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

Overview

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

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

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

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

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

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

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

Results of Operations

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

Between October 2006 and April 2007 Epic raised $1,414,700, net of commissions, from the sale of 1,455,100 shares of its common stock, plus 491,500 Series A warrants and 963,600 Series B warrants, to private investors. The Series A warrants expired on December 31, 2007. Each Series B Warrant entitles the holder to purchase one share of Epic's common stock at a price of $2.50 per share at any time prior to September 30, 2009.

In December 2007, Epic sold 5,429,335 shares of its common stock to a group of private investors for gross proceeds of $8,144,003, or $1.50 per share. The investors also received warrants which entitle the holders to purchase up to 5,429,335 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on December 5, 2012.

On December 5, 2007 Epic entered into a Purchase Agreement (the "Purchase Agreement") for the sale of its 2007 10% Secured Debentures (the "Debentures") in the principal amount of $20,250,000 to private investors who are different from those that purchase the common stock in December 2007. The Debentures were sold at their face value without discount. The Debentures bear interest annually at 10% per year. The Debentures are due and payable on December 5, 2012 and are secured by liens on all of Epic's assets. The purchasers of the Debentures also received warrants which entitle the holders to purchase up to 15,954,545 shares of Epic's common stock. The warrants are exercisable at a price of $1.65 per share and expire on December 5, 2012.

Interest on the Debentures is payable quarterly with the first interest payment due on January 1, 2008. Beginning December 1, 2008 Epic is required to make quarterly payments of $1,265,625 toward the principal amount of the Debentures.

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

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

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

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

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

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

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

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

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

Pursuant to the terms of the Amendment, the Holders agreed to waive any Events of Default (as defined in the Debenture and other documents executed 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.

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

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

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

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

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

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

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

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

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

Amount received from sale of common stock, notes and warrants            $  28,394,003

Less:
Acquisition of Pearl Investment Company                                    (19,020,000 )
Reserve for income taxes of Pearl Investment Company for year ended
December 31, 2007                                                           (2,400,000 )
Payment of Pearl Investment Company bank loans                              (1,504,884 )
Placement agent fees                                                        (1,785,000 )
Legal, accounting and other professional fees                                 (125,000 )

Remainder to be used as working capital                                  $   3,559,119

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

                                                                   2008             2007

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

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

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

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

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

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

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

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

Critical Accounting Policies

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

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

Revenue from consulting services is recognized from consulting engagements when hours are worked, either on a time-and-materials basis or on a fixed-fee basis, depending on the terms and conditions defined at the inception of an engagement with a client. The terms of the contracts with clients are fixed and determinable and may change based upon agreement by both parties. Individual consultants' billing rates are principally based on a multiple of salary and compensation costs. Revenue recognized in excess of billings is recorded as unbilled accounts receivable. Cash collections and invoices generated in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met. Client reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included in revenue, and an equivalent amount of reimbursable expenses are included in professional and subcontracted services as a cost of revenue.

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

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

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