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, 2009


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
      Employer Identification
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


(Title of
Class)





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
preceding 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
pursuant 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  ̈Non-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-2 of the Exchange Act):


 ̈ Yes  x No





The
aggregate market value of the voting stock held by non-affiliates* of the
Company as of December 31, 2009 was approximately $4,250,327.





As of
March 22, 2010 the Company had 45,413,734 shares of common stock
outstanding.





* 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.





DOCUMENTS
INCORPORATED BY REFERENCE





None.







TABLE OF
CONTENTS





PagePART
      IITEM
      1.
                                                    BUSINESS
                                                    3ITEM
      1A.
                                                    RISK
      FACTORS
                                                    8ITEM
      2.
                                                    PROPERTIES
                                                    12ITEM
      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
                                                    19ITEM
      9.
                                                    CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                                    20ITEM
      9A (T).
                                                    CONTROLS
      AND PROCEDURES
                                                    20ITEM
      9B.
                                                    OTHER
      INFORMATION
                                                    21PART
      IIIITEM
      10.
                                                    DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                                                    22ITEM
      11.
                                                    EXECUTIVE
      COMPENSATION
                                                    24ITEM
      12.
                                                    SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                                    27ITEM
      13.
                                                    CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS  AND DIRECTOR
      INDEPENDENCE
                                                    29ITEM
      14.
                                                    PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                                                    30PART
      IVITEM
      15.
                                                    EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
                                                    32SIGNATURES
                                                    
                                                    34




2





ITEM
1.     DESCRIPTION OF BUSINESS





Overview





Epic
Energy Resources, Inc. (“Epic”) is an integrated energy services company based
in Houston, Texas with field and sales offices in Denver, CO; Sheridan, WY;
Sidney, MT; Durango, CO and Dubai, UAE.  Epic provides customized
solutions that meet our clients’ needs along the global energy value chain – oil
& gas upstream, midstream and downstream.  Our broad spectrum of
services include: business and operations consulting; engineering, procurement,
and construction management; production operations & maintenance;
specialized training, operating manuals, data management and data
integration.





Epic
focuses its services on helping clients get the most value from their
organizations and assets.  Our core competencies range from supporting
complex decision-making to delivery of high integrity energy infrastructure to
providing reliable, technical and operational support in the delivery of
projects.  Our service promise is met by our comprehensive knowledge
of how to get the best from the people, processes and tools that support the
physical asset base or enterprise.  Our business is focused on four
areas: business and operations consulting; upstream development and operations;
midstream infrastructure through processing; and strategic investments in
infrastructure and associated reserves.





Epic,
through its business units (formally known and operated as subsidiaries), the
Carnrite Group, LLC (the “Carnrite Group”), Pearl Investment Company (“Pearl”)
and Epic Integrated Solutions, LLC (“EIS”) provides the following engineering
and consulting services to the oil, gas and energy industry.





·
            Engineering,
      Procurement, and Construction Management
(EPCM)


·
            Contract
      Operations and Maintenance (O&M) of Producing Assets, Infrastructure
      and Facilities


·
            Project
      Management of Field Development
Activities


o
            From
      Permitting to Decommissioning


·
            Business
      Management Consulting


o
            Process
      Improvements


o
            Portfolio
      Optimization


o
            Financial
      Analysis


o
            Organization
      Design


o
            Others


·
            Workforce
      Development and Training


·
            Operations
      Documentation


·
            Integration
      of Data Workflow and Operational
Processes


·
            Data
      Management







The
Carnrite Group, Pearl and EIS were merged together in December 2009, and renamed
Epic Integrated Services, Inc.





Epic also
plans to evaluate producing and undeveloped oil and gas properties and
participate in the optimization and/or development activities that, in the
opinion of management, are favorable for the production of oil or gas. Epic may
also acquire other producing oil and gas properties that 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, 2010, it
does not own any operating interests but 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.




3


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 develop
innovative ways to market gasoline (the birth of the gasoline station as a
convenience store!).





Epic
believes the next natural progression to be the separation of oil and gas
producers into two groups: those which focus on exploration and drilling for oil
and gas and those which focus on the efficient processing of oil and gas before
it is transported.





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.





Business and Operations
Consulting





Epic
provides business and operations consulting services to help companies be
competitive in the global energy market. Lasting, measurable performance
improvements are achieved through understanding the drivers of business
challenges and developing and implementing solutions that enable operational and
organizational improvement.





Our
seasoned industry consultants provide and help to implement customized solutions
to complex strategic, operational and organizational issues affecting all
segments of the energy industry.  We cultivate lasting relationships
with clients who trust our judgment, respect our honesty and value our
expertise.





Our
consultants average 25 years of applied work experience, have strong industry
experience, are knowledgeable in a wide range of traditional consulting tools
and approaches and combine business experience with technical knowledge on
projects all over the world.  Our consultants are recognized for using
small, experienced consulting teams to craft unique solutions designed to meet
specific client needs.





Engineering,
      Procurement, Construction Management; Production Operations and
      Maintenance





Epic is a
diversified engineering, procurement and construction management, and field
services company. Epic has expertise in the design, construction and operations
of projects and assets across the energy value chain.  Engineering
solutions are provided to clients beginning with conceptual design and culminate
in delivery of equipment and facilities that support operational
excellence.  The Epic team understands what it takes to achieve a
return on investment and ensures that every solution delivers safe, efficient,
and reliable results.





We
provide value-added engineering, procurement, construction management and field
services to the energy industry.  Our areas of focus include oil and
gas development and production, refineries, petrochemical, alternative fuels and
pipeline sectors.





Our
engineers, designers and field staff consistently design and deliver fit for
purpose business solutions.   We have the expertise to take
projects from feasibility studies to startup and commissioning – and
beyond.  Our capabilities support green-field development and
brown-field expansions/upgrades.  Core competencies include
permitting, safety and environmental compliance, geology, drilling, engineering,
design, procurement, construction management, technical staff augmentation,
operations, maintenance and measurement.





Specialized
Training, Operating Manuals, Data Management and Data Integration





Epic
focuses on improving the capability of the operations and maintenance
organizations by providing industry leading competency assurance, customized
training, operations documentation, data integration and associated consulting
services.  Solutions bridge resource development and data integration
gaps through the appropriate balance of technology, data management,
documentation and training systems into one seamless package.





We
provide seasoned technical people with hands-on practical knowledge supporting
companies around the world in creating and maintaining a safe and productive
workforce.  We have a long history in integrating smart documentation
with innovative training to ensure client employees have the necessary
capabilities to be successful in the future.  We provide high quality
solutions using the latest technology.  We provide tools and programs
for our clients around their operations and maintenance systems, training, and
data management.


4




We start
by thoroughly understanding our client’s competency requirements and operations
related data needs, whether for a new green-field facility or existing
brown-field operation.  Our customized solutions bridge resource and
information gaps by integrating data, documentation, workflow, and workforce
development programs into one seamless package that remains useful for the
lifecycle of a facility.  Our teams can provide something as simple as
an operations or maintenance procedure or as complex as a full blown operations,
maintenance and workforce development program that includes CMMS
integration.





We
leverage the latest in gaming technologies to provide a walk-through training
tool specifically designed for the new “visual learners”.  These
training models capitalize on the new generations’ gaming savvy to make training
relevant and retainable.





Epic,
through its business units, provides engineering, construction management,
operations, maintenance, field and project management services, specialized
training, operations documentation and data management services to the oil, gas
and energy industry.





In
February 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 during 2010 and 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
that some projects begin and end within a short-term period. Many contracts also
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 next 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
March 19, 2010, Epic's backlog for consulting services to be provided in the
future was approximately $10.4   million. This compares to a
combined backlog of approximately $43.5 million as of February 24,
2009.





During
the year ended December 31, 2009, four customers accounted for 80% of Pearl’s
total revenues, three customers accounted for 81% of Carnrite Groups’s total
revenues, and three customers accounted for 82% of EIS’s total
revenues.  During the year ended December 31, 2008, six customers
accounted for 82% of Pearl’s total revenues, two customers accounted for 74% of
Carnrite Group’s total revenues, and one customer accounted for 80% of EIS’s
total revenues.




5




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 that in the opinion of management are
favorable for the production of oil or gas. If, through this review, a
geographical area indicates geological and economic potential, Epic intends to
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 that have the potential to support additional oil and gas
wells.





Although
Epic previously has owned, drilled and produced oil and gas properties, as of
December 31, 2009, Epic does not own any operating interests although it does
retain certain royalty interests.  Epic has executed an agreement with
its partner in the Reichel 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.  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 with UIV, known as Argos Asset Management, LLC
(formerly known as Epic Exploration and Production LLC, “Argos”), to acquire
energy assets and oil and gas properties. Epic manages the operations of the
joint venture. UIV is responsible for providing equity capital required to fund
the acquisition or development of the assets on a project-by-project
basis.  A member of our Board of Directors owns 50% of the joint
venture. Epic receives 20% of the net income from any asset or oil and gas
property acquired by the joint venture until UIV receives 200% of the equity
contributed by UIV to acquire the asset or property. Thereafter, the net income
from the asset or property will be allocated equally between Epic and Argos.
Argos is currently reviewing Farm-In opportunities in the Appalachian Basin in
West Virginia.





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:





·
            price;


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


·
            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 are 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.





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:





·
            the
      Comprehensive Environmental Response, Compensation and Liability
      Act;


·
            the
      Resources Conservation and Recovery
Act;


·
            the
      Clean Air Act;


·
            the
      Federal Water Pollution Control Act;
and


6





·
            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 1980’s and the individual pipeline
restructuring proceedings of the early to mid 1990’s, 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 affected 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.





In
December 2009, Epic merged its three operating subsidiaries, Carnrite Group,
Pearl and EIS, into a single operating subsidiary and renamed it “Epic
Integrated Services, Inc.”  We did this to save administrative and
other costs associated with maintaining three legal entities, enhance
cross-selling between business units, and encourage pull-through
opportunities.  Furthermore, we believe that marketing under the
“Epic” brand name would be more efficient and effective going
forward.


7




Epic
currently employs approximately 133 full-time employees working from six offices
and serves clients in the U.S. Lower 48 states and the Middle East.





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 Form 10-K. Each
of these risk factors could materially and adversely affect our business,
operating results or financial condition, as well as materially and 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




There
is substantial doubt about our ability to continue as a going
concern.




As a
result of our current financial situation, management has concluded that there
is substantial doubt about Epic’s ability to continue as a going
concern.




Epic’s
limited operating history may make it difficult for investors to assess 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, 2009 and 2008,
Epic had a net loss of approximately $17,546,000 and $26,572,000, respectively.
As of December 31, 2009, Epic had an accumulated deficit of approximately
$31,778,000.




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 obtain and retain customers and to raise prices to
its existing customers.




8




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, 2009 and 2008, a small number of customers
accounted for a significant amount of the total revenues of the Company. The
loss of any of Epic’s significant customers could have a material adverse impact
on the consolidated operating results of Epic.




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. Epic was required to obtain a short term bridge loan in the
amount of $500,000 in order to meet its working capital needs at the beginning
of March 2010, and Epic is currently pursuing alternatives to meet its short and
long term working capital needs.  If Epic is unsuccessful in obtaining
additional capital, its cash balances cannot satisfy its working capital
requirements and Epic will not have sufficient working capital to fund its
ongoing operations.





If
we are unsuccessful in obtaining amendments, deferrals and waivers to our
outstanding 10% debentures and the purchase agreement related to such
debentures, an event of default will continue to exist with respect to our
Debentures.





Epic did
not make its March 1, 2010 principal payment on its outstanding 10% debentures
(the “Debentures”) when due and this resulted in an event of default under the
Debentures, which will have a material adverse effect on our financial
condition, results of operations and debt service capabilities and will raise
substantial doubts about our ability to continue as a going concern unless such
event of default is cured.  To cure this event of default, we are
currently seeking from the holders of the Debentures a waiver of this event of
default and a deferral of the $1,250,000 payment until the maturity date of the
Debentures, December 5, 2012.





Under our
Debentures, the Company is obligated to generate, on a consolidated basis,
EBITDA (as defined in the Debentures) of at least $1,000,000 for each
three-month period commencing on January 1, 2010 and ending on each March 31,
June 30, September 30 and December 31 thereafter.   Any failure
to comply with these EBITDA requirements, after notice and a five day cure
period, would result in an event of default under the Debentures, which would
have a material adverse effect on our financial condition, results of operations
and debt service capabilities and would raise substantial doubt about our
ability to continue as a going concern.  We do not currently
anticipate that the Company will meet this target for the first quarter of
2010.  To remedy these uncertainties, we are currently seeking certain
waivers to these EBITDA covenants from our Debenture holders so that we remain
in compliance with these covenants.





We are
currently seeking these amendments, deferrals and waivers in connection with our
efforts to obtain additional working capital.  When these waivers,
deferrals and amendments are in effect, we believe that a material covenant
violation would no longer be probable.  However, there can be no
assurance that we will obtain the amendments, deferrals and waivers with respect
to all of our outstanding Debentures or that other matters might not arise in
the future that could raise potential event of default or going concern issues.
The failure to obtain the amendments, deferrals and waivers with respect to all
of our outstanding Debentures would have a material adverse effect on our
financial condition, results of operations and debt service
capabilities.




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, it may continue to pursue new acquisitions in the
future. Unsuccessful acquisitions may result in significant additional expenses
that would not otherwise be incurred. In addition, 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. Epic also may
not realize the revenues that it expected from these acquisitions.




Epic
may suffer losses from its fixed-price contracts.




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. 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.




9




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




Epic
sometimes uses third-party subcontractors and equipment manufacturers to assist
Epic with projects. To the extent Epic cannot engage subcontractors or acquire
equipment or materials, its ability to complete a project in a timely manner 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
that differ from those in the United States and that 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;
and


·
            potential
      liability under the Foreign Corrupt Practices
  Act.




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.




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 responseto 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 capital funding which it requires to engage in exploration and
production activities.




10




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 have 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 near 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, for a variety of reasons, the well 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.





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, 2009, allow the
holders to acquire up to approximately 24,534,000 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 prior years financings, 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.




11




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





None.





