SAXON CAPITAL GROUP INC 10-Q

Item 1. Financial Statements IMPORTANT DISCLOSURE Contrary to the rules of the SEC, the Company's consolidated financial statements included in this filing have not been reviewed by an independent public accountant in accordance with professional standards for conducting such reviews. Table of Contents for Item 1: o Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 o Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007 o Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2008 o Consolidated Statements of Cash Flows for six months ended June 30, 2008 and 2007 o Notes to the Consolidated Financial Statements – June 30, 2008 USA SUPERIOR ENERGY HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS As of June 30, 2008 and December 31, 2007 ASSETS June 30, 2008 December 31, 2007 Current assets (unaudited) (audited) Cash and cash equivalents $ 23,779 $ 256,943 Restricted cash 50,000 50,000 Accounts receivable 2,500 - Prepaid expenses and other current assets 153,270 24,699 Total current assets 229,549 331,642 Oil and gas properties, including $348,086 of unproved properties, net of accumulated depletion, depreciation and amortization of $76,311 and $36,991, respectively – using full cost method of accounting 1,528,969 1,568,289 Office equipment, net of depreciation of $17,059 and $9,391, respectively 26,704 34,372 Other assets 750 750 Total assets $ 1,785,972 $ 1,935,053 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities $ 651,848 $ 326,730 Convertible demand note, net of unamortized discount of $ 240,260 and $244,154, respectively 46,961 27,000 Current portion of notes payable 344,097 347,762 Advances payable – related party 272,784 114,259 Total current liabilities 1,315,690 815,751 Convertible debenture, net of unamortized discount of $238,852 and $257,316, respectively 257,764 215,947 Notes payable 171,522 363,957 Asset retirement obligations 118,251 115,520 Total liabilities 1,863,227 1,511,175 STOCKHOLDERS’ EQUITY Common shares, $0.001 par value, 150,000,000 shares authorized, 56,160,000 and 55,760,000 shares issued and outstanding, respectively 56,160 55,760 Additional paid-in capital 8,377,720 7,924,850 Stock subscription receivable (130,000 ) - Accumulated deficit (8,381,135 ) (7,556,732 ) Total stockholders’ equity (77,255 ) 423,878 Total liabilities and stockholders’ equity $ 1,785,972 $ 1,935,053 The accompanying notes are an integral part of these consolidated financial statements. USA SUPERIOR ENERGY HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the six and three months ended June 30, 2008 and 2007 (Unaudited) Three months to June 30 Six months to June 30 2008 2007 2008 2007 Revenue $ 124,522 $ 140,917 $ 240,085 $ 194,335 Operating expenses Lease operating expenses 15,358 93,434 119,612 126,423 General and administrative, including stock based compensation of $207,436 and $3,020,000, respectively 320,833 446,807 784,584 3,772,662 Depreciation, depletion and amortization 28,476 49,712 Total operating expenses 364,667 540,241 953,908 3,899,085 Operating loss (240,145 ) (399,324 ) (713,823 ) (3,704,750 ) Other income (expense) (23,244 ) 3,516 (23,244 ) 3,516 Interest expense (44,274 ) - (87,329 ) - Total other expense (67,518 ) 3,516 (110,573 ) 3,516 Net loss (307,663 ) (395,808 ) (824,403 ) (3,701,234 ) Net loss per share: Basic and diluted $ (0.01 ) $ (0.09 ) $ (0.01 ) $ (0.10 ) Weighted average shares outstanding: Basic and diluted 56,067,692 35,666,630 56,067,692 35,666,630 The accompanying notes are an integral part of these consolidated financial statements. USA SUPERIOR ENERGY HOLDINGS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY For the six months ended June 30, 2008 (Unaudited) Common Shares Par Amount Additional Paid-In Capital Stock Subscription Receivable Accumulated Deficit Total Balance, December 31, 2007 55,760,000 $ 55,760 $ 7,924,850 $ - $ (7,556,732 ) $ 423,878 Shares issued in exchange for subscription receivable 400,000 400 299,600 (130,000 ) - 170,000 Warrants issued for services - - 153,270 - - 153,270 Net loss - - - - (824,403 ) (824,403 ) Balance, June 30, 2008 56,160,000 $ 56,160 $ 8,377,720 $ (130,000 ) $ (8,381,135 ) $ (77,255 ) The accompanying notes are an integral part of these consolidated financial statements. USA SUPERIOR ENERGY HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 2007 and 2008 (Unaudited) 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (824,403 ) $ (3,701,234 ) Adjustments to reconcile net loss to cash used by operating activities: Depreciation, depletion and amortization 49,719 153 Amortization of debt discount 22,358 248,048 Stock based compensation 207,436 