Hero Technologies Inc. - Quarter Report: 2014 March (Form 10-Q)

henc_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

———————

FORM 10-Q

———————

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

¨ TRANSITION REPORT PURSUANT TO 13 OR 15(D) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 000-52419

HOLLOMAN ENERGY CORPORATION

(Exact Name of Issuer as Specified in Its Charter)

Nevada		77-0643398
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

333 North Sam Houston Parkway East, Suite 600, Houston, Texas 77060

(Address of Issuer's Principal Executive Offices) (Zip Code)

Issuer’s telephone number: (281) 260-0193

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Class of Stock		No. Shares Outstanding		Date
Common		111,013,309		May 15, 2014

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HOLLOMAN ENERGY CORPORATION

(An Exploration Stage Company)

CONSOLIDATED BALANCE SHEETS

	March 31, 2014			December 31, 2013
	(Unaudited)
ASSETS

ASSETS
Cash	$	2,536		$	23,260
Other receivable		1,309			1,256
Prepaid expenses		9,089			8,447
Current Assets		12,934			32,963

Oil and gas properties, full cost method, unproven		16,261,541			17,185,618
Total Assets	$	16,274,475		$	17,218,581


LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Accounts payable and accrued liabilities	$	298,669		$	237,133
Note payable		-			940,000
Current Liabilities		298,669			1,177,133

Deferred tax liability		5,195,422			4,992,436
Total Liabilities		5,494,091			6,169,569

STOCKHOLDERS' EQUITY
Authorized:
10,000,000 preferred shares, par value $0.001 per share
150,000,000 common shares, par value $0.001 per share
Issued and outstanding :
110,481,360 common shares (110,433,321 at December 31, 2013)		110,481			110,433
Additional paid in capital		25,903,340			25,888,388
Accumulated other comprehensive loss		(6,389	)		(2,401	)
Deficit accumulated during the exploration stage		(15,227,048	)		(14,947,408	)
Total Stockholders' Equity		10,780,384			11,049,012

Total Liabilities and Stockholders' Equity	$	16,274,475		$	17,218,581

The accompanying notes are an integral part of these consolidated financial statements.

HOLLOMAN ENERGY CORPORATION

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Cumulative results from
	May 5, 2006 (Inception)			3 Months Ended March 31,
	to March 31, 2014			2014			2013

CONTINUING OPERATIONS
Expenses
Consulting	$	1,700,670		$	22,523		$	15,000
Foreign exchange (gain) loss		458,719			203,012			24,748
Gain on settlement of debt		(40,026	)		-			-
Management and director's fees		1,488,548			16,650			35,078
Stock-based compensation expense		2,511,212			-			-
Office, travel and general		974,626			28,075			35,608
Professional fees		877,500			3,867			4,550
Salaries, wages and benefits		86,666			-			-
Bad debt expense		3,395			-			-
Total Expenses		(8,061,310	)		(274,127	)		(114,984	)

Other income and expense
Oil and gas property impairment		(7,396,207	)		-			-
Deferred income tax recovery		2,244,107			-			-
Interest expense		(50,163	)		(5,513	)		(11,237	)
Other income		535,869			-			-
Income (Loss) from Continuing Operations		(12,727,704	)		(279,640	)		(126,221	)

DISCONTINUED OPERATIONS
Loss from discontinued operations		(2,454,637	)		-			-
Gain on disposal of Endeavor		783,868			-			-
Loss from Discontinued Operations		(1,670,769	)		-			-

NET LOSS BEFORE TAXES		(14,398,473	)		(279,640	)		(126,221	)
Provision for income tax		(828,575	)		-			-
NET LOSS	$	(15,227,048	)	$	(279,640	)	$	(126,221	)
Foreign currency translation		(6,389	)		(3,988	)		(249	)
COMPREHENSIVE LOSS	$	(15,233,437	)	$	(283,268	)	$	(126,470	)

BASIC AND DILUTED NET LOSS FROM
CONTINUING OPERATIONS PER COMMON SHARE				$	(0.00	)	$	(0.00	)

BASIC AND DILUTED NET LOSS FROM DISCONTINUED
OPERATIONS PER COMMON SHARE				$	(0.00	)	$	(0.00	)

BASIC AND DILUTED NET LOSS
PER COMMON SHARE				$	(0.00	)	$	(0.00	)

WEIGHTED AVERAGE NUMBER OF BASIC AND
DILUTED COMMON SHARES OUTSTANDING					110,433,855			110,277,378

The accompanying notes are an integral part of these consolidated financial statements.

HOLLOMAN ENERGY CORPORATION

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Cumulative results from
	May 5, 2006 (Inception)			Three Months Ended March 31,
	to March 31, 2014			2014			2013

OPERATING ACTIVITIES
Net loss	$	(15,227,048	)	$	(279,640	)	$	(126,221	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Cash used by discontinued operations		1,729,701			-			-
Gain on disposal of Endeavor		(783,868	)		-			-
Gain from settlement of indebtedness		(65,026	)		-			-
Stock-based compensation and fee payments		3,339,212			-			-
Unrealized foreign exchange (gain) loss		412,757			198,998			24,499
Impairment of oil and gas properties (net of tax recovery)		5,152,100			-			-
Deferred income tax provision		828,575			-			-
Changes in working capital items
Other receivable		(1,309	)		(53	)		(7	)
Prepaid expenses		(9,089	)		(642	)		(1,841	)
Accounts payable and accrued liabilities		603,456			60,613			(27,958	)
Contract advances		131,190			-			-
Cash used in operating activities		(3,889,349	)		(20,724	)		(131,528	)

INVESTING ACTIVITIES
Investing activities from discontinued operations		(1,447,739	)		-			-
Oil and gas expenditures		(1,910,585	)		-			-
Oil and gas expenditures recovered from partners		37,340			-			-
Cash acquired on acquisition		12,696			-			-
Deposit on acquisition		(639,487	)		-			-
Cash used in investing activities		(3,947,775	)		-			-

FINANCING ACTIVITIES
Financing activities from discontinued operations		2,000,261			-			-
Common stock issued for cash		3,505,001			-			-
Loans payable		1,050,567			-			-
Loan repayments		(60,000	)		-			-
Related party repayments		(100,000	)		-			-
Proceeds from related parties		1,443,831			-			-
Cash provided by financing activities		7,839,660			-			-

CHANGE IN CASH		2,536			(20,724	)		(131,528	)
CASH, BEGINNING		-			23,260			1,009,882

CASH, ENDING	$	2,536		$	2,536		$	878,354


SUPPLEMENTAL DISCLOSURE:
Cash paid for interest	$	66,675		$	10,612		$	-

NON-CASH INVESTING ACTIVITIES:
Accrued capital expenditures in oil and gas properties	$	68,780		$	15,923		$	14,193

NON-CASH FINANCING ACTIVITIES:
Shares issued for management fees	$	231,750		$	-		$	-
Shares issued for services	$	500,000		$	15,000		$	15,000
Shares issued on conversion of liabilities	$	2,661,879		$	-		$	-
Shares issued for property acquired	$	15,903,000		$	-		$	-
Debt exchanged for issuance of ORRI	$	940,000		$	940,000		$	-

The accompanying notes are an integral part of these consolidated financial statements.