ITEM
2.  DESCRIPTION OF PROPERTIES





Office
Leases





Our
corporate headquarters address at 1450 Lake Robbins, Suite 160, The Woodlands,
Texas 77380 is the business office address of the Epic CEO, CFO, General
Counsel, Business Developers, Documentation and Training Employees, and the
Consulting Group. The property is generic office space that meets the Company’s
executive and administrative requirements. The lease payments are approximately
$12,500 per month to occupy approximately 4,150 of office space. The lease
expires in July 2015.





Epic’s
Colorado office is located at 7110 Jefferson Avenue in Lakewood, Colorado. Epic
occupies approximately 30,500 square feet of office space with lease payments of
approximately $43,000 per month. The third floor lease on the space expires in
July 2011. The second floor lease on the space expires in March
2012.





Epic’s
Wyoming office is located at 1082 East Brundage in Sheridan, Wyoming. Epic
occupies approximately 5,800 square feet of office space with lease payments of
approximately $4,500 per month. The lease on the space expires in March
2012.





Epic has
two additional branch offices located in Durango, Colorado and Sydney, Montana.
The combined lease payments for these two branch offices are approximately
$16,700.





Oil
and Gas Properties





In
February 2009, Epic sold its working interest in the Rush County, Kansas
property and terminated its agreement related to the Oklahoma
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 Rush County
field.





ITEM 3.  LEGAL
PROCEEDINGS





A former
employee has filed a case against Epic alleging that Epic terminated this former
employee without good cause. Arbitration for this case is scheduled for August
2010. At December 31, 2009, Epic has accrued $400,000 related to this case which
represents the estimated loss on this arbitration.





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.




12





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





None.




PART
II





ITEM 5.  MARKET
FORREGISTRANT’SCOMMON EQUITY,STOCKHOLDER
MATTERSAND
ISSUER PURCHASES OF EQUITY SECURITIES





As of
March 19, 2010, there were approximately 270 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 prices 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
                    
                    
                    LowMarch
      31, 2008
                    
                    $
                    3.19
                    
                    
                    $
                    0.15June
      30, 2008
                    
                    $
                    0.90
                    
                    
                    $
                    0.59September
      30, 2008
                    
                    $
                    0.77
                    
                    
                    $
                    0.30December
      31, 2008
                    
                    $
                    0.51
                    
                    
                    $
                    0.05March
      31, 2009
                    
                    $
                    0.09
                    
                    
                    $
                    0.08June
      30, 2009
                    
                    $
                    0.20
                    
                    
                    $
                    0.20September
      30, 2009
                    
                    $
                    0.09
                    
                    
                    $
                    0.08December
      31, 2009
                    
                    $
                    0.12
                    
                    
                    $
                    0.11





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 2007,
Epic acquired the Carnrite Group, LLC for 3,177,810 shares of its common stock
and Pearl for 1,786,240 shares of its common stock and $19,020,000 in
cash. On February 20, 2008, Epic acquired EIS, which was not affiliated
with Epic prior to the transaction, for cash and 1,000,000 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 owners of EIS. An additional $1,400,000
is to be paid to the three owners in periodic installments during 2010 and
2011.




13


Epic,
through its operating subsidiary, Epic Integrated Services, Inc., provides
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.





Epic
plans to continue its growth in the Rocky Mountains, Texas, Louisiana, Oklahoma
and Kansas, where it’s engineering and field services expertise is its strength,
and also to explore opportunities in the Middle East where it currently is in
the final stage of a large project.





Epic is
focused on four areas: business and operations consulting; upstream development
and operations; midstream infrastructure through processing; and strategic
investments in infrastructure and associated reserves. Epic plans to evaluate
producing and undeveloped oil and gas properties and participate in the
optimization and/or development activities that, in the opinion of management,
are favorable for the production of oil or gas. Epic may also acquire other
producing oil and gas properties that have the potential to support additional
oil and gas wells.  Although Epic previously has owned, drilled and
produced oil and gas properties, presently the Company does not own any
operating interests but does retain certain royalty interests.





As of
March 19, 2010, Epic's backlog for future consulting services was approximately
$10.4 million. This compares to a combined backlog of approximately $43.5
million as of February 24, 2009.





Results of
Operations





Analysis
of the Year Ended December 31, 2009 versus December 31, 2008





Revenuesfrom continuing operations were $47.5 million for the year ended December
31, 2009 as compared to $72.2 million for the year ended December 31, 2008. The
decrease of $24.7 million was attributable to a $12.5 million decrease in
consulting fee revenue and $12.2 million decrease in reimbursed expense revenue.
The decrease in revenue resulted from a decrease in demand for Epic’s services
as a result of the downturn in the global economy.





Operating
Expenses from continuing operations were $59.5 million for the year ended
December 31, 2009 as compared to $87.5 million for the year ended December 31,
2008. The decrease of $28.0 million was primarily related to $15.2 million
decrease in reimbursed expenses, $8.1 million decrease in general and
administrative expenses, $6.8 million decrease in compensation and benefits, and
$3.6 million decrease in professional and subcontracted service
expenses.  The decreases were off-setby an increase in
impairment charges of $10.1 million. These decreases were related to the
decrease in revenues and due to aggressive cost cutting measures taken by
management of the Company in 2009. The increase in the impairment charges was
primarily related to the $9.9 million goodwill impairment loss recognized
related to Carnrite Group for the year ended December 31, 2009.





Loss from
Operations was $11.9 million for the year ended December 31, 2009 as
compared to $15.3 million for the year ended December 31, 2008, a decrease of
$3.4 million. The decrease was primarily due to aggressive cost cutting measures
taken by the Company in 2009.





Other Expense,
net was $7.9 million for the year ended December 31, 2009 as compared to
$6.5 million for the year ended December 31, 2008. The increase in Other
Expenses of $1.4 million was primarily due to the derivative loss recognized
during the year ended December 31, 2009. The derivative loss was the result of a
change in accounting principle related to warrants to purchase the Company’s
common stock, of which the fair value is recorded as a derivative liability,
with changes in the fair value reported in earnings.





Income (Loss)
from Discontinued Operations relating to the oil and gas segment was $1.9
million for the year ended December 31, 2009 compared to a loss of $4.8 million
for the year ended December 31, 2008. The increase of $6.7 million primarily
resulted from an impairment loss of $4.0 million recognized during the year
ended December 31, 2008 and a gain from the sale of the oil and gas properties
of $2.1 million recognized during the year ended December 31, 2009.





Net Loss
was $17.5 million or $(0.40) per share for the year ended December 31, 2009 as
compared to $26.6 million or $(0.62) per share for the year ended December 31,
2008, a decrease of $9.1 million.




14




Liquidity
and Capital Resources





We
require capital to fund ongoing operations, including maintenance expenditures
for our existing equipment, organic growth initiatives, investments and
acquisitions.  Our primary sources of liquidity are cash flows
generated from operations, available cash and cash equivalents, and accessing
the capital markets through the issuance of debt or equity
securities.  We intend to use these sources of liquidity to fund our
working capital requirements, capital expenditures, strategic investments and
acquisitions.





In
December 2009, Epic sold its airplane for net proceeds of $2,796,169 and
recorded a loss on the sale of the airplane of $648,206. As the proceeds from
the sale left the Company deficient to cover the outstanding obligation on the
airplane, the Company remains indebted related to the airplane. On December 23,
2009, Epic entered into a note payable for $1,108,330 (the “New note”) to cover
the deficiency. The New note is a 4 year note and bears a 5.25% annual interest
rate. The New note required a payment of $471,475 on December 23, 2009 and
beginning January 23, 2010 principle and interest are payable monthly. At
December 31, 2009, the New note had a balance of $636,855. In November 2009, to
fund the December 23, 2009 payment required on the New note, the Company entered
into a note payable for $500,000. The 2 year note which bears a 10% annual
interest rate is due on December 21, 2012 with principle and interest payable
monthly beginning January 1, 2010.





In March
2010, we were required to issue debt in order to meet our short term working
capital needs.  On March 4, 2010, we entered into a bridge loan note
(the “Note”) with Castex New Ventures, L.P. (“Castex”), in an aggregate amount
of $500,000 to be used for general corporate purposes.  The Note bears
interest at the rate of ten percent (10%) per annum.  All principal
outstanding on the Note is payable at maturity, which is the earliest of (i)
three (3) business days following written demand to Epic from Castex, (ii) June
1, 2010, and (iii) the date on which Castex’s obligation to make additional
loans to Epic is terminated pursuant to a default, as that term is defined in
the Note (such earliest date, the “Maturity Date”).  Interest is
payable on the date of any repayment of any loans and on the Maturity
Date.





The Note
contains customary events of default.  Upon any default or at any time
during the continuation thereof, Castex may, at its option and subject to
applicable law, increase the interest rate on loans outstanding under the Note
to a rate of 12 percent (12%) per annum.





Epic
expects to refinance the Note in the near term.





We are
currently pursuing alternatives to raise additional capital to fund our short
and long term capital needs.  In the absence of additional capital
raising activities, we do not believe that we will have sufficient short term
working capital to fund our ongoing operations.





Debentures





Epic has
10% Secured Debentures (the “Debentures”) in the outstanding principal amount of
$20,250,000. The Debentures were sold at their face value without discount. The
Debentures bear interest annually at 10% per year, payable quarterly, with the
first interest payment made on January 1, 2008. Beginning December 1, 2008, Epic
was required to make quarterly payments of $1,265,625 toward the principal
amount of the Debentures. 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.





On
December 1, 2008, 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 $1,265,625.





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. As part of the Amendment, Rex P. Doyle, Chief Executive
Officer and a director of the Company at the time, and John S. Ippolito,
President of the Company, each agreed to transfer to each Holder, 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 were parties to the Amendment, but only with respect to these
transfers of the Shares and not with respect to any other
provisions.





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 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.


15




The
Amendment amends the purchase agreement pursuant to which the Debentures were
purchased by adding three additional covenants, which require minimum EBITDA
thresholds, limit the issuance of common stock, options and warrants to
employees, consultants, officers, directors and advisors, and limit increases in
executive compensation.





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 Holder that
did not execute the Amendment) to repurchase Cranshire’s outstanding Debenture
having an original principal amount of $250,000.  Epic paid the
repurchase price and Cranshire’s Debenture was cancelled.





As a
result of the repurchase of the principal amount of $250,000, the Company’s
quarterly principal payment was reduced to $1,250,000.





On
December 1, 2009, the Company entered into a second Amendment Agreement (the
“Second Amendment”) with two Holders. The Second Amendment deferred the
Company’s December 1, 2009 Debenture payment to the two Holders until November
30, 2010 (the “Deferral Period”). During the Deferral Period, the annual
interest rate for the two Holders is increased from 10% to 12%.





In
December 2009, the Company entered into an auctioning agreement (the
“Auctioning Agreement”) with The Receivables Exchange, LLC (“TRE”). Under the
Auctioning Agreement, the Company sells its accounts receivables to TRE who in
return advances cash of approximately 85% of the total amount of accounts
receivable factored. TRE retains 15% of the outstanding factored accounts
receivable as a reserve, which it holds until the customer pays the factored
invoice to TRE. The Company pays fees for this service to TRE who performs all
credit and collection functions, and assumes all risks associated with the
collection of the receivables.





Epic's
sources and (uses) of cash for the years ended December 31, 2009 and 2008 were
(in thousands):





2009
                  
                  
                  2008Cash
      provided by operations
                  
                  $
                  793
                  
                  
                  $
                  4,525Net
      sales (purchases) of property and equipment
                  
                  
                  2,581
                  
                  
                  
                  (731
                  )Increase
      in restricted cash
                  
                  
                  -
                  
                  
                  
                  2,492Proceeds
      from sale of accounts receivables
                  
                  
                  1,442
                  
                  
                  
                  -Net
      repayments of debt
                  
                  
                  (9,439
                  )
                  
                  
                  (1,268
                  )Acquisition
      of EIS, net
                  
                  
                  -
                  
                  
                  
                  (232
                  )Bank
      overdrafts
                  
                  
                  -
                  
                  
                  
                  (3,442
                  )Other
                  
                  
                  (9
                  )
                  
                  
                  (42
                  )





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





Epic had
a loan with a private lender which had a principal balance of $3,710,441 as of
December 31, 2008 that was secured by Epic's gas wells in Rush County, Kansas.
The loan accrued interest at 10% per year and was payable monthly.





In
February 2009, the Company sold its Kansas property 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. During the year ended December 31, 2009,
the Company recorded a $2,110,066 gain on the sale of the Kansas property. In
addition, a third party has signed a farmout agreement in which Epic will
receive 3.75% net profits interest, up to a maximum of $500,000 in production
from new wells drilled in the Kansas property.


16





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.





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.  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 net 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.





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. Goodwill and other intangible assets
with indefinite useful lives are not amortized, but instead, are tested at least
annually for impairment, and intangible assets that have finite useful lives
should continue to be amortized over their useful lives. The Company is not
allowed 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.
Management must 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.


17




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 discounted 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.





Stock-Based
Compensation. Epic measures and recognizes 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. The Company must 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. 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, 2009 and 2008, Epic had
recorded a full valuation allowance for its net deferred tax asset.





The
Company uses 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. The guidance requires the Company to 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.





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 29,340,817 and
32,797,018 at December 31, 2009 and 2008, 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. On January 1, 2009,
the Company adopted guidance which resulted in 22,685,031 outstanding warrants
containing exercise price reset provisions, which were previously classified in
equity, being reclassified as a derivative liability as of January 1, 2009 as
these warrants were no longer deemed to be indexed to the Company’s common
stock.




18


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. Epic amortizes the discount
associated with these derivative components to interest expense at each
reporting period.





Recent
Accounting Pronouncements





In
October 2009, the FASB issued new revenue recognition standards for
arrangements with multiple deliverables, where certain of those deliverables are
non-software related. The new standards permit entities to initially use
management’s best estimate of selling price to value individual deliverables
when those deliverables do not have Vendor Specific Objective Evidence of fair
value or when third-party evidence is not available. Additionally, these new
standards modify the manner in which the transaction consideration is allocated
across the separately identified deliverables by no longer permitting the
residual method of allocating arrangement consideration. These new standards are
effective for annual periods ending after June 15, 2010 and early adoption
is permitted. The Company is currently evaluating the impact of adopting this
standard on the Company’s consolidated financial position, results of operations
and cash flows.





