UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES


EXCHANGE
ACT OF 1934





For the
quarterly period ended MARCH 31, 2010





 ̈ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934





For the
transition period from _______ to ________.





Commission
File Number 0-31357





EPIC ENERGY RESOURCES,
INC.


(Exact
name of registrant as specified in its charter)





Colorado
                94-3363969(State
      of incorporation)
                (I.R.S.
      Employer Identification
No.)





1450 Lake
Robbins Drive, Suite 160


The Woodlands, TX
77380


(Address
of principal executive offices)





(281)
419-3742


(Registrant's
telephone number, including area code)





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. YES x NO  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES  ̈ NO  ̈





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





Large
      accelerated filer  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer (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  ̈ NO x





As of
April 30, 2010, the Company had 45,413,734 issued and outstanding shares of
common stock.





EPIC ENERGY RESOURCES
INC.





Table
of Contents





PagePART
      I — FINANCIAL INFORMATIONItem 1.
      Financial StatementsConsolidated
      Balance Sheets as of  March 31, 2010 (unaudited) and December
      31, 2009
                        2Consolidated
      Statements of Operations for the three months ended March 31, 2010 and
      2009 (unaudited)
                        3Consolidated
      Statements of Cash Flows for the three months ended March 31, 2010 and
      2009 (unaudited)
                        4Notes
      to Unaudited Consolidated Financial Statements
                        5Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
                        12Item 4T.
      Controls and Procedures
                        14PART
      II — OTHER INFORMATIONItem 2.
      Unregistered Sales of Equity Securities and Use of
Proceeds
                        15Item 6.
      Exhibits
                        15Signatures
                        16Certification
      Pursuant to Section 302Certification
      Pursuant to Section 302Certification
      Pursuant to Section 906


1


PART
1. FINANCIAL INFORMATION





ITEM
1.  FINANCIAL STATEMENTS





EPIC
ENERGY RESOURCES INC.


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except share data)





March
      31,
                                          
                                          
                                          December 31,2010
                                          
                                          
                                          2009(unaudited)ASSETSCurrent
      AssetsCash
      and cash equivalents
                                          
                                          $
                                          510
                                          
                                          
                                          $
                                          153Accounts
      receivable:Billed,
      net of allowance of $158 and $185, respectively
                                          
                                          
                                          3,634
                                          
                                          
                                          
                                          6,348Unbilled
                                          
                                          
                                          679
                                          
                                          
                                          
                                          760Prepaid
      expenses and other current assets
                                          
                                          
                                          475
                                          
                                          
                                          
                                          407Total
      current assets
                                          
                                          
                                          5,298
                                          
                                          
                                          
                                          7,668Property
      and equipment, net
                                          
                                          
                                          2,132
                                          
                                          
                                          
                                          2,231Other
      assets
                                          
                                          
                                          32
                                          
                                          
                                          
                                          39Debt
      issuance costs, net of accumulated amortization of $591 and$481,
      respectively
                                          
                                          
                                          1,011
                                          
                                          
                                          
                                          1,116Goodwill
                                          
                                          
                                          8,919
                                          
                                          
                                          
                                          8,919Other
      intangible assets, net
                                          
                                          
                                          4,561
                                          
                                          
                                          
                                          8,906Total assets
                                          
                                          $
                                          21,953
                                          
                                          
                                          $
                                          28,879LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable
                                          
                                          $
                                          3,163
                                          
                                          
                                          $
                                          2,506Accrued
      liabilities
                                          
                                          
                                          2,679
                                          
                                          
                                          
                                          3,753Deferred
      revenue
                                          
                                          
                                          1,507
                                          
                                          
                                          
                                          2,593Customer
      deposits
                                          
                                          
                                          367
                                          
                                          
                                          
                                          949Current
      portion of long term debt
                                          
                                          
                                          3,207
                                          
                                          
                                          
                                          7,416Total
      current liabilities
                                          
                                          
                                          10,923
                                          
                                          
                                          
                                          17,217Long-term
      debt
                                          
                                          
                                          9,774
                                          
                                          
                                          
                                          4,561Derivative
      liability
                                          
                                          
                                          2,756
                                          
                                          
                                          
                                          1,965Deferred
      tax liability
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,351Total
      liabilities
                                          
                                          
                                          23,453
                                          
                                          
                                          
                                          25,094STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock, no par value: 10,000,000 authorized, no shares issued and
      outstanding
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Common
      stock, no par value: 100,000,000 authorized;  45,413,734 and
      44,105,781 shares issued and outstanding, respectively
                                          
                                          
                                          33,646
                                          
                                          
                                          
                                          33,639Additional
      paid-in capital
                                          
                                          
                                          2,267
                                          
                                          
                                          
                                          1,924Accumulated
      deficit
                                          
                                          
                                          (37,413
                                          )
                                          
                                          
                                          (31,778
                                          )Total
      stockholders’ equity (deficit)
                                          
                                          
                                          (1,500
                                          )
                                          
                                          
                                          3,785Total
      liabilities and stockholders’ equity (deficit)
                                          
                                          $
                                          21,953
                                          
                                          
                                          $
                                          28,879





See
accompanying notes to the unaudited consolidated financial statements


2


EPIC ENERGY RESOURCES INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(In
thousands, except share and per share data)


