SAXON CAPITAL GROUP INC - Annual Report: 2008 (Form 10-K)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
X ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended December 31, 2007
OR
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE
TRANSITION PERIOD FROM ____ TO ____
USA
SUPERIOR ENERGY HOLDINGS, INC.
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(Exact
name of registrant as specified in its charter)
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NEVADA
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333-117114
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30-0220588
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employe Nubmer)
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1726
Augusta Drive, Suite 105, Houston, Texas 77057
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(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: 832-251-3000
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Securities
Registered pursuant to Section 12(b) of the Exchange Act:
Common Stock, $.001 par
value
Over The Counter Bulletin
Board
(Title of
Class) (Name
of exchange on which registered)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes |_| No |X|
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes | | No |X|
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 | _| No | X |
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
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
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
|_| Accelerated
filer |_|
Non-accelerated
filer |_| (Do not check if a smaller
reporting company)
Smaller
reporting company |X|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes |_| No |X|
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.
As of the
close of trading on May 15, 2008, there were 56,160,000 common shares issued and
outstanding, 27,244,706 shares of which were held by
non-affiliates. As of close of trading on June 29, 2007, there were
54,860,000 common shares issued and outstanding, 27,244,706 shares of which were
held by non-affiliates. As of close of trading on June 29, 2007,
the aggregate market value of the common shares held by
non-affiliates of the registrant was $12,672,800, based on the closing price of
$0.62.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
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TABLE
OF CONTENTS
PART
I
Item
1. Description
of Business
Item
2. Description
of Properties
Item
3.
Legal Proceedings
Item
4. Submission
of Matters to a Vote of Security Holders
PART
II
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases
of Equity Securities
Item
6. Selected
Financial Data
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results
ofOperations
Item
8. Financial
Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and
FinancialDisclosure
Item
9A. Controls
and Procedures
Item 9B.
Other Information
PART
III
Item
10. Directors,
Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item
12. Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item
13. Certain
Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART
IV
Item
15. Exhibits,
Financial Statement Schedules
SIGNATURES
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PART
I
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
annual report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements relate to future
events or our future financial performance. In some
cases, you can identify
forward-looking statements by terminology such
as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue," or
the negative of these terms or other comparable
terminology. These statements are only predictions and may
involve known and
unknown risks, uncertainties and
other factors, including the risks in the
section entitled "Risk Factors Relating to the Company and
its Business," that may cause the Company’s or its
industry's actual
results, level of activity, performance or achievements to
be materially
different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements.
Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results, levels of
activity, performance or achievements. Except as required by
applicable law, including the securities laws of the
United States, the Company does not intend to update any of
the forward-looking statements to
conform these statements to actual results. The Company
qualifies all the forward-looking statements contained in this Annual Report by
the foregoing cautionary statements.
In
particular, this Form 10-K contains forward-looking statements pertaining to the
following:
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oil
and natural gas production levels;
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capital
expenditure programs;
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the
estimated quantity of oil and natural gas
reserves;
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projections
of market prices and costs;
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supply
and demand for oil and natural gas;
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expectations
regarding the ability to raise capital and to continually add to reserves
through acquisitions, exploration and
development;
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treatment
under governmental regulatory
regimes;
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drilling
plans; and
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oil
and gas reserve life.
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The
actual results could differ materially from those anticipated in these
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this Form 10-K:
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our
ability to continue as a going
concern;
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·
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our
limited history of operations;
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·
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our
need for additional external
funding;
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·
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volatility
in market prices for oil and natural
gas;
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·
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liabilities
inherent in oil and natural gas
operations;
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·
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uncertainties
associated with estimating oil and natural gas
reserves;
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·
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competition
for, among other things, capital, acquisitions of reserves, undeveloped
lands and skilled personnel;
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·
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geological,
technical, drilling and processing problems;
and
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·
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the
other factors discussed under “Risk
Factors.”
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These
factors should not be considered exhaustive.
These
forward-looking statements are made as of the date of this Form 10-K and we
assume no obligation to update such forward-looking statements or to update the
reasons why actual results could differ materially from those anticipated in
such forward-looking statements.
As we are
deemed a “penny stock issuer” within the meaning of the Securities Act and the
Exchange Act, we are currently ineligible to rely on the safe harbor provisions
of the Securities Act and the Exchange Act relating to forward-looking
statements. However, once we are no longer a “penny stock issuer,” we
expect to be eligible to, and we intend to, rely on such safe harbor
provisions.