In June
2009, the FASB issued guidance establishing the ASC as the source of
authoritative U.S. Generally Accepted Accounting Principles (“U.S. GAAP”)
recognized by the FASB to be applied by non-governmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification supersedes all existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become non-authoritative. The
FASB will no longer issue new standards in the form of Statements, FASB Staff
Positions or Emerging Issues Task Force Abstracts. Instead, the FASB will issue
Accounting Standards Updates, which will serve only to update the Codification,
provide background information about the guidance and provide the bases for
conclusions on changes in the Codification. All content in the Codification
carries the same level of authority, and the U.S. GAAP hierarchy was modified to
include only two levels of U.S. GAAP: authoritative and non-authoritative. The
Codification is effective for the Company’s interim and annual periods beginning
with the Company’s year ending December 31, 2009. Adoption of the Codification
affected disclosures in the Consolidated Financial Statements by eliminating
references to previously issued accounting literature, such as SFASs, EITFs and
FSPs.





In June
2009, the FASB issued amended standards for determining whether to consolidate a
variable interest entity. These new standards amend the evaluation
criteria to identify the primary beneficiary of a variable interest entity and
require ongoing reassessment of whether an enterprise is the primary beneficiary
of the variable interest entity. The provisions of the new standards are
effective for annual reporting periods beginning after November 15, 2009 and
interim periods within those fiscal years. The adoption of the new standards
will not have an impact on the Company’s consolidated financial position,
results of operations and cash flows.





In May
2009, the FASB issued guidance establishing general standards for accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued and shall be
applied to subsequent events not addressed in other applicable generally
accepted accounting principles. This guidance, among other things, sets forth
the period after the balance sheet date during which management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures an entity should make about events or
transactions that occurred after the balance sheet date. The adoption of this
guidance had no impact on the Company’s consolidated financial position, results
of operations and cash flows.





ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM 8.  FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA





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




19




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




Effective
September 10, 2009, Epic  dismissed Malone & Bailey, PC
("M&B") as the Company’s independent registered accounting firm and replaced
them with M&K CPAS, PLLC ("M&K").  Effective September 10, 2009,
the Company engaged M&K as its principal independent public accountant for
the years ended December 31, 2009 and 2010. The decision to change accountants
was recommended, approved and ratified by the Company's Board of Directors
effective September 10, 2009.





M&B's
report on the financial statements of the Company for the years ended December
31, 2008 and 2007, did not contain any adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles.





During
the years ended December 31, 2008 and 2007, and any subsequent interim periods
through the date the relationship with M&B ceased, there were no
disagreements between M&B and the Company on a matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of M&B
would have caused M&B to make reference to the subject matter of the
disagreement in connection with its report on the Company's financial
statements.





There
have been no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K
during the years ended December 31, 2008 and 2007, and any subsequent interim
periods through the date the relationship with M&B ceased.





The
Company has authorized M&B to respond fully to any inquiries of any new
auditors hired by the Company relating to their engagement as the Company's
independent accountant. The Company has requested that M&B review the
disclosure and M&B has been given an opportunity to furnish the Company with
a letter addressed to the Commission containing any new information,
clarification of the Company's expression of its views, or the respect in which
it does not agree with the statements made by the Company herein. Such letter is
filed as an exhibit to this Report.





The
Company has not previously consulted with M&K regarding either (i) the
application of accounting principles to a specific completed or contemplated
transaction; (ii) the type of audit opinion that might be rendered on the
Company's financial statements; or (iii) a reportable event (as provided in Item
304(a)(1)(v) of Regulation S-K) during the years ended December 31, 2008 and
December 31, 2007, or any later interim period, including the interim period up
to and including the date the relationship with M&B ceased (however, one of
the current partners of M&K was employed by M&B during the
Company's engagement of M&B and for our audit by M&B of the year ended
December 31, 2006). M&K has reviewed the disclosure required by Item 304 (a)
before it was filed with the Commission and has been provided an opportunity to
furnish the Company with a letter addressed to the Commission containing any new
information, clarification of the Company's expression of its views, or the
respects in which it does not agree with the statements made by the Company in
response to Item 304 (a). M&K did not furnish a letter to the
Commission.





ITEM 9A(T).  CONTROLS AND
PROCEDURES





Disclosure
Controls and Procedures





John S.
Ippolito, Epic’s President and Chief Executive Officer and Michael Kinney,
Epic’s Chief Financial Officer, evaluated the effectiveness of Epic's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Exchange Act) 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, Mr. Ippolito
and Mr. Kinney have concluded that the Company’s disclosure controls and
procedures were effective as of December 31, 2009.




20




Management's
Annual Report on Internal Control Over Financial
Reporting


Epic's
management is responsible for establishing and maintaining adequate internal
control over  financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act, 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, as well as safeguard assets from unauthorized use or
disposition.





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.





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, 2009, 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 as well as safeguarding assets.





Based on
this assessment, we have concluded that our internal controls over financial
reporting were effective as of December 31, 2009.





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





/s/  JOHN
      S. IPPOLITO
              /s/  MICHAEL
      KINNEYJohn
      S. Ippolito
              Michael
      KinneyPresident
      and Chief Executive Officer
              Chief
      Financial OfficerMarch
      30, 2010
              March
      30, 2010





Changes
in Internal Control over Financial Reporting





There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule
15d-15 under the Exchange Act that occurred during the year ended December 31,
2009 that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting.





ITEM
9B.    OTHER INFORMATION





Not
applicable.




21





PART
III





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





Name
                  
                  Age
                  
                  PositionJohn
      Ippolito
                  
                  50
                  
                  President
      and Chief Executive OfficerMichael
      Kinney
                  
                  52
                  
                  Chief
      Financial Officer and Executive Vice PresidentJohn
      Hageman
                  
                  55
                  
                  Chief
      Legal OfficerW.
      Robert Eissler
                  
                  59
                  
                  DirectorDr.
      Robert Ferguson
                  
                  66
                  
                  DirectorJohn
      Otto
                  
                  61
                  
                  DirectorAlan
      Carnrite
                  
                  51
                  
                  DirectorTamer
      El-Rayess
                  
                  39
                  
                  DirectorMartin
      Lipper
                  
                  75
                  
                  Director





On
November 30, 2009, the Board of Directors of the Company appointed John S.
Ippolito, the current President and Interim Chief Executive Officer of the
Company, to serve as the Chief Executive Officer of the Company.




John S.
Ippolito has been Chief Executive Officer of Epic since November 30,
2009.   Mr. Ippolito was Interim Chief Executive Officer of Epic
from April 18, 2009 until November 30, 2009.  He 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.





John A.
Hageman has been Epic’s General Counsel since September 2009. Between April 1997
and May 2009, Mr. Hageman served as Sr. Vice President, Chief Legal Officer and
Secretary for Metals USA Holding Corp., the seventh largest metal service center
in North America, located in Houston, Texas. From July 1987 to April 1997, Mr.
Hageman served as Sr. Vice President, General Counsel and Secretary for
Physician Corporation of America, a management care and HMO operator located in
Miami, Florida.





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 January 2002 and
October 2005 he was pastor at Spring Cypress Presbyterian Church in Spring,
Texas.


22




John Otto
has been a director of Epic since November 2008.  Mr. Otto is 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 the tax firm Ryan and Co. Mr.
Otto 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 dollar company before being acquired by Devon
Energy.  Mr. Otto also serves as a Texas State Representative for the
81st Legislature (2009-2010).





Alan
Carnrite has been a director of Epic since November 2008.  Since 2003,
Mr. Carnrite 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, Mr. Carnrite was a Managing Director
and led the energy consulting practice at Jefferies Randall &
Dewey.  Mr. Carnrite 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,
Mr. Carnrite 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.  As of 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 an 80% residual interest
member of Argos Asset Management, LLC (a joint venture partner with
Epic).





Epic has
a compensation committee. Dr. Ferguson, Mr. Eissler and Mr. Carnrite are the
members of the compensation committee. Epic's audit committee is comprised of
Dr. Ferguson and Mr. Otto. Mr. 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




SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING  COMPLIANCE





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,
2009, 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:





·
            Form
      4s for John Ippolito and Rex Doyle 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.


23





·
            Form
      3s for Michael Kinney and Alan Carnrite filed on March 26, 2009; Form 4s
      for Robert Eissler, Dr. Robert Ferguson, and John Otto filed on March 26,
      2009.  The Form 3 for Mr. Kinney and Mr. Carnrite amended one
      report and one transaction that was not reported on a timely
      basis.  The Form 4 for Mr. Eissler covered one late report and
      one transaction that was not reported on a timely basis.  The
      Form 4 for Dr. Ferguson covered one late report and one transaction that
      was not reported on a timely basis.  The Form 4 for Mr. Otto
      covered one late report and one transaction that was not reported on a
      timely basis.





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, 2009 and
2008.





Name and principal
                              position
                            
                            Fiscal
                              year
                            
                            Salary
                              (1)
                            
                            
                            Bonus
                              (2)
                            
                            
                            Stock
                              awards
                              (3)
                            
                            
                            Option
                              awards
                              (4)
                            
                            
                            All other
                              annual
                              compensation
                              (5)
                            
                            
                            TotalJohn
      Ippolito,
                              Chief
      Executive Officer
                            
                            2009
                            
                            $
                            164,320
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            164,320and
      President
                            
                            2008
                            
                            $
                            175,000
                            
                            
                            
                            -
                            
                            
                            $
                            615,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            790,000Michael
      Kinney,
                              Chief
      Financial Officer
                            
                            2009
                            
                            $
                            162,385
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            162,385and
      Executive Vice President
                            
                            2008
                            
                            $
                            175,200
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            132,384
                            
                            
                            
                            -
                            
                            
                            $
                            307,584John
      Hageman,
                              Chief
      Legal Officer
                            
                            2009
                            
                            $
                            33,150
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            33,150Rex
      Doyle (6)
                            
                            2009
                            
                            $
                            335,150
                            
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            335,1502008
                            
                            $
                            210,000
                            
                            
                            
                            -
                            
                            
                            $
                            615,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            $
                            825,000





(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 ASC
      718 on the date of grant.


(4)
            The
      fair value of options granted computed in accordance with ASC 718 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 served as a director on the Company’s board of
      directors.  Mr. Doyle did not receive compensation for this
      director role.





On
November 30, 2009, the Board of Directors of the Company increased the annual
salaries of the Chief Executive Officer (John Ippolito) and the Chief Financial
Officer (Mike Kinney) to $275,000 and $235,000, respectively.  Based
on the Company’s current 30% salary deferral plan for certain management
personnel, Mr. Ippolito will be paid at a current annual rate of $192,500 and
Mr. Kinney will be paid at a current annual rate of $164,500.  These
changes are effective as of September 6, 2009.  The annual deferrals
will continue until such time as the Board of Directors elects, based on
the financial and other circumstances of the Company, to discontinue the
deferrals.  The amounts deferred also will be paid at the discretion
of the Board based on the financial and other circumstances of the
Company.





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.


24




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, former 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, an additional
300,000 restricted shares were issued to Mr. Ippolito on December 13, 2009 and
an additional 300,000 will be issued to Mr. Ippolito on each of December 13,
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 Mr. Ippolito voluntarily
terminates his employment with the Company before December 13, 2012, or is
terminated for cause by the Company before December 13, 2012, he will forfeit
100% of the restricted shares and such shares will be returned to the Company’s
treasury; (2) Mr. Ippolito may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of any of these 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. Mr. Doyle’s severance
agreement provided that he forfeit and cancel these 1,500,000 unvested,
restricted shares of the Company’s common stock.





Stock Option and Bonus
Plans





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. In connection with Mr. Doyle’s resignation, the 100,000 options granted to
Doyle were forfeited.





Epic has
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, 2009, 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.




25




Name of Plan
                  
                  Total shares
                    reserved
                    under plans
                  
                  
                  Shares
                    reserved for
                    outstanding
                    options
                  
                  
                  Shares
                    issued as
                    stock bonus
                  
                  
                  Remaining
                    options/
                    shares
                    under plansIncentive
      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 table shows the options granted to and held by the persons named
      below at December 31, 2009:





Shares underlying unexercised options which
      are
                      
                      
                      Exercise
                      
                      Expiration
                      
                      Option
                        VestingName
                      
                      Exercisable
                      
                      
                      Unexercisable
                      
                      
                      Unvested
                      
                      
                      Price
                      
                      Date
                      
                      DateJohn
      Ippolito
                      
                      
                      100,000
                      (1)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      0.50
                      
                      10/24/11
                      
                      10/24/08John
      Ippolito
                      
                      
                      50,000
                      (1)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      3.00
                      
                      01/01/10
                      
                      10/24/08John
      Ippolito
                      
                      
                      182,000
                      (2)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      3.30
                      
                      12/31/12
                      
                      12/12/09Michael
      Kinney
                      
                      
                      -
                      
                      
                      
                      65,000
                      (2)
                      
                      
                      32,500
                      
                      
                      $
                      3.17
                      
                      07/10/18
                      
                      07/10/10Michael
      Kinney
                      
                      
                      -
                      
                      
                      
                      200,000
                      (2)
                      
                      
                      66,667
                      
                      
                      $
                      1.03
                      
                      02/11/19
                      
                      02/11/11





(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 15, 2010, 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, 2009





Name
                  
                  Paid in cash
                  
                  
                  Stock
                    awards
                  
                  
                  Option
                    awards
                  
                  
                  Other
                  
                  
                  TotalRobert
      Eissler
                  
                  $
                  15,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  15,750Dr.
      Robert Ferguson (1)
                  
                  $
                  18,250
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  18,250John
      Otto (2)
                  
                  $
                  20,250
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  20,250Alan
      Carnrite
                  
                  $
                  15,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  15,750Martin
      Lipper (3)
                  
                  $
                  11,550
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  11,550Tamer
      El-Rayess (4)
                  
                  $
                  11,550
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  11,550





(1) Dr.
Ferguson received $2,500 for serving on the compensation
committee.


