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
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Will Hart
December 15, 2009
Craig H. Arakawa
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, DC 20549-4628
Re: Holloman Energy Corporation (File No. 000-52419)
Form 10-K for the year ended December 31, 2008
Form 10-Q for the three months ended June 30, 2009
This office represents Holloman Energy Corporation ("the Company"). The
following are the Company's proposed responses to the comments received from the
staff by letter dated October 29, 2009.
The item numbers in this letter correspond with the numbered paragraphs in
the staff's comment letter. The references under the page number column are the
pages in the Company's amended Forms 10-K/A and 10-Q/A where the Company's
responses to the staff's comments can be found.
If the Company's proposed responses are correct, the Company will file the
amended 10-K and 10-Q reports on the Edgar system.
10-K Page No.
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1. The letter requested by this comment will be sent
under separate cover. N/A
2. Disclosure Controls and Procedures relate to
accumulating, recording, processing, summarizing, and
communicating information so that required disclosures,
as well as management decisions concerning required
disclosures, can be made in a timely manner.
Internal Control over Financial Reporting pertain
to the preparation of financial statements in accordance
with GAAP. Although Disclosure Controls are related to
Internal Control over Financial Reporting (i.e. management
cannot report a liability in accordance with GAAP if it
does know the liability exists) they are also separate
and distinct.
10-K Page No.
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By way of example, Disclosure Controls are
adequate if management knows of the existence of an
offshore bank account and the receipts and disbursements
from that account. However, an expenditure from the
offshore bank account which is not recorded in accordance
with GAAP is a problem with Internal Control over
Financial Reporting and not a problem with Disclosure Controls.
The Company stands by its conclusion that its
Disclosure Controls and Procedures were effective as
of December 31, 2008. The staff may not, and it is
not required to, agree with the Company's conclusion
in this regard, but nevertheless the Company's conclusion
remains that its Disclosure Controls and Procedures were effective. N/A
3. The cumulative loss has been adjusted to
correspond with the statement of cash flows. F-2
4. The acquisition of Endeavor Canada Corporation
("ECC") has been treated as a recapitalization in
accordance with the Commission's Division of Corporation
Finance - Financial Reporting Manual (Topic 12,
paragraph 12100.1). That guidance indicates that the
acquisition of a private operating company by a non-operating
public shell corporation typically results in a capital
transaction, rather than a business combination. That
is, the transaction is a reverse recapitalization,
equivalent to the issuance of stock by the private company
for the net monetary assets of the shell corporation
accompanied by a recapitalization. The accounting is similar
to that resulting from a reverse acquisition, except that
no goodwill or other intangible assets should be recorded.
Further, unlike APB Opinion No. 16, Business
Combinations, FAS 141 does not include a presumption
that the combining entity whose stockholder group receives
the largest portion of the voting rights of the combined
entity should be treated as the acquirer. Instead, the
FASB concludes in Statement 141 that all pertinent facts
and circumstances should be considered in identifying the
acquiring entity in a combination effected through an
exchange of equity interests.
In paragraph 17 of Statement 141, the FASB lists
several factors to be considered in identifying the
acquiring entity, one of which is the relative voting
rights in the combined entity after the combination.
Other factors include: (a) the composition of the board
of directors, (b) the composition of the combined entity's
senior management, (c) the terms of the exchange of
securities, and (d) the relative size of the companies.
The SEC staff has indicated that the determination of the
acquirer should be based on a qualitative and quantitative
analysis of all of these factors.
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10-K Page No.
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Almost since its inception the Company, originally
incorporated under the name DuJour Products, Inc., had
been a shell. From the period of the Company's inception
(May 14, 2004) to December 31, 2006 the Company
conducted only nominal operations, did not generate any
revenue, and had total expenditures of approximately
$49,000, which consisted of administrative, legal and
accounting expenses. Prior to the August 2007 acquisition
of Endeavor Canada, the Company was controlled by Adrien
Crimini, then the Company's principal executive officer
and the owner of approximately 69% of the Company's
outstanding shares.
On April 24, 2007 the Company entered into a letter
of intent to acquire Endeavor Canada. On May 25, 2007
Adrien Crimini resigned as an officer and director of the
Company. At the time of his resignation, which was
approximately two months prior to the acquisition of Endeavor
Canada, Mr. Crimini expressed an interest in selling his
shares in the Company.