3,020,000 Net change in operating assets and liabilities 413,826 (229,926 ) NET CASH USED BY OPERATING ACTIVITIES (131,064 ) (662,959 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment - (37,945 ) Investment in oil and gas properties - (400,000 ) Increase in restricted cash - - CASH FLOWS USED IN INVESTING ACTIVITIES - (437,945 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of short-term debt 100,000 27,740 Proceeds from sale of units - 1,000,000 Capital contributions from shareholder - 72,212 Repayments of notes payable (202,100 ) - CASH FLOWS USED BY FINANCING ACTIVITIES (102,100 ) 1,099,952 NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (233,164 ) (952 ) Cash and cash equivalents, beginning of period 256,943 6,657 Cash and cash equivalents, end of period $ 23,779 $ 5,705 Cash paid for: Interest $ 1,001 $ - Income taxes $ - $ - Supplemental Schedule of Non-cash Investing and Financing Activities: Purchase oil and gas properties through issuance of notes payable $ - $ 750,097 Recapitalization - 18,360 Asset retirement obligation incurred - 88,066 The accompanying notes are an integral part of these consolidated financial statements USA SUPERIOR ENERGY HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2008 Note 1 – Organization and Business Operations Contrary to the rules of the SEC, the Company's consolidated financial statements included in this filing have not been reviewed by an independent public accountant in accordance with professional standards for conducting such reviews. USA Superior Energy Holdings, Inc. (the “Company” or “USA Superior”), a Nevada corporation, was originally formed on November 12, 2003 as Comlink Communications Company (“Comlink”). In fiscal the fiscal year ended 2006, Comlink was essentially dormant with no operating business, having discontinued all prior operations in the first quarter of 2006. Prior operations consisted of an attempt to market two-way radio communication equipment over the internet. The Company had no capital and no prospects to raise capital to carry out the prior business plan. The current business of the Company is to develop, own and operate prospects and energy projects in East and Southwest Texas. The Company primarily focuses on properties with a potential for enhanced secondary or tertiary recovery using modern state-of-the-art workover and stimulation techniques. On January 16, 2007, USA Superior and Comlink Communications Company (“Comlink”) consummated a merger that was effected through a reverse merger in which the shareholders of USA Superior agreed to receive 34,000,000 shares of common stock of Comlink in exchange for 100% of the issued and outstanding shares of USA Superior. Concurrent with the merger, USA Superior’s executive management and directors assumed control and responsibility for Comlink’s activities and its strategic direction. The merger effected a change in control of Comlink and immediately following the merger, USA Superior’s former stockholders held approximately 59% of Comlink’s issued and outstanding common shares. After the merger, Comlink’s name was changed to USA Superior Energy Holdings, Inc., and the stock symbol was changed to OTCBB: USSU. For Securities and Exchange Commission (“SEC”) reporting purposes, the merger between USA Superior and Comlink was treated as a reverse merger with USA Superior being the “accounting acquirer” and, accordingly, it assumed Comlink’s reporting obligations with the SEC. In accordance with SEC requirements, the historical financial statements and related disclosures presented herein for the period prior to the date of merger (i.e., January 16, 2007) are those of USA Superior. The assets and liabilities of Comlink were recorded, as of completion of the merger, at fair value, which is considered to approximate historical cost, and added to those of USA Superior. In accordance with the terms of the merger agreement, each outstanding share of USA Superior prior to the reverse merger was converted into 309.8 common shares in USA Superior (post reverse merger) with a total of 30,980,000 common shares issued to the former USA Superior stockholders. Of the 63,360,000 shares of Comlink outstanding at the time of the merger, 45,000,000 shares were cancelled concurrent with the closing of the merger. In conjunction with the merger, USA Superior issued 3,020,000 shares of common stock. In accordance with EITF 95-8, USA Superior determined that these were shares issued for services and not additional transaction costs due to the fact that Comlink’s cash balance was minimal prior to the merger. These shares had a market value of $3,020,000 on the date of the