(2) Mr. Otto
received $4,500 for serving on the audit committee.


(3) Mr.
Lipper’s compensation was pro-rated for 2009.


(4) Mr.
El-Rayess’ compensation was pro-rated for 2009.




As of
December 31, 2009, the Board of Directors’ compensation plan defines annual
compensation for non-employee directors as follows:





1.
            Members
      of the Board are to be paid $31,000 per year in quarterly
      payments


2.
            The
      Chairman and Committee Chair allowances will
be


a.
            Board
      Chair allowance will be $9,000


b.
            Committee
      Chair allowances will be $6,000


26




ITEM
12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENTAND
RELATED STOCKHOLDER MATTERS





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 22, 2010.





Name and address
                                            
                                            Shares of
                                              Common Stock
                                            
                                            
                                            Percent
                                              of ClassJohn
      Ippolito
                                              1450
      Lake Robbins, Suite 160
                                              The
      Woodlands, TX  77380
                                            
                                            
                                            5,847,123
                                            (1)
                                            
                                            
                                            12.9
                                            %Rex
      P. Doyle
                                              30
      Fernglen
                                              The
      Woodlands, TX  77380
                                            
                                            
                                            4,832,023
                                            
                                            
                                            
                                            10.6
                                            %Michael
      Kinney
                                              1450
      Lake Robbins, Suite 160
                                              The
      Woodlands, TX  77380
                                            
                                            
                                            632,000
                                            (2)
                                            
                                            
                                            1.4
                                            %John
      Hageman
                                              1450
      Lake Robbins, Suite 160
                                              The
      Woodlands, TX  77380
                                            
                                            
                                            325,000
                                            
                                            
                                            
                                            *W.
      Robert Eissler
                                              1450
      Lake Robbins, Suite 160
                                              The
      Woodlands, TX  77380
                                            
                                            
                                            155,000
                                            (3)
                                            
                                            
                                            *Dr.
      Robert Ferguson
                                              1450
      Lake Robbins, Suite 160
                                              The
      Woodlands, TX  77380
                                            
                                            
                                            205,000
                                            (4)
                                            
                                            
                                            *John
      Otto
                                              702
      N. Winfree
                                              Dayton,
      TX  77535
                                            
                                            
                                            232,649
                                            (5)
                                            
                                            
                                            *Al
      Carnrite
                                              333
      N. Sam Houston Pkwy E.,  Suite 1060
                                              Houston,
      TX 77060
                                            
                                            
                                            2,093,467
                                            (6)
                                            
                                            
                                            4.6
                                            %Martin
      Lipper
                                              1450
      Lake Robbins, Suite 160
                                              The
      Woodlands, TX 77380
                                            
                                            
                                            100,000
                                            (7)
                                            
                                            
                                            *Tamer
      El-Rayess
                                              1450
      Lake Robbins, Suite 160
                                              The
      Woodlands, TX 77380
                                            
                                            
                                            100,000
                                            (8)
                                            
                                            
                                            *All
      Executive Officers and Directors as a group (10 persons)
                                            
                                            
                                            14,522,262
                                            
                                            
                                            
                                            32.0
                                            %Midsummer
      Investment Ltd.
                                              485
      Madison Avenue, 23rd Floor
                                              New
      York, NY 10022
                                            
                                            
                                            9,484,849
                                            (9)
                                            
                                            
                                            20.9
                                            %




27




Whitebox
      Convertible Arbitrage Partners, LP
                                                                  c/o
      Whitebox Advisors LLC
                                                                  3033
      Excelsior Blvd, Suite 300
                                                                  Minneapolis,
      MN 55416-4675
                                                                
                                                                
                                                                5,147,679
                                                                (10)
                                                                
                                                                
                                                                11.3
                                                                %Whitebox
      Special Opportunities
                                                                  Partners
      Series B, LP
                                                                  c/o
      Whitebox Advisors LLC
                                                                  3033
      Excelsior Blvd, Suite 300
                                                                  Minneapolis,
      MN 55416-4675
                                                                
                                                                
                                                                3,881,032
                                                                (11)
                                                                
                                                                
                                                                8.5
                                                                %Pandora
      Select Partners, LP
                                                                  c/o
      Whitebox Advisors LLC
                                                                  3033
      Excelsior Blvd, Suite 300
                                                                  Minneapolis,
      MN 55416-4675
                                                                
                                                                
                                                                3,326,599
                                                                (12)
                                                                
                                                                
                                                                7.3
                                                                %




*     Less
than 1%.





Beneficial ownership is determined in
accordance with 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
(45,413,734) of the Company’s common stock outstanding as of March 22,
2010.  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 officers other than the principal executive officer who were serving
as executive officers at the end of 2009 and one additional individual for whom
disclosure would have been provided but for the fact that the individual was not
serving as an executive officer of the Company at the end of 2009.





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


(2)
            Includes
      155,001 shares issuable upon exercise of options exercisable within 60
      days


(3)
            Includes
      100,000 shares issuable upon exercise of options exercisable within 60
      days.


(4)
            Includes
      150,000 shares issuable upon exercise of options exercisable within 60
      days.


(5)
            Includes
      150,000 shares issuable upon exercise of options exercisable within 60
      days.


(6)
            Includes
      150,000 shares issuable upon exercise of options exercisable within 60
      days.


(7)
            Includes
      100,000 shares issuable upon exercise of options exercisable within 60
      days.


(8)
            Includes
      100,000 shares issuable upon exercise of options exercisable within 60
      days.


(9)
            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.


(10)
            Includes
      4,333,333 shares issuable upon exercise of warrants at $1.65 a
      share.


(11)
            Includes
      2,275,575 shares issuable upon exercise of warrants at $1.65 a
      share.


(12)
            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, 2009 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.




28





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





For a
description of the Incentive Stock Option Plan and Non-Qualified Stock Option
Plan, see Item 11.





ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONSAND DIRECTOR
INDEPENDENCE





On March
4, 2010, Epic entered into a Note as borrower, with Castex New Ventures, L.P.
(“Castex”), as lender, in an aggregate amount of $500,000 at any time
outstanding to be used for general corporate purposes.  The Note bears
interest at the rate of ten percent (10%) per annum.  All principal
outstanding on the Note is payable at maturity, which is the earliest of (i)
three (3) business days following written demand to Epic from Castex, (ii) June
1, 2010, and (iii) the date on which Castex’s obligation to make additional
loans to Epic is terminated pursuant to a default, as that term is defined in
the Note (such earliest date, the “Maturity Date”).  Interest is
payable on the date of any repayment of any loans and on the Maturity
Date.





The Note
contains customary events of default.  Upon any default or at any time
during the continuation thereof, Castex may, at its option and subject to
applicable law, increase the interest rate on loans outstanding under the Note
to a rate of 12 percent (12%) per annum.  Epic expects to refinance
the Note in the near term.





Al
Carnrite, the Company’s Chairman, is an officer of the General Partner of
Castex.  Mr. Carnrite abstained from voting on the approval of this
loan by the Company.    All of the members of the Board of
Directors other than Mr. Carnrite voted in favor of the transaction following a
determination that the terms and conditions of this Note were commercially
reasonable and were arrived at based upon arms’ length
negotiations.





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, formerly the Chief Executive Officer and a
director of the Company, and John S. Ippolito, the Chief Executive Officer and
President of the Company, each agreed to transfer to each Holder, 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”). Argos intends to acquire
energy assets and oil and gas properties. Epic manages the operations of the
joint venture. Argos is responsible for providing capital required to acquire
the assets on a project-by-project basis.  Epic receives 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 Argos Asset Management,
LLC.  As of March 20, 2010, the joint venture was not considering any
immediate acquisitions of working interests.




29


The
Company has not implemented a formal written policy concerning the review of
related party transactions, but it 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 each of our
directors currently qualifies as an independent director.  We do not
list the “independent” definition we use on our Internet website.





ITEM
14.    PRINCIPAL ACCOUNTANT FEES AND
SERVICES





Malone
& Bailey, P.C.("M&B")
audited Epic's financial statements for the years ended December 31, 2008 and
2007.





Effective
September 10, 2009, EPIC dismissed M&B as the Company’s independent
registered accounting firm and replaced them with M&K CPAS, PLLC
("M&K").  Effective September 10, 2009, the Company engaged M&K as
its principal independent public accountant for the years ended December 31,
2009 and 2010. The following table shows the aggregate fees billed to Epic by
M&B and M&K for the years ended December 31, 2009 and 2008.





Malone & Bailey
                  
                  
                  M&K2009
                  
                  
                  2008
                  
                  
                  %
                  
                  
                  2009Audit
      fees
                  
                  $
                  251,127
                  
                  
                  $
                  177,648
                  
                  
                  
                  78
                  %
                  
                  $
                  77,500Audit
      related fees
                  
                  
                  -
                  
                  
                  
                  29,290
                  
                  
                  
                  13
                  %
                  
                  
                  -Tax
      fees
                  
                  
                  -
                  
                  
                  
                  19,500
                  
                  
                  
                  9
                  %
                  
                  
                  -Other
      fees
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  251,127
                  
                  
                  $
                  226,438
                  
                  
                  
                  
                  
                  
                  $
                  77,500





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.




Under the
Sarbanes-Oxley Act of 2002, Epic’s audit committee is responsible for the
appointment, compensation and oversight of the work of the independent
auditor.  As part of this responsibility, the audit committee is required
to pre-approve audit and non-audit services provided by the independent auditor
in order to ensure the services do not impair the auditor's independence. 
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
responsibility for administering the engagement of the independent auditor,
including pre-approval of fees.  Accordingly, Epic’s audit committee has
adopted the following pre-approval policy and procedures for audit,
audit-related, and tax services.




The audit
committee has adopted an approach whereby all services obtained from the
independent auditor will be pre-approved. Under this approach, an annual program
of work will be approved for each of the following categories of services:
audit, audit-related, and tax.  Engagement-by-engagement pre-approval will
not be required, except for exceptional or ad hoc incremental engagements with
fees resulting in the fee category exceeding the aggregate pre-approved program
of work for that category.  In general, a work program for each category of
services can be supplemented with additional pre-approved amounts after
appropriate review of the additional services with the audit committee. 
The audit committee may consider specific engagements in the All Other Services
category on an engagement-by-engagement basis.




For all
services obtained from the independent auditor, the audit committee will
consider whether such services are consistent with the SEC's rules on auditor
independence.  The audit committee will consider the level of audit and
audit-related fees in relation to all other fees obtained from the independent
auditor, and will review such level each year.


30





Pre-Approval
Process and Delegation of Authority




The
primary review and pre-approval of services to be obtained from the independent
auditor and related fees will be scheduled for the audit committee meeting at
the end of the financial year.  If fees might otherwise exceed pre-approved
amounts for any category of permissible services, then incremental amounts can
be reviewed and pre-approved at subsequent audit committee meetings prior to
commitment.  If needed, time will be set aside in any scheduled audit
committee meeting for review and pre-approval of additional services.  No
additional authority is delegated for pre-approval of services obtained from the
independent auditor.




The
independent auditor and Epic management will jointly manage a process for
collecting and reporting all fees billed by the independent auditor to Epic for
each financial year.




Audit
Services




Engagement
term, scope of service and fees for the annual examination of Epic’s financial
statements will be pre-approved by the audit committee.  These audit
services include the integrated audit of Epic’s consolidated financial
statements (including required quarterly reviews) and the effectiveness of
internal control over financial reporting, audits of affiliate and subsidiary
statutory financial statements, and other procedures required to be performed by
the independent auditor to be able to render an opinion on Epic’s consolidated
financial statements.




The audit
committee will be responsible for direction and oversight of the engagement of
the independent auditor.  At its discretion, the audit committee will
obtain input from Epic management on the terms of the engagement, the
effectiveness with which the engagement is carried out, and the amount of audit
fees.  The independent auditor is responsible for the cost-effective
management of the engagement, and for ensuring that audit services are not
provided prior to review and pre-approval by the audit committee.




Audit-related
Services





Audit-related
services include services that are reasonably related to the performance of the
audit of Epic’s financial statements. These services include asset dispositions,
benefit plan and joint venture audits, attestation procedures related to cost
certifications and government compliance, consultations on accounting issues,
and due diligence procedures.  Each year the audit committee will conduct a
broad review of the proposed services to ensure the independence of the
independent auditor is not impaired.




General
pre-approval will occur at the end of each year coincident with pre-approval of
audit services.  Applicable operating and staff functions will be requested
to assign a process-owner to monitor the engagement of the independent auditor
for audit-related services.




Tax
Services




The audit
committee concurs that the independent auditor may provide certain tax services
without impairing its independence.  These services include preparing local
tax filings and related tax services, tax planning, and other services as
permitted by SEC regulations. The audit committee will not permit engaging the
independent auditor (1) in connection with a transaction, the sole purpose of
which may be impermissible tax avoidance, (2) for other tax services that may be
prohibited by SEC rules now or in the future or (3) to perform services under
contingent fee arrangements.




All
Other Services





If
permissible other services requested by Epic business units must be pre-approved
by the audit committee.




31




Prohibited
Services





Independent
auditors may not provide the following prohibited services: Bookkeeping,
Financial Information Systems Design and Implementation, Appraisals or Valuation
(other than Tax), Fairness Opinions, Actuarial Services, Internal Audit
Outsourcing, Management Functions, Human Resources such as Executive Recruiting,
Broker-dealer Services, Legal Services, or Expert Services such as providing
expert testimony or opinions where the purpose of the engagement is to advocate
the client's position in an adversarial proceeding.  Epic personnel may not
under any circumstances engage the independent auditor for prohibited services.
Potential engagements not clearly permissible should be referred to the Epic
CFO.





PART
IV





ITEM
15.    EXHIBITS ANDFINANCIAL STATEMENT
SCHEDULES





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




Audit
      Reports of Independent Registered Public Accounting Firms
              F2Consolidated
      Balance Sheets
              F3Consolidated
      Statements of Operations
              F4Consolidated
      Statements of Cash Flows
              F6Consolidated
      Statements of Stockholders’ Equity
              F5Notes
      to Consolidated Financial Statements
              F7





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).4.1
              
              Incentive
      Stock Option Plan.
              