(unaudited)





Three
      months ended
                                                        March 31,2010
                                                      
                                                      
                                                      2009REVENUESConsulting
      fees
                                                      
                                                      $
                                                      4,068
                                                      
                                                      
                                                      $
                                                      7,774Reimbursed
      expenses
                                                      
                                                      
                                                      1,950
                                                      
                                                      
                                                      
                                                      1,240Total
      revenues
                                                      
                                                      
                                                      6,018
                                                      
                                                      
                                                      
                                                      9,014OPERATING
      EXPENSESReimbursed
      expenses
                                                      
                                                      
                                                      1,260
                                                      
                                                      
                                                      
                                                      1,044Compensation
      and benefits
                                                      
                                                      
                                                      3,808
                                                      
                                                      
                                                      
                                                      5,248General
      and administrative
                                                      
                                                      
                                                      1,203
                                                      
                                                      
                                                      
                                                      842Professional
      and subcontracted services
                                                      
                                                      
                                                      759
                                                      
                                                      
                                                      
                                                      1,221Occupancy,
      communication and other
                                                      
                                                      
                                                      277
                                                      
                                                      
                                                      
                                                      312Depreciation
      and  amortization
                                                      
                                                      
                                                      562
                                                      
                                                      
                                                      
                                                      1,122Impairment
      of intangible assets
                                                      
                                                      
                                                      4,033
                                                      
                                                      
                                                      
                                                      -Total
      operating expenses
                                                      
                                                      
                                                      11,902
                                                      
                                                      
                                                      
                                                      9,789Loss
      from operations
                                                      
                                                      
                                                      (5,884
                                                      )
                                                      
                                                      
                                                      (775
                                                      )OTHER
      INCOME (EXPENSE)Derivative
      loss
                                                      
                                                      
                                                      (791
                                                      )
                                                      
                                                      
                                                      (205
                                                      )Interest
      and other income, net
                                                      
                                                      
                                                      950
                                                      
                                                      
                                                      
                                                      95Interest
      expense
                                                      
                                                      
                                                      (1,261
                                                      )
                                                      
                                                      
                                                      (2,083
                                                      )Total
      other expense, net
                                                      
                                                      
                                                      (1,102
                                                      )
                                                      
                                                      
                                                      (2,193
                                                      )Loss
      from continuing operations before taxes
                                                      
                                                      
                                                      (6,986
                                                      )
                                                      
                                                      
                                                      (2,968
                                                      )Income
      tax benefit
                                                      
                                                      
                                                      1,351
                                                      
                                                      
                                                      
                                                      -Loss
      from continuing operations
                                                      
                                                      
                                                      (5,635
                                                      )
                                                      
                                                      
                                                      (2,968
                                                      )DISCONTINUED
      OPERATIONSLoss
      from operations of oil and gas segment
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (162
                                                      )Gain
      on sale of oil and gas properties
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      2,110Income
      from discontinued operations
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,948Net Loss
                                                      
                                                      $
                                                      (5,635
                                                      )
                                                      
                                                      $
                                                      (1,020
                                                      )Loss
      per common share -  basic and diluted:Loss
      from continuing operations
                                                      
                                                      $
                                                      (0.13
                                                      )
                                                      
                                                      $
                                                      (0.06
                                                      )Income
      from discontinued operations
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      0.04Net Loss
                                                      
                                                      $
                                                      (0.13
                                                      )
                                                      
                                                      $
                                                      (0.02
                                                      )Weighted
      average common shares outstanding – basic and diluted
                                                      
                                                      
                                                      44,828,402
                                                      
                                                      
                                                      
                                                      43,969,854





See
accompanying notes to the unaudited consolidated financial statements


3


EPIC
ENERGY RESOURCES INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


(unaudited)





Three
      months ended March 31,2010
                                        
                                        
                                        2009OPERATING
      ACTIVITIES:Net
      loss
                                        
                                        $
                                        (5,635
                                        )
                                        
                                        $
                                        (1,020
                                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Income
      from discontinued operations
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,948
                                        )Depreciation
      and amortization
                                        
                                        
                                        562
                                        
                                        
                                        
                                        1,122Allowance
      for doubtful accounts
                                        
                                        
                                        (8
                                        )
                                        
                                        
                                        (22
                                        )Amortization
      of debt discount and debt issuance costs
                                        
                                        
                                        793
                                        
                                        
                                        
                                        1,499Stock-based
      compensation expense
                                        
                                        
                                        349
                                        
                                        
                                        
                                        292Loss
      on sale of accounts receivable
                                        
                                        
                                        36
                                        
                                        
                                        
                                        -Loss
      on sale of property and equipment
                                        
                                        
                                        1
                                        
                                        
                                        
                                        83Impairment
      of intangible assets
                                        
                                        
                                        4,033
                                        
                                        
                                        
                                        -Derivative
      loss
                                        
                                        
                                        791
                                        
                                        
                                        
                                        205Deferred
      taxes
                                        
                                        
                                        (1,351
                                        )
                                        
                                        
                                        -Gain
      on early extinguishment of debt
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (94
                                        )Changes
      in operating assets and liabilities:Accounts
      receivable
                                        
                                        
                                        706
                                        
                                        
                                        