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ITEM
1 - DESCRIPTION OF BUSINESS
GENERAL
OVERVIEW
USA
Superior Energy Holdings, Inc. (the “Company”) operates in the energy industry,
focusing on acquiring, owning, operating and applying enhanced oil recovery
(“EOR”) techniques to existing shallow fields of oil and gas. The
Company performs complete workover and stimulation services in these existing
fields to restart or substantially increase production. It utilizes
state-of-the-art workover and shallow-well drilling techniques in these fields
including new and innovative technologies under development by the
Company. These new technologies include specialized shallow-well
cased hole horizontal drilling (“CHHD”) and nitrogen (“N2”) injection which will
be utilized to increase production volumes and reserve recoverability from the
Company’s projects. Currently, the Company is involved in developing, owning and
operating energy projects and prospects in East, Central and South Texas and
currently has active projects and prospects in Bastrop, Caldwell, Navarro and
Zavalla counties. These fields are known as the Bateman Project in Bastrop and
Caldwell Counties (comprised of the Bateman Field and part of the adjacent Dale
McBride Field), the Benton Field in Navarro County and the Del Monte Prospect in
Zavalla County.
During
2007 the Company continued work to prepare its shallow-well EOR projects and
prospects for further development. In January 2007, the Company
completed a reverse merger into a public company to improve its access to the
capital markets, acquired the Bateman Project and raised $1,000,000 of
additional capital in a private placement of common stock and
warrants. The Company began its second phase productivity improvement
program in the Bateman Project completing workover, initial repairs and paraffin
treatment on approximately 21 wells of the total 8 existing wells in this
project by year end. Monthly production has increased from the
Bateman Project to over 1,000 barrels in April, 2008. The Company
intends to complete its second phase of productivity improvement program in the
first half of 2008 re-working and repairing a total of approximately 75 wells
and plans to begin drilling additional development wells and utilizing CHHD and
N2 treatment techniques in the Bateman Project during the second half of
2008.
As of
December 31, 2007, management has estimated from geological and existing field
data that the Company’s estimated total proved oil reserves in the Bateman
Project are 445,000 Bbls, with undiscounted Future Net Revenues of $19 million
and a discounted Net Present Value of $3.8 million. Approximately 44% of
Bateman’s proved reserves were classified as proved developed and the Company
maintains operational control over essentially all of the Bateman Project’s
proved reserves.
Management
believes that the Bateman Project has significant additional EOR development
potential. Since its discovery in 1982, the Bateman Field has
produced in excess of 800,000 barrels of oil through end of 2006, solely using
primary production methods. Management estimates that the current 88 wells in
the Bateman Project have produced less 6% of the oil in place from less than 150
acres of the 1,200 acre project under these primary production methods.
Following completion of the productivity improvement program, the Company’s
expects to begin advanced EOR operations in the second half of 2008 which will
involve applying CHHD and N2 techniques to approximately 35 wells including the
drilling of approximately 12 completely new wells in the Bateman
Project. Upon successful completion of phase two the Company intends
to expand drilling activities and has identified another 25 prospective drilling
locations within the Bateman Project for development in 2009. The
timing and extent of the anticipated phases two and three of the Bateman Project
are dependent upon the levels of cash flow realized and sustained from phase one
and the securing of additional development capital by the Company.
Management
also believes that the Benton Field has significant EOR development potential
and the Del Monte Prospect may hold large amounts of gas and some meaningful
amounts of oil. Assessment of proven reserves from the Benton Field
and Del Monte Prospect are not expected to begin until late 2008. The
Company has developed and completed a four well EOR test project in the Benton
Field but is not currently producing from the Benton Field at this
time. Management is waiting to expand its EOR operations upon the
anticipated renewal of its lease on the Benton Field and obtaining additional
capital for EOR development operations. The Del Monte Prospect’s
lease expires at the end of 2008 unless extended. The Company has
prepared an initial drilling site and anticipates drilling its first well in the
Del Monte Prospect by year end pending raising sufficient capital for the test
well or a joint venture with an industry partner.
The
Company’s corporate office is located at 1726 Augusta Drive, Suite 105, Houston,
Texas 77057, USA (telephone 832-251-3000). The Company’s common stock is traded
on the NASDAQ bulletin board under the symbol “USSU.OB” and on the Frankfurt
Stock Exchange under the ticker “F2S“.