HOLLOMAN ENERGY CORPORATION

(An Exploration Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Unaudited Interim Consolidated Financial Statements

The unaudited interim consolidated financial statements of Holloman Energy Corporation (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the SEC. The unaudited interim consolidated financial statements should be read in conjunction with those

consolidated financial statements and footnotes included in the Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Recent Accounting Pronouncements

The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its consolidated financial position, results of operations or cash flows.

2. OIL AND GAS PROPERTIES

At March 31, 2014, the Company holds a 48.5007% working interest in two onshore Petroleum Exploration Licenses (PELs) in Australia. PEL 112 is comprised of 1,086 square kilometers (268,356 gross acres, 130,155 net acres), and PEL 444 is comprised of 2,358 square kilometers (582,674 gross acres, 282,601 net acres). Both licenses are located on the southwestern flank of the Cooper Basin in the State of South Australia. The Company’s oil and gas properties are unproven. As such, the costs capitalized in connection with those properties are not currently subject to depletion.

The Terra Nova Farm-In Agreement

Effective May 11, 2012, the Company entered into a definitive Oil and Gas Farm-In Agreement with Terra Nova Energy Ltd., and its wholly owned subsidiary Terra Nova Resources Inc. (“Terra Nova”), Australian-Canadian Oil Royalties Ltd. (“ACOR”) and Eli Sakhai (“Sakhai”) on PEL 112 and PEL 444 (the “Agreement”). The Agreement provides terms under which Terra Nova may earn up to a 55% undivided working interest in PEL 112 and PEL 444 (the “Farm-In Interest”).

To earn the entire Farm-In Interest, Terra Nova is required to fund exploration and development expenditures (the “Earning Obligations”) totaling at least AUD$13,700,000 (USD$13,805,000) including:

●

AUD$4,700,000 (USD$4,968,000) which was placed in escrow during May 2012 for use in the completion of a seismic acquisition program sufficient to meet the minimum seismic acquisition requirements and interpretation of the acquired data for PEL 112 and PEL 444 (earning a 20% working interest in each license upon completion of the seismic obligations);

●

AUD$4,500,000 (USD$4,670,000) which was placed in escrow on November 1, 2012 to secure Terra Nova’s obligation to sole fund the dry-hole costs of an initial three (3) well drilling program on either PEL 112 or PEL 444, provided that at least one well is drilled on each license (earning a working interest of 5.833% per well in each license upon completion, totaling a working interest of 17.5%); and

●

AUD$4,500,000 (USD$4,167,000) to be placed in escrow on or before 45 days following completion or abandonment of the third well in the initial well program, for use in funding the first AUD$4,500,000 in dry-hole costs of an optional three (3) well drilling program on either PEL 112 or PEL 444, provided that at least one well is drilled on each license (earning a working interest of 5.833% per well in each license upon completion, totaling a working interest of 17.5%).

Terra Nova acts as contract operator with respect to all seismic acquisition and drilling work contemplated by the Agreement.

Effective May 29, 2013, the Agreement was amended such that of the AUD$4,500,000 (USD$4,670,000) placed in escrow for the Initial Well Program, AUD$500,000 (USD$482,250) was used to pay costs incurred in the PEL 444 seismic program. Costs incurred in relation to the seismic earning obligations in excess of AUD$5,200,000, (USD$4,857,000), previously AUD$4,700,000, have been borne by Terra Nova, the Company, ACOR and Sakhai in accordance with their working interest percentages calculated as though Terra Nova had successfully completed its Earning Obligations and earned the entire Farm-In Interest.

In July 2013, Terra Nova drilled the first well on PEL 112. The well was plugged and abandoned in August 2013. In the event Terra Nova elects to complete the second well drilled in connection with the initial three well drilling program, Terra Nova will pay 50% of the completion costs and the Company will pay the other 50% of the completion costs. In the event Terra Nova elects to complete the third well drilled in connection with the initial three well drilling program, or any well drilled in connection with the optional three well drilling program, Terra Nova will pay 50% of the completion costs, and the Company, ACOR and Sakhai will pay the other 50% of the completion costs in accordance with their working interest at the effective date of the Agreement.

In the event any well drilled in connection with either the initial or optional drilling programs is commercially viable, and Terra Nova elects to complete such well, Terra Nova is entitled to a preferential recovery of one hundred percent of the costs it has paid to drill and test that successful well. Terra Nova is entitled to 80% of production from that successful well until either that successful well has ceased production or Terra Nova has received net revenue equal to the reimbursable costs it has incurred.

Terra Nova earns the Farm-In Interest in stages based upon successful completion of specific Earning Obligations. In each instance, the Company, ACOR and Sakhai will each contribute a portion of the working interest earned by Terra Nova. In the event Terra Nova earns the entire Farm-In Interest, the Company, ACOR and Sakhai will transfer to Terra Nova the following working interest percentages in both PEL 112 and PEL 444:

(a)	The Company will contribute an undivided 38.556% working interest in both PEL 112 and PEL 444 (resulting in a residual working interest position of 28.112% in each license);

(b)	ACOR will contribute an undivided 8.222% working interest in both PEL 112 and PEL 444; and

(c)	Sakhai will contribute an undivided 8.222% working interest in both PEL 112 and PEL 444.

The Agreement may be terminated by any party upon the occurrence of an uncured breach of any material term. Terra Nova may terminate the Agreement any time before it has earned the Farm-In Interest upon providing written notice of such termination. In the event Terra Nova terminates the Agreement, it shall not be entitled to any interest in either PEL 112 or PEL 444 unless it has satisfied an Earning Obligation with respect to that license.