                                        (3,144
                                        )Prepaid
      expenses and other current assets
                                        
                                        
                                        (69
                                        )
                                        
                                        
                                        (36
                                        )Other
      non-current assets
                                        
                                        
                                        7
                                        
                                        
                                        
                                        (8
                                        )Accounts
      payable
                                        
                                        
                                        657
                                        
                                        
                                        
                                        (1,477
                                        )Accrued
      liabilities
                                        
                                        
                                        (1,074
                                        )
                                        
                                        
                                        (1,312
                                        )Customer
      deposits
                                        
                                        
                                        (582
                                        )
                                        
                                        
                                        (117
                                        )Deferred
      revenue
                                        
                                        
                                        (1,086
                                        )
                                        
                                        
                                        5,624Net
      cash used in operating activities
                                        
                                        
                                        (1,870
                                        )
                                        
                                        
                                        (353
                                        )INVESTING
      ACTIVITIES:Purchases
      of property and equipment
                                        
                                        
                                        (151
                                        )
                                        
                                        
                                        (94
                                        )Proceeds
      from sale of property and equipment
                                        
                                        
                                        1
                                        
                                        
                                        
                                        53Net
      cash used in investing activities
                                        
                                        
                                        (150
                                        )
                                        
                                        
                                        (41
                                        )FINANCING
      ACTIVITIES:Payments
      on debt
                                        
                                        
                                        (184
                                        )
                                        
                                        
                                        (3,198
                                        )Proceeds
      from debt
                                        
                                        
                                        500
                                        
                                        
                                        
                                        -Proceeds
      from sale of accounts receivable
                                        
                                        
                                        2,061
                                        
                                        
                                        
                                        -Net
      cash provided by (used in) financing activities
                                        
                                        
                                        2,377
                                        
                                        
                                        
                                        (3,198
                                        )DISCONTINUED
      OPERATIONS:Net
      cash used in discontinued operations
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (9
                                        )Net
      cash used in discontinued operations
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (9
                                        )Net
      increase (decrease) in Cash and Cash Equivalents
                                        
                                        
                                        357
                                        
                                        
                                        
                                        (3,601
                                        )Cash
      and Cash Equivalents, Beginning of period
                                        
                                        
                                        153
                                        
                                        
                                        
                                        4,785Cash
      and Cash Equivalents, End of period
                                        
                                        $
                                        510
                                        
                                        
                                        $
                                        1,184SUPPLEMENTAL
      CASH FLOW DISCLOSURES:Cash
      paid for Interest
                                        
                                        $
                                        22
                                        
                                        
                                        $
                                        1,217NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Settlement
      of obligations through sale of oil and gas properties
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        4,225Cumulative
      net effect of change in accounting principle
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        748





See
accompanying notes to the unaudited consolidated financial
statements


4


EPIC ENERGY RESOURCES INC.


Notes
to Unaudited Consolidated Financial Statements





1.  Organization,
Operations and Basis of Presentation





Epic
Energy Resources, Inc (“Epic”) was incorporated in Colorado in 1989. Epic was
relatively inactive until April 2006, when current management gained control and
became focused on energy related activities including consulting, engineering,
and oil and gas production activities. Epic previously consisted 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”). In December 2009, Epic merged Carnrite, Pearl and EIS
into a single subsidiary and formed Epic Integrated Services, Inc (“Epic IS”).
Epic and Epic IS (collectively 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 the Company’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, and
including oil and gas processing facilities.





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America (“U.S. GAAP”) for interim financial information and pursuant to the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and disclosures required by U.S. GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 2010, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2010. The balance sheet at December
31, 2009, has been derived from the audited financial statements at that date
but does not include all of the information and disclosures required by U.S.
GAAP for complete financial statements. For further information, refer to the
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.





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, all of 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 the  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.  Significant
Accounting Policies





Principles
of consolidation





The
accompanying consolidated financial statements include the accounts of the
Company.  Intercompany accounts and transactions have been
eliminated.





Use
of Estimates





The
preparation of financial statements in conformity with U.S. 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 goodwill and intangible assets, revenue recognition on uncompleted contracts,
allowance for doubtful accounts, and the valuation of stock options and
warrants.


5


Recent
Accounting Pronouncements





In
January 2010, the Financial Accounting Standards Board issued revised guidance
intended to improve disclosures related to fair value measurements. This
guidance requires new disclosures as well as clarifies certain existing
disclosure requirements. New disclosures under this guidance require separate
information about significant transfers in and out of level 1 and level 2 and
the reason for such transfers, and also require purchase, sale, issuance, and
settlement information for level 3 measurement to be included in the rollforward
of activity on a gross basis. The guidance also clarifies the requirement to
determine the level of disaggregation for fair value measurement disclosures and
the requirement to disclose valuation techniques and inputs used for recurring
and nonrecurring fair value measurements in either level 2 or level 3. This
accounting guidance is effective for the Company beginning the first quarter of
fiscal year 2010. The adoption of this guidance did not have a significant
impact on the Company’s financial statement disclosures.





