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
March 30, 2010
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
This office represents Holloman Energy Corporation ("the Company"). The
following are the Company's responses to the comments received from the staff by
letter dated February 19, 2010.
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 Form 10-K where the Company's responses to the
staff's comments can be found.
Page No.
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1. The letter requested by this comment will be sent under
separate cover when all staff comments have been resolved.
2. Comment noted.
3. Comment noted.
4. The disclosure which is the subject of this comment has
been amended. 12
5. The Company's February 2008 sale of Endeavor Canada
Corporation ("ECC") was not a capital transaction. It was
neither a purchase for constructive retirement of preferred
shares nor a quasi-reorganization of the Company's operations.
1
Page No.
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In the normal course of business, the Company's
management determines which assets are worthy of further
exploration and which should be sold or abandoned. Sales of
oil and gas properties are routine in the industry. During 2009,
for instance, the Company decided to divest or relinquish its
rights in four offshore oil concessions and to concentrate on
assets considered to have better potential. As with the sale of
ECC, the impact of those transactions were recognized in the
Company's statement of operations.
During January 2008, the Company determined that
the oil and gas assets held by ECC did not warrant further
investment. As a result, ECC was offered for sale to a variety
of third parties. Cameron King, the Company's former Chief
Executive officer responded with the most attractive purchase
proposal.
At the time of the ECC sale, Mr. King had no control
over the Company and was neither an officer nor director. The
transaction with Mr. King was undertaken at arm's-length. The sale
of ECC was not an unwinding of the previous merger and did not
involve a significant number of the original shareholders of ECC.
The gain on the sale of ECC complies with Chapter 1,
Section B, paragraph 7 of ARB 43 and paragraph 28 of APB 9. The
value allocated to the shares returned and cancelled in partial
compensation for the sale was calculated as $6,507 using the
Treasury Stock Method (6,500 Series A Preferred shares plus
6,500,000 Class A Preferred shares at par value of $0.001 per
share). The gain reported related almost entirely to the
Company's divestiture of $2,621,314 in net liabilities in
exchange for $1,837,446 in net assets. N/A
6. The amended purchase agreement has been filed with the
Company's amended 10-K report. Exhibit 10.7
7. The footnote which is the subject of this comment has
been revised. F-7
8. The parties to the Holloman asset acquisition believe
counterparty performance was complete on August 24, 2007. The
transaction documents were fully executed, time was of the essence
and each party initiated action based upon that commitment. Any
remaining pre-conditions to the sale were considered non-substantive
and beneficial ownership of the shares in HPPL was delivered on
that date.
2
10-K Page No.
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EITF 96-18 provides that the measurement date
is the date a performance commitment takes place, which in
turn depends on sufficiently large disincentives for
non-performance. In examples 1, 2 and 3 to EITF 96-18, the
requisite relationship between the issuer and the counterparty
was established by a contract between the parties. In the
agreement between the Company and HPPL a post-closing covenant
required the Company to complete the work programs required by
the terms of the Australian oil and gas concessions.
Had HPPL not performed, the Company would not be
bound by the post-closing covenant and HPPL would have lost all
of its assets, those being the Australian oil and gas concessions.
Since the Company specifically agreed to satisfy the work
requirements, the disincentive for non-performance resulted
from the relationship between the Company and HPPL.
The definition of fair market value ("FMV") of
equity instruments is set forth in SFAS 121 which states that
FMV is "the amount at which the asset could be bought or sold
in a current transaction between willing parties, that is,
other than in a forced or liquidation sale." The trading volume
in the Company's common stock varies and its price volatility
is greater than 100%. As such, a single day's market price does
not represent FMV as contemplated between the buyer and seller.
The average trading price for a reasonable period (10 days)
prior to the completion of an asset purchase was agreed by the
parties as the FMV consideration given in exchange for the HPPL
assets at August 24, 2007.
In addition, please note that the FMV of the
consideration given for the Holloman assets using a
November 21, 2007 measurement date ($0.81 per share)
is not materially different from the FMV of the
consideration given using an August 24, 2007 measurement
date ($0.85 per share). The absolute dollar difference of
$744,000 represents approximately 3% of the Company's assets
as of December 31, 2008. N/A
9. Note 12 has been revised in response to this comment. F-16, F-17
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