HART & TRINEN, LLP
ATTORNEYS AT LAW
1624 Washington Street
Denver, CO 80203
William T. Hart, P.C. ________ Email: harttrinen@aol.com
Donald T. Trinen Facsimile: (303) 839-5414
(303) 839-0061
October 21, 2008
Kristina Aberg
Securities and Exchange Commission
Mail Stop 4561
100 F Street, NE
Washington, DC 20549
Re: Epic Energy Resources, Inc.
Form S-1/A
This office represents Epic Energy Resources, Inc. (the "Company").
Amendment #5 to the Company's registration statement has been field with the
Commission. This letter provides the Company's responses to the comments
received from the Staff by letter dated September 18, 2008. The paragraph
numbers in this letter correspond with the numbered paragraphs in the Staff's
comment letter. The number under the "Page Number" column indicates the page
number in the registration statement where the response to the comment can be
found. The letters "FS" in the page number column refer to the page in the
Company's financial statements.
Page Number
-----------
1. Note 3 to the Company's December 31, 2007 financial statements
has been amended to read as shown below. The revision to the
footnote has been marked for your reference. F-15
December 31, 2007 Financial Statements
3. Business Combinations
On August 13, 2007, Epic acquired Carnrite for 4,850,844 shares
of its common stock valued at $16,007,785. Of these 4,850,844
shares, 1,673,034 shares were awarded to key employees of
Carnrite as retention shares. These shares will be required to
be returned to the Company if the employees voluntarily
terminate their employment prior to March 28, 2009. In
accordance with EITF No. 95-8 "Accounting for Contingent
Consideration Paid to the Shareholders for an Acquired Enterprise
in a Business Combination", the contingent consideration is
considered additional purchase price consideration. In addition,
Epic issued 63,556 shares of its common stock valued at $209,735
as a transaction fee to an individual that assisted with the
acquisition. The consolidated statement of operations includes
the operations of Carnrite for the period from July 1, 2007
through December 31, 2007. Because the actual purchase date
for Carnrite was August 13, 2007, imputed interest in the amount
of $115,000 was recorded during 2007.
1
On December 5, 2007, the Company acquired Pearl for 1,786,240
shares of its common stock and cash of $19,020,000. The
consolidated statement of operations includes the operations
of Pearl for the period from December 1, 2007 through
December 31, 2007.
The acquisitions and related transactions were treated as
a purchase business combination for accounting purposes,
and Carnrite and Pearl's assets acquired and liabilities
assumed were recorded at their fair value. The allocations
of the purchase price to Carnrite and Pearl's assets and
liabilities are only preliminary allocations based on
estimates of fair value and will change when the actual
fair values are determined. Among the provisions of SFAS
No. 141, criteria have been established for determining
whether intangible assets should be recognized separately
from goodwill. The Company has not made that determination
as of December 31, 2007. The Company has one year from the
date of acquisition to make the determination.
The aggregate purchase price of Carnrite was $16,217,520
and consisted of 4,914,400 shares of common stock valued
at $3.30 per share, the closing price on the day of
acquisition. The following table presents the allocation of
the acquisition cost to the assets acquired and liabilities
assumed, based on fair values:
Amount
------
Cash $ 48,227
Receivables from clients 1,207,883
Property and equipment 26,442
Other assets 4,901
Goodwill and intangible assets 15,603,264
--------------
Total assets acquired 16,890,717
--------------
Accounts payable (311,197)
Line of credit (362,000)
---------------
Total liabilities assumed (673,197)
---------------
Net assets acquired $ 16,217,520
=============
The aggregate purchase price of Pearl was $24,646,656 and
consisted of 1,786,240 shares of common stock valued at $3.15
per share, the closing price on the day of acquisition, and
$19,020,000 of cash. The following table presents the
allocation of the acquisition cost to the assets acquired
and liabilities assumed, based on fair values:
Amount
Receivables from clients ......... .. $ 15,342,447
Property and equipment .............. 10,370,559
Other assets ........................ 453,314
Goodwill and intangible assets ...... 18,135,506
-------------
2
Total assets acquired ..... 44,301,826
-------------
Accounts payable .................. (5,935,519)
Bank overdrafts .................... (1,351,822)
Accrued liabilities ................ (4,538,111)
Debt ............................... (6,329,718)
Line of credit ..................... (1,500,000)
--------------
Total liabilities assumed.. (19,655,170)
--------------
Net assets acquired ....... $ 24,646,656
==============
Following valuations of the intangible assets acquired from
Carnrite and Pearl, the amount allocated to "goodwill and
intangible assets" will be separately allocated to goodwill
and intangible assets. The categories of intangible assets
resulting from these acquisitions, together with their
estimated useful lives, are listed below:
Brand name - indefinite useful life
Customer relationships/contracts - six years
Employment agreements - 30 months
Backlog - three years
Summarized below is the unaudited pro forma statement
of operations for the years ended December 31, 2007 and
2006 had the acquisitions of Carnrite and Pearl taken
place as of January 1, 2006:
Year Ended December 31,
2007 2006
---- ----
Revenues $ 59,295,344 $ 34,717,019
Operating expenses 60,496,148 34,292,187
Other income (expense) and taxes (5,632,082) (5,035,331)
Net loss $ (6,832,886) $ (4,610,499)
------------- --------------
Net loss per share $ (0.18) $ (0.12)
------------- --------------
The unaudited pro forma information is presented for
informational purposes only and is not necessarily
indicative of the results of operations that actually
would have been achieved had the acquisition been
consummated as of that time, nor is it intended to be
a projection of future results.