3.
Property and Equipment





Property
and equipment consisted of the following (in thousands):





March 31,
                            2010
                          
                          
                          December 31,
                            2009Computer
      equipment
                          
                          $
                          2,590
                          
                          
                          $
                          2,569Office
      furniture and equipment
                          
                          
                          933
                          
                          
                          
                          934Leasehold
      improvements
                          
                          
                          636
                          
                          
                          
                          636Vehicles
                          
                          
                          56
                          
                          
                          
                          56Construction
      in progress
                          
                          
                          130
                          
                          
                          
                          -4,345
                          
                          
                          
                          4,195Less:
      Accumulated depreciation and amortization
                          
                          
                          (2,213
                          )
                          
                          
                          (1,964
                          )Total
      property and equipment, net
                          
                          $
                          2,132
                          
                          
                          $
                          2,231





Depreciation
expense for the three months ended March 31, 2010 and 2009 was $249,641 and
$404,805, respectively.





4.
Oil and Gas Properties





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 three
months ended March 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. At March 31, 2010, the
Company does not own any oil and gas properties.





5.  Other
Intangible Assets





The
Company’s intangible assets consist of the following at March 31, 2010 (in
thousands):





Carrying
                          amount
                        
                        
                        Accumulated
                          amortization
                        
                        
                        Impairment
                          loss
                        
                        
                        Net book
                          valueCustomer
      relationships
                        
                        $
                        6,565
                        
                        
                        $
                        (2,004
                        )
                        
                        $
                        -
                        
                        
                        $
                        4,561Backlog
                        
                        
                        5,124
                        
                        
                        
                        (5,124
                        )
                        
                        
                        -
                        
                        
                        
                        -Employment
      contracts
                        
                        
                        1,147
                        
                        
                        
                        (1,147
                        )
                        
                        
                        -
                        
                        
                        
                        -Patent
                        
                        
                        64
                        
                        
                        
                        (64
                        )
                        
                        
                        -
                        
                        
                        
                        -Indefinite-lived
      trade name
                        
                        
                        4,033
                        
                        
                        
                        -
                        
                        
                        
                        (4,033
                        )
                        
                        
                        -Total
                        
                        $
                        16,933
                        
                        
                        $
                        (8,339
                        )
                        
                        $
                        (4,033
                        )
                        
                        $
                        4,561





Amortization
expense related to the above intangible assets for the three months ended March
31, 2010 and 2009 was $312,094 and $717,642, respectively. The aggregate
amortization expense associated with intangible assets for the next five years
is estimated to be as follows (in thousands):


6





2010
      (nine  months
      remaining)
                      
                      $
                      9362011
                      
                      
                      1,2482012
                      
                      
                      1,2492013
                      
                      
                      1,1192014
                      
                      
                      9Total
                      
                      $
                      4,561





In
December 2009, Carnrite, Pearl, and EIS were merged into a single subsidiary,
Epic IS. In connection with the formation of Epic IS, during the three months
ended March 31, 2010, the Company began marketing its services under the Epic
brand name. As a result, the Company concluded that there was no future value to
the Carnrite, Pearl, and EIS trade names and during the three months ended March
31, 2010 recorded an impairment loss of $4,033,078, which was the balance of the
trade name intangible asset.





6.
Derivative Liability and Fair Value Measurements





The
Company measures its derivative liability associated with its warrants to
purchase the Company’s common stock  (“Common Stock”) at fair value on
a recurring basis. At March 31, 2010, the Company has 22,685,031 outstanding
warrants containing exercise price reset provisions which were not deemed to be
indexed to the Company’s stock.   The fair values of these
warrants are recoded as a derivative liability.   These warrants
had exercise prices ranging from $1.50 - $1.65 and were scheduled to expire in
December 2012. The change in fair value during the three months ended March 31,
2010 and 2009 of $791,162 and $205,013, respectively, is recorded as derivative
losses in the accompanying Consolidated Statements 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 3.0 years, volatility of
193% and a risk-free interest rate of 1.7%, the Company determined the fair
value of the warrants to be $1,964,591 at December 31, 2009. Under the
Black-Scholes model using an expected life of 2.75 years, volatility of 192% and
a risk-free interest rate of 1.46%, the Company determined the fair value of the
warrants to be $2,755,753 at March 31, 2010.





The
following shows the changes in the level three liability measured on a recurring
basis for the three months ended March 31, 2010 (in
thousands):





Balance,
      January 1, 2010
                      
                      $
                      1,965Derivative
      loss
                      
                      
                      791Balance,
      March 31, 2010
                      
                      $
                      2,756





In April
2010, the Company issued Series A Convertible Preferred Stock (“Series A
Preferred Stock”) and Common Stock in exchange for the cancellation of all its
warrants. See note 12 for further discussion.





