced oil
and gas properties, as of March 20, 2009, it does not own any operating
interests but Epic does retain certain royalty interests.





Engineering and Consulting
Services





Through
the late 1950's, the early oil and gas companies such as Standard Oil, Texaco
and Mobil were fully vertically integrated enterprises with business units that
included oil and gas drilling, pipeline transportation, refining, gas stations
and motor oils. The consensus was that companies needed to own the entire chain
to control the product and maximize profits.





In the
late 1970's a new model emerged with smaller companies being created that
focused on only one aspect of the industry. Independent production companies
were created to find, drill and produce oil and gas. Pipeline companies were
formed to deliver product from producers to refineries and other end users.
Refining companies were organized to refine oil and gas into usable fuels and
products. And, finally retail oriented companies were created to developed
innovative ways to market gasoline (the birth of the gasoline station as a
convenience store!).





Epic sees
the next natural progression to be the separation of oil and gas producers into
two groups: those that want to explore and drill for oil and gas and those that
want to focus on the efficient processing of oil and gas before it is
transported.





Because
of increasing demand and prices, major integrated oil companies and large
independents are exploring for new fields in areas such as West Africa, Brazil,
Venezuela, Trinidad, the Caspian, Western Russia and others. The scale of these
projects requires significant financial and human resources. These projects
usually require assembling a large international team consisting of staff from
the oil company, a large engineering firm, a large fabrication and construction
company to build and assemble the structure and processing equipment, and an
operations and maintenance partner to staff the project and manage the start-up.
This rush to large, international, projects is consuming a substantial portion
of the existing engineering and construction capability in the oil and gas
industry. Many of the majors and larger independent oil and gas companies are
exiting the domestic market and turning their capital, manpower and technology
to new, high investment areas around the world. The service sector, especially
the large engineering and construction companies, are following their main
customers to these international projects leaving few companies to compete for
domestic projects. At the same time, record drilling activity in the US onshore
market will require more production, process and transportation
infrastructure.





Due to
the high operating costs and low production rates of many older oil and gas
fields, most producers have been limited in their ability to maintain the
operating condition of pipelines, compressor stations, gathering systems, SCADA
systems, secondary recovery injection plants, and similar
equipment.





To
fulfill its strategy relative to oil and gas consulting services, in August 2007
Epic acquired the Carnrite Group for 3,177,810 shares of common stock. In
connection with this acquisition, 1,673,034 additional shares of common stock
were issued to key officers of the Carnrite Group as retention shares that vest
during the period ending March 28, 2009. All or part of these shares will be
returned to Epic if one or more officers of the Carnrite Group voluntarily
terminate their employment prior to March 28, 2009. The Carnrite Group currently
employs five professionals in its offices in Houston, Texas and is presently
providing services to clients in the United States, Argentina, Kazakhstan,
Nigeria and Russia. In December 2007 Epic acquired Pearl for 1,786,240 shares of
its common stock and cash of $19,928,000. 3,313,760 shares of our common stock
were issued to key employees and officers of Pearl subject to certain vesting
requirements. Epic currently employs approximately 189 full-time and three
part-time employees. Pearl currently employs approximately 165 full-time
professionals and two part-time employees working from six offices and serves
clients in the greater Rocky Mountain Region and the Middle East. Carnrite
employs seven full-time employees serving clients world-wide; and EIS employs
three full-time employees serving clients in the United States and
Asia.





The
Carnrite Group and Pearl provide engineering, construction management,
operations, maintenance, field, and project management services to the oil, gas
and energy industry.


3





In 2008,
Epic acquired EIS, which was not affiliated with Epic prior to the transaction,
for cash and shares of its restricted common stock. At closing, Epic paid
$867,000 and issued 1,000,000 shares of its common stock to the three former
owners of EIS. An additional $1,400,000 will be paid to the three former owners
in periodic installments from 2009 through 2011. The 1,000,000 shares were
issued to EIS's former owners, each of whom is also an officer of EIS. The
shares issued to each owner will vest over a three-year period. All or a portion
of the shares issued to each officer will be forfeited and returned to Epic if
the officer voluntarily terminates his or her employment prior to February 20,
2011. EIS provides the oil and gas industry with specialized training,
operations documentation and data management services for the start-up and
operation of complex energy production facilities.
  Backlog
represents the revenue Epic expects to realize in the future from performing
consulting work under multi-period contracts.Epic generally includes
total expected revenue in the backlog when a contract is awarded and the scope
of the services is determined. Backlog is not defined by generally accepted
accounting principles and Epic's process for determining backlog may not be
comparable to the methodology used by other companies in determining backlog.
Backlog may not be indicative of future operating results. Not all of Epic's
consulting revenue is recorded in backlog for a variety of reasons, including
the fact that some projects begin and end within a short-term period. Many
contracts do not provide for a fixed amount of work to be performed and are
subject to modification or termination by the customer. The termination or
modification of any one or more sizeable contracts or the addition of other
contracts may have a substantial immediate effect on backlog.





For
long-term contracts, the amount included in backlog is limited to twelve months.
If the contract duration is indefinite, projects included in backlog are limited
to the estimated revenue within the following twelve months. Some contracts
provide maximum dollar limits, with authorization to perform work under the
contract being agreed upon on a periodic basis with the customer. In these
arrangements, only the amounts authorized are included in backlog.





As of
February 24, 2009, Epic's backlog for consulting services to be provided in the
future was approximately $43.5 million. This compares to a combined backlog of
approximately $23.9 million as of February 20, 2008.





During
the year ended December 31, 2008 six customers accounted for 82% of Pearl’s
total revenues two customers accounted for 74% of Carnrite’s total revenues, and
one customer accounted for 80% of EIS’s total revenues.  During the
year ended December 31, 2007 two customers accounted for 82% of the total
revenues of Pearl and three customers accounted for 79% of Carnrite’s total
revenues.





As of
December 31, 2008, Epic and its subsidiaries, the Carnrite Group, Pearl and EIS,
had approximately 189 full-time employees and three part-time
employees.





Oil and Gas Exploration and
Development





General


In the
future, Epic plans to evaluate undeveloped oil and gas prospects and participate
in drilling activities on prospects which in the opinion of management are
favorable for the production of oil or gas. If, through its review, a
geographical area indicates geological and economic potential, Epic will attempt
to acquire leases or other interests in the area and assemble a prospect. Epic
may then attempt to sell a portion of its leasehold interests in a prospect to
unrelated third parties, thus sharing the risks and rewards of the exploration
and development of the prospect with the joint owners pursuant to an operating
agreement. One or more wells may be drilled on a prospect, and if the results
indicate the presence of sufficient oil and gas reserves, additional wells may
be drilled on the prospect.  Epic may also acquire producing oil and
gas properties which have the potential to support additional oil and gas
wells.





Although
Epic previously has owned, drilled and produced oil and gas properties, as of
March 20, 2009, it does not own any operating interests but Epic does retain
certain royalty interests.  Epic has executed an agreement with its
current partner in the field, in which the partner will assume all debt
associated with the field along with operating expenses and any contingent
liabilities in exchange for Epic’s interest in the field, subject to Epic’s
retention of an overriding royalty interest covering the
properties.  In addition, a third party has signed a farm out
agreement in which Epic will receive a 3.75% net profits interest, up to a
maximum of $500,000, in production from new wells drilled in the
field.





Joint
Venture





In July
2007, Epic formed a joint venture, Argos Asset Management, LLC (formerly known
as Epic Exploration and Production LLC “Argos”), to acquire energy assets and
oil and gas properties. Epic will manage the operations of the joint venture.
Argos is responsible for providing capital required to acquire the assets on a
project-by-project basis.  Epic will receive 20% of the net income
from any asset or oil and gas property acquired by the joint venture until Argos
receives 100% of the equity contributed by Argos to acquire the asset or
property. Thereafter, the net income from the asset or property will be
allocated equally between Epic and Argos. As of March 20, 2009, the joint
venture was not considering any immediate acquisitions of working
interests.


4





Epic did
not participate in the drilling of any wells in 2008 or 2007.





Competition





Engineering
and Consulting Services





The
energy consulting industry is highly competitive. Competitors include large,
multinational corporations such as SAIC, Accenture, Jacobs Engineering, KBR and
Baker Energy as well as many medium sized and small consulting firms. Because
the energy consulting industry is large and crosses numerous geographic lines, a
meaningful estimate of the total number of Epic's competitors is not possible.
Competitive factors include:





o
            price;


o
            service
      quality (including the ability to deliver services quickly);
      and


o
            technical
      proficiency.





Oil
and Gas





Epic will
be faced with strong competition from many other companies and individuals
engaged in the oil and gas business, many of which are very large, with
substantial capabilities and well established. Epic will compete with these
individuals and companies, many of which have greater financial resources and
larger technical staffs. Although it is nearly impossible to estimate the number
of competitors; it is known that there are a large number of companies and
individuals in the oil and gas business.





Exploration
for and production of oil and gas are affected by the availability of pipe,
casing and other tubular goods and certain other oil field equipment including
drilling rigs and tools. Epic will depend upon independent drilling contractors
to furnish rigs, equipment and tools to drill its wells. Higher prices for oil
and gas may result in competition among operators for drilling equipment,
tubular goods and drilling crews which may affect Epic's ability expeditiously
to drill, complete, recomplete and work-over its wells. However, Epic has not
experienced and does not anticipate difficulty in obtaining supplies, materials,
drilling rigs, equipment or tools.





The
market for oil and gas is dependent upon a number of factors beyond Epic's
control, which at times cannot be accurately predicted. These factors include
the proximity of wells to, and the capacity of, natural gas pipelines, the
extent of competitive domestic production and imports of oil and gas, the
availability of other sources of energy, fluctuations in seasonal supply and
demand, and governmental regulation. In addition, there is always the
possibility that new legislation may be enacted which would impose price
controls or additional excise taxes upon crude oil or natural gas, or both.
Oversupplies of natural gas can be expected to recur from time to time and may
result in the gas producing wells being shut-in. Increased imports of natural
gas, primarily from Canada, have occurred and are expected to continue. Such
imports may adversely affect the market for domestic natural gas.





Since the
early 1970's the market price for crude oil has been significantly affected by
policies adopted by the member nations of Organization of Petroleum Exporting
Countries ("OPEC"). Members of OPEC establish prices and production quotas among
themselves for petroleum products from time to time with the intent of
controlling the current global supply and consequently price levels. Epic is
unable to predict the effect, if any, that OPEC or other countries will have on
the amount of, or the prices received for, crude oil and natural gas produced
and sold from Epic's wells.





Gas
prices, which were once effectively determined by government regulations, are
now largely influenced by competition. Competitors in this market include
producers, gas pipelines and their affiliated marketing companies, independent
marketers, and providers of alternate energy supplies, such as residual fuel
oil. Changes in government regulations relating to the production,
transportation and marketing of natural gas have also resulted in significant
changes in the historical marketing patterns of the industry. Generally, these
changes have resulted in the abandonment by many pipelines of long-term
contracts for the purchase of natural gas, the development by gas producers of
their own marketing programs to take advantage of new regulations requiring
pipelines to transport gas for regulated fees, and an increasing tendency to
rely on short-term contracts priced at spot market prices.


5





Government
Regulation





Although
Epic's consulting business is not subject to any particular governmental
regulations, Epic's oil and gas operations are subject to numerous environmental
laws and regulations. These laws and regulations include:





o
            the
      Comprehensive Environmental Response, Compensation and Liability
      Act;


o
            the
      Resources Conservation and Recovery
Act;


o
            the
      Clean Air Act;


o
            the
      Federal Water Pollution Control Act;
and


o
            the
      Toxic Substances Control Act.





In
addition to the federal laws and regulations, states often have numerous
environmental, legal, and regulatory requirements which Epic must comply
with.





Epic does
not expect that costs pertaining to environmental compliance will have a
material adverse effect on its operations.





Various
state and federal agencies regulate the production and sale of oil and natural
gas. All states in which Epic plans to operate impose restrictions on the
drilling, production, transportation and sale of oil and natural
gas.





The
Federal Energy Regulatory Commission (the "FERC") regulates the interstate
transportation and the sale in interstate commerce for resale of natural gas.
The FERC's jurisdiction over interstate natural gas sales has been substantially
modified by the Natural Gas Policy Act under which the FERC continued to
regulate the maximum selling prices of certain categories of gas sold in "first
sales" in interstate and intrastate commerce.





Epic's
sales of any natural gas will be affected by intrastate and interstate gas
transportation regulation. Beginning in 1985, the FERC adopted regulatory
changes that have significantly altered the transportation and marketing of
natural gas. These changes are intended by the FERC to foster competition by,
among other things, transforming the role of interstate pipeline companies from
wholesale marketers of natural gas to the primary role of gas transporters. All
natural gas marketing by the pipelines is required to divest to a marketing
affiliate, which operates separately from the transporter and in direct
competition with all other merchants. As a result of the various omnibus
rulemaking proceedings in the late 1980s and the individual pipeline
restructuring proceedings of the early to mid-1990s, the interstate pipelines
must provide open and nondiscriminatory transportation and
transportation-related services to all producers, natural gas marketing
companies, local distribution companies, industrial end users and other
customers seeking service. Through similar orders affecting intrastate pipelines
that provide similar interstate services, the FERC expanded the impact of open
access regulations to intrastate commerce.





Federal,
state, and local agencies have promulgated extensive rules and regulations
applicable to Epic's oil and gas exploration, production and related operations.
Most states require permits for drilling operations, drilling bonds and the
filing of reports concerning operations and impose other requirements relating
to the exploration of oil and natural gas. Many states also have statutes or
regulations addressing conservation matters including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from oil and natural gas wells and the regulation of
spacing, plugging and abandonment of such wells. The statutes and regulations of
some states limit the rate at which oil and natural gas is produced from Epic's
properties. The federal and state regulatory burden on the oil and natural gas
industry increases Epic's cost of doing business and affects its
profitability.





Corporate
History





Epic was
incorporated in Colorado on June 6, 1989 under the name San Juan Financial.
Following its formation Epic was relatively inactive until April 2006, when its
management changed and it became involved in oil and gas exploration and
development.





In March
2005, Epic effected a 1-for-20 forward split of Epic's common stock. Unless
otherwise indicated, all per share data in this report has been revised to
reflect this forward stock split. In March 2006, Epic also approved amendments
to its Articles of Incorporation which changed the corporate name to Epic
Capital Group, Inc., and changed Epic's authorized capitalization to 100,000,000
shares of common stock and 10,000,000 shares of preferred stock.





On
December 1, 2006 Epic changed its corporate name to “Epic Energy Resources,
Inc.”




6


In
December 2007 Epic sold to private investors (i) 5,429,335 shares of its common
stock for gross proceeds of $8,144,003, or $1.50 per share,
plus  warrants  which  entitle  the  holders  to
purchase up to 5,429,335 shares of Epic's common stock and (ii) 10% Secured
Debentures (defined below) in the  principal  amount
of  $20,250,000  plus  warrants  which
entitle  the holders to  purchase  up
to  15,954,545  shares of Epic's common stock.





ITEM 1A.  RISK
FACTORS





RISK
FACTORS




Investing
in our securities involves risk.  In evaluating the Company, careful
consideration should be given to the following risk factors, in addition to the
other information included or incorporated by reference in this annual report.
Each of these risk factors could materially adversely affect our business,
operating results or financial condition, as well as adversely affect the value
of an investment in our common or preferred stock.  In addition, the
‘‘Forward-Looking Statements’’ located in this Form 10-K, and the
forward-looking statements included or incorporated by reference herein describe
additional uncertainties associated with our business.




Energy
Consulting Services




Epic’s
limited operating history may make it difficult for investors to access Epic’s
future operating results.




Epic
was incorporated in 1989 but was inactive until April 2006 when it began
operations in the energy consulting and oil and gas industries. Due to Epic's
limited operating history, an investor's assessment of Epic's future performance
may prove to be inaccurate. During the years ended December 31, 2008 and 2007,
Epic had losses of approximately $(26,572,000) and $(4,383,000) respectively. As
of December 31, 2008, Epic had an accumulated deficit of approximately
$(35,023,000).




A
decline in the price of, or demand for, oil or gas could reduce Epic’s
revenues.




The
demand for Epic's services depends on trends in oil and natural gas prices and
is particularly sensitive to the level of exploration, development, and
production by oil and natural gas companies. Historically, the prices for oil
and gas have been volatile and are likely to continue to be volatile. Spending
on exploration and production activities will have a significant impact on the
activity level of Epic's consulting businesses.




The loss of key management and
technical personnel could harm Epic’s business.




Epic
depends greatly on the efforts of its executive officers and other key
employees. The loss or unavailability of any of Epic's executive officers or
other key employees could have a material adverse effect on its business. Many
of the services that Epic provides are complex and highly engineered. Epic
believes that its success will depend upon its ability to employ and retain
skilled technical personnel. The demand for skilled workers is high, the supply
is limited and Epic's inability to recruit and retain the workers it needs will
hurt its business.




Competition
for customers and personnel in the energy consulting business may reduce Epic’s
revenues.




The
energy consulting industry is highly competitive, with limited barriers to
entry. Large full-service and specialized companies, as well as small local
operations, compete with Epic. Competition in some markets is intense,
particularly with regard to recruiting personnel, and these competitive forces
may limit Epic's ability to raise prices to its customers.




The
loss of one or more significant customers could result in a substantial decline
in Epic’s consolidated revenues.




During
the years ended December 31, 2008 and 2007, a small number of customers
accounted for a significant amount of the total revenues of Pearl Investment
Company, The Carnrite Group and Epic Integrated Solutions. The loss of any
significant customers of any of Epic's subsidiaries could have a material
adverse impact on the consolidated operating results of Epic.


7


Epic
has significant working capital requirements.





Epic
needs significant working capital in order to operate its business. Epic must
maintain cash reserves to pay its employees and consultants prior to receiving
payment from customers. These working capital requirements may increase in
future periods. If Epic's cash balances cannot satisfy its working capital
requirements, Epic could be required to explore alternative sources of financing
to satisfy its needs, including the sale of equity or debt securities which
would result in dilution to existing shareholders.




If
our expansion efforts are not successful, our operations will be adversely
affected.




Within
the last two years, Epic acquired three energy consulting firms and, although it
has no present plans to do so, may continue to pursue new acquisitions in the
future. However, unsuccessful acquisitions may result in significant additional
expenses that would not otherwise be incurred. Epic may not be able to integrate
the operations of these three consulting firms without unanticipated costs and
difficulties and retain its customers and key employees. In addition, Epic may
not realize the revenues that it expected from these acquisitions.




Epic
may suffer losses from its fixed price contracts.




Some of
Epic's consulting agreements are either on a cost-reimbursable basis or on a
fixed-price basis. The failure to estimate accurately the resources and time
required for a fixed-price project or the failure to complete contractual
obligations within the time frame and costs committed could have a material
adverse effect on Epic's business. In connection with projects covered by
fixed-price contracts, Epic bears the risk of cost over-runs, inflation, labor
availability and productivity, and supplier and subcontractor pricing and
performance.




Third
parties we may use may not provide services in an adequate or timely
manner.




Epic may
sometimes use third-party subcontractors and equipment manufacturers to assist
Epic with a project. To the extent Epic cannot engage subcontractors or acquire
equipment or materials, its ability to complete a project in a timely fashion or
at a profit may be impaired. If the amount Epic is required to pay for goods and
services exceeds the amount Epic estimated in bidding for fixed-price work, Epic
could experience losses. Any delay or failure by subcontractors to complete
their portion of a project, may cause Epic to incur additional costs, including
compensating the customer for delays. In addition, if a subcontractor or a
manufacturer is unable to deliver services, equipment, or materials according to
agreed upon terms for any reason, Epic may be required to purchase the services,
equipment, or materials from another source at a higher price. This may reduce
Epic's profit or result in a loss on a project.




Doing
business in foreign countries subjects Epic to economic and political conditions
which differ from those in the United States and which could result in
losses.




A portion
of Epic's consulting revenue is derived from operations outside of the United
States, which exposes Epic to risks inherent in doing business in each of the
countries in which it transacts business. The occurrence of any of the risks
described below could have a material adverse effect on Epic's
operations.




·
            political
      and economic instability;


·
            civil
      unrest, acts of terrorism, force majeure, war, or other armed
      conflict;


·
            currency
      fluctuations, devaluations, and conversion
  restrictions;


·
            confiscatory
      taxation or other adverse tax
policies;


·
            government
      activities that limit or disrupt markets, restrict payments or result in
      the deprivation of contract rights.




Epic
could face substantial liability due to claims from customers or third
parties.




Through
its subsidiaries, Epic provides advice to oil, gas and energy companies in a
variety of areas, including well drilling and completion, project design and
construction management. The services provided by Epic expose it to potential
professional liability, general and third-party liability, warranty, and other
claims which may be in excess of its insurance limits.


8




Epic’s
intellectual property may become obsolete and may not be protected from
competitors.




Epic
relies on intellectual property rights to provide consulting services. Epic may
not be able to successfully preserve these intellectual property rights in the
future, and these rights could be invalidated, circumvented, or challenged. In
addition, the laws of some foreign countries in which Epic provides services do
not protect intellectual property rights to the same extent as the laws of the
United States. Epic's failure to protect its proprietary information and any
successful intellectual property challenges or infringement proceedings against
Epic could adversely affect its competitive position.




The
market for Epic's services is characterized by continual technological
developments. If Epic is not able to provide commercially competitive services
in a timely manner in response to changes in technology, its business could be
adversely affected and the value of its intellectual property may be reduced.
Likewise, if Epic's proprietary technologies or work processes become obsolete,
it may no longer be competitive and its business could be adversely
affected.




Oil
and Gas Exploration and Development




If Epic cannot obtain additional
capital, epic may have to delay or postpone exploration and development
activities.




Epic
needs additional capital to find oil and gas reserves. Epic may be unable to
obtain the funding which it requires.




Oil and gas exploration and
development is not an exact science, and involves a high degree of
risk.




The
primary risk lies in the drilling of dry holes or drilling and completing wells
which, though productive, do not produce gas and/or oil in sufficient amounts to
return the amounts expended and produce a profit. Hazards, such as unusual or
unexpected formation pressures, downhole fires, blowouts, loss of circulation of
drilling fluids and other conditions are involved in drilling and completing oil
and gas wells and, if such hazards are encountered, completion of any well may
be substantially delayed or prevented. In addition, adverse weather conditions
can hinder or delay operations, as can shortages of equipment and materials or
unavailability of drilling, completion, and/or work-over rigs. Even though a
well is completed and is found to be productive, water and/or other substances
may be encountered in the well, which may impair or prevent production or
marketing of oil or gas from the well.




Exploratory
drilling involves substantially greater economic risks than development drilling
because the percentage of wells completed as producing wells is usually less
than in development drilling. Exploratory drilling itself can be of varying
degrees of risk and can generally be divided into higher risk attempts to
discover a reservoir in a completely unproven area or relatively lower risk
efforts in areas not too distant from existing reservoirs. While exploration
adjacent to or near existing reservoirs may be more likely to result in the
discovery of oil and gas than in completely unproven areas, exploratory efforts
are nevertheless high risk activities.