RECENT
CORPORATE DEVELOPMENTS
On
January 16, 2007, USA Superior Energy, Inc. (a Delaware company incorporated on
October 27, 2005, “USA Superior”) and Comlink Communications Company (a Nevada
company incorporated on November 12, 2003, “Comlink”) consummated a reverse
merger in which the shareholders of USA Superior agreed to receive shares of
common stock of Comlink in exchange for 100% of the issued and outstanding
shares of USA Superior. Immediately following the merger, USA
Superior’s former stockholders held approximately 59% of Comlink’s issued and
outstanding common shares. Concurrent with the merger, USA Superior’s executive
management and directors assumed control and responsibility for Comlink’s
activities and its strategic direction. Comlink’s name was changed to USA
Superior Energy Holdings, Inc. concurrent with the merger.
CORPORATE
OPPORTUNITY
International
demand for oil is expected to continue rising as emerging markets develop their
economies across the globe. This growth, coupled with a dwindling supply of
traditional recoverable oil sources, is anticipated to continue driving oil
prices to historic high levels throughout 2008 and beyond. With
today’s oil prices reaching historic highs (over $126 a barrel on May 13, 2008)
margins have increased significantly in the Company’s EOR
business. Higher margins, lower costs and improved recovery
technologies have all combined to create a very favorable environment for the
Company’s strategy of rejuvenating previously discovered, poorly exploited,
abandoned or low volume and historically marginal oil fields.
All
across the United States large volumes of oil have been left in shallow-well
reservoirs at depths ranging from approximately 300 feet to 6,000 feet. At
historically lower oil prices it was not cost effective to attempt to remove
these volumes of oil, especially in shallow tight reservoirs, heavy oil sands,
and small marginal reservoirs. Because of poor historical economics
many of these shallow-well fields have not been fully developed and have seen
significant production declines since they were first
discovered. Significant improvements in oil recovery and production
technologies, including the development of the CHHD and N2 technologies, have
reduced workover and production costs and improved the volumes of oil that can
be recovered from these types of fields. The Company expects to be
able to continue to grow its reserve base and production volumes through
cost-effective re-development and EOR operations in its existing projects and
the acquisition and/or joint venture of working interests in other shallow-well
fields.
CHHD is
an extension of the highly successful direction drilling techniques developed
and increasingly utilized by the oil and gas industry over the past 20 years to
significantly increase the communication from the wellbore to the fluids in the
reservoir. The high cost of conventional directional or horizontal
drilling techniques can be prohibitive for many shallow-well, historically
marginal oil fields. CHHD utilizes highly portable, truck mounted
drilling units that can be operated in both new or existing cased wellbores to
drill multiple horizontal wells. This may achieve production results
similar to larger, significantly more expensive and time consuming directional
drilling techniques. The Company is currently conducting workover and
recompletion operations in the Bateman Project and intends to apply CHHD
technology to enhance production from this project in the second half of
2008.
N2
injection is a production technique that substitutes nitrogen for carbon dioxide
(“CO2”) or water in larger, more conventional and significantly more
expensive EOR projects. N2 can be directly filtered from air in a
non-cryogenic process in skid-mounted production units that can be easily
transported and configured for the specific requirements of individual
injection/production wells. This results in a significantly lower
investment and operating costs for N2 EOR production facilities as compared to
more traditional CO2 facilities which makes them highly economic for the
Company’s shallow-well oil projects. The Company has conducted
extensive testing and development of these N2 EOR techniques in the Benton
Field.
The
Company’s management is highly qualified with significant experience in
acquiring oil and gas properties, finding and drilling for oil and gas, and with
oil and gas completion and production operations, including the development and
application of EOR technologies.
STRATEGY
The
Company’s primary business strategy is to utilize EOR techniques and new
technologies to expand and re-develop existing shallow-well oil fields that have
experienced significant declines in primary production from the existing or
initial development wells. The key elements of this strategy
include:
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1.
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Acquire
and joint venture operating working interests in existing proven
shallow-well oil and
gas fields
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2.
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Rework
existing wells with the latest low-cost workover, stimulation and EOR
technologies, including CHHD and N2 injection techniques, to accelerate
production and maximize reserve
recovery
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3.
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Drill
new wells to further develop the existing fields, again utilizing CHHD and
N2 injection techniques where applicable, to maximize production and
reserve recoveries
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4.