7. Long-Term Debt





Debt
consists of the following (in thousands):





March 31,
                              2010
                            
                            
                            December 31,
                              200910%
      secured debentures
                            
                            $
                            14,922
                            
                            
                            $
                            14,922Debt
      discount
                            
                            
                            (4,670
                            )
                            
                            
                            (5,358
                            )10%
      secured debentures, net
                            
                            
                            10,252
                            
                            
                            
                            9,564Notes
      payable secured by assets acquired
                            
                            
                            1,159
                            
                            
                            
                            1,343Note
      payable – EIS acquisition
                            
                            
                            1,070
                            
                            
                            
                            1,070Note
      payable –other
                            
                            
                            500
                            
                            
                            
                            -Total
      debt
                            
                            
                            12,981
                            
                            
                            
                            11,977Less:
      current maturities
                            
                            
                            (3,207
                            )
                            
                            
                            (7,416
                            )Total
      long-term debt
                            
                            $
                            9,774
                            
                            
                            $
                            4,561


7


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 and principle payable quarterly. Any
overdue accrued and unpaid interest results 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 of the Debentures. The purchasers of the Debentures also received
warrants which entitled the holders to purchase up to 15,954,545 shares of the
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 debt discount is being
amortized to interest expense using the effective interest method over the life
of the debentures.  For the three months ended March 31, 2010 and
2009, $688,251 and $1,388,795, respectively, of debt discount was amortized to
interest expense. In April 2010, the Company issued Series A Convertible
Preferred Stock (“Series A Preferred Stock”) and Common Stock in exchange for
the forgiveness of principal under the Debentures. See note 12 for further
discussion.





On
February 26, 2009, the Company entered into an Amendment Agreement (the
“Amendment”) with the majority of the holders of the Debentures (the “Holders”).
Under the Amendment, the Holders agreed to waive any events of default 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.  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 is to generate, on a consolidated basis, EBITDA of at
least $1,000,000. The Amendment also provides that until June 30, 2010, the
Company is permitted to only issue up to a maximum aggregate of 10,000,000
Common Stock (with options and warrants counted as shares of Common Stock)
(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 Holders no longer hold any of the
Company’s securities or (ii) one year prior to the expiration date of the
warrants (regardless of whether any or all warrants have been exercised).
Finally, 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.





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 was increased from 10% to 12%.





The
Company did not make its March 1, 2010 principal payment on the Debentures and
this resulted in an event of default under the Debentures. In April 2010, to
cure this event of default and other events of default, the Company obtained a
waiver from the Holders of this event of default and a deferral of the March 1,
2010 principal payment. See note 12 for further discussion.





Notes payable secured by
assets acquired





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 March 31, 2010 and December 31, 2009, this note payable had a balance of
$43,014 and $48,096, 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 March 31, 2010
and December 31, 2009, this note payable had a balance of $79,711 and $158,938,
respectively.


8


In
December 2009, the Company entered into a note payable for $1,108,330 (the “New
Note”) to cover the deficiency from the sale of its airplane. The New Note is a
4 year note and with 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 March 31, 2010 and December 31,
2009, the New Note had a balance of $563,596 and $636,855, respectively. In
November 2009, to fund the December 23, 2009 payment required on the New Note
(discussed above), the Company entered into a 2 year note payable (“2 Year
Note”) for $500,000. The 2 Year Note with a 10% annual interest rate is due on
December 21, 2012 with principal and interest payable monthly beginning January
1, 2010. At March 31, 2010, the 2 Year Note had a balance of
$473,203.





Note payable – EIS
acquisition





In
connection with the acquisition of EIS, the Company has a $1,400,000 note
payable (the “EIS Note”) which will be paid to the prior owners of EIS in
periodic installments. The EIS Note is to be paid 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.





Note payable –
Other





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. In April 2010, the Company
issued Series A Preferred Stock in exchange for the forgiveness of the Bridge
Loan. See note 12 for further discussion.




8.
Stockholders’ Equity





During
the three months ended March 31, 2010, the Company issued 944,620 shares of
Common Stock to certain employees of Epic IS. These shares are related to the
acquisition of Pearl in 2007 and were issued in the three months ended March 31,
2010, upon the vesting of such shares.





During
the three months ended March 31, 2010, the Company issued 333,333 shares of
Common Stock to the prior owners of EIS upon the vesting of such
shares.





During
the three months ended March 31, 2010, the Company issued 30,000 shares of
Common Stock to non-employee directors for services. The stock was valued at the
price on the date of issuance which was an aggregate of $6,600. For the three
months ended March 31, 2010, the stock value is included in professional and
subcontracted services in the accompanying Consolidated Statements of
Operations.





9.
Stock Based Compensation





On
January 1, 2010, the Company granted 6,621,010 stock options to the
Company’s senior management, employees, and the board of directors. These
options have an exercise price of $0.50 per share and expire 10 years from the
day they were granted. These options vest over a three year period. For the
three months ended March 31, 2010, approximately $202,450 of compensation
expense was recorded related to these options.  Unrecognized
compensation expense of approximately $284,200 will be recognized over the
remaining vesting period of these options.





The fair
value of the options discussed above was estimated on the grant date using the
Black-Scholes option-pricing model with an expected life of 2.1 to 3 years,
volatility of 192.7% to 192.8%, and a risk free interest rate of 0.71% to
1.7%.





A summary
of stock option activity for the three months ended March 31, 2010 is as
follows:





Number of
                          Shares
                        
                        
                        Weighted
                          Average
                          Exercise PriceOptions
      outstanding, January 1, 2010
                        
                        
                        1,848,900
                        
                        
                        $
                        1.84Options granted
                        
                        
                        6,621,010
                        
                        
                        $
                        0.50Options
      expired
                        
                        
                        (50,000
                        )
                        
                        $
                        3.00Options
      outstanding, March 31, 2010
                        
                        
                        8,419,910
                        
                        
                        $
                        0.78


9


10.
Income taxes





For the
three months ended March 31, 2010, the Company recorded a deferred tax benefit
of approximately $1,351,000 related to the reversal of a deferred tax liability.
The deferred tax liability was related to the trade name intangible asset and
due to the impairment of the remaining trade name during the three months ended
March 31, 2010, the balance of the deferred tax liability was
adjusted.