Cooper Basin Exploration Activity

Acquisition of 127 square kilometers of 3D seismic data on PEL 112 (the “Mulka Survey”) was completed in late September 2012. The Mulka Survey fulfilled the Company’s minimum work requirements for PEL 112 License Year Four. As a result, Terra Nova completed its seismic Earning Obligation with respect to PEL 112, and earned an undivided 20% working interest in that license. Geokinetics (Australia) Pty. Ltd. undertook the Mulka Survey on the northern boundary of PEL 112 under the direction of Terra Nova. The Company, ACOR and Sakhai each contributed the following portion of the working interest earned to Terra Nova:

(a)	The Company contributed an undivided 13.3334% working interest in PEL 112 resulting in a residual working interest position of 53.334% in that license;

(b)	ACOR contributed an undivided 3.3333% working interest in PEL 112; and

(c)	Sakhai contributed an undivided 3.3333% working interest in PEL 112.

On July 17, 2013, the Government of South Australia finalized and registered the transfer of the 20% working interest earned by Terra Nova in PEL 112.

On July 23, 2013, the Company spudded the Wolfman #1 exploration well on PEL 112. The well’s primary oil objective, the Namur Sandstone, was encountered at approximately 1,197 meters (3,927 feet) on August 6, 2013. Drilling continued to its secondary targets in the Birkhead formation and Hutton sandstones. Wolfman #1 reached Total Depth of 1,703 meters (5,587 feet), on August 7, 2013. No oil shows were observed while drilling in the primary and secondary oil objectives, and the well was plugged and abandoned. The entire cost of the well was paid by Terra Nova in accordance with the terms of the Agreement. The drilling of Wolfman #1 fulfilled the Company’s minimum work requirement for PEL 112 License Year Five.

Upon completion of Wolfman #1 Terra Nova earned an additional undivided 5.8333% working interest in PEL 112. The Company, ACOR and Sakhai each contributed the following portion of the working interest earned to Terra Nova:

(a)	The Company contributed an undivided 4.833% working interest in PEL 112 resulting in a residual working interest position of 48.5007% in that license;

(b)	ACOR contributed an undivided 0.5000% working interest in PEL 112; and

(c)	Sakhai contributed an undivided 0.5000% working interest in PEL 112.

On December 20, 2013, the Government of South Australia registered the transfer of the 5.8333% working interest earned by Terra Nova in PEL 112.

During November 2013, the Company applied for a five-year renewal of its license on PEL 112. In connection with its application, the Company offered to relinquish 1,110 square kilometers (274,287 gross acres) of the area covered by that license. On March 12, 2014, the Government of South Australia accepted the Company’s application and finalized its renewal of PEL 112. As a result, the Company now holds a 48.5007% working interest in PEL 112 until January 10, 2019. The Company’s management believes the acreage relinquished in connection with this renewal was non-prospective, and intends to develop the prospects identified on its remaining acreage in that concession.

Acquisition of 80 square kilometers of 3D seismic data on PEL 444 (the “Wingman Survey”) began May 28, 2013 and was completed on July 2, 2013. During February 2014, Terra Nova finalized its interpretation of the Wingman Survey data and earned a 25.8333% working interest in PEL 444. The working interest earned by Terra Nova consisted of a 20% interest resulting from the completion of the Wingman Survey and a 5.8333% interest granted in connection with Terra Nova’s completion of the Wolfman #1 well. The Company, ACOR and Sakhai each contributed a portion of the working interest earned by Terra Nova as follows:

(a) The Company contributed an undivided 18.1667% working interest in PEL 444 resulting in a residual working interest position of 48.5003% in that license;

(b) ACOR contributed an undivided 3.8333% working interest in PEL 444; and

On May 7, 2014, the Government of South Australia registered the transfer of the 25.8333% working interest earned by Terra Nova in PEL 444. The completion of the Wingman Survey fulfills the Company’s minimum work requirements for PEL 444 License Year Three.

Effective February 15, 2014, the Company assigned a 1% overriding royalty interest in all production of oil, gas and associated hydrocarbons arising from lands covered by PEL 112 and PEL 444 in exchange for debt forgiveness of $940,000, which was the remaining principal balance of its note payable to a third party (see Note 3). The income from the royalty interest conveyed will be computed on actual sales value of the oil and gas net of severance, Australian Production Levy, production taxes, and transportation costs.

3. EXTINGUISHMENT OF NOTE PAYABLE

On December 24, 2012, the Company entered into a promissory note with an unrelated party (“Lender”) under which it borrowed the principal amount of $1,000,000 (the “ Promissory Note”). On August 16, 2013, the Company voluntarily repaid $60,000 on the Promissory Note. Effective February 15, 2014, the Company extinguished the Promissory Note by exchanging its remaining principal balance ($940,000) for a 1% overriding royalty interest in favor of the Lender in all production of oil, gas and associated hydrocarbons from PEL 112 and PEL 444 (see Note 2).

The Promissory Note bore interest at 4.5% per annum and provided for a penalty rate of interest of 10% per year on any unpaid principal which is not paid when due. The Promissory Note was payable upon demand of the Lender at any time, and was guaranteed by the Company’s controlling shareholder.

During the three months ended March 31, 2014 and 2013, the Company recognized $5,513 and $11,237, respectively in interest expense on the Promissory Note. $15,993 and $11,237 of interest incurred remained unpaid at March 31, 2014 and 2013, respectively.

4. COMMON STOCK AND STOCK-BASED COMPENSATION

The Company incurs $15,000 in administrative service fees payable to a wholly owned subsidiary of its controlling shareholder on a quarterly basis. During the three months ended March 31, 2014 and 2013, the Company paid administrative fees totaling $15,000 using 48,039 and 36,033 shares of its common stock at an approximate weighted average price of $0.312 and $0.416 per share, respectively.

At March 31, 2014, the Company had a total of 3,300,000 stock options outstanding with weighted average exercise prices and lives of $1.10 and 4.50 months, respectively. None of these stock options have been included in our calculation of diluted earnings per share since we generated a net loss during all periods included in these consolidated financial statements.