              Incorporated
      by reference to Exhibit 4(B), from the
      Company's    Registration Statement on
      Form  S-8 filed on January 29, 2007 (Commission File No.
      333-140292).




32




Exhibit
                Number
              
              Exhibit Name4.2
              
              Non-Qualified
      Stock Option Plan.
              
              Incorporated
      by reference to Exhibit 4(C), from the
      Company's    Registration Statement on
      Form  S-8 filed on January 29, 2007 (Commission File No.
      333-140292).4.3
              
              Stock
      Bonus Plan.
              
              Incorporated
      by reference to Exhibit 4(D), from the
      Company's    Registration Statement on
      Form  S-8 filed on January 29, 2007 (Commission File No.
      333-140292).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, 2008.10.6
              
              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,
      2009.16.
              
              Letter
      Re Change in Certifying Accountant.
              
              Incorporated
      by reference to Exhibit 10.1 to the Company’s Form 8-K filed September 15,
      2009.




33





Exhibit
                Number
              
              Exhibit Name31.1
              
              Certification
      of Principal Executive Officer and Chief Executive Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.2
              
              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.




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
      30,2010
            /s/ John S. IppolitoJohn
      S. IppolitoChief
      Executive Officer, President and Principal
              Executive
      OfficerDate:  March
      30, 2010
            /s/ Michael KinneyMichael
      KinneyChief
      Financial Officer, Executive Vice President
              and
      Principal Accounting OfficerPursuant
      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
      30, 2010
            /s/W.Robert EisslerW.Robert
      Eissler, DirectorDate:  March
      30, 2010
            /s/Dr. Robert FergusonDr.
      Robert Ferguson, DirectorDate:  March
      30, 2010
            /s/John OttoJohn
      Otto, DirectorDate:  March
      30, 2010
            /s/Alan CarnriteAlan
      Carnrite, DirectorDate:  March
      30, 2010
            /s/Tamer El-RayessTamer
      El-Rayess, DirectorDate:  March
      30, 2010
            /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.




Reports
      of Independent Registered Public Accounting Firms
                  
                  F-2Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                  
                  F-4Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
                  
                  F-5Consolidated Statements of Stockholders' Equity for the years
      ended December 31, 2009 and 2008
                  
                  F-6Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                  
                  F-7




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 sheet of Epic Energy Resources,
Inc. (the “Company”) as of December 31, 2009 and the related statements of
losses, stockholders' equity and cash flows for the twelve month period then
ended.  The financial statements for the year ended December 31, 2008
were audited by other auditors whose report expressed an unqualified opinion on
those statements.  These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.




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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Epic Energy Resources, Inc.
as of December 31, 2009 and the results of its operations and cash flows for the
period described above in conformity with accounting principles generally
accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  The Company sustained a significant
net loss in the current year, experienced a substantial revenue decrease and
maintains a working capital deficit. These matters raise substantial doubt about
the Company’s ability to continue as a going concern.  These financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that may result should the Company be unable to continue as a going
concern. See note 1 to the financial statements for further information
regarding this uncertainty.





M&K
CPAS, PLLC





www.mkacpas.com


Houston,
Texas


March 22,
2010






F-2




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 the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December
31, 2008. 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 the results of operations and cash flows for the year ended December
31, 2008 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-3





EPIC
ENERGY RESOURCES, INC.


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share data)





December
      31,2009
                                            
                                            
                                            2008ASSETSCurrent
      AssetsCash and cash
      equivalents
                                            
                                            $
                                            153
                                            
                                            
                                            $
                                            4,785Accounts
      receivable:Billed, net of
      allowance of $185 and $6,570, respectively
                                            
                                            
                                            6,348
                                            
                                            
                                            
                                            10,690Unbilled
                                            
                                            
                                            760
                                            
                                            
                                            
                                            388Prepaid expenses and
      other current assets
                                            
                                            
                                            407
                                            
                                            
                                            
                                            2,027Total current
      assets
                                            
                                            
                                            7,668
                                            
                                            
                                            
                                            17,890Property
      and equipment, net
                                            
                                            
                                            2,231
                                            
                                            
                                            
                                            5,136Assets
      held for sale:Proved
      oil and gas properties (full cost method, net of accumulated impairments
      and depletion of $0 and $9,257, respectively)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,332Other
      mineral reserves
                                            
                                            
                                            -
                                            
                                            
                                            
                                            783Other
      assets held for sale
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,875Other
      assets
                                            
                                            
                                            39
                                            
                                            
                                            
                                            45Debt
      issuance costs, net of accumulated amortization of $913 and $481,
      respectively
                                            
                                            
                                            1,116
                                            
                                            
                                            
                                            1,548Goodwill
                                            
                                            
                                            8,919
                                            
                                            
                                            
                                            18,837Other
      intangible assets, net
                                            
                                            
                                            8,906
                                            
                                            
                                            
                                            12,666Total
      assets
                                            
                                            $
                                            28,879
                                            
                                            
                                            $
                                            62,112LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable
                                            
                                            $
                                            2,506
                                            
                                            
                                            $
                                            5,404Accrued
      liabilities
                                            
                                            
                                            3,753
                                            
                                            
                                            
                                            3,762Deferred
      revenue
                                            
                                            
                                            2,593
                                            
                                            
                                            
                                            2,684Customer
      deposits
                                            
                                            
                                            949
                                            
                                            
                                            
                                            4,505Current liabilities
      associated with assets held for sale
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,383Current portion of
      long term debt
                                            
                                            
                                            7,416
                                            
                                            
                                            
                                            7,504Total current
      liabilities
                                            
                                            
                                            17,217
                                            
                                            
                                            
                                            28,242Long-term
      liabilities associated with assets held for sale
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,949Long-term
      debt
                                            
                                            
                                            4,561
                                            
                                            
                                            
                                            6,372Derivative
      liability
                                            
                                            
                                            1,965
                                            
                                            
                                            
                                            -Deferred
      tax liability
                                            
                                            
                                            1,351
                                            
                                            
                                            
                                            1,775Total
      liabilities
                                            
                                            
                                            25,094
                                            
                                            
                                            
                                            40,338STOCKHOLDERS'
      EQUITYPreferred stock, no
      par value: 10,000,000 authorized, no shares issued and
      outstanding
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Common
      stock, no par value: 100,000,000 authorized, 44,105,781 and 43,495,160
      shares issued and outstanding, respectively
                                            
                                            
                                            33,639
                                            
                                            
                                            
                                            41,783Additional paid-in
      capital
                                            
                                            
                                            1,924
                                            
                                            
                                            
                                            15,014Accumulated
      deficit
                                            
                                            
                                            (31,778
                                            )
                                            
                                            
                                            (35,023
                                            )Total
      stockholders’ equity
                                            
                                            
                                            3,785
                                            
                                            
                                            
                                            21,774Total
      liabilities and stockholders’ equity
                                            
                                            $
                                            28,879
                                            
                                            
                                            $
                                            62,112




See
accompanying notes to consolidated financial statements.




F-4




EPIC ENERGY RESOURCES, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


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





Years
      Ended December 31,2009
                                              
                                              
                                              2008REVENUESConsulting fees
                                              
                                              $
                                              27,125
                                              
                                              
                                              $
                                              39,605Reimbursed
    expenses
                                              
                                              
                                              20,410
                                              
                                              
                                              
                                              32,595Total  revenues
                                              
                                              
                                              47,535
                                              
                                              
                                              
                                              72,200OPERATING
      EXPENSESReimbursed
    expenses
                                              
                                              
                                              14,882
                                              
                                              
                                              
                                              29,508Compensation and
      benefits
                                              
                                              
                                              18,833
                                              
                                              
                                              
                                              26,204General and
      administrative
                                              
                                              
                                              4,904
                                              
                                              
                                              
                                              12,971Professional and subcontracted
      services
                                              
                                              
                                              4,008
                                              
                                              
                                              
                                              7,421Occupancy, communication and
      other
                                              
                                              
                                              1,192
                                              
                                              
                                              
                                              1,375Depreciation and
      amortization
                                              
                                              
                                              3,240
                                              
                                              
                                              
                                              8,147Impairment of
      goodwill
                                              
                                              
                                              9,918
                                              
                                              
                                              
                                              -Impairment of intangible
      assets
                                              
                                              
                                              2,043
                                              
                                              
                                              
                                              1,505Impairment of assets held for
      sale
                                              
                                              
                                              480
                                              
                                              
                                              
                                              330Total
      operating expenses
                                              
                                              
                                              59,500
                                              
                                              
                                              
                                              87,461Loss
      from operations
                                              
                                              
                                              (11,965
                                              )
                                              
                                              
                                              (15,261
                                              )OTHER
      INCOME (EXPENSE)Interest expense
                                              
                                              
                                              (6,843
                                              )
                                              
                                              
                                              (6,207
                                              )Derivative loss
                                              
                                              
                                              (1,177
                                              )
                                              
                                              
                                              -Interest and other income
      (expense), net
                                              
                                              
                                              87
                                              
                                              
                                              
                                              (309
                                              )Total other expense,
      net
                                              
                                              
                                              (7,933
                                              )
                                              
                                              
                                              (6,516
                                              )Loss
      from continuing operations before taxes
                                              
                                              
                                              (19,898
                                              )
                                              
                                              
                                              (21,777
                                              )Income
      tax expense (benefit)
                                              
                                              
                                              (404
                                              )
                                              
                                              
                                              10Loss
      from continuing operations
                                              
                                              
                                              (19,494
                                              )
                                              
                                              
                                              (21,787
                                              )DISCONTINUED
      OPERATIONSLoss from operations of oil and
      gas segment
                                              
                                              
                                              (162
                                              )
                                              
                                              
                                              (4,785
                                              )Gain on sale of oil and gas
      properties
                                              
                                              
                                              2,110
                                              
                                              
                                              
                                              -Income
      (loss) from discontinued operations
                                              
                                              
                                              1,948
                                              
                                              
                                              
                                              (4,785
                                              )Net
      loss
                                              
                                              $
                                              (17,546
                                              )
                                              
                                              $
                                              (26,572
                                              )Income
      (loss) per common share - basic and diluted:Loss from continuing
      operations
                                              
                                              $
                                              (0.44
                                              )
                                              
                                              $
                                              (0.51
                                              )Income (loss) from discontinued
      operations
                                              
                                              
                                              0.04
                                              
                                              
                                              $
                                              (0.11
                                              )Net
      loss
                                              
                                              $
                                              (0.40
                                              )
                                              
                                              $
                                              (0.62
                                              )Weighted
      average common shares outstanding - basic and diluted
                                              
                                              
                                              44,073,925
                                              
                                              
                                              
                                              43,014,409




See
accompanying notes to consolidated financial statements.




F-5





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, 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
                                )
                                
                                $
                                21,774Cumulative
      effect of change in accounting principle
                                
                                
                                -
                                
                                
                                
                                (8,144
                                )
                                
                                
                                (13,395
                                )
                                
                                
                                20,791
                                
                                
                                
                                (748
                                )BALANCE,
      December 31, 2008, as adjusted
                                
                                
                                43,495,160
                                
                                
                                $
                                33,639
                                
                                
                                $
                                1,619
                                
                                
                                $
                                (14,232
                                )
                                
                                $
                                21,026Issuance
      of vested shares
                                
                                
                                610,621
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Amortization
      of stock options and  stock bonuses
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                305
                                
                                
                                
                                -
                                
                                
                                
                                305Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (17,546
                                )
                                
                                
                                (17,546
                                )BALANCE,
      December 31, 2009
                                
                                
                                44,105,781
                                
                                
                                $
                                33,639
                                
                                
                                $
                                1,924
                                
                                
                                $
                                (31,778
                                )
                                
                                $
                                3,785




See accompanying
notes to consolidated financial statements.




F-6




EPIC
ENERGY RESOURCES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


Years Ended December 31,2009
                
                
                2008OPERATING
      ACTIVITIES:Net
      loss
                
                $
                (17,546
                )
                
                $
                (26,572
                )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:(Income)
      loss from discontinued operations
                
                
                (1,948
                )
                
                
                4,785Depreciation
      and amortization
                
                
                3,240
                
                
                
                8,147Allowance
      for doubtful accounts
                
                
                133
                
                
                
                5,934Amortization
      of debt discount and debt issuance costs
                
                
                4,753
                
                
                
                3,691Loss
      on sale of accounts receivable
                
                
                47
                
                
                
                -Loss
      on sale / disposal of property and equipment
                
                
                690
                
                
                
                749Loss
      on sale of asset held for sale
                
                
                648
                
                
                
                -Stock
      based compensation expense
                
                
                305
                
                
                
                1,321Impairment
      charges
                
                
                12,441
                
                
                
                1,835Derivative
      loss
                
                
                1,177
                
                
                
                -Deferred
      taxes
                
                
                (424
                )
                
                
                -Gain
      on early extinguishment of debt
                
                
                (94
                )
                
                
                -Changes
      in operating assets and liabilities:Accounts
      receivable, billed and unbilled
                
                
                2,348
                
                
                
                (1,973
                )Prepaid
      expenses and other current assets
                
                
                1,620
                
                
                
                (1,713
                )Other
      non-current assets
                
                
                7
                
                
                
                163Accounts
      payable
                
                
                (3,022
                )
                
                
                1,265Accrued
      liabilities
                
                
                (9
                )
                
                
                1,062Deferred
      revenue
                
                
                (92
                )
                
                
                2,684Customer
      deposits
                
                
                (3,556
                )
                
                
                3,147Net
      cash provided by operating activities
                
                
                718
                
                
                
                4,525INVESTING
      ACTIVITIES:Purchases
      of property and equipment
                
                
                (270
                )
                
                
                (1,396
                )Proceeds
      from sale of property and equipment
                
                
                55
                
                
                
                665Use
      of restricted cash
                
                
                -
                
                
                
                2,492Acquisition
      of EIS, net of cash received
                
                
                -
                
                
                
                (232
                )Net
      cash provided by (used in) investing activities
                
                
                (215
                )
                
                
                1,529FINANCING
      ACTIVITIES:Proceeds
      from sale of accounts receivables
                
                
                1,442
                
                
                
                -Payments
      on debt
                
                
                (6,568
                )
                
                
                (1,268
                )Bank
      overdrafts
                
                
                -
                
                
                
                (3,442
                )Net
      cash used in financing activities
                
                
                (5,126
                )
                
                
                (4,710
                )DISCONTINUED
      OPERATIONS:Net
      cash used in discontinued operations
                
                
                (9
                )
                
                
                (42
                )Net
      cash used in discontinued operations
                
                
                (9
                )
                
                
                (42
                )Net
      change  in cash and cash equivalents
                
                
                (4,632
                )
                
                
                1,302Cash
      and cash equivalents, beginning of year
                
                
                4,785
                
                
                
                3,483Cash
      and cash equivalents, end of year
                
                $
                153
                
                
                $
                4,785SUPPLEMENTAL
      CASH FLOW DISCLOSURES:Cash
      paid for interest
                
                $
                2,749
                
                
                $
                2,404NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Settlement
      of obligations through sale of oil and gas properties
                
                $
                4,225
                
                
                $
                -Settlement
      of notes payable through sale of property and equipment
                
                $
                4,277
                
                
                $
                -Cumulative
      net effect of change in accounting principle
                
                $
                748
                
                
                $
                -Note
      payable used to purchase property and equipment
                
                $
                -
                
                
                $
                488Stock
      issued for acquisition of  EIS
                
                $
                -
                
                
                $
                1,050




See
accompanying notes to consolidated financial statements.