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Drill
or test potential new and/or by-passed production zones, identifying
additional oil and gas reservoirs in Company fields that may have been
uneconomic during periods of lower oil and gas
prices
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PRIMARY
AND ENHANCED OIL RECOVERY
When an
oil reservoir is initially produced, the natural pressure found underground is
often the primary force which drives the oil out of the ground. This
primary production is called the natural “flow” or “pump”. Primary production
typically produces 10% to 40% of the oil found in the reservoir, potentially
leaving 60% to 90% of the oil still in the ground. The differences in production
results from primary recovery are dependent on the pressure, viscosity of the
fluids and the porosity and permeability of the rock formation. The deeper a
reservoir is, the greater the pressure pushing down on the rock. Rock
formations with high porosity (holes within the rock which can be filled with
fluid) and high permeability (the connectivity between and friction within those
holes) allow oil to flow more easily and rapidly. Deep, high pressure
reservoirs, with high permeability and porosity and thin low-viscosity oil allow
greater amounts of the oil in ground to be initially produced from primary
production. Conversely, shallow, low pressure, tight, low permeability and low
porosity rock, or thick highly viscous oil reduces the volumes that can be
recovered from primary production sometimes leaving as much as 90% of the
original oil in place.
After
primary production, a fluid or gas is often injected into the ground, under
pressure, to help artificially pressurize and pump additional oil out of the
reservoir. This is called secondary or tertiary
production. Primary and secondary production can produce from 40% to
80% of the original oil in the reservoir. In the past, only large oil and gas
companies had the expertise and financial resources to pursue high-cost
secondary and tertiary EOR projects.
Use
of Cased Hole Horizontal Drilling for Enhanced Oil Recovery
CHHD is a
new and emerging EOR technology designed to increase oil production from both
new and existing wells. A potential substitute for traditional
horizontal drilling, CHHD creates a passage for oil to flow more freely from the
surrounding rock into the production tubing at costs as low as 5% of traditional
horizontal drilling. The technology permits the drilling of multiple
small horizontal holes from within the casing which passes through the
production zone at depths down to 5,000 feet. In a conventional
vertical well the formation can only drained from fractures intersecting or in
close proximity to the wellbore and its immediate drainage area. The
primary benefits of CHHD are:
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Improves
connectivity of the wellbore to the producing
formation
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Enhances
drainage area of well
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Bypasses
skin or formation damage around wellbore from drilling fluids, concrete
and chemicals
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Decreases
pressure draw down, distributes pressure evenly over a greater
area
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Increases
production and injection rates
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Transforms
old marginal wells into economic
producers
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Lowers
drilling and treatment costs and increases efficiencies of specialized
formation treatments
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The CHHD
units the Company intends to use in its EOR operations are generally highly
portable small truck, skid or trailer mounted coil tubing units and can be
obtained from any of several fabricators in the United States. These
units are capable of making a 90 degree bend inside the casing and drilling
multiple one inch diameter horizontal holes in a radial pattern at distances of
up to 300 ft from the wellbore. The units have a small drill bit jet
at the end of the tubing that cuts the hole into the production
formation. The units also consist of a down hole rotating shoe which
allows the orientation of holes to specific compass directions and permits the
reentry of previously drilled horizontal holes. CHHD can reduce the
time required to drill a series of horizontal holes by as much as 40 to
60%. These units are capable of using downhole telemetry including a
camera to observe drilling as it takes place and gamma ray/ neutron logging
tools to precisely spot the best zone for the drilling of the horizontal
holes.
Use of Nitrogen Injection for Enhanced
Oil Recovery
Nitrogen,
an inert gas, can be used in lieu of, or in addition to, more traditional CO2 or
water floods as a means to force oil out of reservoirs in amounts beyond primary
production. Pressurized nitrogen can be either dispersed across an
entire field causing an increase in reservoir pressure thereby effecting a
number of wells simultaneously, or dispersed to individual wells displacing and
re-pressurizing trapped oil around the wellbore. Applying nitrogen to pressurize
reservoirs and wellbores has several advantages. Nitrogen is inert to most
mineral and rock conditions and will not adversely harm the formation, unlike
water which can “expand and jam up” water sensitive clays within some producing
reservoirs thereby reducing the flow capacity of the formation. Unlike CO2,
nitrogen is inert and will not mix with the water in a wellbore to create an
acid that may damage steel casing and production tubing. Nitrogen is
an environmentally friendly (any spillage of nitrogen gas is inefficient but
uneventful) and readily available gas (approximately 78% of the Earth’s
atmosphere consists of nitrogen) for use in pushing oil through a reservoir to
the production wells. Nitrogen has been in use in the oil and gas
industry for over 20 years. Industry experience has demonstrated a
two to four-fold increase in production with only slight increases in water
production at N2 usage of 1 to 4 MCF for each barrel of oil
produced.