5. SUBSEQUENT EVENTS

On April 15, 2014, the Company sold 531,948 shares of common stock to a wholly-owned subsidiary of Holloman Corporation, and to certain directors and officers of the Company, and to two non-affiliated persons. The shares were priced at $0.25 each. Proceeds from the private placement totaled $132,987. Of that amount, $105,000 was paid in cash and $27,987 was a conversion of liabilities.

FORWARD LOOKING STATEMENTS

The information contained in this Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties, including among other things, statements regarding our capital needs, business strategy and expectations. Any statement which does not contain a historical fact may be deemed to be a forward-looking statement. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating forward looking statements, you should consider various factors outlined in our latest Form 10-K, filed with the U.S. Securities Exchange Commission (“SEC”) on March 31, 2014, and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements, or disclose any difference between our actual results and those reflected in these statements.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included as part of this report and our Form 10-K, for the year ended December 31, 2013 filed with the SEC on March 31, 2014.

We were incorporated on May 14, 2004 in Nevada. Between May 2004 and May 2007 we were relatively inactive. In May 2007, we directed our focus to the acquisition, exploration, and development of oil and gas properties. We are currently controlled by Holloman Corporation, a Texas corporation involved in the engineering and construction of pipelines and mid-stream gas processing facilities.

All of our exploration and development efforts are concentrated in Australia. We currently hold working interests in two onshore Petroleum Exploration Licenses (PELs) located on the southwestern flank of the Cooper Basin in the State of South Australia.

The Department of Primary Industries and Resources of South Australia reports that the Cooper Basin has sourced over 158 million barrels of oil, 5 trillion cubic feet of gas and 155 million equivalent barrels of LPG and condensate. It has in excess of 120,000 kilometers of 2-D seismic data and more than 1,970 wells in more than 103 oil and 165 gas fields. From January 2002 through December 2012, 195 exploration wells and 85 appraisal/development wells have been drilled by the new explorers in the Cooper Basin. Most have targeted oil, however both oil and gas have been discovered. The new entrants found hydrocarbons in 89 of these wells (46% technical success rate) and 76 were cased and suspended as future producers (39% commercial success rate). Our management believes that Australia provides a stable regulatory, tax and business environment in the oil and gas sector.

Effective May 11, 2012, we entered into a definitive Oil and Gas Farm-In Agreement with Terra Nova Energy Ltd., and its wholly owned subsidiary Terra Nova Resources Inc. (“Terra Nova”), which provides Terra Nova the right to earn up to a 55% undivided working interest in our Australian licenses in exchange for undertaking certain exploration obligations (the “Terra Nova Farm-In Agreement”).

We are an exploration stage company and did not participate in drilling any wells during the two years ended December 31, 2012. On July 23, 2013, we spudded the Wolfman #1 exploration well on PEL 112. The Wolfman #1 did not encounter oil or gas.

As of May 15, 2014 we did not have any proven oil or gas reserves and we did not have any revenue.

Our Australian assets

Onshore licenses – Cooper Basin

We currently hold working interests in PEL 112 and PEL 444 in Australia. Both licenses are located onshore on the southwestern flank of the Cooper Basin in the State of South Australia. Our oil and gas properties are unproven. We are obligated to pay royalties of 4.53% on our revenues generated by operations on these licenses.

PEL 112 is comprised of 1,086 square kilometers (268,356 gross acres, 130,155 net acres), and PEL 444 is comprised of 2,358 square kilometers (582,674 gross acres, 282,601 net acres). We originally held a 66.667% working interest in both licenses. In connection with the Terra Nova Farm-In Agreement, Terra Nova has earned a 25.8333% working interest in PEL 112 and PEL 444. We contributed 18.1663% of working interest earned. As a result, we now hold a residual working interest of 48.5007% in each license (see further details below).

Heavy rains beginning in February 2010 created wide scale flooding in the Cooper Basin. For nearly eighteen months, the inaccessibility of roads and facilities partially curtailed Cooper Basin oil production and resulted in a general contraction of exploration activity. As a result, we have applied for, and have been granted multiple license extensions on PEL 112 and PEL 444 from the Government of South Australia. Effective January 9, 2012, we were granted a variation of license terms on PEL 112. Under the variation, the minimum work requirements for PEL 112 License Year Three (3) were exchanged for those of PEL 112 License Year Four (4). Accordingly, the timeframe for acquisition of 100 kilometers of 2D seismic data on that license was moved from January 10, 2012 to January 10, 2013. Our seismic obligation on PEL 112 was completed in late September 2012. During January 3, 2013, we were also granted a six-month extension on PEL 444 such that the timeframe for acquisition of 200 kilometers of 2D seismic data on that license was moved from January 10, 2013 to July 11, 2013, and the overall license term for PEL 444 was extended to July 11, 2015. Seismic acquisition on PEL 444 was completed in July 2013.

Under Australian law, at the end of each five year term, one third of the area covered by a petroleum exploration license must be relinquished. In June 2008 the Government of South Australia renewed the lease term and associated work programs for PEL 112 and PEL 444 by five years. In connection with that renewal, we identified and relinquished one-third of the acreage covered by PEL 112 and PEL 444.

During November 2013, we applied for our final five-year renewal of PEL 112. On December 18, 2013, the Government of South Australia accepted our application and offered to renew PEL 112 in accordance with our suggested terms. In connection with that renewal, we identified and relinquished one-third of the original acreage covered by PEL 112. The remaining license acreage contains all areas over which 2D and 3D seismic has been acquired, and all existing leads and prospects. We believe the acreage we relinquished was non-prospective. On March 12, 2014, the Government of South Australia finalized its renewal of PEL 112. As a result, we now hold a 48.5007% working interest in PEL 112 until January 10, 2019.

To maintain our exploration rights in the Cooper/Eromanga Basin, the Australian Government requires that we fulfill the following minimum work commitments:

License	Description of Minimum Work Obligation	Date of Required Completion
PEL 444	Geological and geophysical studies	July 11, 2014
PEL 444	Drill one well	July 11, 2015
PEL 112	Geological and geophysical studies	January 10, 2015
PEL 112	Geological and geophysical studies	January 10, 2016
PEL 112	Acquire 50 square kilometers – 3D seismic	January 10, 2017
PEL 112	Geological and geophysical studies	January 10, 2018
PEL 112	Drill one well	January 10, 2019

The farm-in agreement through which we hold our working interests in PEL 112 and PEL 444 also obligates us to fulfill the drilling commitment set forth in the licenses. Under Australian law, we are entitled to apply for one additional 5-year term on PEL 444.