Note 2 to the Company's June 30, 2008 financial
statements has been amended to read as shown below.
The revision to the footnote has been marked for your
reference. F-88
3
June 30, 2008 Financial Statements
- ----------------------------------
2. Business Combinations
On August 13, 2007, Epic acquired Carnrite for
4,850,844 shares of its common stock valued at $16,007,785.
Of these 4,850,844 shares, 1,673,034 shares were awarded
to key employees of Carnrite as retention shares. These
shares will be required to be returned to the Company if
the employees voluntarily terminate their employment prior
to March 28, 2009. In accordance with EITF No. 95-8
"Accounting for Contingent Consideration Paid to the
Shareholders for an Acquired Enterprise in a Business
Combination", the contingent consideration is considered
additional purchase price consideration.
On December 5, 2007, the Company acquired Pearl for
1,786,240 shares of its common stock and cash of $19,020,000.
On February 20, 2008, Epic completed the acquisition
of Epic Integrated Solutions, LLC, an unaffiliated entity,
for cash and 1,000,000 shares of its restricted common stock.
The effective date of the acquisition was January 1, 2008.
At closing, Epic paid $600,000, issued 1,000,000 shares of
its common stock to three owners of Epic Integrated and paid
acquisition costs of $267,000. An additional $1,400,000 will
be paid to the three owners in periodic installments during
2008 and 2009. In accordance with EITF No. 95-8 "Accounting
for Contingent Consideration Paid to the Shareholders for an
Acquired Enterprise in a Business Combination", the contingent
consideration is considered additional purchase price
consideration. The consolidated statement of operations
includes the operations of Epic Integrated for the period from
January 1, 2008 through June 30, 2008.
The aggregate purchase price of Epic Integrated was
$3,317,000 and consisted of 1,000,000 shares of common stock
valued at $1.05 per share, the closing price on the day of
acquisition, a note in the amount of $1,400,000 to be paid
in 18 months (see Note 7), $600,000 of cash and acquisition
costs of $267,000. The following table presents the allocation
of the purchase price to the assets acquired and liabilities
assumed, based on fair values (in thousands):
Amount
------
Cash $ 635
Receivables from clients 233
Property and equipment 117
Other assets 5
Goodwill and intangible asset 2,405
----------
Total assets acquired 3,395
----------
Accounts payable $ 73
Accrued liabilities 5
----------
Total liabilities assumed 78
----------
4
Net assets acquired $ 3,317
==========
Following the valuation of the intangible assets acquired
from Epic Integrated, the amount allocated to "goodwill
and intangible assets" will be separately allocated to
goodwill and intangible assets. The categories of intangible
assets resulting from these acquisitions, together with
their estimated useful lives, are listed below:
Brand name - indefinite useful life
Customer relationships/contracts - six years
Employment agreements - 30 months
Backlog - three years
Summarized below is the unaudited pro forma statement
of operations for the Company for the three and six months
ended June 30, 2007 had the acquisitions of Carnrite, Pearl
and Epic Integrated taken place as of January 1, 2007,
expressed in thousands except for share amounts:
Three Months Six Months
Ended June 30, 2007 Ended June 30, 2007
------------------- -------------------
Revenues $ 11,324 $ 32,236
Operating expenses 11,420 24,467
Other income (expense) (1,933) (1,936)
------------ --------------
Net income (loss) $ (2,029) $ 5,833
============ ==============
Net increase (loss) loss per share $ (0.06) $ 0.11
============ ==============
The unaudited pro forma information is presented
for informational purposes only and is not necessarily
indicative of the results of operations that actually
would have been achieved had the acquisitions been
consummated as of that time, nor is it intended to be
a projection of future results.
The acquisitions and related transactions were
treated as a purchase business combination for accounting
purposes, and Carnrite's, Pearl's and Epic Integrated's
assets acquired and liabilities assumed were recorded at
their fair value. The allocations of the purchase price to
Carnrite's, Pearl's and Epic Integrated's assets and
liabilities are only preliminary allocations based on
estimates of fair value and will change when the actual
fair values are determined. Among the provisions of SFAS
No. 141, criteria have been established for determining
whether intangible assets should be recognized separately
from goodwill. The Company has not made that determination
as of June 30, 2008. The Company is currently in the process
of assessing the intangibles to be recognized separately
from goodwill.
2. Footnote 1 to the Company's June 30, 2008 financial
statements has been revised to remove the reference to the
Company's 10-K report. F-85
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If you should have any questions concerning the foregoing, please do not
hesitate to contact the undersigned.
Very Truly Yours,
HART & TRINEN, L.L.P.
By
William T. Hart
WTH:ap
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