Although
the completion of oil and gas wells is, to a certain extent, less risky than
drilling for oil and gas, the process of completing an oil or gas well is
nevertheless associated with considerable risks. In addition, even if a well is
completed as a producer, the well for a variety of reasons may not produce
sufficient oil or gas in order to repay Epic's investment in the
well.




Epic’s
operations will be affected from time to time and in varying degrees by the
price for oil and gas.




The Price
for oil and gas is often volatile and influenced by political developments and
federal and state laws and regulations regarding the development, production and
sale of crude oil and natural gas.  These regulations require permits
for drilling of wells and also cover the spacing of wells, the prevention of
waste, and other matters. Rates of production of oil and gas have for many years
been subject to Federal and state conservation laws and regulations and the
petroleum industry is subject to Federal tax laws. In addition, the production
of oil or gas may be interrupted or terminated by governmental authorities due
to ecological and other considerations. Compliance with these regulations may
require a significant capital commitment by and expense to Epic and may delay or
otherwise adversely affect Epic's proposed operations.


9




Our
common stock




There
is, at present, only a limited market for Epic’s common stock.




Epic's
common stock is quoted on the OTC Bulletin Board and is thinly traded. The OTC
Bulletin Board is an inter-dealer, over-the-counter market that provides
significantly less liquidity than other public trading markets, such as the
NASDAQ stock market. Quotations for stocks included on the OTC Bulletin Board
may not be listed in the financial sections of newspapers and prices for
securities traded on the OTC Bulletin Board are often volatile.




We
need to raise additional capital in the future, and if we are unable to secure
adequate funds on terms acceptable to us, we will be unable to execute our
business plan and current stockholders may experience significant
dilution.




Epic had
outstanding options and warrants which, as of December 31, 2008, allow the
holders to acquire up to approximately 26,190,000 additional shares of its
common stock. Until the options and warrants expire, the holders will have an
opportunity to profit from any increase in the market price of Epic's common
stock without assuming the risks of ownership. Holders of options and warrants
may exercise these securities at a time when Epic could obtain additional
capital on terms more favorable than those provided by the options or warrants.
The exercise of the options and warrants will dilute the voting interest of the
owners of presently outstanding shares by adding a substantial number of
additional shares of Epic's common stock.  Epic has an effective
registration statement with the Securities and Exchange Commission so that the
shares of common stock sold in the December 2007 financing as well shares which
may be issued in payment of the notes or upon the exercise of the warrants may
be sold in the public market.  The sale of common stock issued or
issuable upon the exercise of the warrants, or the perception that such sales
could occur, may adversely affect the market price of Epic's common
stock.




The
trading volatility and price of our common stock may be affected by many
factors.





In
addition to our operating results and business prospects, many other factors
affect the volatility and price of our common stock. The most important of
these, some of which are outside our control, are the following:





·
            The
      current financial crisis, which has caused significant market volatility
      worldwide;


·
            Governmental
      action or inaction in light of key indicators of economic activity or
      events that can significantly influence U.S. financial markets, and media
      reports and commentary about economic or other matters, even when the
      matter in question does not directly relate to our business;
      and


·
            Trading
      activity in our common stock, which can be a reflection of changes in the
      prices for oil and gas, or market commentary or expectations about our
      business and overall industry.





ITEM
1B.  UNRESOLVED STAFF COMMENTS





Not
applicable





ITEM
2.  DESCRIPTION OF PROPERTIES





Office
Leases





Epic's
offices are located at 1450 Lake Robbins, Suite 160, The Woodlands, Texas 77380.
Approximately 4,147 square feet of space is occupied under the lease requiring
rental payments of approximately $12,500 per month.  The lease on this
space expires in July 2015.





The
offices of the Carnrite Group are located at 219 W. 11th Street, Houston, Texas.
The 1,480 square feet of office space is occupied under the lease requiring
rental payments of $2,500 per month through April 2008, $2,750 per month through
April 2010. The lease on this space expires in April 2010.


10





The
primary offices of Pearl are located at 7110 Jefferson Avenue, Lakewood,
Colorado. The 30,552 square feet of office space is occupied under the lease
requiring rental payments of $42,168 per month. The third floor lease on this
space expires in July 2011 and the second floor lease on this space expires in
March 2012. Pearl has eight branch offices and facilities in Colorado, Wyoming,
Montana and Utah. The aggregate combined rental cost for all of the branch
offices is approximately $18,900 per month.





Oil
and Gas Properties





In
February 2009, Epic sold its working interest in the Rush County, Kansas
property and cancelled its agreement related to the Oklahoma
properties.  As of March 20, 2009, Epic did not own any operating
interest in oil and gas properties.  However, during its fiscal year
2008, Epic owned the following oil and gas properties set forth in this Item
2.





At
December 31, 2008, Epic had a 100% working interest (approximately 82% net
revenue interest) in 58 gas wells located on 28,600 acres in Rush County,
Kansas. In January 2007 the gas wells were shut-in due to the closure of the
plant which was purchasing the gas produced from Epic's wells. These wells went
back into production in September 2008.





Also at
December 31, 2008, Epic had a 50% working interest (approximate 40% net revenue
interest) in seven shut-in gas wells located on 6,000 acres in Kay County,
Oklahoma. Epic estimated that it would have cost approximately $7,000 (with Epic
being responsible for its 50% share) to rework each shut-in well and place the
well back on production. Two wells were successfully tested for commercial
production following workovers in 2007.





The
following table shows, as of December 31, 2008, Epic's producing wells,
Developed Acreage, and Undeveloped Acreage, excluding service (injection and
disposal) wells:




Productive Wells
      (1)
            
            
            Developed
            
            
            Acreage
            
            
            Undeveloped
            
            
            AcreageGross
            
            
            Net
            
            
            Gross
            
            
            Net
            
            
            Gross
            
            
            NetOklahoma
            
            
            2
            
            
            
            1
            
            
            
            80
            
            
            
            40
            
            
            
            5,920
            
            
            
            2,960Kansas
            
            
            58
            
            
            
            58
            
            
            
            2,400
            
            
            
            2,400
            
            
            
            26,200
            
            
            
            26,200Totals
            
            
            60
            
            
            
            59
            
            
            
            2,480
            
            
            
            2,440
            
            
            
            32,120
            
            
            
            29,160




(1) All
wells are gas wells.





Developed
acreage represents the number of acres which are allocated or assignable to
producing wells or wells capable of production.





Undeveloped
acreage represents leasehold interests on which wells have not been drilled or
completed to the point that would permit the production of commercial quantities
of natural gas and oil regardless of whether the leasehold interest is
classified as containing proved undeveloped reserves.





The
following table shows, as of December 31, 2008 the status of Epic's gross
developed and undeveloped acreage.





State
                  
                  Gross Acreage
                  
                  
                  Held by Production
                  
                  
                  Not Held by ProductionOklahoma
                  
                  
                  6,000
                  
                  
                  
                  —
                  
                  
                  
                  6,000Kansas
                  
                  
                  28,600
                  
                  
                  
                  28,600
                  
                  
                  
                  —





Acres
held by production remain in force so long as oil or gas is produced from the
well on the particular lease. Leased acres which are not held by production
require annual rental payments to maintain the lease until the first to occur of
the following: the expiration of the lease or the time oil or gas is produced
from one or more wells drilled on the lease acreage. At the time oil or gas is
produced from wells drilled on the leased acreage the lease is considered to be
held by production.





Epic does
not own any overriding Royalty Interests.





Title to
properties is subject to royalty, overriding royalty, carried, net profits,
working and other similar interests and contractual arrangements customary in
the oil and gas industry, to liens for current taxes not yet due and to other
encumbrances. As is customary in the industry in the case of undeveloped
properties, little investigation of record title is made at the time of
acquisition (other than a preliminary review of local records). However,
drilling title opinions are always prepared before commencement of drilling
operations.


11





The
following table shows Epic's net production of oil and gas, average sales prices
and average production costs during the year ended December 31,
2008.


Production
Data:


Production
      -Oil
      (Bbls)
                          
                          
                          127Gas
      (Mcf)
                          
                          
                          31,847Average
      sales price -Oil
      (Bbls)
                          
                          
                          69.39Gas
      (Mcf)
                          
                          
                          2.50Average
      productioncosts
      per MCF
                          
                          
                          3.85





Production
costs may vary substantially among wells depending on the methods of recovery
employed and other factors, but generally include severance taxes,
administrative overhead, maintenance and repair, labor and
utilities.





Epic is
not obligated to provide a fixed and determined quantity of oil or gas in the
future. During the last fiscal year, Epic did not have, nor does it now have,
any long-term supply or similar agreement with any government or governmental
authority.





Below are
estimates of Epic's net proved reserves and the present value of estimated
future net revenues from its reserves based upon the standardized measure of
discounted future net cash flows relating to proved oil and gas reserves in
accordance with the provisions of Statement of Financial Accounting Standards
No. 69, "Disclosures about Oil and Gas Producing Activities" (SFAS No. 69). The
standardized measure of discounted future net cash flows is determined by using
estimated quantities of proved reserves and the periods in which they are
expected to be developed and produced based on period-end economic conditions.
The estimated future production is priced at period-end prices, except where
fixed and determinable price escalations are provided by contract. The resulting
estimated future cash inflows are then reduced by estimated future costs to
develop and produce reserves based on period-end cost levels. No deduction has
been made for depletion, depreciation or for indirect costs, such as general
corporate overhead. Present values were computed by discounting future net
revenues by 10% per year.




December 31, 2008Oil
            
            
            Gas(Bbls)
            
            
            (Mcf)Proved
      reserves
            
            
            776
            
            
            
            1,509,807Estimated
      future net cash flows from proved oil and gas reserves
            
            
            $  942,903Present
      value of future net cash flows from proved oil and gas
      reserves
            
            
            $  605,551





As of
December 31, 2008, Epic's proved reserves included only those amounts which Epic
reasonably expects to recover in the future from known oil and gas reservoirs
under existing economic and operating conditions, at current prices and costs,
under existing regulatory practices and with existing technology. Accordingly,
any changes in prices, operating and development costs, regulations, technology
or other factors could significantly increase or decrease estimates of Proved
Reserves.





ITEM 3.  LEGAL
PROCEEDINGS.





We
currently and from time to time are subject to claims and suits arising in the
ordinary course of business, including employment matters. If an adverse
decision in these matters exceeds our insurance coverage, or if our coverage is
deemed not to apply to these matters, or if the underlying insurance carrier was
unable to fulfill its obligation under the insurance coverage provided, it could
have a material adverse effect on our financial condition, results of operations
or cash flows. The ultimate determination of such claims cannot be determined at
this time.


ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.





Not
applicable.


12


ITEM 5.  MARKET
FOR COMMON EQUITY AND OTHER RELATED STOCK HOLDER MATTERS.





As of
March 17, 2009, there were approximately 150 holders of record of Epic's common
stock. Epic's common stock trades on the OTC Bulletin Board under the symbol
"EPCC". Shown below are the ranges of high and low closing bids for Epic's
common stock for the periods indicated as reported by the NASD. The market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions.





Quarter Ended
                  
                  High
                  
                  
                  LowDecember
      31, 2006
                  
                  $
                  2.80
                  
                  
                  $
                  1.25March
      31, 2007
                  
                  $
                  3.07
                  
                  
                  $
                  2.78June
      30, 2007
                  
                  $
                  3.20
                  
                  
                  $
                  2.90September
      30, 2007
                  
                  $
                  3.83
                  
                  
                  $
                  3.15December
      31, 2007
                  
                  $
                  4.29
                  
                  
                  $
                  2.30March
      31, 2008
                  
                  $
                  3.19
                  
                  
                  $
                  0.15June
      30, 2008
                  
                  $
                  0.90
                  
                  
                  $
                  0.59September
      30, 2008
                  
                  $
                  0.77
                  
                  
                  $
                  0.30December
      31, 2008
                  
                  $
                  0.51
                  
                  
                  $
                  0.05





Holders
of common stock are entitled to receive cash dividends as may be declared by the
Board of Directors out of legally available funds and, in the event of
liquidation, to share pro rata in any distribution of Epic's assets after
payment of liabilities. The Board of Directors is not obligated to declare a
cash dividend. Epic has never paid any cash dividends on its common stock and
Epic does not have any current plans to pay any cash dividends on its common
stock.





ITEM 6.  SELECTED
FINANCIAL DATA





Not
Applicable.





ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS/ PLAN OF
OPERATIONS





The
discussion in this section contains forward-looking statements. These statements
relate to future events or future financial performance. Epic has 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 the absence of these terms in a
particular location 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 actual results to differ from
those projected in any forward-looking statements. This discussion should be
read with the financial statements and related notes included elsewhere in this
report.





Overview





Epic
began operating in the oil and gas industry in April 2006.  In August
2007, Epic acquired the Carnrite Group, LLC for 3,177,810 shares of its common
stock.





In 2007
Epic acquired Pearl for 1,786,240 shares of its common stock and $19,928,000 in
cash.





In 2008,
Epic acquired EIS, which was not affiliated with Epic prior to the transaction,
for cash and shares of its restricted common stock. At closing, Epic paid
$867,000 and issued 1,000,000 shares of its common stock to the three former
owners of EIS. An additional $1,400,000 will be paid to the three former owners
in periodic installments from 2009 through 2011. The 1,000,000 shares were
issued to EIS's former owners, each of whom is also an officer of EIS. The
shares issued to each owner will vest over a three-year period. All or a portion
of the shares issued to each officer will be forfeited and returned to Epic if
the officer voluntarily terminates his or her employment prior to February 20,
2011. EIS provides the oil and gas industry with specialized training,
operations documentation and data management services for the start-up and
operation of complex energy production facilities.


The
Carnrite Group, Pearl and EIS provide consulting services to the oil, gas and
energy industry in the areas of engineering, construction management,
operations, maintenance, oil field project management, training, operations
documentation and data management.  In 2007, the pro forma annual
revenue for these three entities was approximately $62,000,000.


13





Epic
plans to continue its growth in the Rocky Mountains, Texas, Oklahoma and Kansas,
where its engineering expertise is its strength, and to expand into other areas
of the United States and into one or more foreign countries.





As of
February 25, 2009, Epic's backlog for future consulting services was
approximately $43.5 million. This compares to a combined backlog of
approximately $23.9 million as of February 28, 2008. Epic believes demand for
its services remains strong and will continue to increase as it expands its
service regions during 2009.





Epic has
a 100% working interest in 58 shut in gas wells and a 50% working interest in
seven shut-in gas wells. Epic plans to continue its search for underperforming
oil and gas properties where it believes its engineering expertise can improve
production. Oil prices have recently fallen to as low as $34 a barrel. As a
result, enhanced recovery projects have become less economically
feasible.





Results of
Operations





Analysis
of the Year Ended December 31, 2008 versus December 31, 2007.





Revenues
from continuing operations were $72,200,000 for the year ended December 31, 2008
as compared to $8,461,000 for the year ended December 31, 2007, an increase of
$63,759,000. This increase was due to the acquisitions of Carnrite in August
2007 and Pearl in December 2007.





Operating
Expenses from continuing operations were $87,522,000 for the year ended December
31, 2008 as compared to $9,678,000 for the year ended December 31, 2007, an
increase of $77,844,000. This increase was due to the acquisitions of Carnrite
in August 2007 and Pearl in December 2007.





Loss from
Operations was $15,322,000 for the year ended December 31, 2008 as compared to
$1,217,000 for the year ended December 31, 2007, an increase of $14,105,000.
Because significant operations were acquired in 2007 with the acquisitions of
Carnrite and Pearl, no comparison can be made between the periods.





Other
Income (Expenses) were $(6,516,000) for the year ended December 31, 2008 as
compared to $(335,000) for the year ended December 31, 2007. The increase in
Other Expenses was due to interest expense and debt discount amortization on the
$20,250,000 debentures that were sold on December 5, 2007.





Loss from
discontinued operations relating to the oil and gas segment totaled $(4,724,000)
for the year ended December 31, 2008 compared to $(2,811,000) for the year ended
December 31, 2007 which is an increase of $(1,913,000).  The increase
in the loss from discontinued operations is primarily the result of impairment
loss of $3,961,000 recorded during 2008 versus an impairment loss of $2,167,000
during 2007.





Net Loss
was $(26,572,000) or $(0.62) per share for the year ended December 31, 2008 as
compared to $(4,383,000) or $(0.11)) for the year ended December 31, 2007, an
increase of $22,189,000. Because significant operations were acquired in 2007
with the acquisitions of Carnrite and Pearl, no comparison can be made between
the periods.





Analysis
of the Year Ended December 31, 2007 versus December 31, 2006





Revenues
from continuing operations were $8,461,000 for the year ended December 31, 2007
as compared to $106,000 for the year ended December 31, 2006, an increase of
$8,355,000. This increase was due to the acquisitions of Carnrite in August 2007
and Pearl in December 2007.





Operating
Expenses were $9,678,000 for the year ended December 31, 2007 as compared to
$4,079,000 for the year ended December 31, 2006, an increase of $5,599,000. This
increase was due to the acquisitions of Carnrite in August 2007 and Pearl in
December 2007.





Loss from
Operations was $1,217,000 for the year ended December 31, 2007 as compared to
$3,973,000 for the year ended December 31, 2006, a decrease of $(2,756,000).
Because significant operations commenced in 2007 with the acquisitions of
Carnrite and Pearl, no comparison can be made between the periods.





Other
Income (Expenses) were $(335,000) for the year ended December 31, 2007 as
compared to $3,000 for the year ended December 31, 2006. The increase in Other
Expenses was due to interest expense and debt discount amortization on the
$20,250,000 debentures that were sold on December 5, 2007.


14


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
September 30, 2009.





In
December 2007, Epic sold 5,429,335 shares of its common stock to a group of
private investors for gross proceeds of $8,144,003, or $1.50 per share. The
investors also received warrants which entitle the holders to purchase up to
5,429,335 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 5, 2007 Epic entered into a Purchase Agreement (the “Purchase
Agreement”) for the sale of its 2007 10% Secured Debentures (the “Debentures”)
in the principal amount of $20,250,000 to private investors who are different
from those that purchase the common stock in December 2007. The Debentures were
sold at their face value without discount. The Debentures bear interest annually
at 10% per year. The Debentures are due and payable on December 5, 2012 and are
secured by liens on all of Epic's assets. The purchasers of the Debentures also
received 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 amount of the
Debentures.





On
December 1, 2008, which was the due date of the first quarterly principal
redemption payment on the Debentures, the Company did not pay amounts due to the
Debenture holders in an aggregate principal amount of $1,265,000.  The
terms of the Debentures provide that, until the delinquent payments are paid in
full, interest will accrue at the lesser of 18% per annum or the maximum rate
permitted under applicable law until this amount is paid in full.





This
failure to pay also represents an “Event of Default” under the
Debentures.  Upon an Event of Default, at the Debenture holder’s
election, the outstanding principal amount of the Debenture, plus accrued but
unpaid interest, liquidated damages and other amounts owing, shall become
immediately due and payable in cash at the “Mandatory Default Amount.” The
“Mandatory Default Amount” is defined in the Debenture as the sum
of:





“(i) the
greater of (A) 130% of the outstanding principal amount of the Debenture, plus
100% of accrued and unpaid interest, or (B) the outstanding principal amount of
this Debenture, plus all accrued and unpaid interest hereon, divided by the
‘Quarterly Conversion Price’ defined as the price calculated during the 10
trading day period immediately prior to the quarterly redemption payment] on the
date the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower Quarterly Conversion Price, multiplied by the VWAP on the
date the Mandatory Default Amount is either (x) demanded or otherwise due or (y)
paid in full, whichever has a higher VWAP, and





(ii) all
other amounts, costs, expenses and liquidated damages due in respect of the
Debenture.”





By way of
example only, “amounts, costs, expenses” consist of late fees, penalties for
failure to timely deliver share certificates and transfer taxes.





Commencing
5 days after the occurrence of any Event of Default that results in the eventual
acceleration of the Debenture, the interest rate shall accrue at a rate equal to
the lesser of 18% per annum of the maximum rate permitted under applicable
law.





In
addition, the Company was delinquent in satisfying the requirement of the
Debentures that a registration statement covering the shares into which the
Debentures and Warrants are convertible be declared effective with the SEC by
June 2, 2008.  This constituted an “Event of Default” under the
Debentures as described above.  The Debenture provisions concerning an
Event of Default are described above.  Subsequent to June 2, 2008, the
registration statement was declared effective.





Pursuant
to the Purchase Agreement, the Agent, Whitebox Convertible Arbitrage Partners,
LP, shall also have the right to take possession of the certain collateral, on
behalf of the secured parties, in the case of an event of an “Event of
Default.”


15





On
February 26, 2009, Epic entered into an Amendment Agreement (the “Amendment”)
with all holders of its Debentures (the “Holders”), except for one holder
of a $250,000 Debenture, to amend the Purchase Agreement and the Debentures. As
part of the Amendment, Rex P. Doyle, Chief Executive Officer and a director of
the Company, and John S. Ippolito, President of the Company, each agreed to
transfer to each Holder, on, that Holder’s proportionate share of 3,209,877
shares, for an aggregate total of 6,419,754 shares (the “Shares”), of the
Company’s common stock.  Messrs. Doyle and Ippolito also were parties
to the Amendment, but only with respect to these transfers of the Shares and not
with respect to any other provisions.  A legend restricting the
transfer of the Shares pursuant to the Securities Act of 1933, as amended (the
“1933 Act”), has been or will be placed on any certificate(s) or other documents
evidencing the Shares transferred to each Holder.





Pursuant to the terms of the Amendment,
the Holders agreed to waive any Events of Default (as defined in the Debenture
and other documents executed inconnectionwith the purchase of the Debentures)
of which they had knowledge.  Also, to the extent that a Holder had
requested acceleration of payment of its Debenture, the Holder rescinded such
request and any resulting acceleration of its
Debenture.





The
Amendment amends the Purchase Agreement by adding three additional sections to
Article IV of the Purchase Agreement.  The first new section, Section
4.19, provides that the Company shall achieve, on a consolidated basis, EBITDA
(as defined in the Amendment) of at least the required amount set forth below
for the applicable period indicated:





Period
                        
                        Cumulative
      EBITDAFor
      the three months ending March 31, 2009
                        
                        $
                        100,000For
      the six months ending June 30, 2009
                        
                        $
                        1,500,000For
      the nine months ending September 30, 2009
                        
                        $
                        3,400,000For
      the twelve months ending December 31, 2009
                        
                        $
                        4,400,000





In
addition, Section 4.19 provides that for each three-month period commencing on
January 1, 2010 and ending on each March 31, June 30, September 30 and December
31 thereafter, the Company shall achieve, on a consolidated basis, EBITDA of at
least $1,000,000.  The Company will also provide certain monthly and
quarterly reports to Whitebox Convertible Arbitrage Partners, LP
(“Whitebox”).  Failure of the Company to satisfy the EBITDA covenant
in Section 4.19 or to provide the monthly and quarterly reports in a timely
manner will constitute an “Event of Default” under the Debentures.