F-7




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 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 has an operational joint venture with Argos Asset
Management, LLC (“Argos”) 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.





Going
Concern





The
accompanying consolidated financial statements have been prepared on a going
concern basis of accounting, which contemplates continuity of operations,
realization of assets and liabilities and commitments in the normal course of
business.  The accompanying consolidated financial statements do not
reflect any adjustments that might result if the Company is unable to continue
as a going concern.  The Company has experienced a decline in revenues,
negative working capital and capital deficits, which raise substantial doubt
about the Company's ability to continue as a going concern.  The Company
has reduced cash required for operations by reducing operating costs and
reducing staff levels. In addition, the Company is working to manage its current
liabilities while it continues to make changes in operations to improve its cash
flow and liquidity position. The ability of the Company to continue as a going
concern and appropriateness of using the going concern basis is dependent upon
the Company’s ability to generate revenue from the sale of its services and the
cooperation of the Company’s note holders to assist with obtaining working
capital to meet operating costs.





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, 2008 consolidated financial statements have been
reclassified in the December 31, 2009 financial statements to conform to current
year presentation. There is no effect on net income, cash flows or stockholders’
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 concentrations 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, 2009, the Company had no cash deposits in excess of FDIC insured
limits.




F-8




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, 2009 and 2008, 5 customers’ balances represented 80% of accounts
receivable.




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, 2009 and December 31, 2008, management
determined that an allowance for doubtful accounts of $185,238 and $6,570,416,
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 Company uses 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. 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
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 year end, 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 experiences 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;




F-9




·
            the
      accuracy of various mandated economic assumptions;
  and


·
            the
      judgment of the persons preparing the
estimate.





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. 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. For the year ended December 31, 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





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. Impairment losses are 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.  For the years ended December
31, 2009 and 2008, the Company recorded an impairment loss of $479,591 and
$330,000, respectively, 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
term of the related debt agreements.  Amortization expense related to the
debt issuance costs for the years ended December 31, 2009 and 2008 were $432,469
and $452,252, respectively.




F-10




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.
Goodwill and certain intangible assets are 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 Company uses level 3 inputs
and a discounted cash flow methodology to estimate the fair value of a reporting
unit. 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,
2009 resulted in an impairment loss of $9,917,573.





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.  Indefinite-lived intangible assets consists of the trade
names of Epic’s subsidiaries. For the years ended December 31, 2009 and 2008,
the Company recorded impairment losses of $1,647,609 and $578,612, respectively,
related to the trade names.




As of
December 31, 2009 and 2008, 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.  For the years ended
December 31, 2009 and 2008, the Company recorded impairment losses of $395,385
and $926,471, respectively, related to its amortizable intangible
assets.





Customer
Deposits





Customer
deposits represent advance payments for procurement of materials for a customer.
The Company has 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. At December 31, 2008, the ARO of $230,118 is included in
Current liabilities associated with assets held for sale in the accompanying
Consolidated Balance Sheet. See Note 5 for further discussion.





Fair
Value Measurements





On
January 1, 2008, the Company adopted guidance which defines fair value,
establishes a framework for using fair value to measure financial assets and
liabilities on a recurring basis, and expands disclosures about fair value
measurements. Beginning on January 1, 2009, the Company also applied the
guidance to non-financial assets and liabilities measured at fair value on a
non-recurring basis, which includes goodwill and intangible assets. The guidance
establishes a hierarchy for inputs used in measuring fair value that maximizes
the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Observable
inputs are inputs that market participants would use in pricing the asset or
liability developed based on market data obtained from sources independent of
the Company. Unobservable inputs are inputs that reflect the Company’s
assumptions of what market participants would use in pricing the asset or
liability developed based on the best information available in the
circumstances. The hierarchy is broken down into three levels based on the
reliability of the inputs as follows:




F-11




Level 1 -
Valuation is based upon unadjusted quoted market prices for identical assets or
liabilities in active markets that the Company has the ability to
access.





Level 2
-Valuation is based upon quoted prices for similar assets or liabilities in
active markets; quoted prices for identical or similar assets or liabilities in
inactive markets; or valuations based on models where the significant inputs are
observable in the market.





Level 3 -
Valuation is based on models where significant inputs are not observable. The
unobservable inputs reflect the Company's own assumptions about the inputs that
market participants would use.




The
Company utilizes various types of financing to fund our business needs,
including debt with warrants attached and other instruments indexed to our
stock. The Company reviews its 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. At December 31, 2009, the
Company has 22,685,031 warrants to purchase common stock, the fair values of
which are classified as a derivative liability. These warrants have embedded
conversion features in the Company’s debt and are recorded as a discount on the
debentures. Such financial instruments were initially recorded at fair value and
are being amortized to interest expense using the effective interest method over
the life of the debt.




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.





Derivative
Financial Instruments




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. The Company utilizes various types of financing to fund our
business needs, including debt with warrants attached and other instruments
indexed to our stock (as discussed above). The Company is required to record its
derivative instruments at their fair value. Changes in the fair value of
derivatives that do not qualify for hedge treatment are recognized as interest
expense in the accompanying consolidated statements of
operations.  The Company does not use hedge accounting for its
derivative, therefore, the changes in fair value are recognized in
earnings.




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. 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.




F-12





Stock-Based
Compensation





The
Company estimates 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.





Income
Taxes





The
Company accounts 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.





The
Company uses 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. The guidance requires the Company to 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





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 29,340,817 and 32,797,017, at
December 31, 2009 and 2008, respectively, were excluded due to their
anti-dilutive effect.





Recent
Accounting Pronouncements





In
October 2009, the Financial Accounting Standards Board (“FASB”) issued new
revenue recognition standards for arrangements with multiple deliverables, where
certain of those deliverables are non-software related. The new standards permit
entities to initially use management’s best estimate of selling price to value
individual deliverables when those deliverables do not have Vendor Specific
Objective Evidence (“VSOE”) of fair value or when third-party evidence is not
available. Additionally, these new standards modify the manner in which the
transaction consideration is allocated across the separately identified
deliverables by no longer permitting the residual method of allocating
arrangement consideration. These new standards are effective for annual periods
ending after June 15, 2010 and early adoption is permitted. The Company is
currently evaluating the impact of adopting this standard on the Company’s
consolidated financial position, results of operations and cash
flows.





In June
2009, the FASB issued guidance establishing the Codification as the source of
authoritative U.S. Generally Accepted Accounting Principles (“U. S. GAAP”)
recognized by the FASB to be applied by non-governmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. The Codification supersedes all existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become non-authoritative. The
FASB will no longer issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue
Accounting Standards Updates, which will serve only to update the Codification,
provide background information about the guidance and provide the bases for
conclusions on changes in the Codification. All content in the Codification
carries the same level of authority, and the U.S. GAAP hierarchy was modified to
include only two levels of U.S. GAAP: authoritative and non-authoritative. The
Codification is effective for the Company’s interim and annual periods beginning
with the Company’s year ending December 31, 2009. Adoption of the Codification
affected disclosures in the Consolidated Financial Statements by eliminating
references to previously issued accounting literature, such as SFASs, EITFs and
FSPs.




F-13




In June
2009, the FASB issued amended standards for determining whether to consolidate a
variable interest entity. These new standards amend the evaluation
criteria to identify the primary beneficiary of a variable interest entity and
require ongoing reassessment of whether an enterprise is the primary beneficiary
of the variable interest entity. The provisions of the new standards are
effective for annual reporting periods beginning after November 15, 2009 and
interim periods within those fiscal years. The adoption of the new standards
will not have an impact on the Company’s consolidated financial position,
results of operations and cash flows.





In May
2009, the FASB issued guidance establishing general standards for accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued and shall be
applied to subsequent events not addressed in other applicable generally
accepted accounting principles. This guidance, among other things, sets forth
the period after the balance sheet date during which management should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and the disclosures an entity should make about events or
transactions that occurred after the balance sheet date. The adoption of this
guidance had no impact on the Company’s consolidated financial position, results
of operations and cash flows.





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.  The acquisitions and related transactions were treated as a
purchase business combination for accounting purposes. Carnrite, Pearl and EIS’s
assets acquired and liabilities assumed were recorded at their fair value and
criteria was established for determining whether intangible assets should be
recognized separately from goodwill.





Carnrite





In 2007,
Epic acquired Carnrite for 4,850,844 shares of its restricted common
stock. 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.





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-14




Pearl





In 2007,
Epic acquired Pearl for 1,786,240 shares of its common stock and cash of
$19,928,000. 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 an aggregate purchase price of $3,317,000 which
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 Consolidated Statement of Operations
includes the operations of EIS for the period from January 1, 2008 through
December 31, 2008.





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-15





4.
Costs and Estimated Earnings on Uncompleted Contracts





The
Company accounts for its fixed-price contracts on a percentage-of completion
basis. Costs and Estimated earnings consisted of the following at December 31,
2009 and 2008 (in thousands):





2009
                            
                            
                            2008Costs
      incurred on uncompleted contracts
                            
                            $
                            12,879
                            
                            
                            $
                            1,981Estimated
      earnings
                            
                            
                            8,677
                            
                            
                            
                            8621,556
                            
                            
                            
                            2,067Less: Billings
      to date
                            
                            
                            (23,547
                            )
                            
                            
                            (2,129
                            )$
                            (1,991
                            )
                            
                            $
                            (62
                            )





The
amounts noted above are included in the following captions in the accompanying
consolidated balance sheets at December 31, 2009 and 2008 (in
thousands):





2009
                              
                              
                              2008Uncompleted contractsUnbilled
      receivables
                              
                              $
                              38
                              
                              
                              $
                              5Deferred
      revenue
                              
                              
                              (2,029
                              )
                              
                              
                              (67
                              )$
                              (1,991
                              )
                              
                              $
                              (62
                              )Other contractsUnbilled
      receivables
                              
                              $
                              722
                              
                              
                              $
                              383Deferred
      revenue
                              
                              
                              (602
                              )
                              
                              
                              (2,617
                              )$
                              120
                              
                              
                              $
                              2,234





5.
Oil and Gas Properties





The
Company owned 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 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.  The
Company 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.  The Company
recorded $0 and $36,909, respectively, of depletion expense on these properties
for the years ended December 31, 2009 and 2008.





The
Company owned a 50% working interest (approximately 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.





In
February 2009, the Company sold its Kansas property and dissolved its joint
venture associated with its Oklahoma property. The Kansas property was sold to a
third party who assumed the note payable, including accrued but unpaid interest
totaling $3,993,071 at the acquisition date and the 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. For the year
ended December 31, 2009, the Company recorded a $2,110,066 gain on the sale of
the Kansas property, which is included in discontinued operations in the
accompanying Consolidated Statements of Operations. The gain on the
sale





The
properties and their related assets and liabilities have been shown separately
as assets held for sale and liabilities associated with assets held for sale on
the accompanying Consolidated Balance Sheets. Assets and liabilities associated
with discontinued operations consisted of the following at December 31, 2008 (in
thousands):




F-16




ASSETSAssets
      held for sale:Proved
      oil & gas properties, net
                          
                          $
                          1,332Other
      mineral reserves
                          
                          
                          783Assets
      of discontinued operations
                          
                          $
                          2,115LIABILITIESCurrent
      liabilities:Accrued
      interest
                          
                          $
                          547Asset
      retirement obligation
                          
                          
                          230Note
      payable
                          
                          
                          3,295Liabilities
      of discontinued operations
                          
                          $
                          4,072





6.
Property and Equipment





Property
and equipment consisted of the following at December 31, 2009 and 2008 (in
thousands):





2009
                          
                          
                          2008Computer
      equipment
                          
                          $
                          2,569
                          
                          
                          $
                          2,521Office
      furniture and equipment
                          
                          
                          934
                          
                          
                          
                          825Leasehold
      improvements
                          
                          
                          636
                          
                          
                          
                          555Vehicles
                          
                          
                          56
                          
                          
                          
                          2,7314,195
                          
                          
                          
                          6,632Less:
      Accumulated depreciation and amortization
                          
                          
                          (1,964
                          )
                          
                          
                          (1,496
                          )Property
      and equipment, net
                          
                          $
                          2,231
                          
                          
                          $
                          5,136





Depreciation
and amortization expense was $1,523,916 and $1,841,840 for the years ended
December 31, 2009 and 2008, respectively.