Company’s Use of Nitrogen Injection and
CHHD
The
Company’s management has extensive industry experience in N2 and CHHD
operations. Beginning in the fourth quarter of 2005, the Company
began the use of N2 to stimulate the Benton Field. In the Benton
reservoir N2 acted to increase pressure in the shallow water sensitive formation
of the Benton Field thereby increasing the efficiency and volume of oil and
water a well produces. N2 is used to increase the pressure within the
formation through a series of injection wells thereby forcing greater volumes of
oil into the wellbore of a production well. Currently the Company has
been venting N2 produced from its wells back into the atmosphere. In the future,
the Company plans to separate the N2 at recovery and recompress it for
re-injection into the reservoir, further reducing costs and increasing EOR
efficiencies.
Recent Company Testing of Nitrogen
Injection
In early
2008, the Company experienced a 200% plus increase in oil production from an
existing oil well in the Bateman Project during a cyclic N2 injection test of
the EOR techniques developed by the Company. This testing consisted of injecting
a volume of N2 into existing perforations in a specific well. Prior to this
test, the well was producing a small volume of fluids consisting of 5% oil and
95% water. For the first three days after the test, the well pumped 100% oil
before the N2 pressure depleted, representing a sizeable increase in potential
oil production from the test well.
The
Company feels these results are indicative of the oil production potential that
a N2 injection program implemented across the field may produce. A third party
engineering report estimates that existing wells in the Bateman Field have only
produced 6% of the original oil in place from primary production with 90 to 95%
remaining to be produced through secondary and tertiary methods. This report
also calculates that existing individual wells are only draining approximately 2
acres of the formation. In the Bateman Field existing well spacing is
7.5 acres implying that it may be possible to drill an additional two to three
wells for each current well in the field Company estimates indicate that an N2
injection program, in addition to horizontal enhancements, may be able to
produce an additional 15 to 30% of the oil still left in the
ground. The Company has just begun to utilize these EOR technologies
to increase production from its existing wells but expects similar results to
the test described above once the enhancement technologies can be fully employed
in increasing production from its existing fields.
Availability of Portable Nitrogen
Generators
Skid
mounted molecular sieve N2 generating units can be easily transported,
configured and located onsite immediately adjacent to a well that has
demonstrated characteristics that would benefit from N2 injection. There are
currently four manufacturers of N2 generating equipment suitable for the type
oilfield applications contemplated by the Company. Typically these
units have been manufactured for food storage, transportation and preservation
and carbonation. More recently they have been used in the control,
containment and extinguishment of coal fires. Management estimates
that individual N2 generating units will service about 4-5 wells and that costs
to produce N2 at the well site are estimated to be $4.00 to $8.00 per thousand
cubic feet.
The
Company holds an 80% interest in a joint venture, Superior Skyrider, LLC
("Superior Energy"), a Delaware Limited Liability Company, with IGS Generon,
Inc. (“Generon”). This joint venture allows the Company to utilize
Generon’s portable N2 generating equipment and expertise to implement gas
injection EOR programs on favorable terms. In addition this joint venture
includes an agreement to distribute Generon’s proprietary coating technologies
for other oilfield applications.
COMPANY
PROJECTS
The
Company is currently involved in the following projects.
Bateman Project
In March
of 2007, the Company acquired 88 wells located on 1,212 acres of land in Bastrop
and Caldwell Counties between Houston and San Antonio, Texas. The
Bateman Project is typical of the Company’s target prospects with a shallow
field depth between 2,400 to 2,600 feet. The Company is currently conducting
workover and recompletion operations in the Bateman Project and anticipates
implementing a cased hole drilling program to enhance production from this
project in the second half of 2008. Once all the wells are reworked and treated
for paraffin control and the cased hole drilling program is implemented, the
Company believes that field production will increase to approximately 2,000
barrels of oil per month from the existing 88 wells. An independent third party
reserve report of the Bateman Project prepared by Cathedral Resources,
estimated, as of December 31, 2007, 194,372 net barrels of oil of proved
developed producing reserves, an undiscounted future net revenue of $7.9 million
and a net present value of $1.9 million. Cathedral’s report showed 250,651 net
barrels of oil of proved undeveloped reserves, an undiscounted future net
revenue of $11.1 million and a net present value $1.9
million. Production cash flows have been discounted at 10% using a
flat price of oil of $88.45 at year end. Total proven reserves in the
Bateman Project are estimated at 445,023 net barrels of oil with an undiscounted
future net revenue of $19.0 million dollars and total net present value of $3.8
million dollars.