The
Amendment also adds a second new section to the Purchase Agreement, Section
4.20.  Section 4.20 provides that until June 30, 2010, the Company is
only permitted to issue up to a maximum aggregate of 10,000,000 shares of common
stock (with options and warrants counted as Shares) (subject to adjustment) to
employees, consultants, officers, directors and advisors.  The Company
also will not issue any shares of common stock or options or warrants to
employees, consultants, officers, directors or advisors with a strike price,
conversion price, exercise price, or at an effective purchase price per share,
less than $0.50 (subject to adjustment) until the earlier of (i) such time that
the Purchasers no longer hold any Securities or (ii) one year prior to the
expiration date of the Warrants (regardless of whether any or all Warrants have
been exercised).





The third
new section added to the Purchase Agreement, Section 4.21, places limitations on
increases to executive compensation beyond the 2008 levels for calendar years
2009 and 2010.  The limitations shall last until the end of calendar
year 2010, or until such time that the Company’s annual EBITDA (as derived from
audited financial statements) exceeds $7,000,000, or the holders of at least 67%
in principal amount of the then outstanding Debentures shall have otherwise
given their prior written consent to terminate the limitations.





The
Amendment also provides that a new Section 6(d) will be added to the
Debenture.  Following any and all payments received by the Company or
any subsidiary of the Company in connection with the amounts owed to the Company
by Storm Cat Energy Corporation (“Storm Cat”) that were due and payable as of
November 10, 2008, the Company will redeem some or all of the then-outstanding
principal of the Debenture, in an amount equal to the Holders’ pro-rata portion
of 50% of such payment by Storm Cat.  An additional “Event of Default”
also was added to the Debenture.  It will be an Event of Default if,
upon opening or otherwise maintaining any deposit account or bank account, the
Company does not enter into an account control agreement  for the
benefit of the Holders with respect to the subject deposit account or bank
account.





Pursuant
to the Amendment, the Company paid the Quarterly Redemption Amount(s) (as
defined in the Debentures) under the Holder’s Debenture scheduled to have been
paid on December 1, 2008.





Subsequent
to the Amendment Agreement, Epic executed a Debenture Repurchase Agreement dated
March 13, 2009 with Cranshire Capital, L.P. (“Cranshire”)(the only Debenture
holder that did not execute the Amendment Agreement) to repurchase Cranshire’s
outstanding Debenture having an original principal amount of
$250,000.  Epic has paid the repurchase price and Cranshire’s
Debenture has been cancelled.


16





The
amounts raised in the December 2007 financing were used as follows:





Amount
      received from sale of common stock, notes and
warrants
                    
                    $
                    28,394,003Less:Acquisition
      of Pearl Investment Company
                    
                    
                    (19,020,000
                    )Reserve
      for income taxes of Pearl Investment Company for year ended December
      31, 2007
                    
                    
                    (2,400,000
                    )Payment
      of Pearl Investment Company bank loans
                    
                    
                    (1,504,884
                    )Placement
      agent fees
                    
                    
                    (1,785,000
                    )Legal,
      accounting and other professional fees
                    
                    
                    (125,000
                    )Remainder
      to be used as working capital
                    
                    $
                    3,559,119





Epic's
sources and (uses) of cash during the years ended December 31, 2008 and 2007
were:





2008
                    
                    
                    2007Cash
      provided by (used by) operations
                    
                    $
                    4,483,000
                    
                    
                    $
                    (2,672,000
                    )Net
      (purchases) sales of property and equipment
                    
                    
                    (731,000
                    )
                    
                    
                    (302,000
                    )Cash
      resulting from acquisition of Carnrite
                    
                    
                    -
                    
                    
                    
                    49,000Acquisition
      of Pearl Investment Company,net of cash received
                    
                    
                    -
                    
                    
                    
                    (20,372,000
                    )Acquisition
      of EIS
                    
                    
                    (232,000
                    )
                    
                    
                    -Borrowings
      (repayments), net of issuance costs
                    
                    
                    (1,268,000
                    )
                    
                    
                    17,504,000Sale
      of common stock
                    
                    
                    -
                    
                    
                    
                    8,667,000Increase
      in restricted cash
                    
                    
                    2,492,000
                    
                    
                    
                    (3,400,000
                    )Bank
      overdrafts
                    
                    
                    (3,442,000
                    )
                    
                    
                    3,442,000Other
                    
                    
                    -
                    
                    
                    
                    (23,000
                    )





Other
than the operating leases, as of December 31, 2008 and March 31, 2009 Epic did
not have any off-balance sheet arrangements.





Epic's
loan from the private lender had a principal balance of $3,710,441 as of
December 31, 2008 and is secured by Epic's gas wells in Rush County, Kansas. The
loan bears interest at 10% per year and is payable in equal monthly installments
of $72,000. The loan agreement provides that if the monthly net income from the
wells is less than $72,000, the deficit will be added to the principal amount of
the note. If the monthly net income from the wells is greater than $72,000, the
net income is applied to the note principal. Since the Kansas wells are shut-in,
it is anticipated that $72,000 will be added to the note principal each month
until the wells return to production.  Effective March 5, 2009, Epic
executed an agreement whereby its current partner will assume all debt
associated with the field along with operating expenses and any contingent
liabilities in exchange for Epic’s interest in the field, subject to Epic’s
retention overriding royalty interest covering the properties.  In
addition, a third party has signed a farmout agreement in which Epic will
receive A 3.75% net profits interest, up to a maximum of $500,000 in production
from new wells drilled in the field.





As a
result of the acquisition of The Carnrite Group, the Pearl Investment Company
and EIS, Epic believes that cash provided by its operations will satisfy its
future capital requirements, including principal and interest payments required
by the terms of the note secured by Epic's Kansas gas wells and the Debentures
sold in December 2007.





The
demand for Epic's services depends on trends in oil and natural gas prices and
is particularly sensitive to the level of exploration, development, and
production by oil and natural gas companies. Historically, the prices for oil
and gas have been volatile and are likely to continue to be volatile. Spending
on exploration and production activities will have a significant impact on the
activity level of Epic's consulting businesses.





Other
than the matters discussed above, Epic does not know of any future trends or
events which would materially affect its operating results or financial
condition.


17





Fluctuations
in crude oil and natural gas prices will significantly affect Epic’s oil and gas
operations.  Cash flow from oil and gas production depends upon the
quantity of production and the price obtained for such production.  An
increase in prices will permit Epic to finance its operations to a greater
extent with internally generated funds, may allow Epic to obtain equity
financing more easily or on better terms, and lessens the difficulty of
attracting financing from industry partners and non-industry
investors.  However, price increases heighten the competition for
leases, increase the costs of exploration and development activities, and,
because of potential price declines, increase the risks associated with the
purchase of producing properties during times that prices are a higher
levels.





A decline
in oil and gas prices (i) will reduce the cash flow internally generated by Epic
which in turn will reduce the funds available for servicing debt and exploring
for and replacing oil and gas reserves, (ii) will increase
the  difficulty of obtaining equity and debt financing and worsens the
terms on which  such financing may be obtained, (iii) will reduce the
number of leases which have reasonable economic terms, (iv) may cause Epic to
allow leases to expire based upon the value of potential oil and gas reserves in
relation to the costs of  exploration, (v) will result in marginally
productive oil and gas wells being  abandoned as non-commercial, and
(vi) will increase the difficulty of attracting  financing from
industry partners and non-industry investors.





Critical
Accounting Policies





The
preparation of Epic's financial statements requires it to make estimates and
judgments that affect the reported amounts of its assets, liabilities and
expenses and related disclosure of contingent assets and liabilities. Epic bases
its estimates on historical experience and on various other assumptions that it
believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities.
Although Epic reviews its estimates on an ongoing basis, actual results may
differ from its estimates under different assumptions or conditions. Epic
believes the following accounting policies are critical to the judgments and
estimates used in the preparation of its financial statements:





Revenue
Recognition. Revenues from oil and gas production sales are recognized as
revenue in accordance with Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 104, "Revenue Recognition," when persuasive evidence of an
arrangement exists, fees are fixed or determinable, title has passed (generally
upon transmission of oil and gas production), and collection is reasonably
assured.





Revenue
from consulting services is recognized from 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.





Service
revenue is received from certain contractual relationships under time and
materials type contracts, for which revenue is recognized monthly in the period
in which the related time is incurred and as expenses are recognized. Revenues
from lump-sum turn-key contracts are recognized upon achievement of contract
milestones, based on contracts. Interest income is generated from certain
customer prepayments for materials to be procured, received, and paid for on
behalf of the customer and is recognized monthly.





Accounts
Receivable. Accounts receivable represent amounts due from customers for
services performed. Epic extends various terms to its customers, with payment
terms generally 30 days, depending on the customer and country, and Epic does
not typically require collateral. Epic periodically assesses the collectability
of its receivables, as necessary, based on various considerations including
customer credit history, payment patterns, and aging of accounts. Once
management determines an account receivable is not collectible, the account is
written off.  A customer of Pearl, which owed Pearl approximately $5.1
million, recently filed for Chapter 11 bankruptcy. As a result of this filing,
Epic, on its December 31, 2008 balance sheet, recorded an allowance for doubtful
accounts of $6.57 million.


18





Full Cost
Method of Accounting for Crude Oil and Natural Gas Activities. SEC Regulation
S-X defines the financial accounting and reporting standards for companies
engaged in crude oil and natural gas activities. Two methods are prescribed: the
successful efforts method and the full cost method. Epic has chosen to follow
the full cost method under which all costs associated with property acquisition,
exploration and development are capitalized. Epic also capitalizes internal
costs that can be directly identified with acquisition, exploration and
development activities and do not include any costs related to production,
general corporate overhead or similar activities. Effective with the adoption of
SFAS No. 143 in 2003, the carrying amount of oil and gas properties also
includes estimated asset retirement costs recorded based on the fair value of
the asset retirement obligation when incurred. Gain or loss on the sale or other
disposition of oil and gas properties is not recognized, unless the gain or loss
would significantly alter the relationship between capitalized costs and proved
reserves of oil and natural gas attributable to a country. Under the successful
efforts method, geological and geophysical costs and costs of carrying and
retaining undeveloped properties are charged to expense as incurred. Costs of
drilling exploratory wells that do not result in proved reserves are charged to
expense. Depreciation, depletion, amortization and impairment of crude oil and
natural gas properties are generally calculated on a well by well or lease or
field basis versus the "full cost" pool basis. Additionally, gain or loss is
generally recognized on all sales of crude oil and natural gas properties under
the successful efforts method. As a result, Epic's financial statements will
differ from companies that apply the successful efforts method since Epic will
generally reflect a higher level of capitalized costs as well as a higher
depreciation, depletion and amortization rate on our crude oil and natural gas
properties.





At the
time it was adopted, management believed that the full cost method would be
preferable, as earnings tend to be less volatile than under the successful
efforts method. However, the full cost method makes Epic more susceptible to
significant non-cash charges during times of volatile commodity prices because
the full cost pool may be impaired when prices are low. These charges are not
recoverable when prices return to higher levels. Epic's crude oil and natural
gas reserves have a relatively long life. However, temporary drops in commodity
prices can have a material impact on Epic's business, including impact from the
full cost method of accounting.





Ceiling
Test. Companies that use the full cost method of accounting for oil and gas
exploration and development activities are required to perform a ceiling test
each quarter. The full cost ceiling test is an impairment test prescribed by SEC
Regulation S-X Rule 4-10. The test determines a limit, or ceiling, on the book
value of oil and gas properties. That limit is basically the after tax present
value of the future net cash flows from proved crude oil and natural gas
reserves, excluding future cash outflows associated with settling asset
retirement obligations that have been accrued on the balance sheet, plus the
lower of cost or fair market value of unproved properties. If net capitalized
costs of crude oil and natural gas properties exceed the ceiling limit, Epic
must charge the amount of the excess to earnings. This is called a "ceiling
limitation write-down." This charge does not impact cash flow from operating
activities, but does reduce Epic's stockholders' equity and reported earnings.
The risk that Epic will be required to write-down the carrying value of crude
oil and natural gas properties increases when crude oil and natural gas prices
are depressed or volatile. In addition, write-downs may occur if Epic
experiences substantial downward adjustments to its estimated proved reserves or
if purchasers cancel long-term contracts for natural gas production. An expense
recorded in one period may not be reversed in a subsequent period even though
higher crude oil and natural gas prices may have increased the ceiling
applicable to the subsequent period.





Estimates
of Epic's proved reserves included in this prospectus are prepared in accordance
with GAAP and SEC guidelines. The accuracy of a reserve estimate is a function
of:





o           the
quality and quantity of available data;


o           the
interpretation of that data;


o           the
accuracy of various mandated economic assumptions; and


o           the
judgment of the persons preparing the estimate.





Epic's
proved reserves and the present value of estimated future net revenues from its
reserves are based upon estimates which Epic believes are reasonable. Because
these estimates depend on many assumptions, all of which may substantially
differ from future actual results, reserve estimates will be different from the
quantities of oil and gas that are ultimately recovered. In addition, results of
drilling, testing and production after the date of an estimate may justify
material revisions to the estimate. It should not be assumed that the present
value of future net cash flows is the current market value of Epic's estimated
proved reserves. In accordance with SEC requirements, Epic bases the estimated
discounted future net cash flows from proved reserves on prices and costs on the
date of the estimate. Actual future prices and costs may be materially higher or
lower than the prices and costs as of the date of the estimate.





The
estimates of proved reserves materially impact DD&A expense. If the
estimates of proved reserves decline, the rate at which we record DD&A
expense will increase, reducing future net income. Such a decline may result
from lower market prices, which may make it uneconomic to drill for and produce
higher cost fields.


19


Excluded
Costs. Oil and gas properties include costs that are excluded from capitalized
costs being amortized. These amounts represent investments in unproved
properties and major development projects. These costs are excluded until proved
reserves are found or until it is determined that the costs are impaired. All
costs excluded are reviewed at least quarterly to determine if impairment has
occurred. The amount of any impairment is transferred to the capitalized costs
being amortized (the DD&A pool) or a charge is made against earnings for
those international operations where a reserve base has not yet been
established. Impairments transferred to the DD&A pool increase the DD&A
rate. Costs excluded for oil and gas properties are generally classified and
evaluated as significant or individually insignificant properties.





Property
and Equipment. Property and equipment is stated at cost. Equipment under capital
leases is valued at the lower of fair market value or net present value of the
minimum lease payments at inception of the lease. 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 and equipment under capital leases.





Valuation
of Intangibles and Long-Lived Assets. SFAS No. 142 provides that goodwill and
other intangible assets that have indefinite useful lives not be amortized but,
instead, must be tested at least annually for impairment, and intangible assets
that have finite useful lives should continue to be amortized over their useful
lives. SFAS No. 142 also provides specific guidance for testing goodwill and
other non-amortized intangible assets for impairment. SFAS No. 142 does not
allow increases in the carrying value of reporting units that may result from
Epic's impairment test; therefore, Epic may record goodwill impairments in the
future, even when the aggregate fair value of its reporting units and the
company as a whole may increase. Goodwill of a reporting unit will be tested for
impairment between annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its
carrying amount. Examples of such events or circumstances may include a
significant change in business climate or a loss of key personnel, among others.
SFAS No. 142 requires that management make certain estimates and assumptions in
order to allocate goodwill to reporting units and to determine the fair value of
reporting unit net assets and liabilities, including, among other things, an
assessment of market conditions, projected cash flows, cost of capital and
growth rates, which could significantly impact the reported value of goodwill
and other intangible assets. Estimating future cash flows requires significant
judgment, and Epic's projections may vary from cash flows eventually
realized.





Epic
reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be realizable. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset are compared to the asset's carrying amount to determine if an
impairment of such asset is necessary. Estimating future cash flows requires
significant judgment, and Epic's projections may vary from cash flows eventually
realized. The effect of any impairment would be to expense the difference
between the fair value of such asset and its carrying value. In addition, Epic
estimates the useful lives of its long-lived assets and other intangibles. Epic
periodically reviews factors to determine whether these lives are
appropriate.





Asset
Retirement Obligations ("ARO"). The estimated costs of restoration and removal
of facilities are accrued. The fair value of a liability for an asset's
retirement obligation is recorded in the period in which it is incurred and the
corresponding cost capitalized by increasing the carrying amount of the related
long-lived asset. The liability is accreted to its then present value each
period, and the capitalized cost is depreciated by the units of production
method. If the liability is settled for an amount other than the recorded
amount, a gain or loss is recognized. For all periods presented, we have
included estimated future costs of abandonment and dismantlement in the full
cost amortization base and amortize these costs as a component of our depletion
expense.





Stock-Based
Compensation. Epic adopted FAS 123R on January 1, 2006 which requires the
measurement and recognition of compensation expense for all share-based awards
made to employees and directors, including stock options, restricted stock and
employee stock purchases related to employee stock purchase plans, based on
estimated fair values. SFAS No. 123(R) requires companies to estimate the fair
value of share-based awards on the grant date using an option pricing model.
Epic values share-based awards using the Black-Scholes option pricing model. The
Black-Scholes model is highly complex and dependent on key estimates by
management. The estimates with the greatest degree of subjective judgment are
the estimated lives of the stock-based awards and the estimated volatility of
Epic's stock price.





Income
Taxes. Epic uses the asset and liability method of accounting for income taxes
in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial statement and tax bases of assets
and liabilities. If appropriate, deferred tax assets are reduced by a valuation
allowance which reflects expectations of the extent to which such assets will be
realized. As of December 31, 2008 and 2007, Epic had recorded a full valuation
allowance for its net deferred tax asset.


20


On
January 1, 2007, Epic adopted the provisions of FIN 48, "Accounting for
Uncertainty in 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. FIN 48 requires
that Epic recognize in its consolidated financial statements only those tax
positions that are "more-likely-than-not" of being sustained as of the adoption
date, based on the technical merits of the position.





Per Share
Information. Basic earnings (losses) per share is computed by dividing net
income (losses) from continuing operations attributable to common stock by the
weighted average number of common shares outstanding during each period. Diluted
earnings per share is computed by adjusting the average number of common shares
outstanding for the dilutive effect, if any, of common stock equivalents such as
stock options and warrants. Diluted net loss per share is the same as basic net
loss per share for all periods presented because potential common stock
equivalents were anti-dilutive. For all periods in which there was a net loss
attributable to common stockholders, all of Epic's stock options and warrants
were anti-dilutive. Common stock equivalents of 31,154,851 and $23,828,961 at
December 31, 2008 and 2007, respectively, were excluded because they were
anti-dilutive due to the net loss attributable to common stockholders incurred
in such periods.





Financial
Instruments and Concentrations of Credit Risk. Epic's financial instruments
consist of cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses, derivative financial instruments, and debt. Epic believes the
carrying values of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate their fair values due to their
short-term nature. The fair value of debt is estimated based on the effective
interest rate method.





Epic
generally does not use derivative financial instruments to hedge exposures to
cash-flow risks or market-risks that may affect the fair values of its financial
instruments. However, certain other financial instruments, such as warrants and
embedded conversion features in Epic's debt that are indexed to its common
stock, are classified as equity with the offset treated as a discount on the
notes. Such financial instruments are initially recorded at fair value and
amortized to interest expense during the life of the debt.





Epic
utilizes various types of financing to fund its business needs, including debt
with warrants attached and other instruments indexed to its stock. The embedded
conversion features utilized in these instruments require an initial measurement
of the fair value of the derivative components. Pursuant to FAS 133 and EITF
00-19 Epic amortizes the discount associated with these derivative components to
interest expense at each reporting period.





Recent
Accounting Pronouncements





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"). Epic did not elect to
adopt SFAS 159 for any instruments.





In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," which
requires the acquiring entity in a business combination to recognize and measure
all assets and liabilities assumed in the transaction and any non-controlling
interest in the acquiree at fair value as of the acquisition date. SFAS No. 141
(R) also establishes guidance for the measurement of the acquirer shares issued
in consideration for a business combination, the recognition of contingent
consideration, the accounting treatment pre-acquisition gain and loss
contingencies, the treatment of acquisition related transaction costs, and the
recognition of changes in the acquirer's income tax valuation allowance and
deferred taxes. SFAS No. 141(R) is effective for fiscal years beginning after
December 15, 2008 and is to be applied prospectively as of the beginning of the
fiscal year in which the statement is applied. Early adoption is not permitted.
SFAS No. 141(R) will be effective for Epic beginning with the 2009 fiscal
year.


21


In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements — an amendment of ARB 51," which establishes
accounting and reporting standards that require noncontrolling interests to be
reported as a component of equity. SFAS No. 160 also requires that changes in a
parent's ownership interest while the parent retains its controlling interest be
accounted for as equity transactions and that any retained noncontrolling equity
investment upon the deconsolidation of a subsidiary be initially measured at
fair value. SFAS No. 160 is effective for fiscal years beginning after December
15, 2008 and is to be applied prospectively as of the beginning of the fiscal
year in which the statement is applied. SFAS No. 160 will be effective for Epic
beginning with the 2009 fiscal year. Epic is evaluating the potential impact of
SFAS No.160, if any, on its financial statements.





ITEM
7A.QUANTATIVE AND QUALITIVE
DISCLOSURES ABOUT MARKET RISK





Not
applicable.





ITEM
8.FINANACIAL STATEMENTS AND
SUPPLEMENTARY DATA





This
information required by this item is included in Item 15, “Exhibits, Financial
Statements and Financial Statement Schedules.”





ITEM
9.CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





Effective
February 21, 2007 Epic replaced (i.e. dismissed) Comiskey & Company with
Malone & Bailey, P.C. as Epic's independent certified public accountants.
Comiskey & Company audited Epic's financial statements for the fiscal years
ended December 31, 2004 and 2005. During Epic's two most recent fiscal years and
subsequent interim period ended February 21, 2007, there were no disagreements
with Comiskey & Company on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of Comiskey & Company
would have caused it to make reference to such disagreements in its report had a
reports.





During
the two most recent fiscal years and subsequent interim period ended February
21, 2007, Epic did not consult with Malone & Bailey regarding the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
Epic's financial statements, or any matter that was the subject of a
disagreement or a reportable event as defined in the regulations of the
Securities and Exchange Commission.





The
change in Epic's auditors was recommended and approved by the directors of
Epic.





ITEM
9A.CONTROLS AND
PROCEDURES





Management's Report on
Internal Control Over Financial Reporting





Epic's
management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal control over financial reporting. As defined by the Securities and
Exchange Commission, internal control over financial reporting is a process
designed by, or under the supervision of Epic's principal executive officer and
principal financial officer and implemented by its Board of Directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
in accordance with U.S. generally accepted accounting principles.