In August 2007 the Company acquired Endeavor
Canada for 9,000 shares of its Series A preferred stock
and 9,000,000 shares of the Class A preferred stock
of its wholly owned subsidiary, First Endeavor Holdings.
Each Series A preferred share was entitled to 1,000 votes
on any matter submitted to the Company's shareholders.
The voting rights of the Series A preferred shares were
determined arbitrarily by Cameron King, who was a principal
shareholder in Endeavor Canada and later became the Company's
Chief Executive Officer and a director. Mr. King could have
easily specified that each Series A preferred share would be
entitled to 10,000 votes on any matter submitted to the
Company's shareholders. However, given Mr. Crimini's interest
in selling his shares in the Company, Mr. King was not
concerned that he did not have over 50% of the voting power
of the Company.
Prior to the acquisition of Endeavor Canada, the
Company's only material asset consisted of its interest
in an unexplored oil and gas concession (the "VIC P60")
in Australia. Following the acquisition of Endeavor Canada,
the Company had interests in seven producing oil and gas
wells and leases covering approximately 19,500 acres.
Endeavor Canada accounted for 93% of the Company's
liabilities and 100% of its revenues on a consolidated
post-acquisition basis. All employees of the combined entity
were previous employees of Endeavor Canada and the Company's
offices were absorbed into those of Endeavor Canada.
In May 2007, prior to the acquisition of Endeavor
Canada, the Company had acquired a 62.5% interest in VIC P60.
The remaining 37.5% interest in the VIC P60 was controlled
by Holloman Petroleum Pty. Ltd., a subsidiary of Holloman
Corporation. In November 2007, the Company acquired Holloman
Petroleum Pty. ("HPPL"), and thereby acquired the remaining
37.5% interest in
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10-K Page No.
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the VIC P60 Permit. At the same time, Mark Stevenson
and Eric Prim, both officers of Holloman Corporation,
became directors of the Company. The principals of
Holloman Corporation were introduced to Mr. King in
connection with the negotiation of a Joint Operating
Agreement related to the VIC P60. Prior to the Company's
acquisition of HPPL, neither Holloman Corporation nor
its principals were shareholders in the Company.
After the November 2007 acquisition of Holloman
Petroleum Pty., Mr. King, for personal reasons, resigned
as an officer and director of the Company. Following his
resignation, the Company decided that the best course of
action was to concentrate on its Australia holdings.
Accordingly, in February 2008 the Company sold its interest
in Endeavor Canada back to Mr. King.
At the time the Company acquired Endeavor Canada,
the acquisition of Holloman Petroleum Pty., the resignation
of Mr. King, and the subsequent sale of Endeavor Canada were
not contemplated. As a result of the acquisition of Endeavor
Canada, the Company was required to audit the financial
statements of Endeavor Canada. The Company would never have
gone through the time and expense of auditing the financial
statements of Endeavor Canada if it planned to subsequently
dispose of Endeavor Canada.
Subsequent to the acquisition of Endeavor Canada, the
former shareholders and management of Endeavor Canada
controlled the combined entities. Accordingly, and based upon
all the facts and circumstances, the acquisition of Endeavor
Canada was properly accounted for as a recapitalization in a
manner similar to that resulting from a reverse acquisition.
Holloman Corporation, through its wholly owned
subsidiary Holloman Oil and Gas, owned a majority interest
in Holloman Petroleum Pty prior to its acquisition by the
Company. As part of that acquisition, Holloman Oil and Gas
was issued 17,237,500 shares of the Company's common stock
in exchange for its interest in Holloman Petroleum Pty.
On March 7, 2008, Holloman Corporation purchased 15,000,000
shares of the Company's common stock directly from Adrien
Crimini. Between September 30, 2008 and June 2, 2009,
Holloman Corporation purchased an additional 13,149,091 shares
of common stock directly from the Company for cash or upon
conversion of indebtedness. As a result of these transactions,
Holloman Corporation, either directly or through Holloman Oil
and Gas, currently owns 45,386,591 shares of the Company's
common stock. Holloman Corporation became the Company's largest
shareholder on March 7, 2008 at which time it began to exert
control over the Company's operations. N/A
5. The Statement of Stockholders' Equity has been
revised in response to this comment. F-3
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10-K Page No.
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6. The Share Exchange Agreement between the Company
and the shareholders of Endeavor Canada was modified after
August 9, 2007 to avoid adverse tax consequences to the
Canadian shareholders of Endeavor Canada. The Company's 10-Q
report for the three months ended September 30, 2007 (and
every 10-Q report filed since that time) and the Company's
10-K reports for the years ended December 31, 2007 and 2008
correctly disclose the terms of the acquisition of Endeavor Canada.