reverse merger. Of the total shares issued for services, 2,720,000 shares were issued to employees of USA Superior. Immediately following the merger, a total of 52,360,000 shares of common stock were issued and outstanding. Since its inception, USA Superior has funded its oil and gas activities through a combination of equity and debt securities and the contribution of funds and services by its principal shareholders and management. Note 2 – Summary of Significant Accounting Policies Interim Financial Statements The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission (“SEC”). The financial statements included herein as of June 30, 2008, and for the six and three month periods ended June 30, 2008 and 2007, are unaudited, and in the opinion of management, the information furnished reflects all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and of the results for the interim periods presented. Certain minor reclassifications of prior period financial statements have been made to conform to current reporting practices. The results of operations for interim periods are not necessarily indicative of results to be expected for a full year Basis of presentation USA Superior’s unaudited consolidated balance sheets as of June 30, 2008 and December 31, 2007 and related consolidated statements of operations, stockholders’ equity and cash flow for the six and three months ended June 30, 2008 and 2007 are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates. Management believes that it is reasonably possible the following material estimates affecting the financial statements could significantly change in the coming year: (1) estimates of proved oil and gas reserves, and (2) forecast forward price curves for natural gas and crude oil. The oil and gas industry in the United States has historically experienced substantial commodity price volatility, and such volatility is expected to continue in the future. Commodity prices affect the level of reserves that are considered commercially recoverable; significantly influence USA Superior’s current and future expected cash flows; and impact the PV10 derivation of proved reserves presented in USA Superior’s supplemental oil and gas reserve disclosures made herein. Principles of consolidation The financial statements include the accounts of its 100% owned subsidiaries USA Superior Energy, Inc. and Superior Energy, LLC and its 80% interest in the subsidiary Skyrider Energy, LLC. Revenue and cost recognition USA Superior uses the sales method to account for sales of crude oil and natural gas. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. The volumes sold may differ from the volumes to which USA Superior is entitled based on our interest in the properties. These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves. USA Superior had no imbalances as of June 30, 2008 and December 31, 2007. Costs associated with production are expensed in the period incurred. New Accounting Pronouncements USA Superior does not expect the adoption of recently issued accounting pronouncements to have a significant impact on their results of operations, financial position or cash flows Note 3 – Going Concern USA Superior has raised limited financing and has incurred operating losses since its inception in October 2005. These factors raise substantial doubt about USA Superior’s ability to continue as a going concern. USA Superior’s ability to achieve and maintain profitability and positive cash flow is dependent on its ability to secure sufficient financing to fund the acquisition, drilling and development of profitable oil and gas properties. Management is seeking financing that it believes would allow USA Superior to establish and sustain commercial production. There are no assurances that USA Superior will be able to obtain additional financing from investors or private lenders and, if available, such financing may not be on commercial terms acceptable to USA Superior or its stockholders. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Note 4 – Notes Payable and Convertible Debentures Notes Payable – Bastrop and Caldwell County, Texas Leases As a portion of the consideration for the purchase of the Bastrop and Caldwell County, Texas leases, USA Superior issued a $350,000 note payable to the seller. The note bears interest at 5% and requires monthly payments of $15,000 plus interest. As of December 31, 2007, USA Superior was in default on the payments of the note. On April 11, 2008, USA Superior paid the lender $50,000 for attorney fees and a partial payment on the note and entered into a Renewal and Extension Promissory Note which settled the default. Under the terms of the new note, USA Superior must make monthly payments of $15,000 plus 8% interest beginning May 15, 2008. All unpaid principal and interest is due October 15, 2008. This note is secured by 500,000 shares of USA Superior’s common stock which were pledged by the Company’s CEO and USA Superior’s interest in the Bastrop County leases. As additional consideration for the purchase of the Bastrop County, Texas leases, USA Superior agreed to assume the seller’s noninterest bearing liability to a third party in the total amount of $440,000. This note requires payments of 25 percent of the net revenue from the production of the leases, with minimum payments of $7,500 per month and $120,000 per year. This note was recorded at the present value of the future cash payments of $400,097. Management used an interest rate of 5% to discount this rate, because it was the same as the rate on the note payable to the seller described above. USA Superior is currently in default on the note due to the fact that all required payments have not been made on the note. Convertible Note Payable On January 23, 2008, USA Superior issued a convertible promissory note payable to a third party in the amount of $100,000. The proceeds of this note were placed in an escrow account to indemnify a broker for potential losses to be incurred in online trading in the company’s stock. The note bears interest at 8%, matures January 23, 2009 and is convertible in the event of a merger transaction at the lowest rate available to other convertible note holders. The note was repaid in June 2008. Convertible Debenture On October 30, 2007, USA Superior issued a $2.5 million secured convertible debenture to a private investor in exchange for $200,000 cash and a $2.3 million secured promissory note from the investor. The convertible debenture bore interest at 9.75% with interest payments due monthly beginning in April 2008 and matures October 30, 2011. Principal was due at maturity. The debenture could be repaid in portion or in full at any time at 125% of the then outstanding principal and accrued interest and issuing warrants to purchase 200,000 shares. The debenture provided the lender the right to convert any or all of the outstanding balance to USA Superior shares of common stock at a conversion rate of the lesser of 80 percent of the average of the lowest three trading prices of the common share during the 20 days prior to conversion or $0.50 with certain prepayment rights by USA if the price is below $0.20 on the day the conversion election is made. If the lender elects to convert all or a portion of the debenture and the conversion price is less than $0.16, USA Superior has the option to prepay the note at 150% rather than converting the note. USA Superior evaluated the terms of the convertible debenture in accordance with EITF 98-5 and EITF 00-27 and concluded that this debenture did not result in a derivative. USA Superior evaluated the terms of the convertible debenture and concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature was valued at $200,000 at inception based on the intrinsic value of the discount. The discount was being amortized using the effective interest method over the four year term of the note. For the period this note was outstanding, $3,593 was charged to interest expense associated with the amortization of the debt discount. The secured promissory note bore interest at 10% with interest payable to USA Superior monthly beginning in April 2008 and requires monthly payments of $250,000 to USA Superior, under certain conditions. This debenture was refinanced on November 20, 2007 by the payment of $200,000 to the lender, the cancelation of the $2.3 million secured promissory note receivable, and the issuance of a three year noninterest bearing $625,000 convertible debenture. The new debenture requires a single payment of $625,000 on November 20, 2010 and may not be prepaid without the prior approval of the lender. USA Superior calculated the present value of the note using an interest rate of 9.75% which was the same rate as the original debenture. The new debenture is recorded at its present value of $468,136. The new debenture is convertible into common stock of USA Superior at a conversion rate of 95% of the average of the three lowest trading prices during the 20 trading days prior to conversion at the option of the holder. USA Superior may choose to prepay the new debenture at 110% of the principal amount after the lender has issued a notice of conversion. USA Superior compared the discounted present value of the cash flows under the original debenture and the new debenture and