Epic's
internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect its transactions and dispositions of its assets;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of Epic's financial statements in accordance with U.S.
generally accepted accounting principles, and that its receipts and expenditures
are being made only in accordance with authorizations of its management and
directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of Epic's assets that
could have a material effect on the financial statements.


22


Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In
connection with the preparation of Epic's annual financial statements,
management undertook an assessment of the effectiveness of Epic's internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission, or the COSO Framework.
Management's assessment included an evaluation of the design of Epic's internal
control over financial reporting and testing the operational effectiveness of
those controls.





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, Doyle and Kinney have concluded
that the Company’s disclosure controls and procedures and internal control over
financial reporting were effective as of December 31, 2008.





Changes in Internal Control
over Financial Reporting





During
the period ended December 31, 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 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.





This
annual report does not include an attestation report by Epic's independent
registered public accounting firm regarding Epic's internal control over
financial reporting. Management's report was not subject to attestation by
Epic's independent registered public accounting firm pursuant to temporary rules
of the SEC that permit Epic to provide only management's report on internal
control in this annual report.





There was
no change in Epic's internal control over financial reporting identified in
connection with the evaluation described above that occurred during Epic's
fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, Epic's internal control over financial
reporting.





ITEM
9B.OTHER
INFORMATION





Not
applicable


23





PART
III





ITEM
10.DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS





Name
                      
                      Age
                      
                      PositionRex
      Doyle
                      
                      50
                      
                      Chief
      Executive Officer and aDirectorJohn
      Ippolito
                      
                      49
                      
                      PresidentMichael
      Kinney
                      
                      51
                      
                      Executive
      Vice President,Principal
      Financial andAccounting
      OfficerW.
      Robert Eissler
                      
                      58
                      
                      DirectorDr.
      Robert Ferguson
                      
                      65
                      
                      DirectorJohn
      Otto
                      
                      60
                      
                      DirectorAlan
      Carnrite
                      
                      50
                      
                      DirectorTamer
      El-Rayess
                      
                      38
                      
                      DirectorMartin
      Lipper
                      
                      74
                      
                      Director





Rex P.
Doyle has been the Chief Executive Officer and director of Epic since April 4,
2006. Mr. Doyle was a Vice President of Michael Baker Corporation (AMEX:BKR)
between August 2000 and September 2002. Between September 2002 and April 2004
Mr. Doyle was Vice President of Business Development for Baker Energy, a
subsidiary of Michael Baker Corporation. Between April 2005 and April 2006, Mr.
Doyle was Senior Vice President of Global Operations for Baker Energy and an
officer of Michael Baker Corporation. Mr. Doyle graduated with a BS in
Mechanical engineering from The Ohio State University, and has been a licensed
professional engineer in the state of Louisiana (inactive). He graduated with a
Masters of Business Administration, with Distinction, from the University of
Michigan, and also graduated from the Harvard IPAA Program for Owners and
Executives.





John S.
Ippolito has been President of Epic since April 4, 2006. Mr. Ippolito was
Business Development Manager - North and South America Integrated Project
Management Division for Schlumberger Ltd. between 2000 and August 2003. Between
August 2003 and April 2006 Mr. Ippolito was Senior Business Development
Director, Continental U.S., and Business Manager - Large Asset Management
Contracts, for Baker Energy, a subsidiary of Michael Baker
Corporation.





Michael
E. Kinney has been Epic's Executive Vice President and Chief Financial Officer
since February 2008. Between 2005 and February 2008, Mr. Kinney was employed by
Accretive Solutions, a financial consulting firm, leading its corporate
governance team which focused on small to mid-size energy clients in the Houston
area. From 2003 to 2005, Mr. Kinney was the Internal Audit Director for Stewart
& Stevenson, Inc., a manufacturer of tactical vehicles for the federal
government. Between 1996 and 2001 Mr. Kinney held several positions with Federal
Express, including director of logistics operations (1999 to 2001) and managing
director of audit (1997 to 1999) with responsibility for financial and
operational audits. Mr. Kinney has also worked in various audit capacities with
i2 Technologies and Textron. Mr. Kinney is a CPA and holds an MBA in Finance
& Information Technology from Dallas Baptist University and a BBA in
Accounting from the University of Texas at Arlington.





W. Robert
Eissler has been a director of Epic since December 2006. Since 1983 Mr. Eissler
has been the President of Eissler & Associates, an executive recruiting firm
based in The Woodlands, Texas. Mr. Eissler also serves as a Texas State
Representative for the 81st Legislature (2009-2010).





Dr.
Robert M. Ferguson has been a director of Epic since December 2006. Since
October 2005 Dr. Ferguson has been the President of the Leadership Institute for
Vision and Ethics (Live) in Houston, Texas. Between January 2002 and September
2005 Dr. Ferguson was an independent consultant in the areas of organization and
leadership. Since 2002 Dr. Ferguson has been an Adjunct Professor of Philosophy
and Business Ethics at the Lone Star College, Montgomery in The Woodlands,
Texas, and an Adjunct Professor in Business Ethics and Biblical Studies at
Belhaven College in Houston, Texas. Since February 2008 Dr. Ferguson has been
pastor at the Faith Fellowship Church in Spring, Texas. Between February January
2002 and October 2005 he was pastor at Spring Cypress Presbyterian Church in
Spring, Texas.





John Otto
has been a director of Epic since November 2008.  John has been a
certified public accountant and financial services representative.  He
is the founder and managing partner of John C. Otto, P.C., a CPA firm, and
serves as a Director for Business Development of a tax firm called Ryan and Co.
John began his career in 1972 in public accounting with the national firm KPMG
with primary responsibility as the senior auditor for Mitchell Energy and
Development Corporation and was a key part of the accounting and finance team
that assisted with the successful IPO of Mitchell Energy which grew into a
multibillion company before being acquired by Devon Energy.  Mr. Otto
also serves as a Texas State Representative for the 81st Legislature
(2009-2010).


24


Alan "Al"
Carnrite has been a director of Epic since November 2008.  Since 2003,
Al has been a partner in a private oil and gas company and also leads an energy
focused private equity fund.  With over 25 years of experience in
diversified oil and gas, he has been an advisor to many companies in the E&P
industry. From 2001 to 2003, Al was a Managing Director and led the energy
consulting practice at Jefferies Randall & Dewey.  Al was a
founder of the Carnrite Group LLC (a wholly-owned subsidiary of Epic) and the
energy management consulting firm, Sterling Consulting Group, where he
specialized in enhancing integrated companies' shareholder value through mergers
and acquisitions, strategic leadership and value-added management
assignments.  From 1981 to 2001, he had worked for a large Canadian
integrated energy company, where he played a key role in the firm’s
privatization, the largest in Canadian history.





Martin
Lipper, has been a director of Epic since March 2009.  Since December
2007, Mr. Lipper is also a director of TX Holdings, Inc., a publicly reporting
company.  Mr. Lipper is a Korean War Veteran, graduated from New York
University in 1958 with a Bachelor of Science degree in Finance and Economics.
Mr. Lipper began his career on Wall Street as a securities analyst specializing
in bank stock analysis. He joined the Bank of New York and was a senior bank
insurance and finance analyst. Later he became co-director of research at
Eastman Dillon Union Securities and later Purcell Graham. In 1973, Mr. Lipper
became Vice President and Treasurer of APF Electronics. From May 2002 to
November 2006, Mr. Lipper was a Director of Research for Brill Securities, a
regional NASD firm.  From November 2006 to March 2009, Mr. Lipper
served as Senior Vice President and Research Director of Baron Group
U.S.A.  Mr. Lipper is currently a Vice President of Research for the
Wall Street Communications Group.





Tamer
El-Rayess has been a director of Epic since March 2009.  Mr. El-Rayess
received a BS in Physics from Rensselaer Polytechnic Institute in 1991 and
earned a MBA in Finance with a minor in International Finance from New York
University, Stern School of Business in 1995.  Since 2002 Mr.
El-Rayess has served as Global Head, Commodities Finance & Capital
Investments at UBS AG and has previously served as Vice President of Goldman
Sachs Principal Finance Group from 1999 to 2002.  Mr. El-Rayess is
also the founder of UIV, LLC, a private equity fund, focused on various industry
sectors including energy since 2003.  UIV is a 80% residual interest
member of Argos Asset Management, LLC (a joint venture partner with
Epic)..





Epic has
a compensation committee. Dr. Robert Ferguson, Rob Eissler and Al Carnrite are
the members of the compensation committee. Epic's audit committee is comprised
of Dr. Robert Ferguson and John Otto. John Otto serves as Epic's financial
expert. There have been no material changes to the procedures by which security
holders may recommend nominees to the registrant's board of
directors





On
September 17, 2008, Mr. McMahon resigned as director. In October 2008, Mr.
Reynolds resigned as Executive Vice President and Secretary. On September 18,
2008, John Otto was appointed as a director of Epic. On November 14, 2008, Al
Carnrite was appointed as a director of Epic.





SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCES





Section
16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act),
requires the Company’s directors, executive officers and beneficial owners of
more than 10% of the Company’s common stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the
Company.  The Company believes that during the year ended December 31,
2008, each person who was an officer, director and beneficial owner of more than
10% of the Company’s common stock complied with all Section 16(a) filing
requirements, except for the following:





·
              Forms
      4 for Rex P. Doyle and John Ippolito filed on March 4,
      2009.  The Form 4 for Mr. Doyle covered seven late reports and
      ten transactions that were not reported on a timely basis.  The
      Form 4 for Mr. Ippolito covered six late reports and seven transactions
      that were not reported on a timely
basis.


·
              Amended
      Form 3s for Michael Kinney and Alan Carnrite filed on March 26,
      2009.  These Forms 3 were originally filed on a timely basis,
      but were amended to correct a typographical
  error.


·
              Forms
      4 for Robert Eissler, Dr. Robert Ferguson, and John Otto filed on March
      26, 2009.  The Form 4 for Mr. Eissler covered one late report
      and one transaction that were not reported on a timely
      basis.  The Form 4 for Dr. Ferguson covered one late report and
      one transaction that were not reported on a timely basis.  The
      Form 4 for Mr. Otto covered one late report and one transaction that were
      not reported on a timely
basis.


25





CODE OF
ETHICS





The Company has adopted a code of
ethics that applies to its principal executive officer, principal financial
officer, principal accounting officer, controller, and persons performing
similar functions.  A copy of the Company’s code of ethics is
available on Epic’s website (www.1epic.com).





ITEM
11.EXECUTIVE
COMPENSATION





The
following table shows the compensation paid or accrued to Epic's Principal
Executive Officer and the two other most highly compensated executive officers
of Epic, or Epic's subsidiaries, during the years ended December 31, 2008 and
2007.





AllOtherAnnualStock
                                            
                                            
                                            Option
                                            
                                            
                                            Compen-Name and Principal
                                            
                                            Fiscal
                                            
                                            Salary
                                            
                                            
                                            Bonus
                                            
                                            
                                            Awards
                                            
                                            
                                            Awards
                                            
                                            
                                            sationPosition
                                            
                                            Year
                                            
                                            (1)
                                            
                                            
                                            (2)
                                            
                                            
                                            (3)
                                            
                                            
                                            (4)
                                            
                                            
                                            (5)
                                            
                                            
                                            TotalRex
      Doyle, Chief
                                            
                                            2008
                                            
                                            $
                                            210,000
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            615,000
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            825,000Principal
      Executive
                                            
                                            2007
                                            
                                            $
                                            210,000
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            990,000
                                            
                                            
                                            $
                                            72,713
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            1,272,713and
      FinancialOfficer
      (6)John
      Ippolito
                                            
                                            2008
                                            
                                            $
                                            175,000
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            615,000
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            790,000President
                                            
                                            2007
                                            
                                            $
                                            175,000
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            990,000
                                            
                                            
                                            $
                                            45,321
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            1,210,321Michael
      Kinney
                                            
                                            2008
                                            
                                            $
                                            175,200
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            132,384
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            307,584CFO
      since
                                            
                                            2007
                                            
                                            
                                            
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —
                                            
                                            
                                            
                                            —February
      2008




(1)
            The
      dollar value of base salary (cash and non-cash)
  earned.


(2)
            The
      dollar value of bonus (cash and non-cash)
  earned.


(3)
            The
      fair value of stock issued for services computed in accordance with FAS
      123R on the date of grant.


(4)
            The
      fair value of options granted computed in accordance with FAS 123R on the
      date of grant.


(5)
            All
      other compensation received that Epic could not properly report in any
      other column of the table.


(6)
            Mr.
      Doyle also serves as a director on the Company’s board of
      directors.  Mr. Doyle does not receive compensation for this
      director role.





In
February 2008, Michael Kinney replaced Rex Doyle as Epic's Principal Financial
and Accounting Officer. Mr. Kinney was awarded
200,000 stock options on his employment date pursuant to the Non-Qualified Stock
Option Plan.





Epic does
not have an employment agreement with any of its named executive
officers.





On
December 13, 2007 Rex Doyle and John Ippolito were each awarded 300,000 shares
of Epic's common stock pursuant to Epic's Stock Bonus Plan.





On
February 13, 2009, the Compensation Committee of the Board of Directors of Epic
approved a stock option plan (the “Plan”) pursuant to which the Company granted
100,000 options, for services rendered, to purchase common stock of the Company
to each of Rex P. Doyle and John S. Ippolito.  These options vest at
the time of issuance and have an exercise price of $0.50 per share, and expire
on October 24, 2011.  The options granted are in the same amount and
have the same exercise price as options that previously expired on October 24,
2008.


26


In
December 2008, the Compensation Committee of the Board of Directors approved the
issuance of 1,500,000 restricted shares of the Company’s common stock, to each
of Rex P. Doyle, Chief Executive Officer and director of the Company, and John
S. Ippolito, President of the Company.  300,000 of these restricted
shares were issued to Messrs. Doyle and Ippolito and an additional 300,000
restricted shares will be issued to Messrs. Doyle and Ippolito on each of
December 13, 2009, 2010, 2011 and 2012; provided however these restricted shares
are subject to certain restrictions and forfeitures.  These restricted
shares will be subject to the following restrictions: (1) If either Messrs.
Doyle and Ippolito voluntarily terminates his employment with the Company before
December 13, 2012, or is terminated for cause by the Company before December 13,
2012, they will forfeit 100% of the restricted shares and such shares will be
returned to the Company’s treasury; (2) Messrs. Doyle and Ippolito may not sell,
transfer, pledge, exchange, hypothecate, or otherwise dispose of any of the
Restricted Shares until December, 13, 2012; and (3) certain securities law
restrictions on transferability.  In the event of a “change of
control,” the restricted shares will be automatically issued and vested as of
the date of the change of control.  A change in control is defined to
include (1) any person or group becoming the beneficial owner, directly or
indirectly, of 30% or more of the outstanding voting stock of the Company, (2)
the stockholders of the Company approve a merger, combination or consolidation
of the Company with any other entity resulting in the voting securities of the
Company immediately prior to the transaction representing less that 51% of the
merged, combined or consolidated securities, (3) any transaction (or combination
of transactions) is consummated for the sale, disposition or liquidation of at
least 50% of the Company's net assets, or (4) the election of one-third of the
members of the Company's Board of Directors proposed by any party or group
nominating directors in opposition to the directors nominated by the
Company.





Stock Option and Bonus
Plans





Epic has
adopted stock option and stock bonus plans. A summary description of these plans
follows. In some cases these Plans are collectively referred to as the
"Plans".





Incentive
Stock Option Plan. Epic's Incentive Stock Option Plan authorizes the issuance of
shares of Epic's Common Stock to persons that exercise options granted pursuant
to the Plan. Only Company employees may be granted options pursuant to the
Incentive Stock Option Plan.





Non-Qualified
Stock Option Plan. Epic's Non-Qualified Stock Option Plan authorizes the
issuance of shares of Epic's Common Stock to persons that exercise options
granted pursuant to the Plans. Epic's employees, directors, officers,
consultants and advisors are eligible to be granted options pursuant to the
Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Committee but cannot be less than the market
price of Epic's Common Stock on the date the option is granted.





Stock
Bonus Plan. Epic's Stock Bonus Plan allows for the issuance of shares of Common
Stock to its employees, directors, officers, consultants and advisors. However
bona fide services must be rendered by the consultants or advisors and such
services must not be in connection with the offer or sale of securities in a
capital-raising transaction.





Long-Term
Incentive Plans. Epic does not provide its officers or employees with stock
appreciation rights, long-term incentive or similar plans.





Summary.
The following is a summary, as of December 31, 2008, of the options granted, or
the shares issued, pursuant to the Plans. Each option represents the right to
purchase one share of Epic's common stock.





Total
                    
                    
                    SharesShares
                    
                    
                    Reserved for
                    
                    
                    Shares
                    
                    
                    RemainingReserved
                    
                    
                    Outstanding
                    
                    
                    Issued as
                    
                    
                    Options/SharesNameofPlan
                    
                    UnderPlans
                    
                    
                    Options
                    
                    
                    StockBonus
                    
                    
                    UnderPlansIncentive
      Stock Option Plan
                    
                    
                    2,000,000
                    
                    
                    
                    —
                    
                    
                    
                    N/A
                    
                    
                    
                    2,000,000Non-Qualified
      Stock Option Plan
                    
                    
                    3,200,000
                    
                    
                    
                    1,309,500
                    
                    
                    
                    N/A
                    
                    
                    
                    1,890,500Stock
      Bonus Plan
                    
                    
                    1,000,000
                    
                    
                    
                    N/A
                    
                    
                    
                    600,000
                    
                    
                    
                    400,000





The
following tables show, during the fiscal years ended December 31, 2007 and 2008,
the options granted to and held by, the persons named below.


27





Shares underlyingunexercisedoptionswhichare:
                        
                        
                        Exercise
                        
                        Expiration
                        
                        Option VestingName
                        
                        Exercisable
                        
                        
                        Unexercisable
                        
                        
                        Price
                        
                        Date
                        
                        DateRex
      Doyle
                        
                        
                        100,000
                        (1)
                        
                        
                        
                        
                        $
                        0.50
                        
                        10/24/11
                        
                        10/24/2008John
      Ippolito
                        
                        
                        100,000
                        (1)
                        
                        
                        
                        
                        $
                        0.50
                        
                        10/24/11
                        
                        10/24/2008Rex
      Doyle
                        
                        
                        —
                        
                        
                        
                        292,000
                        (2)
                        
                        $
                        3.30
                        
                        12/31/12
                        
                        12/12/2009John
      Ippolito
                        
                        
                        —
                        
                        
                        
                        182,000
                        (2)
                        
                        $
                        3.30
                        
                        12/31/12
                        
                        12/12/2009Michael
      Kinney
                        
                        
                        —
                        
                        
                        
                        65,000
                        (2)
                        
                        $
                        3.17
                        
                        7/10/18
                        
                        7/10/2010Michael
      Kinney
                        
                        
                        —
                        
                        
                        
                        200,000
                        (2)
                        
                        $
                        1.03
                        
                        2/11/19
                        
                        2/11/2011





(1) These
options were issued pursuant to the Plan.


(2) These
options were issued pursuant to the Non-Qualified Stock Option
Plan.





As of
March 31, 2008 none of the options granted by Epic had been
exercised.





Employee Pension, Profit
Sharing or other Retirement Plans.





Epic does
not have a defined benefit, pension plan, profit sharing or other retirement
plan, although it may adopt one or more of such plans in the
future.





Compensation of Directors
During Year Ended December 31, 2008





Name
                                
                                Paid in Cash
                                
                                
                                Stock Awards (1)
                                
                                
                                Option Awards (2)
                                
                                
                                TotalRobert
      Eissler(3)
                                
                                $
                                21,000
                                
                                
                                
                                —
                                
                                
                                $
                                40,579
                                
                                
                                $
                                61,579Dr.
      Robert Ferguson (4)
                                
                                $
                                23,500
                                
                                
                                
                                —
                                
                                
                                $
                                40,579
                                
                                
                                $
                                64,079Kevin
      McMahon (5)
                                
                                $
                                20,250
                                
                                
                                
                                —
                                
                                
                                $
                                40,579
                                
                                
                                $
                                60,829John
      Otto (6)
                                
                                $
                                7,438
                                
                                
                                
                                —
                                
                                
                                $
                                18,835
                                
                                
                                $
                                26,273Alan
      Carnrite (7)
                                
                                $
                                2,625
                                
                                
                                
                                —
                                
                                
                                $
                                5,072
                                
                                
                                $
                                7,697




(1)
            The
      fair value of stock issued for services computed in accordance with FAS
      123R on the date of grant.


(2)
            The
      fair value of options granted computed in accordance with FAS 123R on the
      date of grant.


(3)
            Mr.
      Eissler received 25,000 stock options at a strike price of
      $3.10.


(4)
            Dr.
      Ferguson received $2,500 for serving on the compensation
      committee.  Dr. Ferguson received 25,000 stock options at a
      strike price of $3.10.


(5)
            Mr.
      McMahon received 17,000 stock options at a strike price of
      $3.10.


(6)
            Mr.
      Otto received 7,292 stock options at a strike price of
      $3.10.  His compensation was pro-rated for
  2008.


(6)
            Mr.
      Carnrite received 3,195 stock options at a strike price of
      $3.10.  His compensation was pro-rated for
  2008.





As of
December 31, 2008, the Board of Directors’ compensation plan defines annual
compensation for non-employee directors as follows:





1.
            An
      annual cash retainer of $21,000.


2.
            A
      stock option grant of 25,000 shares that vest
  immediately.


3.
            The
      Audit Committee Chair receives an additional payment of
      $4,500.


4.
            All
      other committee chairs receive an additional payment of
      $2,500.





ITEM
12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.





The
following table sets forth the number of and percentage of outstanding shares of
common stock owned by Epic's officers, directors and those shareholders owning
more than 5% of Epic's common stock as of March 24, 2009.


