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
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
Form 10-Q for the three months ended June 30, 2009
This office represents Holloman Energy Corporation ("the Company"). The
Company's amended 10-K for the year ended December 31, 2008 and the Company's
amended 10-Q for the three months ended June 30, 2009 have been filed with the
Commission. The following are the Company's 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 Forms 10-K/A and 10-Q/A where the Company's responses to
the staff's comments can be found.
10-K Page No.
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1. The letter requested by this comment will be sent
under separate cover. N/A
2. The statement concerning the effectiveness of the
Company's Disclosure Controls and Procedures has been amended. 12
3. The cumulative loss has been adjusted to correspond
with the statement of cash flows. F-3
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
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10-K Page No.
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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.
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
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10-K Page No.
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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 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.
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10-K Page No.
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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-4
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, a copy of the amended agreement has been sent to you as
supplemental information. N/A
7. The Company's disclosure regarding the impairment of
unproved properties has been modified in response to this comment. F-7
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10-K Page No.
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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
9. The direct parties to the VIC P60 Purchase and Sale Agreement 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.
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10-K Page No.
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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 paragraph has been added to the amended 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 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-14
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. 2, 6
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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.
William T. Hart
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