Our oil and gas farm-in agreements and exploration activity

Cooper Basin farm-in agreements

Effective May 11, 2012, we entered the Terra Nova Farm-In Agreement with Terra Nova, Australian-Canadian Oil Royalties Ltd. (“ACOR”) and Eli Sakhai (“Sakhai”) on PELs 112 and 444. The Terra Nova Farm-In Agreement provides terms under which Terra Nova may earn a 55% undivided working interest in PEL 112 and PEL 444 (the “Farm-In Interest”).

●

AUD$4,700,000 (USD$4,968,000) which was paid and used in the completion of a seismic acquisition program sufficient to meet the minimum seismic acquisition requirements, and interpretation of the acquired data for PEL 112 and PEL 444 (earning a 20% working interest in each license upon completion of the seismic obligations);

●

Terra Nova acts as contract operator with respect to all seismic acquisition and drilling work contemplated by the Terra Nova Farm-In Agreement.

Effective May 29, 2013, the Terra Nova Farm-In Agreement was amended such that of the AUD$4,500,000 (USD$4,670,000) placed in escrow for the Initial Well Program, AUD$500,000 (USD$482,250) was used to pay costs incurred in the PEL 444 seismic program. Costs incurred in relation to the seismic earning obligations in excess of AUD$5,200,000 (USD$4,857,000), are borne by Terra Nova, ACOR, Sakhai and us in accordance with our/their working interest percentages calculated as though Terra Nova had successfully completed its Earning Obligations and earned the entire Farm-In Interest.

In the event Terra Nova elects to complete the second well drilled in connection with the initial three well drilling program, Terra Nova shall pay 50% of the completion cost and we will pay the other 50% of the completion costs. In the event Terra Nova elects to complete the third well drilled in connection with the initial three well drilling program, or any well drilled in connection with the optional three well drilling program, Terra Nova shall pay 50% of the completion cost, and we, ACOR and Sakhai shall pay the other 50% of the completion costs in accordance with our working interest at the effective date of the Terra Nova Farm-In Agreement.

Terra Nova earns the Farm-In Interest in stages based upon successful completion of specific Earning Obligations. In each instance, we, ACOR and Sakhai will each contribute a portion of the working interest earned by Terra Nova. In the event Terra Nova earns the entire Farm-In Interest, we, ACOR and Sakhai will transfer to Terra Nova the following working interest percentages in both PEL 112 and PEL 444:

(a)	We will contribute an undivided 38.556% working interest in both PEL 112 and PEL 444 (resulting in a residual working interest position of 28.112% in each license);
(b)	ACOR will contribute an undivided 8.222% working interest in both PEL 112 and PEL 444; and
(c)	Sakhai will contribute an undivided 8.222% working interest in both PEL 112 and PEL 444.

The Terra Nova Farm-In Agreement may be terminated by any party upon the occurrence of an uncured breach of any material term. Terra Nova may terminate the Agreement any time before it has earned the Farm-In Interest upon providing written notice of such termination. In the event Terra Nova terminates the Agreement, it shall not be entitled to any interest in PEL 444 unless it has satisfied an Earning Obligation with respect to that license.

On February 27, 2012, we terminated a previous farm-in agreement on PEL 112 and PEL 444 with Brandenburg Energy Corp. ("Brandenburg"). Brandenburg’s contract rights were subject to meeting certain milestones including an obligation to pay us AUD$7,400,000 (USD$7,822,000) on or before September 20, 2011. Brandenburg was unable to pay this amount.

Cooper Basin exploration activity

PEL 112

Acquisition of 127 square kilometers of 3D seismic data on PEL 112 (the “Mulka Survey”) was completed in late September 2012. The Mulka Survey fulfilled our minimum work requirements for PEL 112 License Year Four. Geokinetics (Australia) Pty. Ltd. undertook the Mulka Survey on the northern boundary of PEL 112 under the direction of Terra Nova. During February 2013, we received copies of the Mulka Survey data and interpretation from Terra Nova. As a result, Terra Nova completed its seismic Earning Obligation with respect to PEL 112, and earned an undivided 20% working interest in that license. We, ACOR and Sakhai each contributed the following portion of the working interest earned to Terra Nova:

(a)	We contributed an undivided 13.3334% working interest in PEL 112 resulting in a residual working interest position of 53.334% in that license;
(b)	ACOR contributed an undivided 3.3333% working interest in PEL 112; and
(c)	Sakhai contributed an undivided 3.3333% working interest in PEL 112.

On July 17, 2013, the Government of South Australia finalized and registered the transfer of the 20% working interest earned by Terra Nova in PEL 112.

Seven drilling targets were identified as a result of the final interpretation of the Mulka Survey data. We believe our primary drilling targets are similar geologically to producing structures observed in existing oil pools (including the Butlers, Perlubie and Parsons fields) located to the north of PEL 112 on the Cooper Basin’s western-flank. Seismic interpretation indicates that all primary targets display 4-way structural closures.

Work Area Clearance (“WAC”) on PEL 112 access roads and drill site locations began April 20, 2013 and was completed on April 22, 2013. WAC is the process by which anthropologists and representatives of Australia’s Native Title Holders review exploration sites to insure planned activity does not harm the cultural integrity of the land to be explored.

On July 23, 2013, we spudded the Wolfman #1 exploration well on PEL 112. The well’s primary oil objective, the Namur Sandstone, was encountered at approximately 1,197 meters (3,927 feet) on August 6, 2013. Drilling continued to its secondary targets in the Birkhead formation and Hutton sandstones. Wolfman #1 reached Total Depth of 1,703 meters (5,587 feet), on August 7, 2013. No oil shows were observed in the primary and secondary oil objectives, and the well was plugged and abandoned. The entire cost of the well was paid by Terra Nova in accordance with the terms of the Terra Nova Farm-In Agreement.

The drilling of Wolfman #1 fulfilled our minimum work requirement for PEL 112 License Year Five. 3D Seismic data has been acquired on only 11.7% (31,382 of 268,356 gross acres) of the land comprising PEL 112. We believe significant potential remains for future seismic to identify migration trends and additional prospects on PEL 112 during the next exploration term.