28





Shares ofNameandAddress
                                                                                                                
                                                                                                                CommonStock
                                                                                                                
                                                                                                                PercentofClass(2)Rex
      P. Doyle
                                                                                                                
                                                                                                                7,033,023
                                                                                                                (1)
                                                                                                                15.9
                                                                                                                %1450
      Lake Robbins, Suite 160The
      Woodlands, TX 77380John
      Ippolito
                                                                                                                
                                                                                                                7,091,123
                                                                                                                (2)
                                                                                                                16.07
                                                                                                                %1450
      Lake Robbins, Suite 160The
      Woodlands, TX 77380Michael
      Kinney
                                                                                                                
                                                                                                                247,010
                                                                                                                (3)
                                                                                                                *1450
      Lake Robbins, Suite 160The
      Woodlands, TX 77380W.
      Robert Eissler
                                                                                                                
                                                                                                                40,000
                                                                                                                (4)
                                                                                                                *1450
      Lake Robbins, Suite 160The
      Woodlands, TX 77380Dr.
      Robert Ferguson
                                                                                                                
                                                                                                                43,000
                                                                                                                (5)
                                                                                                                *1450
      Lake Robbins, Suite 160The
      Woodlands, TX 77380John
      Otto
                                                                                                                
                                                                                                                7,292
                                                                                                                (6)
                                                                                                                *702
      N. WinfreeDayton,
      TX 77535Al
      Carnrite
                                                                                                                
                                                                                                                1,943,464
                                                                                                                (7)
                                                                                                                4.4
                                                                                                                %333
      N. Sam Houston Pkwy E.,Suite
      1060Houston,
      TX 77060Martin
      Lipper
                                                                                                                
                                                                                                                50,000
                                                                                                                
                                                                                                                *1450
      Lake Robbins, Suite 160The
      Woodlands, TX 77380Tamer
      El-Rayess
                                                                                                                
                                                                                                                —
                                                                                                                
                                                                                                                —1450
      Lake Robbins, Suite 160The
      Woodlands, TX 77380All
      Executive Officers
                                                                                                                
                                                                                                                16,455,903
                                                                                                                
                                                                                                                37.31
                                                                                                                %and
      Directors as a group (9 persons)Midsummer
      Investment Ltd.
                                                                                                                
                                                                                                                9,484,849
                                                                                                                (8)
                                                                                                                21.5
                                                                                                                %485
      Madison Avenue, 23rd FloorNew
      York, NY 10022Whitebox
      Convertible ArbitragePartners,
      LP
                                                                                                                
                                                                                                                5,147,679
                                                                                                                (9)
                                                                                                                11.67
                                                                                                                %c/o
      Whitebox Advisors LLC3033
      Excelsior Blvd, Suite 300Minneapolis,
      MN 55416-4675Whitebox
      Special OpportunitiesPartners
      Series B, LP
                                                                                                                
                                                                                                                3,881,032
                                                                                                                (10)
                                                                                                                8.8
                                                                                                                %c/o
      Whitebox Advisors LLC3033
      Excelsior Blvd, Suite 300Minneapolis,
      MN 55416-4675Pandora
      Select Partners, LP
                                                                                                                
                                                                                                                3,326,599
                                                                                                                (11)
                                                                                                                7.54
                                                                                                                %c/o
      Whitebox Advisors LLC3033
      Excelsior Blvd, Suite 300Minneapolis,
      MN 55416-4675





*           Less
than 1%.


29


Beneficial ownership is determined in
accordance with the Rule 13d-3(a) of the Securities Exchange Act of 1934, as
amended, and generally includes voting or investment power with respect to
securities.  Except as subject to community property laws, where
applicable, the person named above has sole voting and investment power with
respect to all shares of our common stock shown as beneficially owned by
him.





The beneficial ownership percent in the
table is calculated with respect to the number of outstanding shares
(44,105,481)) of the Company’s common stock outstanding as of March 14,
2009.  Each stockholder’s ownership is calculated as the number of
shares of the common stock owned plus the number of shares of common stock into
which any preferred stock, warrants, options or other convertible securities
owned by that stockholder can be converted within 60 days.





The term “named executive officer”
refers to our principal executive officer, our two most highly compensated
executive offers and other than the principal executive officer who were serving
as executive officers at the end of 2008 and two additional individuals for whom
disclosure would have been provided but for the fact that the individuals were
not serving as executive officers of the Company at the end of
2008.





(1)
            Includes
      100,000 shares issuable upon exercise of options exercisable within 60
      days.  Includes 300,000 of these restricted shares were issued
      to Mr. Doyle and an additional 300,000 restricted shares will be issued to
      Mr. Doyle on each of December 13, 2009, 2010, 2011 and
    2012.


(2)
            Includes
      100,000 shares issuable upon exercise of options exercisable within 60
      days.  Includes 300,000 of these restricted shares were issued
      to Mr. Ippolito and an additional 300,000 restricted shares will be issued
      to Mr. Doyle on each of December 13, 2009, 2010, 2011 and
      2012.


(3)
            Includes
      155,001 shares issuable upon exercise of options exercisable within 60
      days.


(4)
            Includes
      25,000 shares issuable upon exercise of options exercisable within 60
      days.


(5)
            Includes
      25,000 shares issuable upon exercise of options exercisable within 60
      days.


(6)
            Includes
      7,292 shares issuable upon exercise of options exercisable within 60
      days.


(7)
            Includes
      3,125 shares issuable upon exercise of options exercisable within 60
      days.


(8)
            Includes
      5,318,182 shares issuable upon exercise of warrants at $1.65 a share.
      Includes 1,000,000 shares issuable upon exercise of warrants at $1.50 a
      share.


(9)
            Includes
      4,333,333 shares issuable upon exercise of warrants at $1.65 a
      share.


(10)
            Includes
      2,275,575 shares issuable upon exercise of warrants at $1.65 a
      share.


(11)
            Includes
      2,363,636 shares issuable upon exercise of warrants at $1.65 a
      share.





Equity
Compensation Plans.  The following table provides information as of
December 31, 2008 with respect to shares of common stock that may be issued
under our existing equity compensation plans.  We have two equity
compensation plans, one approved by the Board of Directors in 2006, and another
approved by the Board of Directors in 2008.  Epic’s stock option plans
were not approved by its shareholders.





Equity Compensation Plan InformationPlan category
                        
                        Number of securities to be
                          issued upon exercise of
                          outstanding options, warrants
                          and rights
                          
                          (a)
                        
                        
                        Weighted-average exercise price
                          of outstanding options, warrants
                          and rights
                          
                          (b)
                        
                        
                        Number of securities remaining
                          available for future issuance under
                          equity compensation plans (excluding
                          securities reflected in column (a))
                          
                          (c)Incentive
      Stock Option Plan
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        2,000,000Non-Qualified
      Stock Option Plan
                        
                        
                        1,309,500
                        
                        
                        $
                        2.35
                        
                        
                        
                        1,890,500




30


ITEM
13.CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.





On
February 26, 2009, Epic entered into an Amendment Agreement (the “Amendment”)
with all holders of its Debentures (the “Holders”), except for one holder
of a $250,000 Debenture, to amend the Purchase Agreement and the Debentures. As
part of the Amendment, Rex P. Doyle, Chief Executive Officer and a director of
the Company, and John S. Ippolito, President of the Company, each agreed to
transfer to each Holder, on, that Holder’s proportionate share of 3,209,877
shares, for an aggregate total of 6,419,754 shares (the “Shares”), of the
Company’s common stock.  Messrs. Doyle and Ippolito also were parties
to the Amendment, but only with respect to these transfers of the Shares and not
with respect to any other provisions.





In July
2007, Epic formed a joint venture, Argos Asset Management, LLC (formerly known
as Epic Exploration and Production LLC “Argos”), with Argos to acquire energy
assets and oil and gas properties. Epic will manage the operations of the joint
venture. Argos is responsible for providing capital required to acquire the
assets on a project-by-project basis.  Epic will receive 20% of the
net income from any asset or oil and gas property acquired by the joint venture
until Argos receives 100% of the equity contributed by Argos to acquire the
asset or property. Thereafter, the net income from the asset or property will be
allocated equally between Epic and Argos. Tamer El-Rayess, a director for the
Company as of March 2009, is a founder of UIV, LLC.  Mr. El-Rayess
owns 100% of UIV, LLC.  UIV, LLC, as a member of Argos, has a 80%
residual interest in Argos.  As of March 20, 2009, the joint venture
was not considering any immediate acquisitions of working
interests.





The
Company has not implemented a formal written policy concerning the review of
related party transactions, but compiles information about transactions between
the Company and its directors and officers, their immediate family members, and
their affiliated entities, including the nature of each transaction and the
amount involved. The Board of Directors annually reviews and evaluates this
information, with respect to directors, as part of its assessment of each
director’s independence.





Director
Independence





Our
common stock trades on the OTC Bulletin Board.  As such, we are not
currently subject to corporate governance standards of listed companies, which
require, among other things, that a majority of the board of directors be
independent.  We have chosen to define an “independent” director in
accordance with Section 121(A) of the listing standards of the American Stock
Exchange.  Under this definition, we have determined that all of our
directors, with the exception of Rex Doyle, currently qualify as an independent
director.  We do not list the “independent” definition we use on our
Internet website.





ITEM
14.         PRINCIPAL ACCOUNTANT
FEES AND SERVICES





Effective
February 21, 2007 Epic replaced Comiskey & Company with Malone & Bailey,
P.C. as Epic's independent certified public accountants. Comiskey & Company
audited Epic's financial statements for the fiscal years ended December 31, 2004
and 2005.





Malone
& Bailey, P.C. audited Epic's financial statements for the years ended
December 31, 2008 and 2007. The following table shows the aggregate fees billed
to Epic by Malone & Bailey for the year ended December 31, 2008 and
2007.





2008
                  
                  
                  2007Audit
      Fees
                  
                  $
                  177,648
                  
                  
                  $
                  116,105Audit
      Related Fees
                  
                  $
                  29,290
                  
                  
                  $
                  —Tax
      Fees
                  
                  $
                  19,500
                  
                  
                  $
                  —All
      Other Fees
                  
                  $
                  —
                  
                  
                  $
                  —





Audit
fees represent amounts billed for professional services rendered for the audit
of Epic's annual financial statements and the reviews of the financial
statements included in Epic's 10-Q reports for the fiscal year. Before Malone
& Bailey was engaged by Epic to render audit or audit related services, the
engagement was approved by Epic's Directors.


31


ITEM
15.EXHIBITS AND REPORTS ON FORM
10-K





(a)(1)
and (a) (2)  Financial Statements And Financial Statement
Schedules





Audit
      Report of Independent Registered Public Accounting Firm
            F-2Consolidated
      Balance Sheets
            F-3Consolidated
      Statements of Operations
            F-4Consolidated
      Statements of Cash Flows
            F-5Consolidated
      Statements of Stockholders’ Equity
            F-6Notes
      to Consolidated Financial Statements
            F-7





All other
schedules are omitted because the required information is not applicable or is
not present in amounts sufficient to require submission of the schedule or
because the information required is included in the Consolidated Financial
Statements and Notes thereto.




(b) Exhibits.The following
exhibits are filed with or incorporated by reference into this report on Form
10-K:





Exhibit
                Number
              
              Exhibit Name3.1
              
              Articles
      of Incorporation
              
              Incorporated
      by reference, and as same exhibit number, from the Company’s Registration
      Statement on Form 10-SB filed on August 22, 2000 (Commission File No.
      000-31357).3.2
              
              Amendments
      to Articles of Incorporation
              
              Incorporated
      by reference, and as same exhibit number, from the Company's Registration
      Statement on Form SB-2 filed on January 4, 2008 (Commission File No.
      333-148479)3.3
              
              Bylaws
              
              Incorporated
      by reference, and as same  exhibit number, from the
      Company's    Registration Statement on
      Form  SB-2 filed on January 4, 2008 (Commission File No.
      333-148479)10.1
              
              Agreement
      relating to the acquisition of the Carnrite Group, LLC
              
              Incorporated
      by reference to Exhibit 10 to the Company's report on Form 8-K dated
      August 10, 2007.10.2
              
              Agreement
      relating to the acquisition of Pearl Investment Company.
              
              Incorporated
      by reference to Exhibit 10.1 to the Company's report on Form 8-K dated
      December 5, 2007.10.3
              
              Securities
      Purchase Agreement (together with schedule required by Instruction 2 to
      Item 601 of Regulation S-K) pertaining to the sale of common stock and
      warrants.
              
              Incorporated
      by reference to Exhibit 10.2 to the Company's report on Form 8-K dated
      December 5, 2007.10.4
              
              Purchase
      Agreement (together with schedule required by Instruction 2 to Item 601 of
      Regulation S-K) pertaining to the sale of the notes and
      warrants.
              
              Incorporated
      by reference to Exhibit 10.3 to the Company's report on Form 8-K dated
      December 5, 2007.10.5
              
              Agreement
      relating to the acquisition of Epic Integrated Solutions
    LLC.
              
              Incorporated
      by reference to exhibit 10 to the Company’s report on Form 10-K filed on
      April 4, 2008.




32





Exhibit
                  Number
                
                Exhibit Name10.6
                
                Employment
      Agreement R. Rhinesmith.*
                
                Incorporated
      by reference to Exhibit 10.6 to the following Form S-1/A filed May 13,
      2008.10.7
                
                Employment
      Agreement with Patrick Murray.*
                
                Incorporated
      by reference to Exhibit 10.6 to the Company’s Form S-1/A filed May 13,
      2008.10.8
                
                Gas
      Purchase Agreement with IACX Energy, LLC
                
                Incorporated
      by reference to exhibit 10.8 to the Company; Form S-1/A filed July 9,
      2008.10.9
                
                Consulting
      Agreement with R. Rhinesmith*
                
                Incorporated
      by reference to Exhibit 10.9 to the Company; Form S-1/A filed July 9,
      2008.10.10
                
                Separation
      and Release Agreement with D. Reynolds.*
                
                Incorporated
      by reference to Exhibit 10.1 to the Company’s Form 8-K filed December 3,
      2008.10.11
                
                Amendment
      Agreement dated February 26, 2009
                
                Incorporated
      by reference to Exhibit 10.1 to the Company’s Form 8-K filed March 2,
      2009.21.
                
                Subsidiaries31.1
                
                Certification
      of Principal Executive Officer and Chief Executive Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200231.2
                
                Certification
      of Principal Financial Officer and Chief Financial Officer pursuant to the
      Sarbanes-Oxley Act of 2002.32.
                
                Certification
      Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002.





*
Management contracts or compensatory plans or arrangements.


33


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.




EPIC
ENERGY RESOURCES, INC.




Date:  March
      26, 2009
              /s/ Rex P. DoyleRex
      P. DoyleChief
      Executive OfficerDate:  March
      26, 2009
              /s/ Michael KinneyMichael
      KinneyChief
      Financial Officer





Pursuant
to the requirements of the Securities Exchange Act Of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Date:
      March 26, 2009
                /s/ Rex P. DoylePrincipal
      Executive OfficerChief
      Executive OfficerDate:
      March 26, 2009
                /s/ Michael KinneyChief
      Financial OfficerPrincipal
      Accounting OfficerDate:
      March 26, 2009
                /s/W.Robert EisslerW.Robert
      Eissler, DirectorDate:
      March 26, 2009
                /s/Dr. Robert FergusonDr.
      Robert Ferguson, DirectorDate:
      March 26, 2009
                /s/John OttoJohn
      Otto, DirectorDate:
      March 26, 2009
                /s/Alan CarnriteAlan
      Carnrite, DirectorDate:
      March 26, 2009
                /s/Tamer El-RayessTamer
      El-Rayess, DirectorDate:
      March 26, 2009
                /s/Martin LipperMartin
      Lipper, Director




34




ITEM
7. FINANCIAL STATEMENTS




The
following financial statements and schedules that constitute Item 7 are filed as
a part of this annual report.




Report of
Independent Registered Public Accounting Firm.




Consolidated
Balance Sheets as of December 31, 2008 and 2007.




Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007.




Consolidated
Statements of Stockholders' Equity for the years ended December 31, 2008 and
2007.




Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007.


F-1




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


Epic
Energy Resources, Inc.


The
Woodlands, Texas





We have
audited the accompanying consolidated balance sheets of Epic Energy Resources,
Inc. (Epic) as of December 31, 2008 and 2007 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 2008 and 2007. These consolidated financial statements are
the responsibility of Epic's management. Our responsibility is to express an
opinion on these financial statements based on our audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. Epic is not required to have, nor
were we engaged to perform an audit of its internal controls over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of Epic's internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Epic as of December 31, 2008
and 2007 and the results of operations and cash flows for the years ended
December 31, 2008 and 2007 in conformity with accounting principles generally
accepted in the United States of America.





/s/
MALONE & BAILEY, PC


www.malone−bailey.com


Houston,
Texas


March 25,
2009


F-2




EPIC
ENERGY RESOURCES INC.


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share data)





December 31,2008
                                                    
                                                    
                                                    2007ASSETSCurrent
      AssetsCash and cash
      equivalents
                                                    
                                                    $
                                                    4,785
                                                    
                                                    
                                                    $
                                                    3,483Restricted cash
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    3,400Accounts
      receivable:Billed, net of allowance of
      $6,570 and $636, respectively
                                                    
                                                    
                                                    10,690
                                                    
                                                    
                                                    
                                                    11,335Unbilled
                                                    
                                                    
                                                    388
                                                    
                                                    
                                                    
                                                    3,447Prepaid expenses and other
      current assets
                                                    
                                                    
                                                    2,027
                                                    
                                                    
                                                    
                                                    949Total Current
      Assets
                                                    
                                                    
                                                    17,890
                                                    
                                                    
                                                    
                                                    22,614Property
      and equipment, net
                                                    
                                                    
                                                    5,136
                                                    
                                                    
                                                    
                                                    6,006Assets
      held for sale:Proved
      oil and gas properties (full cost method) and other oil and gas assets
      held for sale, net of accumulated impairments and depletion of $9,257 and
      $5,260, respectively
                                                    
                                                    
                                                    1,332
                                                    
                                                    
                                                    
                                                    5,248Other
      mineral reserves
                                                    
                                                    
                                                    783
                                                    
                                                    
                                                    
                                                    783Other
      assets held for sale
                                                    
                                                    
                                                    3,875
                                                    
                                                    
                                                    
                                                    4,591Other
      assets
                                                    
                                                    
                                                    45
                                                    
                                                    
                                                    
                                                    209Debt
      issuance costs, net of accumulated amortization of $481 and $28,
      respectively
                                                    
                                                    
                                                    1,548
                                                    
                                                    
                                                    
                                                    1,690Goodwill
                                                    
                                                    
                                                    18,837
                                                    
                                                    
                                                    
                                                    32,624Other
      intangible assets, net
                                                    
                                                    
                                                    12,666
                                                    
                                                    
                                                    
                                                    985Total
      Assets
                                                    
                                                    $
                                                    62,112
                                                    
                                                    
                                                    $
                                                    74,750LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts payable
                                                    
                                                    $
                                                    5,404
                                                    
                                                    
                                                    $
                                                    4,066Bank overdrafts
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    3,442Accrued
    liabilities
                                                    
                                                    
                                                    3,762
                                                    
                                                    
                                                    
                                                    2,658Deferred revenue
                                                    
                                                    
                                                    2,684
                                                    
                                                    
                                                    
                                                    -Customer
deposits
                                                    
                                                    
                                                    4,505
                                                    
                                                    
                                                    
                                                    1,358Current liabilities associated
      with assets held for sale
                                                    
                                                    
                                                    4,072
                                                    
                                                    
                                                    
                                                    291Current portion of long term
      debt
                                                    
                                                    
                                                    7,815
                                                    
                                                    
                                                    
                                                    3,208Total Current
      Liabilities
                                                    
                                                    
                                                    28,242
                                                    
                                                    
                                                    
                                                    15,023Long-term
      liabilities associated with assets held for sale
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,993Long-term
      debt
                                                    
                                                    
                                                    10,321
                                                    
                                                    
                                                    
                                                    11,069Deferred
      tax liability
                                                    
                                                    
                                                    1,775
                                                    
                                                    
                                                    
                                                    -Total
      Liabilities
                                                    
                                                    
                                                    40,338
                                                    
                                                    
                                                    
                                                    29,085STOCKHOLDERS'
      EQUITYPreferred stock, no par value:
      10,000,000 authorized, no shares issued and outstanding
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Common stock, no par value:
      100,000,000 authorized, 43,495,160 and  42,948,921 shares issued and
      outstanding, respectively
                                                    
                                                    
                                                    41,783
                                                    
                                                    
                                                    
                                                    40,699Additional paid-in
      capital
                                                    
                                                    
                                                    15,014
                                                    
                                                    
                                                    
                                                    13,417Accumulated
    deficit
                                                    
                                                    
                                                    (35,023
                                                    )
                                                    
                                                    
                                                    (8,451
                                                    )Total
      Stockholders’ Equity
                                                    
                                                    
                                                    21,774
                                                    
                                                    
                                                    
                                                    45,665Total
      Liabilities and Stockholders’ Equity
                                                    
                                                    $
                                                    62,112
                                                    
                                                    
                                                    $
                                                    74,750




See
accompanying notes to consolidated financial statements.


F-3


EPIC
ENERGY RESOURCES INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands, except share data and per share data)





Years ended December 31,2008
                                          
                                          
                                          2007REVENUESConsulting fees
                                          
                                          $
                                          39,605
                                          
                                          
                                          $
                                          8,461Reimbursed
    expenses
                                          
                                          
                                          32,595
                                          
                                          
                                          
                                          -Total  Revenues
                                          
                                          
                                          72,200
                                          
                                          
                                          
                                          8,461OPERATING
      EXPENSESReimbursed
    expenses
                                          
                                          
                                          29,508
                                          
                                          
                                          
                                          2,104Compensation and
      benefits
                                          
                                          
                                          26,204
                                          
                                          
                                          
                                          2,152General and
      administrative
                                          
                                          
                                          12,971
                                          
                                          
                                          
                                          3,858Professional and subcontracted
      services
                                          
                                          
                                          7,421
                                          
                                          
                                          
                                          1,128Occupancy, communication and
      other
                                          
                                          
                                          1,436
                                          
                                          
                                          
                                          319Depreciation and
      amortization
                                          
                                          
                                          8,147
                                          
                                          
                                          
                                          117Impairment
    charges
                                          
                                          
                                          1,835
                                          
                                          
                                          
                                          -Total
      Operating Expenses
                                          
                                          
                                          87,522
                                          
                                          
                                          
                                          9,678Loss
      from Operations
                                          
                                          
                                          (15,322
                                          )
                                          
                                          
                                          (1,217
                                          )OTHER
      INCOME (EXPENSE)Interest and other income
      (expense), net
                                          
                                          
                                          (309
                                          )
                                          
                                          
                                          13Interest expense
                                          
                                          
                                          (6,207
                                          )
                                          
                                          
                                          (348
                                          )Total Other Expense,
      net
                                          
                                          
                                          (6,516
                                          )
                                          
                                          
                                          (335
                                          )Loss
      from continuing operations before taxes
                                          
                                          
                                          (21,838
                                          )
                                          
                                          
                                          (1,552
                                          )Income
      tax expense
                                          
                                          
                                          10
                                          
                                          
                                          
                                          20LOSS
      FROM CONTINUING OPERATIONS
                                          
                                          
                                          (21,848
                                          )
                                          
                                          
                                          (1,572
                                          )DISCONTINUED
      OPERATIONS:Loss
      from operations of oil and gas segment
                                          
                                          
                                          (4,724
                                          )
                                          
                                          
                                          (2,811
                                          )NET
      LOSS
                                          
                                          $
                                          (26,572
                                          )
                                          
                                          $
                                          (4,383
                                          )LOSS
      PER COMMON SHARE - Basic and Diluted
                                          
                                          $
                                          (0.62
                                          )
                                          
                                          $
                                          (0.11
                                          )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING - Basic and Diluted
                                          
                                          
                                          43,014,409
                                          
                                          
                                          
                                          38,946,918




See
accompanying notes to consolidated financial statements.