determined that the difference in the cash flows was greater than ten percent. Accordingly, the issuance of the new debenture was treated as an extinguishment of the original convertible debenture and the issuance of a new debenture and recorded a loss of $403,759 on the transaction. USA Superior evaluated the terms of the convertible debenture in accordance with EITF 98-5 and EITF 00-27 and concluded that this note did not result in a derivative. USA Superior evaluated the terms of the convertible debenture and concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature was valued at $261,144 at inception based on the intrinsic value of the discount. For the period from January 1, 2008, through June 30, 2008, $18,464 was charged to interest expense associated with the amortization of the debt discount. At June 30, 2008, the convertible debenture was recorded on the balance sheet at $257,764, which is made up of the discounted face value of the note of $468,136 plus accrued interest of $28,480 offset by the unamortized discount of $238,852. Convertible Demand Note On December 18, 2007, USA Superior received proceeds of $225,000 in exchange for a $270,000 convertible note payable. The note bears interest at 12.0% per annum; is convertible at the lesser of 50% of the lowest trading price during the 20 trading days prior to conversion or $0.79 per share of common stock; and provided for a payment on maturity or upon the occurrence of certain events; but no later than December 18, 2010. USA Superior evaluated the terms of the convertible note in accordance with EITF 98-5 and EITF 00-27 and concluded that this note did not result in a derivative. USA Superior also concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the stock. The discount was valued at $261,144 at inception based on the intrinsic value of the discount at inception. The discount is being amortized using the effective interest method over the three year term of the note. For the period from January 1, 2008, through June 30, 2008, $3,894 was charged to interest expense associated with the amortization of the debt discount. At June 30, 2008, the convertible demand note was recorded on the balance sheet at $46,961, which is made up of the face amount of the note of $270,000 and accrued interest of $17,221 offset by the unamortized discount of $240,260. Note 5 – Stockholders’ Equity Issuance of Common Shares and Warrants On March 1, 2008, as modified April 22, 2008, USA Superior entered into an agreement with a third party for financial advisory services for the period from March 1, 2008 through February 28, 2010. Under the terms of the contract USA Superior will make monthly payments of $5,000 for a total of 23 months. In addition, USA Superior has issued a warrant to purchase 1,000,000 shares of common stock for a period of five years at an exercise price of $0.17 and USA Superior’s CEO will pay the third-party 1,250,000 shares of the common stock owned by him. The warrants were valued at $153,270 using the Black-Scholes model with the following assumptions: Assumption Exercise price $ 0.17 Stock price on the issuance date $ 0.18 Term (years) 5 Risk free interest rate 2.64 % Volatility 124 % The value of the warrants has been recorded as a prepaid asset and is being amortized over the two year term of the agreement. The 1,250,000 shares of stock have not yet been transferred by the CEO. Issuance of Common Stock for Subscription Agreement In January 2008, USA Superior issued 400,000 shares of stock to an employee of the company in exchange for a stock subscription receivable in the amount of $130,000. The shares were valued at $300,000 on the date of issuances. USA Superior recognized $170,000 of compensation expense related to the difference in the market value of the shares and the cash to be received from the employee. Note 5 – Subsequent Events On August 7, 2008, the company announced that it has executed a letter of intent to merge with Hunt Global Resources Inc. of Montgomery, Texas. The transaction will be in the form of a “reverse merger”. Under terms of the agreement, Hunt will assume a majority stock position and appoint a new board of directors. Full details of the transaction will be released upon the execution of a definitive agreement between the parties. Closing is based on the completion of required audits, satisfactory due-diligence, a fairness-opinion and shareholders approval of the transaction. Hunt is a natural resource company that plans to begin mining operations in the fourth quarter of this year on 350 acres of land containing proven sand and gravel reserves valued at an estimated $1.2 billion dollars.