11.
Commitments and Contingencies





Litigation





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





From time to time, the Company may be involved in
litigation or administrative proceedings relating to claims arising out of our
operations in the normal course of business.  The Company is not aware
of any pending of threatened legal proceedings that, if determined in an adverse
manner, could have a material adverse effect on the Company’s business and
operations.





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 the 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
three months ended March 31, 2010, the Company has recognized a loss on the sale
of accounts receivable of $36,104 and paid fees of $15,321 related to the sale
of $2,448,105 of accounts receivables. At March 31, 2010 and December 31, 2009,
the Company has retained accounts receivable of $334,876 and $268,219,
respectively, related to the receivables auctioned which are included in
Accounts receivable in the accompanying Consolidated Balance
Sheets.





12.  Subsequent
events





On April 9, 2010, the Company entered into a Subscription
Agreement (the “Subscription Agreement”) with accredited investors in connection
with theprivateissuance and sale (the “Private Placement”) of 3,660,000 shares of the Company’s Series A
Preferred Stock. Under the Private Placement, the Company sold 3,160,000 Series
A Preferred Stock in the Private Placement for $1.00 per share.  
Also, pursuant to the Private Placement, the Company issued 500,000 shares of
Series A Preferred Stock to Castex in exchange for the forgiveness of the Bridge
Loan in the amount of $500,000. Each share of Series A Preferred Stock will be
convertible into 14 shares of Common Stock, after such time that the Company
increases its authorized shares of Common Stock sufficiently to permit such
conversion b y amending its Articles of Incorporation.





On April
9, 2010, in connection with the Private Placement, the Company entered into a
Debenture Exchange Agreement with certain Holders whereby the Company issued
14,000,000 shares of its Common Stock to certain Holders in exchange for
forgiveness of an aggregate of $1,000,000 principal amount of
Debentures.





On April
9, 2010, in connection with the Private Placement, the Company entered into a
Waiver and Amendment to Debentures with 98% of the Holders and an Amendment to
Securities Purchase Agreement with all of the Holders. Pursuant to these
agreements, the Company issued 147,094 shares of Series A Preferred Stock to one
Holder and 3,940,678 shares of its Common Stock to the other Holders in exchange
for the consent to defer principal payments and amend or waive certain covenants
pertaining to the Debentures. The Company agreed to redeem all of the Debentures
held by the Holders that did not agree to the Waiver and Amendment to Debentures
and the Amendment to Securities Purchase Agreement.


10


On April
9, 2010, in connection with the Private Placement, the Company entered into a
Series D Warrant Exchange Agreement. In connection with the issuance of the
Debentures in 2007, the Company issued Series D Warrants to purchase 15,954,545
shares of Common Stock to the Holders and Series D Warrants to purchase
1,116,818 shares of Common Stock to third parties assisting with the
transaction. Pursuant to the Series D Warrant Exchange Agreement, the Company
issued 379,870 shares of Series A Preferred Stock to one Holder and 11,753,181
shares of its Common Stock to the other Holders in exchange for the cancellation
of all 17,071,363 outstanding Series D Warrants.





On April
9, 2010, in connection with the Private Placement, the Company entered into a
Series C Warrant Exchange Agreement with the holders of the Series C Warrants.
Under this agreement the Company issued 71,429 shares of its Series A Preferred
Stock to one Series C Warrant holder and 4,613,668 shares of its Common Stock to
all other Series C Warrant holders in exchange for the cancellation of all
5,613,668 outstanding Series C Warrants.  The holders of Series C
Warrants also waived the Company’s breach of a registration obligation (pursuant
to a registration rights agreement) and the right to collect liquidated damages
and interest.





On April
21, 2010, Argos entered into a drilling and development
agreement  with Whittle Corporation (“Whittle”) to drill wells in the
Marcellus Shale in northwest West Virginia   (the “Drilling
Program”).  Argos has entered into the Drilling Program with Whittle
Corporation to develop certain leases held by Whittle which include an 11 county
area of mutual interest including Wetzel, Tyler, Ritchie and Marshall
Counties.  Argos and Whittle have agreed to jointly develop
approximately 12,600 acres pledged to the Drilling Program by
Whittle.





There
were no additional significant subsequent events through the date the financial
statements were issued.


11





ITEM
2.MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The
discussion in this section contains forward-looking statements. These statements
relate to future events or our future financial performance. We have attempted
to identify forward-looking statements by terminology such as "anticipate,"
"believe," "can," "continue," "could," "estimate," "expect," "intend," "may,"
"plan," "potential," "predict," "should," "would" or "will" or the negative of
these terms or other comparable terminology, but their absence does not mean
that a statement is not forward looking. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors, which
could cause our actual results to differ from those projected in any
forward-looking statements we make This discussion should be read with our
financial statements and related notes included elsewhere in this
report.