F-4


EPIC
ENERGY RESOURCES INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


(In
thousands, except share data)





Common Stock
                            
                            
                            Additional
                              Paid-In
                            
                            
                            AccumulatedShares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Deficit
                            
                            
                            TotalBALANCE,
      December 31, 2006
                            
                            
                            53,441,601
                            
                            
                            $
                            9,823
                            
                            
                            $
                            331
                            
                            
                            $
                            (4,068
                            )
                            
                            $
                            6,086Amortization
      of shares issued for compensation
                            
                            
                            -
                            
                            
                            
                            185
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            185Amortization
      of stock options and  stock bonuses
                            
                            
                            -
                            
                            
                            
                            77
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            77Shares
      retired by officers and other
                            
                            
                            (23,230,655
                            )
                            
                            
                            (24
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (24
                            )Shares
      issued for services
                            
                            
                            43,500
                            
                            
                            
                            127
                            
                            
                            
                            1
                            
                            
                            
                            -
                            
                            
                            
                            128Shares
      issued for cash to private investors
                            
                            
                            564,500
                            
                            
                            
                            523
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            523Shares
      issued for the acquisition of Carnrite
                            
                            
                            4,914,400
                            
                            
                            
                            16,217
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            16,217Shares
      issued for the acquisition of Pearl
                            
                            
                            1,786,240
                            
                            
                            
                            5,627
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            5,627Sale
      of stock and warrants via private placement
                            
                            
                            5,429,335
                            
                            
                            
                            8,144
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            8,144Warrants
      issued with debentures
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            13,085
                            
                            
                            
                            -
                            
                            
                            
                            13,085Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (4,383
                            )
                            
                            
                            (4,383
                            )BALANCE,
      December 31, 2007
                            
                            
                            42,948,921
                            
                            
                            $
                            40,699
                            
                            
                            $
                            13,417
                            
                            
                            $
                            (8,451
                            )
                            
                            $
                            45,665Shares
      issued for the acquisition of EIS
                            
                            
                            333,333
                            
                            
                            
                            1,050
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,050Shares
      issued for services
                            
                            
                            146,239
                            
                            
                            
                            34
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            34Issuance
      of vested shares
                            
                            
                            66,667
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Amortization
      of stock options and  stock bonuses
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,287
                            
                            
                            
                            -
                            
                            
                            
                            1,287Warrants
      issued for debentures
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            310
                            
                            
                            
                            -
                            
                            
                            
                            310Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (26,572
                            )
                            
                            
                            (26,572
                            )BALANCE,
      December 31, 2008
                            
                            
                            43,495,160
                            
                            
                            $
                            41,783
                            
                            
                            $
                            15,014
                            
                            
                            $
                            (35,023
                            )
                            
                            $
                            21,774




See accompanying
notes to consolidated financial statements.


F-5




EPIC
ENERGY RESOURCES, INC


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)





Years Ended December 31,2008
                                                
                                                
                                                2007OPERATING
      ACTIVITIES:Net
      loss
                                                
                                                $
                                                (26,572
                                                )
                                                
                                                $
                                                (4,383
                                                )Adjustments
      to reconcile net loss to net cash provided by (used  in)
      operating activities:Depreciation, depletion and
      amortization
                                                
                                                
                                                8,184
                                                
                                                
                                                
                                                117Allowance for doubtful
      accounts
                                                
                                                
                                                5,934
                                                
                                                
                                                
                                                -Amortization of debt discount and
      debt issuance costs
                                                
                                                
                                                3,691
                                                
                                                
                                                
                                                235Stock based compensation
      expense
                                                
                                                
                                                1,321
                                                
                                                
                                                
                                                365Lease operating
      expenses
                                                
                                                
                                                434
                                                
                                                
                                                
                                                -Loss on sale / disposal of
      property and equipment
                                                
                                                
                                                749
                                                
                                                
                                                
                                                -Impairment
charges
                                                
                                                
                                                5,796
                                                
                                                
                                                
                                                2,167Accretion expense
                                                
                                                
                                                9
                                                
                                                
                                                
                                                9Imputed interest on
      acquisition
                                                
                                                
                                                -
                                                
                                                
                                                
                                                115Changes in operating assets and
      liabilities:Accounts
      receivable, billed and unbilled
                                                
                                                
                                                (2,613
                                                )
                                                
                                                
                                                1,134Prepaid
      expenses and other current assets
                                                
                                                
                                                (1,073
                                                )
                                                
                                                
                                                109Other
      non-current assets
                                                
                                                
                                                163
                                                
                                                
                                                
                                                (5
                                                )Accounts
      payable
                                                
                                                
                                                1,265
                                                
                                                
                                                
                                                (2,276
                                                )Accrued
      liabilities
                                                
                                                
                                                1,364
                                                
                                                
                                                
                                                (1,617
                                                )Deferred
revenue
                                                
                                                
                                                2,684
                                                
                                                
                                                
                                                -Customer
    deposits
                                                
                                                
                                                3,147
                                                
                                                
                                                
                                                1,358Net
      cash provided by (used in) operating activities
                                                
                                                
                                                4,483
                                                
                                                
                                                
                                                (2,672
                                                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Use (funding) of restricted
      cash
                                                
                                                
                                                2,492
                                                
                                                
                                                
                                                (3,400
                                                )Purchases of property and
      equipment
                                                
                                                
                                                (1,396
                                                )
                                                
                                                
                                                (302
                                                )Proceeds from sale of property
      and equipment
                                                
                                                
                                                665
                                                
                                                
                                                
                                                -Acquisition of EIS, net of cash
      received
                                                
                                                
                                                (232
                                                )
                                                
                                                
                                                -Acquisition of Carnrite, net of
      cash received
                                                
                                                
                                                -
                                                
                                                
                                                
                                                49Acquisition of Pearl, net of
      cash received
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (20,372
                                                )Investment in joint
      venture
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (23
                                                )Net
      cash provided by (used in) investing activities
                                                
                                                
                                                1,529
                                                
                                                
                                                
                                                (24,048
                                                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Bank overdrafts
                                                
                                                
                                                (3,442
                                                )
                                                
                                                
                                                3,442Payments on debt
                                                
                                                
                                                (1,268
                                                )
                                                
                                                
                                                (2,162
                                                )Proceeds from
    debt
                                                
                                                
                                                -
                                                
                                                
                                                
                                                21,385Debt issuance
    costs
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,719
                                                )Net proceeds from issuance of
      common stock
                                                
                                                
                                                -
                                                
                                                
                                                
                                                8,667Net
      cash provided by (used in) financing activities
                                                
                                                
                                                (4,710
                                                )
                                                
                                                
                                                29,613Net
      increase in cash and cash equivalents
                                                
                                                
                                                1,302
                                                
                                                
                                                
                                                2,893Cash
      and cash equivalents, beginning of year
                                                
                                                
                                                3,483
                                                
                                                
                                                
                                                590Cash
      and cash equivalents, end of year
                                                
                                                $
                                                4,785
                                                
                                                
                                                $
                                                3,483SUPPLEMENTAL
      CASH FLOW DISCLOSURES:Cash
      paid for interest
                                                
                                                $
                                                2,404
                                                
                                                
                                                $
                                                6NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Note payable used to purchase
      property and equipment
                                                
                                                $
                                                488
                                                
                                                
                                                $
                                                -Stock issued for acquisition
      of  EIS
                                                
                                                $
                                                1,050
                                                
                                                
                                                $
                                                -Note payable used to purchase
      oil and gas properties
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                194Stock issued for acquisition of
      Pearl
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                5,627Stock issued for acquisition of
      Carnrite
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                16,218




See
accompanying notes to consolidated financial statements.


F-6




EPIC
ENERGY RESOURCES INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.
Organization and Operations




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”), and Epic Integrated Solutions, LLC
(“EIS”). 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
Argos Asset Management, LLC (formerly known as Epic Exploration &
Production, LLC, “EE&P”) 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.





2.
Summary of Significant Accounting Policies





Principles of
consolidation





The
accompanying consolidated financial statements have been prepared on the basis
of generally accepted accounting principles in the United States of America
(“GAAP”) and include the accounts of the Company and its
subsidiaries.  Intercompany accounts and transactions have been
eliminated.





Use
of Estimates





The
preparation of the consolidated financial statements in conformity with 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. The Company’s significant estimates made in connection
with the preparation of the accompanying financial statements include the
carrying value of oil and gas properties, goodwill and intangible assets,
revenue recognition on uncompleted contracts, allowance for doubtful accounts,
and the valuation of stock options and warrants.





Reclassifications





Certain
items from the December 31, 2007 consolidated financial statements have been
reclassified in the December 31, 2008 financial statements to conform to current
year presentation. There is no effect on net income, cash flows or stockholder’s
equity as a result of these reclassifications.





Cash
and Cash Equivalents





Cash and
cash equivalents include demand deposits and money market funds for purposes of
the statements of cash flows. The Company considers all highly liquid monetary
instruments with original maturities of three months or less to be cash
equivalents.  Financial instruments that potentially subject the
Company to concentration of credit risk consist primarily of cash
deposits.  Accounts at each financial institution are insured by the
Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.  At
December 31, 2008, the Company had approximately $4,198,000 of cash deposits in
excess of FDIC insured limits at various financial institutions.





Restricted
Cash





Restricted
cash consists of reserves for payments to pay income taxes for the former owners
of Pearl and amounts held in escrow related to sales of common
stock.


F-7


Accounts
Receivable




Billed
accounts receivable represent amounts due from customers for services performed
and 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  As
of December 31, 2008 and 2007, 5 customers’ balances each represented 80% and
82% of accounts receivable, respectively.  As of December 31, 2008 and
2007, the Company had unbilled receivables of $388,000 and $3,447,000,
respectively.




The
Company records an allowance for doubtful accounts on receivables based on
historical collection experience and a review of the current status of the trade
accounts receivable. As of December 31, 2008 and December 31, 2007, management
determined that an allowance for doubtful accounts of $6,570,000 and $636,500,
respectively, was required based on management's assessment of the
collectability of accounts receivable.    Management
believes the carrying amount of accounts receivable in the accompanying
consolidated balance sheets approximates the net realizable value.





Crude Oil and Natural Gas
Activities





Full Cost Method
of Accounting for Crude Oil and Natural Gas Activities. The Securities and
Exchange Commission (“SEC”) Regulation S-X defines the financial accounting and
reporting standards for companies engaged in crude oil and natural gas
activities and use of the full cost method. We have chosen to follow the full
cost method under which all costs associated with property acquisition,
exploration and development are capitalized. The Company also capitalizes
internal costs that can be directly identified with acquisition, exploration and
development activities and do not include any costs related to production,
general corporate overhead or similar activities. Effective with the adoption of
Statement of Financial Accounting Standards No. 143 in 2003, the carrying amount
of oil and gas properties also includes estimated asset retirement costs
recorded based on the fair value of the asset retirement obligation when
incurred. Gain or loss on the sale or other disposition of oil and gas
properties is not recognized, unless the gain or loss would significantly alter
the relationship between capitalized costs and proved reserves of oil and
natural gas attributable to a country. As a result our financial statements will
differ from companies that apply the successful efforts method since the Company
will generally reflect a higher level of capitalized costs as well as a higher
depreciation, depletion and amortization rate on our crude oil and natural gas
properties.





At the
time it was adopted, management believed that the full cost method would be
preferable, as earnings tend to be less volatile than under the successful
efforts method. However, the full cost method makes the Company more susceptible
to significant non-cash charges during times of volatile commodity prices
because the full cost pool may be impaired when prices are low. These charges
are not recoverable when prices return to higher levels. The Company’s crude oil
and natural gas reserves have a relatively long life. However, temporary drops
in commodity prices can have a material impact on the business including impact
from the full cost method of accounting.





Ceiling
Test. Companies
that use the full cost method of accounting for oil and gas exploration and
development activities are required to perform a ceiling test each quarter. The
full cost ceiling test is an impairment test prescribed by SEC Regulation S-X
Rule 4-10. The test determines a limit, or ceiling, on the book value of oil and
gas properties. That limit is basically the after tax present value, based upon
a 10% discount rate, of the future net cash flows from proved crude oil and
natural gas reserves calculated using constant prices based upon pricing in
effect at yearend, excluding future cash outflows associated with settling asset
retirement obligations that have been accrued on the balance sheet, plus the
lower of cost or fair market value of unproved properties. If net capitalized
costs of crude oil and natural gas properties exceed the ceiling limit, we must
charge the amount of the excess to earnings. This is called a "ceiling
limitation write-down." This charge does not impact cash flow from operating
activities, but does reduce stockholders' equity and reported earnings. The risk
that the Company will be required to write down the carrying value of crude oil
and natural gas properties increases when crude oil and natural gas prices are
depressed or volatile. In addition, write-downs may occur if the Company
experience substantial downward adjustments to the estimated proved reserves or
if purchasers cancel long-term contracts for natural gas production. An expense
recorded in one period may not be reversed in a subsequent period even though
higher crude oil and natural gas prices may have increased the ceiling
applicable to the subsequent period.





Estimates
of the proved reserves included in this report are prepared in accordance with
GAAP and SEC guidelines. The accuracy of a reserve estimate is a function
of:





·
            the
      quality and quantity of available
data;


·
            the
      interpretation of that data;


·
            the
      accuracy of various mandated economic assumptions;
  and


·
            the
      judgment of the persons preparing the
estimate.


F-8


The
Company’s proved reserve information included in this report was based on
evaluations prepared by independent petroleum engineers. Estimates prepared by
other third parties may be higher or lower than those included herein. Because
these estimates depend on many assumptions, all of which may substantially
differ from future actual results, reserve estimates will be different from the
quantities of oil and gas that are ultimately recovered. In addition, results of
drilling, testing and production after the date of an estimate may justify
material revisions to the estimate.  It should not be assumed that the
present value of future net cash flows is the current market value of the
estimated proved reserves. In accordance with SEC requirements, the Company
bases the estimated discounted future net cash flows from proved reserves on
prices and costs on the date of the balance sheets and a 10% discount rate.
Actual future prices and costs may be materially higher or lower than the prices
and costs as of the date of the balance sheets. During 2008, the Company
recorded an impairment related to its oil and gas reserves of
$3,960,919.





The
estimates of proved reserves materially impact DD&A expense. If the
estimates of proved reserves decline, the rate at which we record DD&A
expense will increase, reducing future net income. Such a decline may result
from lower market prices, which may make it uneconomic to drill for and produce
higher cost fields.





Excluded
Costs. Oil and gas properties include costs that are excluded from
capitalized costs being amortized. These amounts represent investments in
unproved properties and major development projects. These costs are excluded
until proved reserves are found or until it is determined that the costs are
impaired. All costs excluded are reviewed at least quarterly to determine if
impairment has occurred. The amount of any impairment is transferred to the
capitalized costs being amortized (the DD&A pool).





Property
and Equipment





Property
and equipment is stated at cost net of accumulated depreciation. Depreciation
and amortization is recorded utilizing the straight-line method over the
estimated useful lives, ranging from 3 to 10 years. Leasehold improvements
are depreciated over the shorter of the useful life or the lease
term.




Long-Lived
Assets





In
accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("FAS 144"), the Company periodically
assesses the impairment of long-lived assets when events or changes in
circumstances indicate that the carrying value may not be recoverable. FAS 144
requires impairment losses to be recorded on long-lived assets used in
operations when 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 fair
market value of the long-lived assets. Losses on long-lived assets to be
disposed of are determined in a similar manner, except that fair market values
are reduced for the cost of disposal.  At December 31, 2008, the
Company recorded an impairment loss of $330,000 related to an asset held for
sale.





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.  Amortization expense related to the debt issuance
costs for the years ended December 31, 2008 and 2007 were $452,252 and $28,650,
respectively.


F-9


Goodwill
and Other Intangible Assets





The
Company periodically reviews the carrying value of intangible assets not subject
to amortization, including goodwill, to determine whether impairment may exist.
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(“FAS 142”)requires that goodwill and certain intangible assets be assessed
annually, or when certain triggering events occur, for impairment using fair
value measurement techniques. 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.  Specifically, goodwill impairment is determined using
a two-step process. The first step of the goodwill impairment test is used to
identify potential impairment by comparing the fair value of a reporting unit
with its carrying amount, including goodwill. The estimates of fair value of a
reporting unit are determined using various valuation techniques with the
primary technique being a discounted cash flow analysis. A discounted cash flow
analysis requires one to make various judgmental assumptions including
assumptions about future cash flows, growth rates, and discount rates. The
assumptions about future cash flows and growth rates are based on the Company’s
budget and long-term plans. Discount rate assumptions are based on an assessment
of the risk inherent in the respective reporting units. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired and the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds its fair value,
the second step of the goodwill impairment test is performed to measure the
amount of impairment loss, if any. The second step of the goodwill impairment
test compares the implied fair value of the reporting unit’s goodwill with the
carrying amount of that goodwill. If the carrying amount of the reporting unit’s
goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess. The implied fair value of goodwill
is determined in the same manner as the amount of goodwill recognized in a
business combination. That is, the fair value of the reporting unit is allocated
to all of the assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the purchase price paid
to acquire the reporting unit.  The Company’s evaluation of goodwill
completed during the year ended December 31, 2008 resulted in no impairment
losses.





The
impairment test for other indefinite–lived intangible assets not subject to
amortization consists of a comparison of the fair value of the intangible asset
with its carrying value. If the carrying value of the intangible asset exceeds
its fair value, an impairment loss is recognized in an amount equal to that
excess. The estimates of fair value of intangible assets not subject to
amortization are determined using various discounted cash flow valuation
methodologies. Significant assumptions are inherent in this process, including
estimates of discount rates. Discount rate assumptions are based on an
assessment of the risk inherent in the respective intangible
assets.  As of December 31, 2008, indefinite-lived intangible asset
consists of the trade names of Epic’s subsidiaries.  Management has
determined that there is an impairment loss of $578,612 at December 31, 2008
related to the trade names.




As of
December 31, 2008 and 2007, amortizable intangible assets consist of employment
contracts, backlog, patents, 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 their estimated useful lives of 1
to 3 years and the customer related intangible assets are being amortized on a
weighted average life of approximately 6 years.  At December 31, 2008,
the Company has recorded an impairment loss of $926,471 related to its
intangible assets.





Customer
Deposits





Customer
deposits represent advance payments for procurement of materials for a customer.
During 2006, the Company entered into a contractual relationship with a customer
to procure engineered materials for a gas plant project. The customer provides
funds in a lump sum to the Company to procure the materials for use in the
project. The Company recognizes the related cash and a liability in the
financial statements for future materials to be purchased as agent for the
customer. Any excess funds received are refunded to the customer at the end of
the contract.





Asset Retirement Obligations
(“ARO”).





The
estimated costs of restoration and removal of facilities are accrued. The fair
value of a liability for an asset's retirement obligation is recorded in the
period in which it is incurred and the corresponding cost capitalized by
increasing the carrying amount of the related long-lived asset. The liability is
accreted to its then present value each period, and the capitalized cost is
depreciated with the related long-lived asset. If the liability is settled for
an amount other than the recorded amount, a gain or loss is recognized. For all
periods presented, estimated future costs of abandonment and dismantlement are
included in the full cost amortization base and are amortized as a component of
depletion expense.





Fair
Value of Financial Instruments




The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities and long-term debt. The
estimated fair value of cash, accounts receivable, accounts payable and accrued
liabilities approximate their carrying amounts due to the short-term nature of
these instruments. The carrying value of 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.


F-10


We
generally do not use derivative financial instruments to hedge exposures to
cash-flow risks or market-risks that may affect the fair values of our financial
instruments. We review our warrants and conversion features of the securities we
issue as to whether they are freestanding or contain an embedded derivative and,
if so, whether they are classified as a liability at each reporting period until
the amount is settled and reclassified into equity with changes in fair value
recognized in current earnings. We have concluded that certain warrants with
embedded conversion features in our debt that are indexed to our common stock,
are classified as equity with the offset treated as a discount on the notes.
Such financial instruments are initially recorded at fair value and amortized to
interest expense during the life of the debt.




We
utilize various types of financing to fund our business needs, including debt
with warrants attached and other instruments indexed to our stock. The embedded
conversion features utilized in these instruments require an initial measurement
of the fair value of the derivative, if any.  We amortize the discount
associated with these warrants to interest expense at each reporting
period.





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value Measurements
(“FAS 157”).FAS 157 does
not require any new fair value measurements.  FAS 157 establishes a
common definition for fair value to be applied with existing GAAP requiring use
of fair value, establishes a framework for measuring fair value, and expands
disclosure about such fair value measurements.  We have partially
adopted FAS 157 as of January 1, 2008 except for those non-recurring
measurements for non-financial assets and non-financial liabilities subject to
the partial deferral in FASB Statement of Position No. 157-2, Partial Deferral of the Effective
Date of Statement 157,” (“FSP 157-2”).  The adoption of FAS 157
did not have an impact on the Company’s consolidated financial position or
operating results.   FSP 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 or disclosed at fair value in the
financial statements on a recurring basis (at least annually).  The
adoption of this statement for non-financial assets and liabilities is not
expected to have a material impact on the Company’s consolidated financial
position or results of operations.





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 Consolidated Balance Sheets. Cash collections and
invoices generated in excess of revenue recognized are included in deferred
revenue in the accompanying Consolidated Balance Sheets, until the revenue
recognition criteria are met. Changes to total estimated contract costs or
losses, if any, are recognized in the period in which they are determined.
Contract losses are recorded in the period  they become known. 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. In accordance
with EITF 99-16, these revenues are included in reimbursed expense revenue; and
the costs are included in operating expenses as reimbursed expenses in the
accompanying Consolidated Statements of Operations.





Stock-Based
Compensation





The
Company accounts for stock-based compensation in accordance with the provisions
of Statement of Financial Accounting Standards No. FAS 123(R), Share Based Payment, (FAS
123(R).  FAS 123(R) requires companies to estimate the fair value of
share-based payment awards made to employees and directors, including stock
options, restricted stock and employee stock purchases related to employee stock
purchase plans, on the date of grant using an option-pricing model. The
value of the portion of the award that is ultimately expected to vest is
recognized as an expense ratably over the requisite service
periods.  We estimate the fair value of each share-based award using
the Black-Scholes option pricing model. The Black-Scholes model is highly
complex and dependent on key estimates by management. The estimates with the
greatest degree of subjective judgment are the estimated lives of the
stock-based awards and the estimated volatility of our stock
price.


F-11


Income
Taxes





As
required under FAS No. 109, Accounting for Income Taxes(“FAS 109”), we account for income taxes using the asset and liability
method, which requires the establishment of deferred tax assets and liabilities
for the temporary differences between the financial reporting basis and the tax
basis of the Company’s assets and liabilities at enacted tax rates expected to
be in effect when such amounts are realized or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.  A valuation allowance is
provided to the extent deferred tax assets may not be recoverable after
consideration of the future reversal of deferred tax liabilities, tax planning
strategies, and projected future taxable income.