Upon completion of Wolfman #1, Terra Nova earned an additional undivided 5.833% working interest in PEL 112. We, ACOR and Sakhai each contributed the following portion of the working interest earned to Terra Nova:

(a)	We contributed an undivided 4.833% working interest in PEL 112 resulting in a residual working interest position of 48.5003% in that license;
(b)	ACOR contributed an undivided 0.5000% working interest in PEL 112; and
(c)	Sakhai contributed an undivided 0.5000% working interest in PEL 112.

On December 20, 2013, the Government of South Australia registered the transfer of the 5.833% working interest earned by Terra Nova in PEL 112.

PEL 444

Acquisition of 80 square kilometers of 3D seismic data on PEL 444 (the “Wingman Survey”) began May 28, 2013 and was completed July 2, 2013. The Wingman Survey was conducted over a portion of PEL 444 that lies within the "Western Margin" of the Cooper Basin, which is generally considered highly prospective. This trend is being actively drilled by adjacent licensees including Senex Energy and Beach Energy.

During February 2014, Terra Nova finalized its interpretation of the Wingman Survey data and earned a 25.8333% working interest in PEL 444. The working interest earned by Terra Nova was comprised of a 20% interest resulting from the completion of the Wingman Survey and a 5.8333% interest granted in connection with Terra Nova’s completion of the Wolfman #1 well. The Company, ACOR and Sakhai each contributed a portion of the working interest earned by Terra Nova as follows:

(a)	The Company contributed an undivided 18.1667% working interest in PEL 444 resulting in a residual working interest position of 48.5003% in that license;

(b)	ACOR contributed an undivided 3.8333% working interest in PEL 444; and

(c)	Sakhai contributed an undivided 3.8333% working interest in PEL 444.

On May 7, 2014, the Government of South Australia registered the transfer of the 25.8333% working interest earned by Terra Nova in PEL 444.

Other

During 2011 and 2010, we completed processing of more than 666 km (414 miles) of 2D seismic data. This reprocessing covered a significant portion of PEL 112 and PEL 444. Our 2D seismic reprocessing was performed by Dayboro Geophysical Pty Ltd (“Dayboro”) under the supervision of Isis Petroleum Consultants Pty Ltd (“Isis”). Both Dayboro and Isis are independent engineers with lengthy geological and geophysical work experience in the Cooper Basin. The processing sequence targeted lines which complimented our technical assessment of likely drilling prospects and future seismic acquisition.

We have also completed a broad range of technical studies relating to PEL 112 and PEL 444. In largest part, the studies were performed by Isis and included; a) a review of Cooper Basin exploration acreage (including an analysis of the chronostratigraphy, an assessment of neighboring exploration results, an analysis of petroleum systems and a probabilistic volumetric assessment of leads), b) oil migration studies, c) adjacent oil pool studies, and d) economic feasibility studies. In the opinion of management, these studies increased the value of both licenses.

Results of Operations

Our combined consulting, management and professional fees for the three months ended March 31, 2014, decreased by approximately $12,000 or 22% (from $54,628 to $43,040) when compared to the same period during the prior year. In largest part, this decrease relates to a decline in management fees incurred since responsibility for field operations was absorbed by Terra Nova under the Terra Nova Farm-In Agreement. Likewise, the decrease of $7,500 or 21% (from $35,608 to $28,075) in office, travel and administrative expenses between the same periods results primarily from the same cause.

During the three months ended March 31, 2014 and 2013, we incurred interest expense of $5,513 and $11,237, respectively. This decline in interest expense results almost entirely from the payment of our note payable in the amount of $1,000,000 ($940,000 of which was outstanding at the time of payment) during mid-February 2014. The principal amount of the loan was outstanding for the entire three month period ended March 31, 2013.

The Australian dollar increased from 0.893 to 0.925, and from 1.037 to 1.042 US dollars during the three month periods ended March 31, 2014 and 2013, respectively. As a result, we recognized foreign exchange losses of $203,012 and $24,748, respectively, during those periods. Substantially all of our non-cash foreign exchange losses relate to the measurement of US dollars required to settle deferred taxes payable to the Australian Government in connection with our acquisition and ongoing investment in PEL 112 and PEL 444.

On an inception to date basis, we have recognized a net loss of approximately $15,227,000. In largest part, that loss consisted of non-cash expense including: stock-based fees and compensation expense of $3,339,000, unrealized foreign exchange loss of $458,000, and a net impairment of oil and gas properties of approximately $5,152,000. In addition, we have incurred a net loss of $1,671,000 related to the discontinued operations of a former subsidiary, and approximately $4,607,000 in other net losses, related to exploration stage operations.

Financial Condition, Liquidity and Capital Resources

The execution of the Terra Nova Farm-In Agreement significantly enhanced our exploration capacity. On May 11, 2012, Terra Nova closed an equity financing for gross proceeds equal to CAD$10,652,000 (USD$10,663,000). During May 2012, Terra Nova placed AUD$4,700,000 (USD$4,968,000) in escrow for use in the completion of the Mulka Survey and Wingman Survey. During May 2013, we agreed to amend the Terra Nova Farm-In Agreement such that of the amount placed in escrow for the Initial Well Program, AUD$500,000 (USD$482,250) could be used to pay costs incurred on the Wingman Survey as well. During July 2013, we also paid a cash call to Terra Nova of AUD$523,259 (USD$475,747) covering our portion of the costs incurred on the Wingman Survey in excess of the funds escrowed in connection with those seismic efforts.

On November 1, 2012, Terra Nova deposited AUD$4,500,000 (USD$4,670,000) in escrow as a deposit to sole fund the dry-hole costs of an initial three (3) well drilling program. We estimate that approximately AUD$200,000 (USD$187,000) remains in Terra Nova’s drilling escrow after drilling of the Wolfman #1 well.

Our Cooper Basin exploration plan includes the acquisition of 3D seismic data on PEL 112 and PEL 444, and the drilling, completion and equipping of six (6) wells shared across both licenses. Current estimates indicate the costs to perform this work could be AUD$37.5 million (USD$35 million). Of this amount, approximately AUD$10.9 million (USD$10.2 million) has already been expended. Under the terms of the Terra Nova Farm-In Agreement, we estimate that Terra Nova will bear AUD$19.6 million (USD$18.3 million), we would bear AUD$4.8 million (USD$4.5 million) and our other working interest partners would bear AUD$2.2 million (USD$2.1 million), of planned future exploration costs.

Our operations to date have been financed from the sale of our securities, loans from unrelated third parties and advances from Holloman Corporation, our current and former officers, directors and their affiliates. We regularly review the market to identify opportunities for capital formation.