In 2008,
the Company adopted a plan to dispose of its airplane. In connection with the
plan of disposal, the Company determined that the carrying value of the airplane
exceeded its fair value. As a result, for the years ended December 31, 2009 and
2008, the Company recorded impairment losses of $479,591 and $330,000,
respectively, which represents the excess of the carrying value of the airplane
over its fair value, less costs to sell. The impairment losses are included in
Impairment charges in the accompanying Consolidated Statements of Operations. At
December 31,  2008, the carrying value of the airplane was presented
in the accompanying Consolidated Balance Sheet as “Other assets held for sale,”
and it was no longer depreciated. In December 2009, the Company sold the
airplane for net proceeds of $2,796,169 and recorded a loss on the sale of the
airplane of $648,206. As the proceeds from the sale left the Company deficient
to cover the outstanding obligation on the airplane, the Company remains
indebted related to the airplane. See Note 10 for further
discussion.





7.
Other Intangible Assets, net





Other
intangible assets consist of the following at December 31, 2009 (in
thousands):





Carrying
                        amount
                      
                      
                      Accumulated
                        amortization
                      
                      
                      Impairment
                        loss
                      
                      
                      Net book
                        valueCustomer
      relationships
                      
                      $
                      6,961
                      
                      
                      $
                      (1,692
                      )
                      
                      $
                      (396
                      )
                      
                      $
                      4,873Backlog
                      
                      
                      5,124
                      
                      
                      
                      (5,124
                      )
                      
                      
                      -
                      
                      
                      
                      -Employment
      contracts
                      
                      
                      1,147
                      
                      
                      
                      (1,147
                      )
                      
                      
                      -
                      
                      
                      
                      -Patent
                      
                      
                      64
                      
                      
                      
                      (64
                      )
                      
                      
                      -
                      
                      
                      
                      -Indefinite-lived
      trade name
                      
                      
                      5,680
                      
                      
                      
                      -
                      
                      
                      
                      (1,647
                      )
                      
                      
                      4,033Total
                      
                      $
                      18,976
                      
                      
                      $
                      (8,027
                      )
                      
                      $
                      (2,043
                      )
                      
                      $
                      8,906




F-17




Other
intangible assets consist of the following at December 31, 2008 (in
thousands):





Carrying
                        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 ended December 31,
2009 and 2008 was $1,716,028   and $6,305,381, respectively.
Based on the carrying value of intangible assets recorded at December 31, 2009
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):





2010
                        
                        $
                        1,2482011
                        
                        
                        1,2482012
                        
                        
                        1,2482013
                        
                        
                        1,1202014
                        
                        
                        9Total
                        
                        $
                        4,873





In 2009,
due to a decline in the Company’s industry, the operating results of the Company
decreased significantly from 2008 and future operating results are projected to
remain at this level. The lower current and future operating results indicated
that the Company’s customer relationship intangible asset may not be recoverable
and was tested for impairment. For the year ended December 31, 2009, the Company
recorded an impairment loss of $395,385 related to its customer
relationships.





Indefinite
lived intangible assets are tested annually for impairment by comparing their
fair values to their carrying values. For the years ended December 31, 2009 and
2008, due to a decline in the Company’s industry, the Company recorded
impairment losses of $1,647,609 and $578,612, respectively.





8.
Goodwill





During
the year ended December 31, 2008, the Company finalized the purchase price
allocations associated with the acquisitions of Carnrite, Pearl and
EIS.  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 Carnrite and
Pearl acquisitions.  During 2008, the Company 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, 2009
and 2008 are as follows (in thousands):





Balance,
      January 1, 2008
                        
                        $
                        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
                        
                        $
                        18,837Impairment
      loss
                        
                        
                        (9,918
                        )Balance,
      December 31, 2009
                        
                        $
                        8,919





At
November 30, 2009, the Company performed their annual test of goodwill for
impairment. The goodwill was tested by performing the two-step goodwill
impairment test. Due to a decline in the Company’s industry, the operating
results of the Company decreased significantly from 2008 and future operating
results are projected to remain at this level.  As a result, the
Company recorded a goodwill impairment loss of $9,917,573 for the year ended
December 31, 2009.




F-18




9.
Derivative Liability and Fair Value Measurements





The
Company’s only asset or liability measured at fair value on a recurring basis is
its derivative liability associated with the warrants to purchase common stock.
On January 1, 2009, the Company adopted new guidance which determines whether an
instrument is indexed to an entity’s own stock. As a result, some of the
Company’s outstanding warrants that were previously classified in equity were
reclassified to liabilities as these warrants contain exercise price reset
features and are no longer deemed to be indexed to the Company’s
stock.  Therefore, on January 1, 2009, 22,685,031 outstanding warrants
of the Company containing exercise price reset provisions, classified in equity,
were reclassified to derivative liability.   These warrants had
exercise prices ranging from $1.50 - $1.65 and expire in December 2012. As of
January 1, 2009, the fair value of these warrants of $787,340 was recognized and
resulted in a cumulative effect adjustment to retained earnings of $20,791,677.
The change in fair value during the year ended December 31, 2009 of $1,177,251
is recorded as a derivative loss in the accompanying Consolidated Statement of
Operations.





The
Company classifies the fair value of these warrants under level three. The fair
value of the derivative liability was calculated using the Black-Scholes model.
Under the Black-Scholes model using an expected life of four years, volatility
of 131% and a risk-free interest rate of 1.43%, the Company determined the fair
value of the warrants to be $787,340 at January 1, 2009. Under the Black-Scholes
model using an expected life of 3.25 years, volatility of 188% and a risk-free
interest rate of 1.56%, the Company determined the fair value of the warrants to
be $1,964,591 at December 31, 2009.





The
following shows the changes in the level three liability measured on a recurring
basis for the year ended December 31, 2009:





Balance,
      January 1, 2009
                  
                  $
                  787,340Derivative
      loss
                  
                  
                  1,177,251Balance,
      December 31, 2009
                  
                  $
                  1,964,591





10.
Long-Term Debt





Long-term
debt consists of the following at December 31, 2009 and 2008 (in
thousands):





2009
                  
                  
                  200810%
      secured debentures
                  
                  $
                  14,922
                  
                  
                  $
                  20,250Debt
      discount
                  
                  
                  (5,358
                  )
                  
                  
                  (9,639
                  )10%
      secured debentures, net
                  
                  
                  9,564
                  
                  
                  
                  10,611Note
      payable secured by assets acquired
                  
                  
                  1,343
                  
                  
                  
                  9,500Note
      payable – EIS acquisition
                  
                  
                  1,070
                  
                  
                  
                  1,320Total
      debt
                  
                  
                  11,977
                  
                  
                  
                  21,431Less:
      current maturities
                  
                  
                  (7,416
                  )
                  
                  
                  (11,110
                  )Total
      long-term debt
                  
                  $
                  4,561
                  
                  
                  $
                  10,321





10% secured
debentures





The
Company has $20,250,000 of 10% Secured Debentures (the “Debentures”), which were
sold under a Purchase Agreement (the “Purchase Agreement”). The Debentures are
due on December 5, 2012, with interest payable quarterly on January 1, April 1,
July 1 and October 1. The Debentures are secured by liens on all of the
Company’s assets.  Beginning December 1, 2008, the Company is required
to make quarterly principal payments of $1,265,625.  Any overdue
accrued and unpaid interest shall result in a late fee at an interest rate equal
to the lesser of 18% per annum or the maximum rate permitted by
law.  Prepayment is not allowed without prior written consent of the
holders. The purchasers of the Debentures also received warrants which entitle
the holders to purchase up to 15,954,545 shares of the Company’s common stock at
$1.65 per share.  Under the Black-Scholes method using an expected
life of five years, volatility of 72% and a risk-free interest rate of 3.28%,
the Company determined these warrants had a relative fair value of $13,085,380
as of the date of the transaction.  The relative fair value of the
warrants was originally recorded as additional paid in capital with a
corresponding amount recorded as a debt discount.  Upon adoption of
new accounting guidance the debt discount was adjusted and the fair value of the
warrants was reclassified to a derivative liability. The net adjustment to the
debt discount of $39,579 was recorded as a cumulative effect of change in
accounting principle with an offsetting credit to retained earnings. See Note 11
for further discussion of the derivative liability. The debt discount is being
amortized to interest expense using the effective interest method over the life
of the debentures.  For the years ending December 31, 2009 and 2008,
$4,320,634 and $3,239,190, respectively, of debt discount was amortized to
interest expense.




F-19




The
Company did not make the December 1, 2008 principal payment and the failure to
do this resulted in an event of default. On February 26, 2009, the Company
entered into an Amendment Agreement (the “Amendment”) with all of the holders of
the Debentures (the “Holders”) except for one Holder of a $250,000 Debenture, to
amend the Purchase Agreement and the Debentures. Under 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.  Also, the Amendment amends the Purchase Agreement by
adding three additional sections to the Purchase Agreement.  The first
new section 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, the Amendment 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 Amendment also 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). Another
addition to the Purchase Agreement is that it 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 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 its customer who filed bankruptcy, 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.  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.





On March
13, 2009, the Company entered into a Debenture Repurchase Agreement (“Repurchase
agreement”) with one of the Holders as they did not agree to the Amendment.
Under the provisions of the Repurchase agreement the Company repurchased a
principal amount of $250,000 for $156,250. For the year ended December 31, 2009,
the Company recorded a gain on extinguishment of $93,750 which is included in
interest and other income (expense) in the accompanying Consolidated Statement
of Operations.





As a
result of the repurchase of the principal amount of $250,000, the Company’s
quarterly principal payment was reduced to $1,250,000.





On
December 1, 2009, the Company entered into a second Amendment Agreement (the
“Second Amendment”) with the Holders. The Second Amendment deferred the
Company’s December 1, 2009 Debenture payment to the Holders until November 30,
2010 (the “Deferral Period”). During the Deferral period, the annual interest
rate is increased from 10% to 12%.




F-20




Note payable – EIS
acquisition





In
connection with the acquisition of EIS in February 2008, the Company entered
into a $1,400,000 note payable (the “EIS note”) which will be paid to the prior
owners of EIS in periodic installments. On February 20, 2009, the parties to the
EIS note agreed that the schedule for the Company’s payment of the remaining
balance shall be amended as follows: $250,000 on April 1, 2010, $250,000 on July
1, 2010, $250,000 on October 1, 2010, and $320,000 on January 1, 2011
(collectively “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.




Notes payable secured by
assets acquired





The
Company had a $4,845,000 note payable related to its aircraft.  The 12 year
note with an annual interest rate of 6.81% was due on November 27, 2018, with
principal and interest payable monthly. At December 31, 2008, this note payable
had a balance of $4,260,131. At December 31, 2008, the current portion of this
note of $311,521 is included in current liabilities associated with assets held
for sale and the long-term portion of this note of $3,948,610 is included in
liabilities associated with assets held for sale in the accompanying
Consolidated Balance Sheet.





In
December 2009, the Company sold the airplane for net proceeds of $2,796,169
which left the Company deficient to cover the outstanding note payable on the
airplane. Therefore on December 23, 2009, the Company entered into a note
payable for $1,108,330 (the “New note”) to cover the deficiency. The New note is
a 4 year note and bears a 5.25% annual interest rate. The New note required a
payment of $471,475 on December 23, 2009 and beginning January 23, 2010,
principal and interest are payable monthly. At December 31, 2009, the New note
had a balance of $636,855. In November 2009, to fund the December 23, 2009
payment required on the New note (discussed above), the Company entered into a
note payable for $500,000. The 2 year note which bears a 10% annual interest
rate is due on December 21, 2012 with principal and interest payable monthly
beginning January 1, 2010.




The
Company had a $2,500,000 note payable secured by the Rush County, Kansas
property. The 42 month note bore annual interest of 10% with principal and
interest payable monthly.  Pursuant to the note agreement, if the cash
flow from the property is less than the monthly principal and interest payment,
the deficit is added to the principal amount of the note. If the cash flow from
the property is greater than the monthly principal and interest, the additional
amount reduces the principal of the note. At December 31, 2008, the balance of
this note was $3,295,000 and was included in current liabilities associated with
assets held for sale in the accompanying consolidated balance sheet. In February
2009, the Company sold the properties associated with this note payable and the
note payable was assumed by the third party.





The
Company has a $100,000 note payable 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. 
At December 31, 2009 and December 31, 2008, this note payable had a balance of
$48,096 and $67,799, respectively.





The
Company has a $872,909 note payable 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. At December 31,
2009 and December 31, 2008, this note payable had a balance of $158,938 and
$460,090, respectively.





The
Company had notes payable with an aggregate principal amount of $1,878,000 to
finance the Company owned vehicles.  The 3 year notes with annual interest
rates of 5.50% were due April 1, 2011 thru December 1, 2011, with principal and
interest payable monthly. At December 31, 2008, these notes payable had balances
of $1,417,174. In October 2009, the Company entered into a transaction where a
third party leasing company paid theses notes payable and took ownership of the
vehicles. The Company in turn leases the vehicles from the third party leasing
company.





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





2010
                  
                  $
                  7,6602011
                  
                  
                  5,7272012
                  
                  
                  3,8132013
                  
                  
                  13517,335Less:
      debt discount
                  
                  
                  (5,358
                  )Total
                  
                  $
                  11,977




F-21




11.
Stockholders' Equity





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, 2009,
333,333 of these shares have been distributed to the prior owners 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.





During
the year ended December 31, 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.





During
the year ended December 31, 2009 and 2008, the Company issued 610,621 and
66,667, respectively, shares of common stock to key employees of Pearl. These
shares are related to the acquisition of Pearl in 2007 and were issued as they
met the vesting requirements during these periods.





Warrants





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.





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 (see Note 10).  At
December 31, 2009 and 2008, the Company has $950,100 accrued related to
liquidated damages in connection with the registration of the common shares
related to the acquisition of Pearl.





A summary
of warrant activity for the years ending December 31, 2009 and 2008 is as
follows:





Number of
                    Warrants
                    Outstanding
                    and Exercisable
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceWarrants
      outstanding, January 1, 2008
                  
                  
                  23,648,631
                  
                  
                  $
                  1.65Warrants
      issued
                  
                  
                  -
                  
                  
                  
                  -Warrants
      expired / forfeited
                  
                  
                  -
                  
                  
                  
                  -Warrants
      outstanding, December 31, 2008
                  
                  
                  23,648,631
                  
                  
                  $
                  1.65Warrants
      issued
                  
                  
                  -
                  
                  
                  
                  -Warrants
      expired / forfeited
                  
                  
                  (963,600
                  )
                  
                  
                  -Warrants
      outstanding, December 31, 2009
                  
                  
                  22,685,031
                  
                  
                  $
                  1.61





On
January 1, 2009, the Company adopted new guidance which reclassified the
warrants from additional paid in capital to a derivative liability. See Note 9
for further discussion.