On
January 1, 2007, the Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income
Taxes, and (“FIN 48”). 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. Under FIN 48, we
recognize tax benefits only for tax positions that are more likely than not to
be sustained upon examination by tax authorities.  The amount
recognized is measured as the largest amount of benefit that is greater than 50
percent likely to be realized upon settlement.  A liability for
“unrecognized tax benefits” is recorded for any tax benefits claimed in our tax
returns that do not meet these recognition and measurement
standards.





Earning
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 is computed by dividing net income
(loss) from continuing operations attributable to common stock by the weighted
average number of common shares outstanding during each period. Diluted EPS is
computed by adjusting the average number of common shares outstanding for the
dilutive effect, if any, of common stock equivalents such as stock options and
warrants. Diluted EPS is the same as Basic EPS for all periods presented because
potential common stock equivalents were anti-dilutive. Common stock equivalents
of 32,797,018 and 23,828,961, at December 31, 2008 and 2007, respectively,
were excluded due to their anti-dilutive effect.





Recent
Accounting Pronouncements




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(“FAS 141R”). FAS 141R significantly changes the accounting for
business combinations and will impact financial statements both on the
acquisition date and in subsequent periods.  Under FAS 141R, an
acquiring entity will be required to recognize the assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree, measured
at their fair values as of the acquisition date, with limited
exceptions.  FAS 141R includes a substantial number of new disclosure
requirements that enable the evaluation of the nature and financial effects of
the business combination.  FAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period  beginning on or after December 15,
2008. The Company is currently evaluating the impact of the provisions of FAS
141R on its financial position, results of operations, and cash
flows.




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 new 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 is
currently evaluating the impact of the provisions of FAS 160  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 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.


F-12


In May
2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles (FAS 162).  This statement is intended to
improve financial reporting by identifying a consistent framework, or hierarchy,
for selecting accounting principles to be used in preparing financial statement
of nongovernmental entities that are presented in conformity with
GAAP.  This statement will be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendment to AU
Section 411, “The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.”  The adoption of this statement is
not expected to have a material impact on the Company’s consolidated financial
position or results of operations.





3.  Business
Combinations





During
the year ended December 31, 2008, the Company finalized the purchase price
allocations associated with the acquisitions of Carnrite, Pearl and
EIS.





Carnrite





In 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”), this contingent consideration is considered
additional purchase price consideration.





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 Consolidated
Statement of Operations includes the operations of Carnrite for the period from
July 1, 2007 through December 31, 2007.





The
acquisition and related transaction were treated as a purchase business
combination for accounting purposes and Carnrite’s assets acquired and
liabilities assumed were recorded at their fair value. Among the provisions of
SFAS No. 141, criteria have been established for determining whether intangible
assets should be recognized separately from goodwill.





During
2008, the Company finalized its purchase price allocation and assigned
$5,571,000 of previously identified goodwill to trade name, employment
contracts, backlog and customer relationships. The finalized aggregate purchase
price of Carnrite was $16,102,520 and consisted of 4,914,400 shares of
restricted common stock valued at $3.30 per share less purchase price
adjustments of $115,000. 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):





Cash
                    
                    $
                    48Receivables
      from customers
                    
                    
                    1,208Property
      and equipment
                    
                    
                    26Other
      assets
                    
                    
                    5Trade
      name
                    
                    
                    1,439Employment
      contracts
                    
                    
                    1,147Backlog
                    
                    
                    2,524Customer
      relationships
                    
                    
                    461Goodwill
                    
                    
                    9,918Total
      assets acquired
                    
                    
                    16,776Accounts
      payable
                    
                    
                    311Line
      of credit
                    
                    
                    362Total
      liabilities assumed
                    
                    
                    673Net
      assets acquired
                    
                    $
                    16,103


F-13


Pearl





In 2007,
Epic acquired Pearl for 1,786,240 shares of its common stock and cash of
$19,928,000.




The
acquisition was treated as a purchase business combination for accounting
purposes and Pearl’s assets acquired and liabilities assumed were recorded at
their fair value. Among the provisions of SFAS No. 141, criteria have been
established for determining whether intangible assets should be recognized
separately from goodwill.





During
2008, the Company finalized its purchase price allocation and assigned
$12,500,000 of previously identified goodwill to trade name, backlog customer
relationships and other intangible. The finalized aggregate purchase price of
Pearl was $25,554,656 and consisted of 1,786,240 shares of common stock
valued at $3.15 per share, the closing price on the day of acquisition and
$19,928,000 of cash.  The following table presents the allocation of
the acquisition cost to the assets acquired and liabilities assumed, based on
fair values (in thousands):





Receivables
      from clients
                      
                      $
                      14,727Property
      and equipment
                      
                      
                      10,371Other
      assets
                      
                      
                      463Customer
      relationships
                      
                      
                      5,700Backlog
                      
                      
                      2,100Trade
      name
                      
                      
                      4,700Other
      intangible
                      
                      
                      990Goodwill
                      
                      
                      7,934Total
      assets acquired
                      
                      
                      46,985Accounts
      payable
                      
                      
                      5,935Bank
      overdrafts
                      
                      
                      1,352Accrued
      liabilities
                      
                      
                      4,538Deferred
      tax liability
                      
                      
                      1,775Debt
                      
                      
                      6,330Line
      of credit
                      
                      
                      1,500Total
      liabilities assumed
                      
                      
                      21,430Net
      assets acquired
                      
                      $
                      25,555





EIS





In 2008,
Epic acquired EIS, for 1,000,000 shares of its restricted common stock and cash
of $867,000.  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 from 2009
through 2011.





The
acquisition was treated as a purchase business combination for accounting
purposes and EIS’s assets acquired and liabilities assumed were recorded at
their fair value. Among the provisions of SFAS No. 141, criteria have been
established for determining whether intangible assets should be recognized
separately from goodwill.





The
aggregate finalized 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 and
$867,000 of cash.  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
                      
                      $
                      635Receivables
      from clients
                      
                      
                      233Property
      and equipment
                      
                      
                      117Other
      assets
                      
                      
                      5Customer
      relationships
                      
                      
                      800Backlog
                      
                      
                      500Trade
      name
                      
                      
                      120Goodwill
                      
                      
                      985Total assets
      acquired
                      
                      
                      3,395Accounts
      payable
                      
                      
                      73Accrued
      liabilities
                      
                      
                      5Total liabilities
      assumed
                      
                      
                      78Net assets
    acquired
                      
                      $
                      3,317


F-14


Summarized
below is the unaudited pro forma statement of operations for the year ended
December 31, 2007 had the acquisitions of Carnrite, Pearl and EIS taken
place as of January 1, 2007 (in thousands):





Revenues
                        
                        $
                        62,199Operating
      expenses
                        
                        
                        62,700Other
      expenses, net
                        
                        
                        (5,632
                        )Net
      loss
                        
                        $
                        (6,133
                        )Net
      loss per share
                        
                        $
                        (0.16
                        )





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 acquisition been consummated as of that time, nor is
it intended to be a projection of future results.





4.
Costs and Estimated Earnings On Uncompleted Contracts





Costs and
Estimated earnings consisted of the following at December 31, 2008 (in
thousands):





2008Costs
      incurred on uncompleted contracts
                  
                  $
                  1,981Estimated
      earnings
                  
                  
                  862,067Less
      billings to date
                  
                  
                  (2,129
                  )$
                  (62
                  )





The
amounts noted above are included in the following captions in the accompanying
consolidated balance sheets at December 31, 2008 (in thousands):





Uncompleted
      contractsUnbilled
      receivables
                  
                  $
                  5Deferred
      revenue
                  
                  
                  (67
                  )$
                  (62
                  )Other
      contractsUnbilled
      receivables
                  
                  
                  383Deferred
      revenue
                  
                  
                  (2,617
                  )$
                  2,234





There
were no uncompleted contracts as of December 31, 2007.


F-15


5.
Oil and Gas Properties





In
December 2006 Epic 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
$2,500,000 loan bears interest at 10% per year and is payable in 42 equal
monthly installments of $72,000.  We based the value of the offer on a
2005 engineering reserve report which showed a value of $10.5
million.  As of December 31, 2008, the Company has recorded $9,189,949 of
ceiling test impairments to the Kansas properties, including $3,960,919 of
impairment in 2008 and a balance of $5,229,030 impairment as of December 31,
2007.  The Company recorded $36,909 and $30,814, respectively, of depletion
expense on these properties for the years ended December 31, 2008 and
2007.





In
December 2006 Epic acquired 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. For its interest in this
prospect, Epic paid $50,000 in cash and issued 3,846 shares of its common stock
to the sellers valued at $10,000 using the closing price of Epic's common stock
at the inception of the agreement.





Subsequent
to December 31, 2008, the Company sold the Kansas and Oklahoma properties to a
third party who assumed the note payable, including accrued but unpaid interest
totaling $3,993,071 at the acquisition date and future profits interest in the
properties of Statesman Resources, Inc subject to the Company’s retention of an
overriding royalty interest covering the Kansas property.  The Company
recorded a $2,110,066 gain on the sale of the Kansas and Oklahoma properties in
February 2009.  Since the Kansas and Oklahoma properties were held for
sale prior to December 31, 2008, the properties and their related assets,
liabilities, and identifiable results of operations have been shown separately
as discontinued operations on the accompanying consolidated balance sheet and
statement of operations.Assets and liabilities of discontinued operations
consisted of the following (in thousands):





December 31,2008
                                            
                                            
                                            2007ASSETSAssets
      held for sale:Proved oil & gas properties,
      net
                                            
                                            $
                                            1,332
                                            
                                            
                                            $
                                            5,248Other mineral
      reserves
                                            
                                            
                                            783
                                            
                                            
                                            
                                            783Assets
      of discontinued operations
                                            
                                            $
                                            2,115
                                            
                                            
                                            $
                                            6,031LIABILITIESCurrent
      Liabilities:Accrued interest
                                            
                                            $
                                            547
                                            
                                            
                                            $
                                            284Asset retirement
      obligation
                                            
                                            
                                            230
                                            
                                            
                                            
                                            7Note
      payable
                                            
                                            
                                            3,295
                                            
                                            
                                            
                                            -4,072
                                            
                                            
                                            
                                            291Long-term
      liabilities:Long-term debt
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,850Asset retirement
      obligation
                                            
                                            
                                            -
                                            
                                            
                                            
                                            143-
                                            
                                            
                                            
                                            2,993Total
      liabilities of discontinued operations
                                            
                                            $
                                            4,072
                                            
                                            
                                            $
                                            3,274





6.
Other Mineral Reserves





Our
proved oil and gas properties in Kansas contain Helium reserves estimated at
between 1% and 2% of the proved gas reserves of the property. Due to current
economic conditions and the impact on prices in the oil and gas industry,
drilling of new wells to extract Helium reserves would not result in a
commercial venture at the present time. Consequently there are no immediate
plans to pursue harvesting the Helium reserves.


F-16


7.
Property and Equipment





Property
and equipment consisted of the following at December 31, 2008 and 2007 (in
thousands):





2008
                  
                  
                  2007Vehicles
                  
                  $
                  2,731
                  
                  
                  $
                  2,222Computer
      equipment
                  
                  
                  2,521
                  
                  
                  
                  859Office
      furniture and equipment
                  
                  
                  825
                  
                  
                  
                  577Leasehold
      improvements
                  
                  
                  555
                  
                  
                  
                  316Construction
      in progress
                  
                  
                  -
                  
                  
                  
                  2,1026,632
                  
                  
                  
                  6,076Less:
      Accumulated depreciation and amortization
                  
                  
                  (1,496
                  )
                  
                  
                  (70
                  )Property and equipment,
      net
                  
                  $
                  5,136
                  
                  
                  $
                  6,006





Depreciation
and amortization expense was $1,841,840 and $112,119 for the years ended
December 31 2008 and 2007, respectively.





In 2008,
the Company adopted a plan to dispose of its airplane. The Company expects that
the final sale and disposal of the assets will be completed in 2009. In
connection with the plan of disposal, the Company has determined that the
carrying value of the airplane exceeded its fair value. Consequently, the
Company recorded an impairment loss of $330,000 which represents the excess of
the carrying value of the airplane over its fair value, less costs to sell. The
impairment loss is recorded as a separate line item (“Impairment charge”) in the
Consolidated Statements of Operations at December 31, 2008. The carrying value
of the airplane that is held for sale is separately presented in the
Consolidated Balance Sheets in the caption “Other assets held for sale,” and
these assets are no longer depreciated.





8.
Goodwill and Other Intangible Assets





The
Company’s intangible assets, excluding goodwill, consist of the
following  (in thousands):





December 31, 2008Carrying
                      amount
                    
                    
                    Accumulated
                      amortization
                    
                    
                    Impairment
                      loss
                    
                    
                    Net book
                      valueCustomer
      relationships
                    
                    $
                    6,961
                    
                    
                    $
                    (358
                    )
                    
                    $
                    -
                    
                    
                    $
                    6,603Backlog
                    
                    
                    5,124
                    
                    
                    
                    (5,124
                    )
                    
                    
                    -
                    
                    
                    
                    -Employment
      contracts
                    
                    
                    1,147
                    
                    
                    
                    (764
                    )
                    
                    
                    -
                    
                    
                    
                    383Patent
                    
                    
                    990
                    
                    
                    
                    (64
                    )
                    
                    
                    (926
                    )
                    
                    
                    -Indefinite-lived
      trade name
                    
                    
                    6,259
                    
                    
                    
                    -
                    
                    
                    
                    (579
                    )
                    
                    
                    5,680Total
                    
                    $
                    20,481
                    
                    
                    $
                    (6,310
                    )
                    
                    $
                    (1,505
                    )
                    
                    $
                    12,666





Amortization
expense related to the above intangible assets for the years December 31, 2008
and 2007 was $6,305,000 and $5,000, respectively. Based on the carrying value of
intangible assets recorded at December 31, 2008 and, assuming no subsequent
impairment of the underlying assets, the aggregate amortization expense
associated with intangible assets for the next five years is estimated to be as
follows (in thousands):





2009
                  
                  $
                  1,7252010
                  
                  
                  1,3422011
                  
                  
                  1,3422012
                  
                  
                  1,3422013
                  
                  
                  1,212Thereafter
                  
                  
                  23Total
                  
                  $
                  6,986


F-17


During
the years ended December 31, 2007 and 2008, the Company completed three business
acquisitions.  The purchase price and costs associated with the
acquisitions exceeded the preliminary estimated fair value of the net assets
acquired by $32,624,000, which was preliminarily assigned to goodwill for the
two acquisitions completed in 2007.  During 2008, we completed the
valuation of the intangible assets acquired in the transactions and allocated
$18,070,000 of the goodwill to customer relationships, backlog, employment
contracts and trade name.





The
changes in the carrying amount of goodwill for the years ended December 31, 2008
and 2007, are as follows (in thousands):





Balance
      January 1, 2007
                  
                  $
                  -Pearl
      acquisition
                  
                  
                  17,136Carnrite
      acquisition
                  
                  
                  15,488Balance,
      December 31, 2007
                  
                  
                  32,624EIS acquisition
                  
                  
                  985Pearl additional purchase
      price
                  
                  
                  908Carnrite purchase price
      allocation adjustments
                  
                  
                  (5,570
                  )Pearl purchase price allocation
      adjustments
                  
                  
                  (10,110
                  )Balance,
      December 31, 2008
                  
                  $
                  18,837





At
December 31, 2008, the Company performed their annual test of goodwill for
impairment. The goodwill was tested by performing the two-step goodwill
impairment test. For the year ended December 31, 2008, no impairments were
recorded.





9.
Asset Retirement Obligations





The
following table indicates the changes to the Company’s asset retirement
obligations account which have been included in other oil and gas assets held
for sale and current and long-term liabilities associated with assets held for
sale on the accompanying consolidated balance sheets:





Balance,
      December 31, 2006
                    
                    $
                    150Revision in estimated
      liabilities
                    
                    
                    (19
                    )Accretion
    expense
                    
                    
                    9Balance,
      December 31, 2007
                    
                    $
                    140Revision
      in estimated liabilities
                    
                    
                    81Accretion
    expense
                    
                    
                    9Balance,
      December 31, 2008
                    
                    $
                    230Current
      asset retirement obligation
                    
                    $
                    7Long-term
      asset retirement obligation
                    
                    
                    223Total asset retirement
      obligation
                    
                    $
                    230





10.
Long-Term Debt





In
December 2006, the Company entered into a $2,500,000 note payable that is
secured by the Rush County Kansas property. The term of this note is 42 months
and bears an interest rate of 10%. Monthly principal and interest payments are
due of approximately $72,000.  As defined in 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.  During 2008 and
2007, the balance of the note increased by $444,698 and $290,628,
respectively.  The balance of this note at December 31, 2008 and 2007
is $3,295,000 and $2,860,000, respectively. Subsequent to December 31, 2008, the
Company sold the properties associated with this note payable and the note
payable was assumed by the third party.


F-18


In
December 2007, Epic issued $20,250,000 of 10% Secured Debentures
(“Debentures”).  The Debentures are due on December 5, 2012, with
interest payable quarterly on January 1, April 1, July 1 and October
1.  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
holder.  The Company did not make the December 1, 2008 principal
payment (see information below).  This note was amended in February
2009.  The balance of the Debentures presented on the balance sheet at
December 31, 2008 and 2007 of $10,611,000 and $7,371,000, respectively, is net
of unamortized discounts of $9,639,000 and $12,879,000,
respectively.





On
February 26, 2009, the Company signed an Amendment Agreement that includes the
following:





As
consideration from the Debenture Holders, pursuant to the terms of the
Amendment, the Debenture Holders agreed to waive any Events of Default (as
defined in the Debenture and other documents executed in connection with the
purchase of the Debentures) of which they had knowledge.  Also, to the
extent that a Holder had requested acceleration of payment of its Debenture, the
Holder rescinded such request and any resulting acceleration of its
Debenture.





On March
13, 2009, debentures with a principal amount of $250,000 were repurchased by the
Company for $156,250.





In 2008,
the Company entered into a note payable related to the EIS
acquisition.   On February 20, 2009, the Parties agree that the
schedule for EPIC’s payment of the remaining $1,070,000 in cash will be as
follows: $250,000 on April 1, 2010, $250,000 on July 1, 2010, $250,000 before
October 1, 2010, and $320,000 on January 1, 2011 (referred to collectively as
the “Cash Payments”).  Each of the Cash Payments will be allocated
among Wright, R. Harvey and T. Harvey on a percentage basis, with Wright
receiving 50%, R. Harvey receiving 25%, and T. Harvey receiving 25% of the Cash
Payments.  The balance of this note at December 31, 2008 and 2007 is
$1,320 and $0, respectively.





The
following four notes are held by the Pearl subsidiary:





In
November 2006, the Company entered into a note payable for $4,845,000 related to
its purchase of an aircraft.  The 12 year note with an annual interest rate
of 6.81% is due on November 27, 2018, with principal and interest payable
monthly in the amount of $49,336.





In May
2007, the Company entered into a note payable for $100,000 related to tenant
improvements at its expanded Lakewood, CO office.  The 5 year note with a
5% annual interest rate is due on May 1, 2012, with principal and interest
payable monthly in the amount of $1,887.





In June
2007, the Company entered into a note payable for $872,909 related to its
Microsoft ERP system implementation.  The 3 year note with a 7.25% annual
interest rate is due on June 18, 2010, with principal and interest payable
monthly in the amount of $27,052.





In April
2008 and December 2008, the Company entered into two separate notes payable for
$1,390,000 and $488,000 respectively to finance the Company owned
vehicles.  The 3 year notes with an annual interest rate of 5.50% are due
April 1, 2011 and December 1, 2011, with principal and interest payable monthly
of about $56,850.





As of
December 31, 2008 and 2007, the above notes payable have a total outstanding
balance of $6,205,000 and $6,906,000, respectively.





Debt at
December 31, 2008 and 2007 consists of the following (in
thousands):





2008
                                
                                
                                200710%
      secured debentures
                                
                                $
                                20,250
                                
                                
                                $
                                20,250Debt
      discount
                                
                                
                                (9,639
                                )
                                
                                
                                (12,879
                                )10%
      secured debentures, net
                                
                                
                                10,611
                                
                                
                                
                                7,371Note
      payable secured by assets acquired
                                
                                
                                9,500
                                
                                
                                
                                9,766Note
      payable – EIS acquisition
                                
                                
                                1,320
                                
                                
                                
                                -Total
      debt
                                
                                
                                21,431
                                
                                
                                
                                17,137Less:
      current maturities
                                
                                
                                11,110
                                
                                
                                
                                3,208Total
      long-term debt
                                
                                $
                                10,321
                                
                                
                                $
                                13,929


F-19


Aggregate
annual future maturities of long-term debt are as follows (in
thousands):





2009
                  
                  $
                  11,1102010
                  
                  
                  6,9512011
                  
                  
                  5,9482012
                  
                  
                  4,1842013
                  
                  
                  408Thereafter
                  
                  
                  2,46931,070Less
      debt discount
                  
                  
                  (9,639
                  )Total
                  
                  $
                  21,431





11.
Stockholders' Equity





On March
12, 2007, Epic's Chief Executive Officer and President surrendered to the
Company a total of 23,230,000 shares of common stock. This action was taken in
order to place the Company in a favorable position to attract the equity and
debt financing required to continue to execute its business plan.





During
2007, Epic issued 564,500 shares of unregistered restricted common stock for net
proceeds of $523,100 in private placements. Epic sold 558,500 of these shares in
the form of 279,000 units with each unit consisting of 2 shares of Epic common
stock and one Series A Warrant and one Series B Warrant. Each Series A Warrant
entitles the holder to purchase one share of the Company's common stock at a
price of $2.00 per share at any time prior to December 31, 2007. Each Series B
Warrant entitles the holder to purchase one share of the Company's common stock
at a price of $2.50 per share at any time prior to October 31, 2009. Both the
shares and the shares associated with the warrants are restricted for a one year
period.





In August
2007, a total of 3,177,810 shares of restricted common stock were issued in
conjunction with the Carnrite acquisition.  An additional 1,673,034
shares were awarded to key employees of Carnrite as retention shares. See
Note 3.





In
December 2007, a total of 1,786,240 shares of restricted common stock were
issued with the acquisition of Pearl. See Note 3.





A total
of 43,500 shares were issued to consultants for services rendered with a value
of $127,100 during the year ended December 31, 2007.





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 Epic’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.  Of the total proceeds, $634,500 had not been received as of
December 31, 2007 and was included in prepaid expenses and other current
assets.  This amount was collected in January 2008.  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
February 20, 2008, Epic granted 1,000,000 shares of its restricted common stock
in conjunction with the EIS acquisition (See Note 3).  The 1,000,000
shares will vest annually over a three year period. As of December 31, 2008,
333,333 of these shares have been distributed to the prior owner’s of EIS
totaling $1,050,000. 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.