On April 15, 2014, we sold 531,948 shares of common stock to seven persons including a wholly-owned subsidiary of Holloman Corporation, to certain of our directors and officers, and to two non-affiliated persons. The shares were priced at $0.25 each. Proceeds from this private placement totaled $132,987. Of that amount, $105,000 was paid in cash and $27,987 was a conversion of liabilities.

On December 24, 2012 we borrowed $1,000,000 (the “Loan”) from LPD Investments Ltd. (“Lender”), an unrelated party. The Loan bore interest at 4.5% per annum and provided for a penalty rate of interest of 10% per year on any unpaid principal which was not paid when due. The Loan was payable upon demand of the Lender at any time. Holloman Corporation guaranteed our obligations under the Loan. Effective February 15, 2014, the Company extinguished the Loan by exchanging its remaining principal balance ($940,000) for a 1% overriding royalty interest in favor of the Lender in all production of oil, gas and associated hydrocarbons from PEL 112 and PEL 444 (see Notes 2 and 3 to the accompanying consolidated financial statements).

Other than the obligations associated with our oil and gas concessions in Australia, which include a formal authorization for expenditure in the amount of $150,000 relating to the potential residual portion of seismic exploration expenditures, we had no material future contractual obligations as of March 31, 2014.

During 2012, in connection with the Terra Nova Farm-In Agreement, Terra Nova paid us cash fees totaling $350,000. We determined that $54,719 of the cash fees paid by Terra Nova were refundable to ACOR and Sakhai under the terms of a cost sharing agreement with them. Of that amount, we have withheld $37,340 as a recovery of exploration costs payable to us by ACOR and Sakhai.

On March 1, 2012, we borrowed $100,000 from a consultant who is also a shareholder. The loan was non-interest bearing and payable upon demand. The entire amount of the loan was repaid on March 23, 2012.

During fiscal 2011, we received non-refundable contract payments totaling $261,212 in connection with our farm-in agreement with Brandenburg. Of the contract payments received, $221,118 were classified as contract advances, and $47,254 were recognized as other income. Contract advances totaling $213,958 were used to offset Brandenburg transaction expenses and the costs associated with work area clearance and the acquisition of seismic data on PEL 112 and PEL 444.

During March 2011, we sold 1,400,002 shares of common stock in a private placement of investment units. Proceeds from the private placement totaled $210,000. Of that amount, $180,000 was paid in cash and $30,000 was a conversion of liabilities.

Effective October 1, 2010, we executed an administrative services agreement with our controlling shareholder. Under this agreement, fees of $5,000 per month are payable to Holloman Corporation covering; office and meeting space, supplies, utilities, office equipment, network access and other administrative facilities costs. These fees are payable quarterly in shares of our restricted common stock at the closing price of the stock on the last trading-day of the applicable monthly billing period. This administrative services agreement can be terminated by either party with 30-days notice. During the three months ended March 31, 2014, we paid administrative fees totaling $15,000 using 48,039 shares of our common stock, at approximate weighted average price of $0.312 per share. Proceeds from this administrative service agreement have been assigned to a wholly owned subsidiary of Holloman Corporation.

The oil and gas industry is cyclical in nature and tends to reflect general economic conditions. The US and other world economies are recovering from a recession which continues to inhibit investment liquidity. Though oil prices have generally stabilized, the pattern of historic price fluctuations has resulted in additional uncertainty in capital markets. Our access to capital, as well as that of our partners and contractors, may be limited due to tightened credit markets. In addition, the results of our operations will be significantly impacted by a variety of trends and factors including; (i) our exploration success and the marketability of future production, if any, (ii) increasing competition from larger companies, (iii) future fluctuations in the prices of oil and gas, and (iv) our ability to maintain or increase oil and gas production through exploration and development activities.

We believe our plan of operations may require up to $10.8 million for exploration costs and administrative expenses over the twelve-month period ending May 31, 2015. We anticipate that our working interest partners will bear up to $8.0 million and that we may bear up to $2.8 million of that amount. We are attempting to raise investment capital to cover our portion of anticipated costs.

If we are unable to raise the financing we need, our business plan may fail and our stockholders could lose their investment. If we are unable to perform in accordance with the work programs required by our licenses, the Australian government could cancel our exploration rights. There can be no assurance that we will be successful in raising the capital we require, or that if capital is offered, it will be subject to terms we consider acceptable. Investors should be aware that even in the event we are able to raise the funds we require, there can be no assurance that we will succeed in our drilling or production plans and we may never be profitable.

As of May 15, 2014 we did not have any off balance sheet arrangements.

As of May 15, 2014 we did not have any proven oil or gas reserves and we did not have any revenues.

Critical Accounting Policies and Estimates

Measurement Uncertainty

The process of preparing financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts. Our estimates and assumptions are based on current facts, historical experience and various other factors we believe to be reasonable under the circumstances. The most significant estimates with regard to the unaudited consolidated financial statements included with this report relate to carrying values of oil and gas properties, determination of fair values of stock based transactions, and deferred income tax rates and timing of the reversal of income tax differences.

These estimates and assumptions are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.

Petroleum and Natural Gas Properties

We utilize the full cost method to account for our investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs, including direct internal costs, are capitalized to the full cost pool. When we commence production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.

The capitalized costs included in the full cost pool are subject to a "ceiling test", (based on the average of 12 month, first-day-of-the-month pricing), which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized and the cost or estimated fair value of unproved properties included in the costs being amortized. At March 31, 2014, all of our oil and gas interests were classified as unproven properties and were not being amortized.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Fair Value Measurements

Our valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of these techniques requires significant judgment and is primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants would transact for the asset or liability and the quality and availability of inputs. Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:

●

Level 1 — quoted prices in active markets for identical assets or liabilities.

●

Level 2 — inputs other than quoted prices that are observable for an asset or liability. These include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

●

Level 3 — unobservable inputs that reflect our own expectations about the assumptions that market participants would use in measuring the fair value of an asset or liability.

We consider all highly liquid instruments with an original maturity of three months or less at the time of issuance to be cash equivalents. Cash and cash equivalents totaled $2,536 and $23,260 at March 31, 2014 and December 31, 2013, respectively. We are exposed to a concentration of credit risk with respect to our cash deposits. We place cash deposits with highly rated financial institutions in the United States and Australia. At times, cash balances held in financial institutions may be in excess of insured limits. We believe the financial institutions are financially strong and the risk of loss is minimal. We have not experienced any losses with respect to the related risks and do not believe our exposure to such risks is more than normal.

