Letterhead of Pryor Cashman and Flynn, LLP
ERIC M. HELLIGE
DIRECT TEL: 212-326-0846
DIRECT FAX: 212-798-6380
ehellige@pryorcashman.com
August 23, 2005
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Steven Jacobs, Accounting Branch Chief
Re: INCENTRA SOLUTIONS, INC.
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2004
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2005
FILE NO. 0-32913
Ladies and Gentlemen:
On behalf of Incentra Solutions, Inc., a corporation organized under
the laws of the State of Nevada (the "Company"), and in connection with the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2004 (the "Annual Report") and the Company's Quarterly Report on Form 10-QSB for
the quarter ended March 31, 2005 (the "Quarterly Report"), we hereby file by
EDGAR transmission this letter containing our responses to the Staff letter
dated August 9, 2005 furnishing the comments of the Securities and Exchange
Commission (the "Commission") on the Annual Report and the Quarterly Report.
The numbered responses below correspond to the numbered paragraphs of
such comment letter. Capitalized terms not otherwise defined in this letter have
the meanings ascribed to them in the Annual Report or Quarterly Report, as the
case may be.
RESPONSES
1. As disclosed in Note 2 to the interim consolidated financial
statements included in the Quarterly Report, the convertible note
issued in February 2005 in connection with the STAR acquisition (the
"STAR Note") is convertible at the greater of $0.40 per share or 70%
of the average closing price of the Company's common stock for the ten
consecutive trading days ending on and including the last day of the
calendar quarter immediately preceding each scheduled payment date.
Securities and Exchange Commission
August 23, 2005
Page 2
The STAR Note was issued on February 18, 2005, which was determined to
be the commitment date. The average closing market price of the
Company's common stock for the ten consecutive trading days preceding
the commitment date (as calculated on February 18, 2005) was
approximately $0.27 per share. Because the conversion price of the
STAR Note on the commitment date was determined to be $0.40 per share
(the greater of $0.40 or 70% of the average closing price, as
defined), the Company determined that the STAR Note conversion feature
was not in-the-money at the commitment date. As a result, a beneficial
conversion feature did not exist pursuant to EITF 98-5.
2. The Company considered paragraphs 39 and A14 of SFAS No. 141 in
connection with the STAR and PWI business combinations as they relate
to the recognition of intangible assets apart from goodwill. To assist
the Company in evaluating the STAR and PWI purchase price allocations,
the Company engaged an independent valuation advisor to provide its
valuation analyses of certain acquired assets of STAR and PWI. Based
on these valuation analyses (which have not yet been finalized), the
Company preliminarily allocated the cost of STAR and PWI pursuant to
SFAS No. 141, of which approximately $530,000 of the STAR purchase
price and approximately $280,000 of the PWI purchase price were
allocated to identifiable intangible assets as of March 31, 2005.
Based on the preliminary allocation, no intangible assets have been
identified that are included in goodwill that do not meet the criteria
for recognition apart from goodwill.
3. As disclosed in Note 8 to the interim consolidated financial
statements included in the Quarterly Report, the Company determined
that a beneficial conversion feature existed in connection with a May
2005 amendment to the Laurus Note. Although not specifically set forth
in the subsequent events disclosure, the Company did calculate and
record the amount of the beneficial conversion feature in the quarter
ended June 30, 2005, pursuant to EITF Nos.' 98-5 and 00-27. In
addition, as disclosed in Note 7(A) to the interim consolidated
financial statements included in the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2005, the Company entered
into a second amendment to the Laurus Note in June 2005, which
resulted in an additional beneficial conversion feature. The total
amount of these beneficial conversion features was approximately
$110,000, which was recognized as expense during the quarter ended
June 30, 2005. The Company has clarified the disclosure regarding
these beneficial conversion features in Note 7(A) to its interim
consolidated financial statements included in the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2005, as filed
with the Commission on August 15, 2005.
The Company acknowledges that (i) it is responsible for the adequacy
and accuracy of the disclosure in its filings; (ii) Staff comments or changes to
disclosure in response to Staff comments do not foreclose the Commission from
taking any action with respect to the
Securities and Exchange Commission
August 25, 2005
Page 3
Company's filings; and (iii) the Company may not assert any Staff comments as a
defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
The Company believes it has fully responded to the comments of the
Commission. If the Commission has any questions or further comments with respect
to the Annual Report or the Quarterly Report, the Company respectfully requests
that such comments be directed to the undersigned as soon as practicable. The
undersigned would welcome the opportunity to discuss such questions or comments
(or discuss further any of the Company's responses) in advance of any written
response of the Commission.
Very truly yours,
/s/ ERIC M. HELLIGE
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Eric M. Hellige
cc: Mr. Paul McKnight, Chief Financial Officer
GHP Horwath, P.C.