F-22




As of
December 31, 2009, 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 (years)Series
      C Warrants
                    
                    $
                    1.50
                    
                    
                    
                    5,613,668
                    
                    
                    
                    2.9Series
      D Warrants
                    
                    $
                    1.65
                    
                    
                    
                    17,071,363
                    
                    
                    
                    2.922,685,031





12.
Stock Based Compensation





Stock
Options





The
Company’s board-approved 2006 Employee Share Option Plan (the “Plan”) 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
0.8% to 3.6%.  The weighted average fair value of the options granted
in 2008 was $0.39.





A summary
of stock option activity for the years ended December 31, 2009 and 2008 is as
follows:





Number of
                    Shares
                  
                  
                  Weighted
                    Average
                    Exercise PriceOptions
      outstanding, January 1, 2008
                  
                  
                  1,611,000
                  
                  
                  $
                  2.72Options
      granted
                  
                  
                  930,500
                  
                  
                  $
                  0.84Options
      outstanding, December 31, 2008
                  
                  
                  2,541,500
                  
                  
                  $
                  2.03Options
      expired/forfeited
                  
                  
                  (692,600
                  )
                  
                  $
                  2.54Options
      outstanding, December 31, 2009
                  
                  
                  1,848,900
                  
                  
                  $
                  1.84





At
December 31, 2009, the range of exercise prices, the weighted average exercise
price and the weighted average remaining contractual life are as
follows:





Options outstanding
                    
                    
                    Options exercisableRange of exercise prices
                    
                    Number
                      Outstanding
                    
                    
                    Weighted
                      Average
                      Contractual
                      Life (years)
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Number
                      Exercisable
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price$0.10
      - $0.69
                    
                    
                    702,500
                    
                    
                    
                    7.0
                    
                    
                    $
                    0.22
                    
                    
                    
                    700,000
                    
                    
                    $
                    0.21$1.08
      - $1.16
                    
                    
                    205,000
                    
                    
                    
                    8.1
                    
                    
                    $
                    1.16
                    
                    
                    
                    -
                    
                    
                    $
                    -$3.00
      - $3.30
                    
                    
                    941,400
                    
                    
                    
                    3.2
                    
                    
                    $
                    3.22
                    
                    
                    
                    617,660
                    
                    
                    $
                    3.19Total
                    
                    
                    1,848,900
                    
                    
                    
                    5.2
                    
                    
                    $
                    1.85
                    
                    
                    
                    1,317,660
                    
                    
                    $
                    1.61





As of
December 31, 2009, there was approximately $525,482 of total unrecognized
compensation cost (including the impact of expected forfeitures) 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.




F-23




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, 2009 and 2008, compensation expense of
$94,988 and $494,779, respectively, was recorded related to these shares. A
summary of restricted stock activity for the years ended December 31, 2009 and
2008 is as follows:





Non-vested
      restricted stock at January 1, 2008
                        
                        
                        600,000Granted
                        
                        
                        3,000,000Non-vested
      restricted stock at December 31, 2008
                        
                        
                        3,600,000Forfeited
                        
                        
                        (1,800,000
                        )Non-vested
      restricted stock at December 31, 2009
                        
                        
                        1,800,000





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 rates 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):





2009
                          
                          
                          2008Current
      state
                          
                          $
                          20
                          
                          
                          $
                          10Deferred:Federal
                          
                          
                          (379
                          )
                          
                          
                          -State
                          
                          
                          (45
                          )
                          
                          
                          -Total
      deferred income tax benefit
                          
                          
                          (424
                          )
                          
                          
                          -Total
      income tax expense (benefit)
                          
                          $
                          (404
                          )
                          
                          $
                          10





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





2009
                          
                          
                          2008Current
      deferred tax assets (liabilities):Stock
      options
                          
                          $
                          627
                          
                          
                          $
                          512Accrued
      liabilities
                          
                          
                          193
                          
                          
                          
                          454Allowance
      for doubtful accounts
                          
                          
                          70
                          
                          
                          
                          2,481Deferred
      revenue
                          
                          
                          -
                          
                          
                          
                          1,014Non-current
      deferred tax assets (liabilities):Trademark
                          
                          
                          (1,351
                          )
                          
                          
                          (1,775
                          )Long-lived
      assets
                          
                          
                          (702
                          )
                          
                          
                          2,028Accounting
      method change
                          
                          
                          -
                          
                          
                          
                          (464
                          )Notes
      payable
                          
                          
                          -
                          
                          
                          
                          477Derivative
      liability
                          
                          
                          445Asset
      retirement obligation
                          
                          
                          61
                          
                          
                          
                          61Other
                          
                          
                          287
                          
                          
                          
                          30Net
      operating loss carry forwards
                          
                          
                          9,803
                          
                          
                          
                          1,605Total
      deferred tax assets
                          
                          
                          9,433
                          
                          
                          
                          6,423Valuation
      allowance
                          
                          
                          (10,784
                          )
                          
                          
                          (8,198
                          )Net
      deferred tax liability
                          
                          $
                          (1,351
                          )
                          
                          $
                          (1,775
                          )




F-24





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





2009
                  
                  
                  2008Expected
      federal tax benefit
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %Permanent
      differences
                  
                  
                  -
                  
                  
                  
                  (4.0
                  )%Other
                  
                  
                  0.2
                  %
                  
                  
                  1.0
                  %Change
      in valuation allowance
                  
                  
                  (31.8
                  )%
                  
                  
                  (31.0
                  )%2.4
                  %
                  
                  
                  0.0
                  %





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, 2009 and 2008, the Company had federal net operating loss
carryforwards of approximately $7.9 million and $4.2 million, respectively. The
federal tax net operating loss carryforwards will begin to expire in
2025.





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.





The
current accounting guidance requires the Company to account for tax positions
taken in the Company’s tax returns whose outcome may be deemed to be uncertain
upon review by applicable taxing authorities.  Under this guidance the tax
benefits are recognized only for tax positions that are more likely than not to
be sustained upon examination by tax authorities.  The amount of tax
benefit recognized is that amount of benefit which is likely to be realized upon
settlement with the taxing authorities, if the tax position meets a threshold
level of certainty greater than a 50 per cent likelihood of success upon
examination.  Unrecognized tax benefits are those tax benefits claimed in
the Company’s tax returns which do not meet these recognition and measurement
standards.





The
Company adopted this accounting guidance on January 1, 2007.  The Company
has determined that no additional liability for uncertain tax positions was
required for the 2008 and 2009 tax year.





14.  Commitments
and Contingencies





A former
employee has filed a case against the Company alleging that the Company
terminated this former employee without good cause. Arbitration for this case is
scheduled for August 2010. At December 31, 2009, the Company has accrued
$400,000 related to this cash which represents the estimated loss on this
arbitration.





The
Company currently and from time to time is 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 office space in the Houston Metropolitan area that expires in
June 2015.





The
primary offices of Pearl are located in Lakewood, Colorado.  Pearl
also has three branch offices and facilities in Colorado, Wyoming, and
Montana.  These leases expire through 2014.




F-25


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, 2009 (in thousands):





2010
                  
                  $
                  6622011
                  
                  
                  5472012
                  
                  
                  2032013
                  
                  
                  1442014
                  
                  
                  111Thereafter
                  
                  
                  54Total
                  
                  $
                  1,721





Auction
Agreement





In
December 2009, the Company entered into an auctioning agreement (the
“Agreement”) with The Receivables Exchange, LLC (“TRE”). Under the Agreement the
Company sells its accounts receivables to TRE who in return advances cash of
approximately 85% of the total amount of accounts receivable auctioned. TRE
retains 15% of the outstanding auctioned accounts receivable as a reserve, which
it holds until the customer pays the auctioned invoice to TRE. The Company pays
fees for this service to TRE who performs all credit and collection functions,
and assumes all risks associated with the collection of the receivables. For the
year ended December 31, 2009, the Company has recognized a loss on the sale of
accounts receivable of $47,042 and paid fees of $9,800 related to the sale of
$1,767,273 of accounts receivables. At December 31, 2009, the company has
retained accounts receivable of $268,219 related to the receivables auctioned
which are included in Accounts receivable in the accompanying Consolidated
Balance Sheet.





15.
Related Party Transactions





The
Company has a joint venture with Argos to acquire energy assets and oil and gas
properties. The Company will manage the operations of the joint venture and
Argos is responsible for providing capital required to acquire the assets on a
project-by-project basis. At December 31, 2009, the Company has an $82,967
receivable from Argos for expenses paid for by the Company related to the joint
venture. The receivable is included in Accounts receivable-unbilled in the
accompanying Consolidated Balance Sheet.





16.
Operating Results and Segment Information





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





Engineering
                    Services
                  
                  
                  Oil & Gas
                  
                  
                  TotalRevenues
      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
                  
                  
                  $
                  -
                  
                  
                  $
                  1,842





In 2009,
the Company sold its oil and gas properties as such no segment information is
included for the year ended December 31, 2009.





17.
Subsequent Event





The
Company has evaluated events after the date of these financial statements,
December 31, 2009 through the time of filing with the Securities and Exchange
Commission, the following are the subsequent events noted:





The
Company did not make its March 1, 2010 principal payment on the Debentures and
failure to make this payment resulted in an event of default. To cure this event
of default, the Company is currently seeking from the holders of the Debentures
a waiver of this event of default and a deferral of the $1,250,000.




F-26




On March
4, 2010, the Company entered into a bridge loan to meet short term working
capital needs (the “Bridge loan”) with Castex New Ventures, L.P. (“Castex”), for
an aggregate amount of $500,000.  The Bridge loan bears interest at
the rate of 10% per annum.  All principal outstanding on the Bridge
loan is payable at maturity, which is the earliest of (i) three business days
following written demand from Castex, (ii) June 1, 2010, and (iii) the date on
which Castex’s obligation to make additional loans to the Company is terminated
pursuant to a default, as that term is defined in the Bridge loan (such earliest
date, the “Maturity date”).  Interest is payable on the date of any
repayment of any loans and on the Maturity date.




The
number of common shares on the Consolidated Statement of Stockholders’ Equity at
December 31, 2009 was 44,105,781 compared to 45,413,734 at March 22, 2010. The
1,307,953 share variance relates to the vesting of shares to Pearl employees,
shares issued to board members and shares issued related to the EIS
acquisition.




F-27





SUPPLEMENTARY
FINANCIAL INFORMATION FOR OIL AND GAS PRODUCING ACTIVITIES


(UNAUDITED)





All of
our operations were directly related to oil and gas producing activities located
in Kansas and Oklahoma. As discussed in Note 5, In February 2009, the Company
sold its Kansas property and dissolved its joint venture associated with its
Oklahoma property. The Kansas property was sold to a third party who assumed the
note payable, including accrued but unpaid interest totaling $3,993,071 at the
acquisition date and the 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. For the year ended December 31, 2009, the
Company recorded a $2,110,066 gain on the sale of the Kansas property, which is
included in discontinued operations in the accompanying Consolidated Statements
of Operations.





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


December 31,
                    2008Proved
      oil and gas properties
                  
                  $
                  5,098,782Unproved
      oil and gas properties
                  
                  
                  -Total
      capitalized costs
                  
                  
                  5,098,782Less:
      Impairment allowance
                  
                  
                  (3,960,919
                  )Less:
      Accumulated depreciation
                  
                  
                  (36,909
                  )Total
                  
                  $
                  1,100,954





Costs
Incurred in Oil and Gas Producing Activities


December 31,
                    2008Acquisition
      of proved properties
                  
                  $
                  -Acquisition
      of unproved properties
                  
                  
                  -Development
      costs
                  
                  
                  -Exploration
      costs
                  
                  
                  -Asset
      retirement costs recognized
                  
                  
                  230,118Total
      costs incurred
                  
                  $
                  230,118




Results
of Operations from Oil and Gas Producing Activities


December 31,
                    2008Oil
      and gas revenues
                  
                  $
                  26,572Production
      costs and taxes
                  
                  
                  (442,689
                  )Depreciation
      and amortization and ARO accretion
                  
                  
                  (45,763
                  )Results
      of operations before income taxes
                  
                  
                  (461,880
                  )Provision
      for income taxes
                  
                  
                  -Results
      of oil and gas producing activities
                  
                  $
                  (461,880
                  )





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.
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. 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-28




Fro the
year ended December 31, 2008, a summary of changes in proved reserve balances is
as follows:




Total Proved,
                          
                          
                          Proved DevelopedBBL
                          
                          
                          MCF
                          
                          
                          BBL
                          
                          
                          MCFReserves
      as of January 1, 2008
                          
                          $
                          3,965
                          
                          
                          $
                          4,961,457
                          
                          
                          $
                          3,965
                          
                          
                          $
                          2,769,270Purchases
      of reserves in place
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Sale
      of reserves in place
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Revisions
      of previous estimates
                          
                          
                          (2,868
                          )
                          
                          
                          (3,419,800
                          )
                          
                          
                          (2,868
                          )
                          
                          
                          (1,227,613
                          )Production
                          
                          
                          (127
                          )
                          
                          
                          (31,847
                          )
                          
                          
                          (127
                          )
                          
                          
                          (31,847
                          )Reserves
      at December 31, 2008
                          
                          $
                          970
                          
                          
                          $
                          1,509,810
                          
                          
                          $
                          970
                          
                          
                          $
                          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.  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





Future
      cash flows
                        
                        $
                        2,517,408Future
      costs:Production
      and development costs
                        
                        
                        (728,160
                        )Future
      net cash flows
                        
                        
                        1,789,24810%
      annual discount for estimated timing of cash flows
                        
                        
                        (1,251,232
                        )Standardized
      measure of discounted future net cash flows
                        
                        $
                        538,016





The
following reconciles the change in the standardized measure of discounted future
net cash flow for the year ended December 31, 2008:





Beginning
      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-29