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, other receivables, accounts payable, accrued liabilities and demand notes payable approximates their carrying value due to their short-term nature.

Stock Based Compensation

We record compensation expense for stock based payments using the fair value method. The fair value of stock options granted to directors and employees is determined using the Black-Scholes option valuation model at the time of grant. Fair value for common shares issued for goods or services rendered by non-employees is measured based on the fair value of the goods and services received. Share-based compensation is expensed with a corresponding increase to share capital. Upon the exercise of the stock options, the consideration paid is recorded as an increase in share capital.

Foreign Currency Translation

Our functional and reporting currency, and that of our Australian subsidiary, is the United States dollar. The financial statements of our Canadian subsidiary (which is relatively inactive) are translated to United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Foreign currency financial statements of our Australian subsidiary use period end rates for monetary assets and liabilities, historical rates for historical cost balances, and average rates for expenses. If material, translation gains and losses are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian and Australian dollars. As of March 31, 2014, we have not entered into derivative instruments to offset the impact of foreign currency fluctuations.

Other Comprehensive Income (Loss)

We report and display comprehensive income or loss and its components in our consolidated financial statements. For the three month period ended March 31, 2014, the only components of comprehensive income or loss were foreign currency translation adjustments.

Income Taxes

We follow the asset and liability method of accounting for future income taxes. Under this method, future income tax assets and liabilities are recorded based on temporary differences between the carrying amount of balance sheet items and their corresponding tax bases. In addition, the future benefits of income tax assets, including unused tax losses, are recognized, subject to a valuation allowance, to the extent that it is more likely than not that such future benefits will ultimately be realized. Future income tax assets and liabilities are measured using enacted tax rates and laws expected to apply when the tax liabilities or assets are to be either settled or realized.

Earnings per share

We present both basic and diluted earnings (loss) per share (EPS) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all potential dilutive common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Diluted EPS figures are equal to those of basic EPS for each period since we had no securities outstanding during those periods in which we generated net income that were potentially dilutive.

See Note 1 to our unaudited consolidated financial statements for a discussion of recent accounting pronouncements.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Financial Officer and Principal Executive Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of March 31, 2014, our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.

On March 31, 2014, we issued 48,039 shares of our common stock, at an average price of $0.312 per share, in connection with the conversion of $15,000 in administrative service fees payable to a wholly owned subsidiary of our controlling shareholder, Holloman Corporation.

On April 15, 2014, we sold 531,948 shares of common stock to seven persons including a wholly-owned subsidiary of Holloman Corporation, to certain of our directors and officers, and to two non-affiliated persons. The shares were priced at $0.25 each. Proceeds from the private placement totaled $132,987. Of that amount, $105,000 was paid in cash and $27,987 was a conversion of liabilities.

The certificates representing the shares of common stock described above bear restricted legends providing that the shares cannot be sold unless pursuant to an effective registration statement or an exemption from registration. We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 in connection with the issuance of these shares and did not pay any underwriting discounts or sales commissions.

ITEM 6. EXHIBITS

Exhibit Number		Description of Exhibit
3.1		Articles of Incorporation(1)
3.2		Corporate Bylaws(1)
10.1		Share Exchange Agreement between Endeavor Energy Corporation, First Endeavor Holdings Inc. and Endeavor Canada Corporation(2)
10.2		Agreement between Endeavor Energy Corporation and Holloman Petroleum Pty. Ltd. for the purchase of assets and exchange of shares(3)
10.3		Option Agreement between Holloman Energy Corporation and Cameron King for an exchange of shares of Endeavor Canada Corporation(4)
10.4		Notice of Option Exercise relating to the Option Agreement between Holloman Energy Corporation and Cameron King for an exchange of shares of Endeavor Canada Corporation(4)
10.5		Farm Out Commitment Agreement between Holloman Energy Corporation and Holloman Oil & Gas, Ltd.(4)
10.6		Brandenburg Oil & Gas Farm-In Agreement, Petroleum Exploration Licenses 112 and 444 dated July 29, 2011(6)
10.7		Terra Nova Oil & Gas Farm-In Agreement, PELs 112 and 444, and Letter Agreement – Transaction Cost Sharing (7)
10.8		Assignment of Overriding Royalty Interests in PEL 112 to LPD Investments Limited
10.9		Assignment of Overriding Royalty Interests in PEL 444 to LPD Investments Limited
14.1		Code of Ethics for Principal Executive and Senior Financial Officers(5)
21.1		As of March 31, 2014 our subsidiaries were:
		First Endeavor Holdings Inc. (100% Owned) Alberta corporation
		Holloman Petroleum Pty. Ltd. (100% Owned) Australian corporation
		Endeavor Exploration Pty. Ltd. (100% Owned) Australian corporation
		All subsidiaries conduct business under their own names
31.1		Rule 13a-14(a) Certifications
31.2		Rule 13a-14(a) Certifications
32		Section 1350 Certifications

101. INS		XBRL Instance Document
101. SCH		XBRL Schema Document
101. CAL		XBRL Calculation Linkbase Document
101. DEF		XBRL Taxonomy Extension Definition Linkbase Document
101. LAB		XBRL Label Linkbase Document
101. PRE		XBRL Presentation Linkbase Document

———————

(1)	Previously filed with our Form SB-2 on September 26, 2005 and incorporated by reference.
(2)	Previously filed with our Form 8-K on August 9, 2007 and incorporated by reference.

(3)	Previously filed with our Form 8-K on November 29, 2007 and incorporated by reference.
(4)	Previously filed with our Form 10-KSB on April 15, 2008 and incorporated by reference.

(5)	Previously filed with our Form 10-KSB/A on April 26, 2007 and incorporated by reference.
(6)	Previously filed with our Form 8-K on August 4, 2011 and incorporated by reference.
(7)	Previously filed with our Form 10-Q on May 15, 2012 and incorporated by reference.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		HOLLOMAN ENERGY CORPORATION

Date: May 15, 2014	By:	/s/ Mark Stevenson
		Mark Stevenson, Principal Executive Officer

Date: May 15, 2014	By:	/s/ Robert Wesolek
		Robert Wesolek, Principal Financial and Accounting Officer