Overview





Epic
began operating in the oil and gas industry in April 2006. Epic acquired
Carnrite in August 2007, Pearl in December 2007 and EIS in February
2008.   In December 2009, Epic merged its three operating
subsidiaries, Carnrite, Pearl and EIS, into a single operating subsidiary and
formed Epic Integrated Services, Inc or Epic IS. With respect to this
discussion, the terms “the Company”, “we,” “us,” and “our” refer to Epic Energy
Resources, Inc. and Epic IS, our wholly-owned subsidiary.





Results of
Operations





Epic,
through its operating subsidiary, Epic IS, 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
its 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 May
4, 2010, the Company’s potential backlog for consulting services to be performed
in the future was approximately $15.9 million. This compares with backlog of
approximately $31.8 million as of April 30, 2009. This backlog amount could
change by macro economic market activity and customer demand
changes.





Three
Months ended March 31, 2010 compared with Three Months ended March 31,
2009





Revenues
were approximately $6.0 million for the quarter ended March 31, 2010 compared to
approximately $9.0 million for the quarter ended March 31, 2009. The decrease of
$3.0 million was primarily related to a decline in revenues from consulting
fees. 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
Expenseswere approximately $11.9 million for the quarter ended March 31,
2010 compared to approximately $9.8 million for the quarter ended March 31,
2009. The $2.1 million increase was primarily related to a $4.0 million
impairment charge related to the trade name intangible asset offset by a $1.4
million decrease in compensation and benefits that resulted from a reduction in
the number of employees and salary reducitons.





Loss from
Operationswas approximately $5.9 million for the quarter ended March 31,
2010 compared to $0.8 million for the quarter ended March 31, 2009.





Other Expense,
netwas approximately $1.1 million for the quarter ended March 31, 2010
compared to approximately $2.2 million for the quarter ended March 31,
2009.  The decrease of $1.1 million was primarily due to lower
interest expense and the forgiveness of the liquidated damages in first quarter
of 2010.


12


Net Losswas $5.6 million or $.13 per share for the quarter ended March 31, 2010
compared to $1.0 million or $0.02 per share for the quarter ended March 31, 2009
resulting in an increased loss of $4.6 million.  The primary reasons
for the increase in the net loss for the three months ended March 31, 2010 was
the impairment of the trade name intangible asset.





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.  The Company entered into various agreements to fund
short term capital needs.





On March
4, 2010, Epic entered into the Bridge Loan to meet short term working capital
needs with 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.





On April
9, 2010, the Company entered into the Subscription Agreement with accredited
investors in connection with the Private Placement of 3,660,000 shares of the
Company’s Series A Preferred Stock (“Series A Preferred
Stock”).  Under the Private Placement, the Company sold 3,160,000
Series A Preferred Stock in the Private Placement for $1.00 per
share.   Also, pursuant to the Private Placement, the Company issued
500,000 shares of Series A Preferred Stock to Castex in exchange for the
forgiveness of the Bridge Loan of $500,000. Each share of Series A Preferred
Stock will be convertible into 14 shares of the Company’s Common Stock after
such time that the Company increases its authorized shares of Common Stock
sufficiently to permit such conversion by amending its Articles of
Incorporation.





On April
9, 2010, in connection with the Private Placement, the Company entered into a
Debenture Exchange Agreement with certain Holders whereby the Company issued
14,000,000 shares of its Common Stock to certain Holders in exchange for
forgiveness of an aggregate of $1,000,000 of principal of
Debentures.





On April
9, 2010, the Company entered into a Waiver and Amendment to Debentures with 98%
of the Holders and an Amendment to Securities Purchase Agreement with all of the
Holders. Pursuant to these agreements, the Company issued 147,094 shares of
Series A Preferred Stock to one Limited Holder and 3,940,678 shares of its
Common Stock to the other Holders in exchange for the consent to defer principal
payments and amend or waive certain covenants pertaining to the Debentures. The
Company agreed to redeem all of the Debentures held by the Holders that did not
agree to the Waiver and Amendment to Debentures and the Amendment to Securities
Purchase Agreement.





Operating
activities used cash of approximately $1.9 million for the three months ended
March 31, 2010 compared to approximately $0.4 million of cash provided by
operations for the three months ended March 31, 2009.  We had a net
loss of $5.6 million for the three months ended March 31, 2010 and a decrease in
cash flow from changes in assets and liabilities of approximately $1.4
million.  During the three months ended March 31, 2010, we had
non-cash expenses of $4.0 million impairment of intangible assets, $0.8 million
of amortization of debt discount and debt issuance costs, $0.6 million of
depreciation and amortization, $0.8 million for the change in the fair value of
the derivative liability, and $0.3 million of non-cash stock based compensation
expense.  For the three months ended March 31, 2009, we had a net loss
of $1.0 million and a decrease in cash flow from changes in assets and
liabilities of $0.5 million. In addition during the three months ended March 31,
2009, we had $1.5 million of amortization of debt discount and debt issuance
costs, $1.1 million of depreciation and amortization, and $0.3 million of
non-cash stock based compensation expense.





For the
three months ended March 31, 2010, we had investing activities that used cash of
approximately $151,000 related to the acquisition of property and equipment net
of proceeds from sales of property and equipment. For the three months ended
March 31, 2009, we had investing activities that used cash of approximately
$41,000 related to the acquisition of property and equipment net of proceeds
from sales of property and equipment.