Since:
(a) the Company no longer owns Endeavor Canada; and
(b) the Series A and Class A preferred shares issued
in connection with the acquisition are no longer
outstanding,
the amended agreement relating to the acquisition of
Endeavor Canada is no longer material and is not required
to be filed. However we have attached a copy of the amended
agreement for your reference. N/A
7. The Company's policy regarding the impairment of
unproved properties has been modified in response to this comment. F-6
8. The acquisition of Holloman Petroleum Pty Ltd ("HPPL")
was an asset purchase. Accordingly, the Company followed the
guidance provided by EITF 96-18 in its valuation and determined that:
(a) the equity instruments issued were the most
reliable measure of the value of the acquired
assets, and
(b) August 24, 2007 was the date at which a
performance commitment was reached.
The owners of HPPL had sufficiently large disincentives
for non-performance. The exploration and production rights
purchased in HPPL were time-sensitive and were subject to
annual work obligations. Failure to complete the work
obligations would result in the forfeiture of exploration
rights. At the time of the HPPL purchase, all work obligations
had reached pivotal time constraints. The owners of HPPL were
not actively engaged in exploring or developing the assets
held by HPPL. HPPL required management resources and a
capital formation strategy to maintain its holdings. In
contrast, the Company was actively raising capital and had
the resources needed to complete the work obligations and
negotiate lease extensions. The work to address asset
maintenance requirements was begun immediately following
execution of the purchase agreement in August 2007. Time was of
the essence in the transaction. N/A
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10-K Page No.
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9. The VIC P60 Purchase and Sale Agreement
(relating to the 62.5% interest) is attached. The direct
parties to the purchase transaction were:
(a) DuJour Products Inc. (Purchaser 62.5%)
(b) Australian- Canadian Oil Royalties Limited
(Seller 25%)
(c) Ely Sakhai (Seller 25%)
(d) Robert Kamon (Seller 12.5%)
The persons and entities involved in arranging the
transaction were:
(a) Randolf Hastings
(b) Australian Grazing & Pastoral Co. Pty. Ltd.
(c) Cisco Outback Holdings LLC
(d) Cisco Legacy Ventures LLC
(e) Bass Strait Partners LLC
Neither Holloman Corporation nor, to the knowledge of
the Company, any current officer or director of the Company
were related to the parties arranging the purchase of the
VIC P60 permit.
The Company has executed a letter of intent with BOS
APS Pte. Ltd. for the performance of a VIC P60 marine seismic
study using the survey vessel BOS Angler. Frank Renton, Project
Manager from Enquest Pty. Ltd., and Martin Lloyd-Diviny, Manager
of Holloman Petroleum Pty. Ltd., are involved in arranging the
Company's participation in this seismic study.
The following will be added to the 10-K report:
Registration of Australian title transfers requires
the submission of original "relevant dealings" and "title
transfer applications" in the form prescribed under Section
473 of Australia's Offshore Petroleum and Greenhouse Gas
Storage Act 2006. The process is multi-tiered, time
consuming and involves several comment rounds. In July 2009,
we received verbal approval of the form and substance of the
title transfer application. Final registration is awaiting
payment of fees. We expect to complete title registration in
conjunction with the execution of a final agreement with BOS
APS Pte. Ltd. in early 2010. 2
10. The net revenue interests ("NRI") associated with the
issuance of Series A and Series B warrants do not meet the
requirements for derivative accounting set forth in SFAS 133 and
EITF 00-19. The Company's NRI
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10-K Page No.
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agreements lack both an "underlying" and "notional amount"
and are neither indexed to, nor potentially settled in, the
Company's common stock. The reference to derivative
accounting has been deleted. F-13
11. Substantially all of the amount classified in
error as deferred tax benefit related to a translation
gain associated with the measurement of US dollars required
to settle deferred Australian tax liabilities. Upon further
examination, the Company reclassified the effect of Australian
dollar fluctuations as foreign currency exchange gain/losses
in accordance with SFAS 52. N/A
12. After discussing this comment with the staff, no
response to this comment is required. N/A
13. The date which is the subject of this comment has
been corrected. F-16
14. Comment complied with. F-16
10-Q Page No.
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15. Comment complied with. 2
16. Comment complied with. 6
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.
William T. Hart
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