F-20


During
2008, the Company issued 146,239 shares of common stock for services. The stock
was valued at the price on the date of issuance which was approximately $34,000.
The stock value is included in compensation expense for the year ended December
31, 2008 in the accompanying Consolidated Statement of Operations. The shares
were included in the calculation of weighted average shares outstanding for the
year ended December 31, 2008.





Warrants





Between
October 2006 and April 2007, Epic raised $1,414,700, net of commissions to
individuals, 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 entitled the holders to purchase one
share of Epic’s common stock at a price of $2.00 per share.  The
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 September 30, 2009.





In
conjunction with the issuance of common stock to private equity investors in
December 2007, the Company issued Series C warrants to acquire 5,429,335 shares
of common stock at $1.50 per share. In addition, warrants to purchase 184,333
shares of common stock at $1.50 per share were issued to third parties assisting
in the transaction.  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 the fair value of the warrants to be $2,830,307 as of the
date of the transaction.


In
accordance with FASB Staff Position No. EITF 00-19-2, Accounting for Registration Payment
Arrangements,the Company has accrued $950,100 at December 31, 2008
related to liquidated damages in connection with the registration of the common
shares related to the acquisition of Pearl.





In
conjunction with the issuance of $20,250,000 of debentures in December 2007, the
Company issued Series D warrants to purchase 15,954,545 shares of common stock
at $1.65 per share. In addition, warrants to purchase 1,116,818 shares of common
stock at $1.65 per share were issued to third parties assisting in the
transaction.  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 the warrants associated with the debentures had a fair value
of $13,085,380 as of the date of the transaction.  Such amount was
recorded as additional paid in capital with a corresponding amount recorded as a
debt discount associated with the debentures.  The debt discount is
being amortized to interest expense using the effective interest method over the
life of the debentures, which mature on December 1, 2012.  For the
years ended December 31, 2008 and 2007, $3,239,190 and $206,808, respectively,
of debt discount was amortized to interest expense.





A summary
of warrant activity for the years ending December 31, 2008 and 2007 is as
follows:





Number of
                      Warrants
                      Outstanding
                      and
                      Exercisable
                    
                    
                    Weighted
                      Average
                      Exercise
                      PriceWarrants
      outstanding, January 1, 2007
                    
                    
                    897,100
                    
                    
                    $
                    2.38Warrants
      issued in private placements
                    
                    
                    6,171,668
                    
                    
                    $
                    1.48Warrants
      issued with debentures
                    
                    
                    17,071,363
                    
                    
                    $
                    1.65Warrants
      expired / forfeited
                    
                    
                    (491,500
                    )
                    
                    $
                    2.00Warrants
      outstanding, December 31, 2007
                    
                    
                    23,648,631
                    
                    
                    $
                    1.65Warrants
      issued
                    
                    
                    -
                    
                    
                    
                    -Warrants
      expired / forfeited
                    
                    
                    -
                    
                    
                    
                    -Warrants
      outstanding, December 31, 2008
                    
                    
                    23,648,631
                    
                    
                    $
                    1.65





As of
December 31, 2008, the range of warrant prices for shares under warrants, the
weighted average remaining contractual life and the aggregate intrinsic
value is as follows:





Exercise
                  Price
                
                
                Number
      of
                  Warrants
                
                
                Weighted
                  Average
                  Contractual
                  Life
      (in
                  months)
                
                
                Aggregate
                  Intrinsic
                  ValueSeries
      B Warrants
                
                $
                2.50
                
                
                
                963,600
                
                
                
                9.5
                
                
                $
                -Series
      C Warrants
                
                $
                1.50
                
                
                
                5,613,668
                
                
                
                47.0
                
                
                
                -Series
      D Warrants
                
                $
                1.65
                
                
                
                17,071,363
                
                
                
                47.0
                
                
                
                -23,648,631
                
                
                
                
                
                
                $
                -


F-21


12.
Stock based compensation





Restricted
Stock





Restricted
stock grants consist of the Company's common stock and generally vest after
two or three years, with the exception of grants under the Epic
Non-employee Director Stock Option Plan, which vest when granted due to the
fact that they are granted in lieu of cash payments. Restricted stock
awards are valued at the average market price of the Company's common stock
at the date of grant. For the years ended December 31, 2008 and 2007, the
Company granted 3,000,000 and 600,000 shares, respectively, to two
officers.  For the years ended December 31, 2008 and 2007,
compensation expense of $494,779 and $19,529, respectively, were recorded
related to these shares.





A summary
of restricted stock grant activities as of December 31, 2008 and 2007 are
presented below:




Non-vested
      restricted stock at January 1, 2007
                      
                      
                      -Granted
                      
                      
                      600,000Vested
                      
                      
                      -Terminated
                      
                      
                      -Non-vested
      restricted stock at December 31, 2007
                      
                      
                      600,000Granted
                      
                      
                      3,000,000Vested
                      
                      
                      -Terminated
                      
                      
                      -Non-vested
      restricted stock at December 31, 2008
                      
                      
                      3,600,000Vested
      restricted stock at December 31, 2008
                      
                      
                      
                      
                      -





Stock
Options





The
Company’s 2006 Employee Share Option Plan (the Plan), which is Board-approved,
permits the grant of share options and shares to its employees for up to 10.0
million shares of common stock. The Company believes that such awards better
align the interests of its employees with those of its shareholders.The
exercise price of each stock option equals the closing market price of Epic’s
stock on the date of grant. Options can generally be exercised over a term of
between 3 and 10 years. Options vest ratably over 3 to 5 years. The fair
value of each option grant during the year ended December 31, 2008 was estimated
on the date of grant using the Black-Scholes option-pricing model with an
expected life of 5 to 6 years, volatility of 59% to 108% and a risk-free
interest rate of 1.8% to 3.6%.  The fair value of each option grant
during the year ended December 31, 2007 was estimated on the date of grant using
the Black-Scholes option-pricing model with an expected life of 5 years,
volatility of 41% to 59% and a risk-free interest rate of 3.5% to
5.0%.  The weighted average fair value of the options granted in 2008
and 2007 was $0.39 and $1.74, respectively.





A summary
of stock option activity the years ended December 31, 2008 and 2007 is as
follows:





Number
      of
                          Shares
                        
                        
                        Weighted
                          Average
                          Exercise
                          Price
                        
                        
                        Weighted
                          Average
                          Remaining
                          Contractual
                          Life
      (in
                          years)
                        
                        
                        Aggregate
                          Intrinsic
                          ValueOptions
      outstanding, January 1, 2007
                        
                        
                        600,000
                        
                        
                        $
                        1.75
                        
                        
                        
                        -
                        
                        
                        $
                        -Options granted
                        
                        
                        1,011,000
                        
                        
                        $
                        3.29
                        
                        
                        
                        3.9
                        
                        
                        $
                        -Options
      exercised
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        -Options
      expired/forfeited
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        -Options
      outstanding, December 31, 2007
                        
                        
                        1,611,000
                        
                        
                        $
                        2.72
                        
                        
                        
                        2.4
                        
                        
                        $
                        -Options granted
                        
                        
                        930,500
                        
                        
                        $
                        0.84
                        
                        
                        
                        9.6
                        
                        
                        $
                        -Options
      exercised
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        -Options
      expired/forfeited
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        -Options
      outstanding, December 31, 2008
                        
                        
                        2,541,500
                        
                        
                        $
                        2.03
                        
                        
                        
                        5.1
                        
                        
                        $
                        -Options
      exercisable at December 31, 2008
                        
                        
                        1,516,200
                        
                        
                        $
                        1.61
                        
                        
                        
                        5.1


F-22


A summary
of the status of the Company’s non-vested options as of December 31, 2008
is as follows:


WeightedAverageNumber of
                        
                        
                        Grant-DateShares
                        
                        
                        Fair
      ValueUnvested
      as of December 31, 2007
                        
                        
                        1,161,000
                        
                        
                        $
                        1.53Granted
                        
                        
                        330,500
                        
                        
                        $
                        0.53Vested
                        
                        
                        (466,200
                        )
                        
                        $
                        1.23Unvested
      as of December 31, 2008
                        
                        
                        1,025,300
                        
                        
                        $
                        1.35





As of
December 31, 2008, there was approximately $1,315,000 of total unrecognized
compensation cost (including the impact of expected forfeitures as required
under FAS 123R) related to unvested share-based compensation arrangements that
the Company had not recorded. That cost is expected to be recognized over the
weighted-average period of 4 years. The total fair value of shares vested during
the year ended December 31, 2008 and 2007 was $759,000 and $17,000,
respectively.





No
options were exercised during the years ended December 31, 2008 and
2007.





13.
Income Taxes





The
Company accounts for income taxes and the related accounts under the liability
method.  Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted rate expected to be in effect during the year in which
the basis differences reverse.





The
provision for income taxes is comprised of the following (in
thousands):





2008
                        
                        
                        2007Current
      state
                        
                        $
                        10
                        
                        
                        $
                        20Provision for income
      taxes
                        
                        $
                        10
                        
                        
                        $
                        20





Deferred
income tax assets and liabilities consist of the following (in
thousands):





2008
                      
                      
                      2007Current
      deferred tax assets (liabilities):Allowance for doubtful
      accounts
                      
                      $
                      2,481
                      
                      
                      $
                      216Accrued
    liabilities
                      
                      
                      454
                      
                      
                      
                      -Deferred
revenue
                      
                      
                      1,014
                      
                      
                      
                      -Stock options
                      
                      
                      512
                      
                      
                      
                      17Non-current
      deferred tax assets (liabilities):Trademark
                      
                      
                      (1,775
                      )
                      
                      
                      -Long-lived
    assets
                      
                      
                      2,028
                      
                      
                      
                      1,891Accounting method
      change
                      
                      
                      (464
                      )
                      
                      
                      -Notes payable
                      
                      
                      477
                      
                      
                      
                      -Asset retirement
      obligation
                      
                      
                      61
                      
                      
                      
                      50Other
                      
                      
                      30
                      
                      
                      
                      45Net operating loss carry
      forwards
                      
                      
                      1,605
                      
                      
                      
                      929Total
      deferred tax assets
                      
                      
                      6,423
                      
                      
                      
                      3,148Valuation
    allowance
                      
                      
                      (8,198
                      )
                      
                      
                      (3,148
                      )Net
      deferred tax (liability)
                      
                      $
                      (1,775
                      )
                      
                      $
                      -


F-23


A
reconciliation of the actual income tax expense recorded to that based upon
expected federal tax rates are as follows:




2008
                  
                  
                  2007Expected
      federal tax benefit
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %Permanent
      differences
                  
                  
                  (4.0
                  )%
                  
                  
                  -Other
                  
                  
                  1.0
                  %
                  
                  
                  -Change
      in valuation allowance
                  
                  
                  (31.0
                  )%
                  
                  
                  (34.0
                  )%0.0
                  %
                  
                  
                  0.0
                  %




SFAS
Statement No. 109
requires that the Company reduce its deferred tax assets by a valuation
allowance if, based on the weight of the available evidence, it is not more
likely than not that all or a portion of a deferred tax asset will be realized.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences
are deductible. Additionally, the future utilization of the Company’s NOL
carryforwards to offset future taxable income may be subject to a substantial
annual limitation, as a result of ownership changes that may have occurred
previously or that could occur in the future. The Company has not yet determined
whether such an ownership change has occurred.  Based on the judgment of
management at this time, a valuation allowance has been recorded on all deferred
tax assets recorded on its books.




At
December 31, 2008 and 2007, the Company had federal net operating loss
carryforwards of approximately $4.2 and $2.7 million, respectively. The federal
tax net operating loss carryforwards will begin to expire in 2025.





Under FIN
48, taxbenefits are
recognized only for tax positions that are more likely than not to be sustained
upon examination by tax authorities.  The amount recognized is
measured as the largest amount of benefit that is greater than 50 percent likely
to be realized upon settlement.  Unrecognized tax benefits are tax
benefits claimed in our tax returns that do not meet these recognition and
measurement standards.




We
adopted the provisions of FIN 48, on January 1, 2007. As a
result of the implementation of FIN 48, the Company determined that no liability
for uncertain tax positions was required.




14.  Commitments
and Contingencies





We
currently and from time to time are subject to claims and suits arising in the
ordinary course of business, including employment matters. If an adverse
decision in these matters exceeds our insurance coverage, or if our coverage is
deemed not to apply to these matters, or if the underlying insurance carrier was
unable to fulfill its obligation under the insurance coverage provided, it could
have a material adverse effect on our financial condition, results of operations
or cash flows. The ultimate determination of such claims cannot be determined at
this time.





Operating
Leases





The
Company leases various office space in the Houston Metropolitan area with leases
ranging from $2,500 to $12,500 per month that expire through 2015.





The
primary offices of Pearl are located at Lakewood, Colorado.  The
30,552 square feet of office space is occupied under a lease requiring rental
payments of $42,168 per month.  Pearl has eight branch offices and
facilities in Colorado, Wyoming, Montana and Utah.  The rental for all
of the branch offices is approximately $18,900 per month.


F-24


Future
minimum rental payments by year and in the aggregate, under non-cancelable
operating leases with initial or remaining terms of one year of more, consisted
of the following as of December 31, 2008:





2009
                  
                  $
                  838,0002010
                  
                  
                  673,0002011
                  
                  
                  547,0002012
                  
                  
                  203,0002013
                  
                  
                  144,000Thereafter
                  
                  
                  165,000Total
                  
                  $
                  2,570,000





15.
Operating Results and Segment Information





Selected
operating results and segment information for the years ended December 31, 2008
and 2007 are as follows:





Engineering
                      Services
                    
                    
                    Oil & Gas
                      (Discontinued)
                    
                    
                    Total12
      Months Ended December 31, 2008Revenues
      from operations
                    
                    $
                    72,200
                    
                    
                    $
                    -
                    
                    
                    $
                    72,200Net
      operating loss from operations
                    
                    $
                    (21,848
                    )
                    
                    $
                    -
                    
                    
                    $
                    (21,848
                    )Loss
      from discontinued operations
                    
                    $
                    -
                    
                    
                    $
                    (4,724
                    )
                    
                    $
                    (4,724
                    )Assets
      held for sale
                    
                    $
                    3,875
                    
                    
                    $
                    2,115
                    
                    
                    $
                    5,990Capital
      Expenditures
                    
                    $
                    1,396
                    
                    
                    $
                    -
                    
                    
                    $
                    1,396Depreciation
                    
                    $
                    1,842
                    
                    
                    $
                    -
                    
                    
                    $
                    1,84212
      Months Ended December 31, 2007Revenues
      from operations
                    
                    $
                    8,461
                    
                    
                    $
                    -
                    
                    
                    $
                    8,461Net
      operating loss from operations
                    
                    $
                    (1,572
                    )
                    
                    $
                    -
                    
                    
                    $
                    (1,572
                    )Loss
      from discontinued operations
                    
                    $
                    -
                    
                    
                    $
                    (2,811
                    )
                    
                    $
                    (2,811
                    )Assets
      held for sale
                    
                    $
                    4,591
                    
                    
                    $
                    6,031
                    
                    
                    $
                    0,622Capital
      Expenditures
                    
                    $
                    302
                    
                    
                    $
                    -
                    
                    
                    $
                    302Depreciation
                    
                    $
                    112
                    
                    
                    $
                    -
                    
                    
                    $
                    112





16.
Subsequent Event





The
number of common shares depicted on the Consolidated Statements of Stockholders’
Equity at December 31, 2008 was 43,495,160 compared to 44,105,481 on March 14,
2009.  The 610,321 share difference resulted from the vesting of
shares to Pearl employees.


F-25




SUPPLEMENTARY
FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES
 (UNAUDITED)
 
 All of
our operations are directly related to oil and gas producing activities located
in Kansas and Oklahoma; we did not own or participate in any oil and gas
properties prior to January 1, 2006.
 
 We are
not reporting on proved undeveloped reserves in this period due to the current
economic conditions, including low natural gas prices, which would render
development to be uneconomical and thus would not result in a commercial venture
at the present time.
 
 Capitalized
Costs Relating to Oil and Gas Producing Activities
 
 Year Ended December 31
              
              2008
              
              
              2007Proved
      oil and gas properties
              
              $
              5,098,782
              
              
              $
              10,358,626Unproved
      oil and gas properties
              
              
              -
              
              
              
              -Total
      capitalized costs
              
              
              5,098,782
              
              
              
              10,358,626Less:
      Impairment allowance
              
              
              (3,960,919
              )
              
              
              (5,229,030
              )Less:
      Accumulated depreciation
              
              
              (36,909
              )
              
              
              (30,814
              )Total
              
              $
              1,100,954
              
              
              $
              5,098,782
 
 Costs
Incurred in Oil and Gas Producing Activities
 
 December
      31,Year Ended December 31
              
              2008
              
              
              2007Acquisition
      of proved properties
              
              $
              -
              
              
              $
              -Acquisition
      of unproved properties
              
              
              -
              
              
              
              -Development
      costs
              
              
              -
              
              
              
              -Exploration
      costs
              
              
              -
              
              
              
              -Asset
      retirement costs recognized under SFAS No. 143
              
              
              230,256
              
              
              
              148,964Total
      costs incurred
              
              $
              230,256
              
              
              $
              148,964
  Results
of Operations from Oil and Gas Producing Activities
 
 December
      31,Year Ended December 31
              
              2008
              
              
              2007Oil
      and gas revenues
              
              $
              26,572
              
              
              $
              9,674Production
      costs and taxes
              
              
              (442,689
              )
              
              
              (383,280
              )Depreciation
      and amortization and ARO accretion
              
              
              (45,763
              )
              
              
              (9,717
              )Results
      of operations before income taxes
              
              
              (461,880
              )
              
              
              (383,323
              )Provision
      for income taxes
              
              
              -
              
              
              
              -Results
      of oil and gas producing activities
              
              $
              (461,880
              )
              
              $
              (383,323
              )
 
 The
Company has presented the reserve estimates utilizing an oil price of $33.79 per
Bbl and a natural gas price of $1.65 per Mcf as of December 31, 2008 and an oil
price of $82.53 per Bbl and a natural gas price of $4.32 per Mcf as of December
31, 2007. Information for oil is presented in barrels (Bbl) and for natural gas
in thousands of cubic feet (Mcf). The estimates of the Company's proved natural
gas reserves and related future net cash flows that are presented in the
following tables are based upon estimates made by independent petroleum
engineering consultants.
 
 The
Company's reserve information was prepared by independent petroleum engineering
consultants as of December 31, 2008 and 2007. The Company cautions that there
are many inherent uncertainties in estimating proved reserve quantities,
projecting future production rates, and timing of development expenditures.
Accordingly, these estimates are likely to change as future information becomes
available. Proved oil and natural gas reserves are the estimated quantities of
crude oil and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
those reserves expected to be recovered through existing wells, with existing
equipment and operating methods.
  F-26
  A summary
of changes in proved reserve balances is presented below:
 
 Total
      Proved,
                
                
                Proved
      DevelopedYear Ending December 31
                
                BBL
                
                
                MCF
                
                
                BBL
                
                
                MCFReserves
      as of January 1, 2007
                
                
                
                
                
                -
                
                
                
                
                
                
                -Purchases
      of reserves in place
                
                
                3,717
                
                
                
                4,970,318
                
                
                
                3,717
                
                
                
                2,778,131Sale
      of reserves in place
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Extensions
      and discoveries
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Revisions
      of previous estimates
                
                
                248
                
                
                
                (8,861
                )
                
                
                248
                
                
                
                (8,861
                )Production
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Reserves
      at December 31, 2007
                
                
                3,965
                
                
                
                4,961,457
                
                
                
                3,965
                
                
                
                2,769,270Reserves
      as of January 1, 2008
                
                
                3,965
                
                
                
                4,961,457
                
                
                
                3,965
                
                
                
                2,769,270Purchases
      of reserves in place
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Sale
      of reserves in place
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Extensions
      and discoveries
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Revisions
      of previous estimates
                
                
                (3,062
                )
                
                
                (3,419,800
                )
                
                
                (3,062
                )
                
                
                (1,227,613
                )Production
                
                
                (127
                )
                
                
                (31,847
                )
                
                
                (127
                )
                
                
                (31,847
                )Reserves
      at December 31, 2008
                
                
                776
                
                
                
                1,509,810
                
                
                
                776
                
                
                
                1,509,810
 
 The
following is a standardized measure of the discounted net future cash flows and
changes applicable to proved oil and natural gas reserves required by SFAS No.
69, “Disclosures about Oil and Gas Producing Activities”.  The future
cash flows are based on estimated oil and natural gas reserves utilizing prices
and costs in effect as of year end, discounted at 10% per year and assuming
continuation of existing economic conditions.
 
 The
standardized measure of discounted future net cash flows, in management's
opinion, should be examined with caution. The basis for this table is the
reserve studies prepared by independent petroleum engineering consultants, which
contain imprecise estimates of quantities and rates of production of reserves.
Revisions of previous year estimates can have a significant impact on these
results. Also, exploration costs in one year may lead to significant discoveries
in later years and may significantly change previous estimates of proved
reserves and their valuation. Therefore, the standardized measure of discounted
future net cash flow is not necessarily indicative of the fair value of the
Company's proved oil and natural gas properties.
 
 Future
income taxes are based on year-end statutory rates, adjusted for net operating
loss carry forwards and tax credits. A discount factor of 10% was used to
reflect the timing of future net cash flows. The Standardized Measure of
Discounted Future Net Cash Flows is not intended to represent the replacement
cost or fair market value of the Company's oil and natural gas
properties.
 
 Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
Reserves
 at
December 31, 2008 and 2007
 
 December
      31,2008
              
              
              2007Future
      cash flows
              
              $
              2,517,408
              
              
              $
              21,760,766Future
      costs:Production
      and development costs
              
              
              (728,160
              )
              
              
              (9,953,970
              )Future
      income taxes
              
              
              -
              
              
              
              (1,581,106
              )Future
      net cash flows
              
              
              1,789,248
              
              
              
              10,225,69010%
      annual discount for estimated timing of cash flows
              
              
              (1,251,232
              )
              
              
              (5,072,004
              )Standardized
      measure of discounted future net cash flows
              
              $
              538,016
              
              
              $
              5,153,686
  F-27
 
 The
following reconciles the change in the standardized measure of discounted future
net cash flow during 2008:
 
 AmountBeginning
      of year
              
              $
              5,153,686Sales
      of oil and gas produced, net of production costs
              
              
              392,698Net
      changes in sales price, net of production costs
              
              
              (3,618,091
              )Accretion
      of discount
              
              
              515,369Changes
      in future income tax expense
              
              
              1,581,106Changes
      in production rates and other
              
              
              (3,486,752
              )End
      of year
              
              $
              538,016
 F-28