For the
three months ended March 31, 2010, we had financing activities that provided
cash of $2.4 million related to the proceeds from the sale of accounts
receivables and debt offset by debt payments.  For the three months
ended March 31, 2009, we used $3.2 million of cash flows for financing
activities related to debt payments.


13


As of
March 31, 2010, we had working capital deficit of $5.6 million compared with
working capital deficit of $9.5 million at December 31, 2009.





As of
March 31, 2010, we had cash and cash equivalents of $0.5 million and no
significant debt maturities until 2011. We believe that our internally generated
cash flows from operations and current reserves of cash and cash equivalents
will be sufficient to finance the majority of our cash requirements for current
and future operations, budgeted capital expenditures, and debt service for the
next twelve months.





Critical Accounting
Policies





This
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements. The preparation of these
financial statements requires us to make estimates and assumptions that affect
the reported amounts. On an ongoing basis, we evaluate our estimates, including
those related to bad debts, intangible assets, long-lived assets, income taxes,
and contingencies and litigation. We base our estimates on historical experience
and on various other assumptions and factors that we believe to be reasonable
under the circumstances. Based on our ongoing review, we make adjustments we
consider appropriate under the facts and circumstances. The accompanying
condensed unaudited consolidated financial statements are prepared using the
same critical accounting policies discussed in our 2009 Annual Report on Form
10-K.





Contractual
Commitments





There
have been no material changes to Epic’s contractual commitments during the first
quarter of 2010 (except as noted above).  Please see Note 10 and the
Company’s Annual Report on Form 10-K for December 31, 2009 for a complete
discussion of the Company’s debt obligations.





Except
for the commitments arising from our operating leases arrangements, we have no
other off-balance sheet arrangements that are reasonably likely to have a
material effect on our financial statements.





Safety





Working
safely is a major objective at Epic. We believe this organization-wide objective
provides for a safer work environment for employees, reduces our costs and
enhances our reputation. Furthermore, striving to be a world-class leader in
safety provides a platform for all employees to understand and apply the resolve
necessary to be a high-performing organization. We measure our progress on
safety based on Recordable Incidence Rate (“RIR”) as defined by OSHA. For the
three month period ending March 31, 2010, the Company had no reportable
incidents.  We continued to increase the number of training hours and
worked judiciously to reduce the Company’s RIR’s.





ITEM
4T. CONTROLS AND PROCEDURES





(a)
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 Rule 13a-15(e) and 15d-15(e) of the Securities
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 March 31, 2010.





(b)
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 quarter ended March 31,
2010 that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting.


14


PART
II – OTHER INFORMATION





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





In April
2010, Epic sold 3,660,000 Series A Preferred Stock without registration under
the Securities Act of 1933, as amended (the “Act”), or state securities laws, in
reliance on the exemptions provided by Section 4(2) of the Act and Regulation D
promulgated thereunder.  Because the Series A Preferred Stock has not
been registered, such shares may not be offered or sold by the investors absent
registration or an applicable exemption from registration requirements, such as
the exemption afforded by Rule 144 under the Act.





In April
2010, Epic issued 147,094 shares of Series A Preferred Stock and 3,940,678
shares of Common Stock in exchange for deferring principal payments and amending
or waiving certain covenants under the Debentures. The Company issued the shares
of Series A Preferred Stock and the shares of Common Stock without registration
under the Act, or state securities laws, in reliance on the exemptions provided
by Section 4(2) of the Act and Regulation D promulgated
thereunder.  Because the Series A Preferred Stock and Common Stock
have not been registered, such shares may not be offered or sold by the
investors absent registration or an applicable exemption from registration
requirements, such as the exemption afforded by Rule 144 under the
Act.





In April
2010, Epic issued 451,299 shares of Series A Preferred Stock and 30,366,849
shares of Common Stock in exchange for the cancellation 17,071,363 Series D
Warrants, 5,613,668 Series C Warrants and forgiveness of $1,000,000 of principal
of the Debentures. These shares were issued without registration under the Act,
or state securities laws, in reliance on the exemptions provided by Section 4(2)
of the Act and Regulation D promulgated thereunder.  Pursuant to Rule
144(d)(3)(ii) of the Act, the holding period of the Series A Preferred Stock and
the Common Stock issued in exchange for the Series D Warrants, the Series C
Warrants, and the principal amount of the Debentures will tack back to the
original issue dates of the Series D Warrants, the Series C Warrants and the
Debentures and as a result such Series A Preferred Stock and Common Stock will
be issued without a restrictive legend and shall otherwise have no restrictions
on resale by the Holders.  Holders of such Series A Preferred Stock
and Common Stock will therefore be permitted to resell such shares of Series A
Preferred Stock and Common Stock without restriction, and resales by such
holders of the Series A Preferred Stock and Common Stock will not be covered by
a registration statement filed by the Company.





ITEM
6. EXHIBITS





31.1
              Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
              Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
              Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.


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SIGNATURES





Pursuant
to the requirements 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.(Registrant)Date:
      May 13, 2010
              /s/John S.
      IppolitoChief
      Executive Officer, President and Principal
                Executive
      OfficerDate:
      May 13, 2010
              /s/
      Michael KinneyChief  Financial
      Officer, Executive Vice
                President
      and Principal Accounting
Officer


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