Recent Developments
In
November and December of 2007, the Company began a two phase productivity
improvement program in the Bateman Project. The first phase, known as the
renovation/repair phase, the Company used traditional workover rigs to renovate
each approximately 21 wells by replacing worn pumps, old values, leaky tubulars
and other individual well parts. The second phase consists of
paraffin control to treat each well in this project with a proprietary mixture
of solvent and paraffin mobilizer. Paraffin is detrimental to oil production due
to its clogging up the oil formation thereby reducing or blocking the oil flow
into the wellbore as well as clogging the pumps in the wellbore causing
excessive repair and workover expenses.
In
January and February of 2008, the Company reworked or renovated 37 more wells in
the Bateman Project. While the Company previously expected to rework five to
seven wells per week, the Company has current plans to retreat 7 of these 37
treated wells in the immediate future and the other 30 previously treated wells
by mid-2008. The Company anticipates that results from the treatment of the
first 37 wells to positively impact its ability to raise the capital necessary
to complete the renovation and treatment the remaing wells in the
project.
On March
11, 2008, the Company announced a financing arrangement with an oil purchasing
customer that will allow for immediate payment for barrels delivered. By
receiving cash upon delivery of barrels, the Company is able to accelerate cash
flow and investment in enhancement efforts in the Bateman Project.
Production
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Month
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Quarterly Production
(Gross Barrels)
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First Quarter
2007 1,509
Second Quarter
2007 3,036
Third Quarter
2007 820
Fourth Quarter
2007 600
First Quarter
2007 1,844
During
March 2008, the Company sold its production for an average price in excess of
ninety one dollars per barrel ($91.00/Bbl).
Project Strategy and Costs
The
Company intends to continue implementing the current workover program at a total
estimated capital cost of approximately $400,000. Once this workover is
complete, the Company intends to implement a cased hole drilling program in
approximately 35 older wells at a projected cost of approximately $1.3
million. If the workover program and CHHD is successful, the Company,
assuming it has the additional capital, anticipates additional drilling of
approximately 25 new locations at an estimated total additional capital
expenditure of approximately $7,200,000. Based on existing drilling, production
and geological records, the Company believes the Bateman Project may support in
excess of 110 producing wells. This excludes additional acreage and
more sophisticated EOR methods which the Company may utilize in the future to
optimize the field.
Benton Field
In June
2005, USA Superior entered into a lease agreement for the Benton Field in
Navarro County, Texas to develop a 188 acre oil field workover stimulation
project. This very shallow (300-400 feet) oil rich reservoir which was
discovered twenty years ago. These types of fields, many of which were
discovered between the 1960’s and 1980s, were uneconomic using antiquated
production technologies with little additional development.
At its
time of discovery in the 1980’s, the Benton Field reservoir lacked sufficient
pressure to flow the oil underground, so the field was abandoned within two
years of discovery. Originally, eight wells were drilled, completed and put on
pump to produce the oil sand. However, low pressure in the reservoir pushed the
oil to the pumping wells at a very slow rate producing just 200 barrels of oil
over a two-year period. Since the project was then uneconomic, the wells were
abandoned and plugged.
In 1983,
after a truckload of nitrogen was pumped in an injector well, a two well
Nitrogen test on the eight well lease yielded promising results. The offsetting
producing well produced 47 barrels of oil the first day, 45 barrels on the
second day but the nitrogen pressure was depleted by the third day. While having
positive results investors decided not to put in the nitrogen injection system
due to the high cost of nitrogen generation and the low oil cost at that
time. The wells were plugged without producing any oil.
Project Strategy and Costs
The
Company is redeveloping the Benton Field as an enhanced recovery project,
planning to use nitrogen gas to pressurize the reservoir and push oil from the
injector well to the producers. Currently, only 12 acres of the 200 acres leased
have been developed on two acre spacing, but the Company anticipates an initial
development of 66 additional wells. The cost per well is estimated to be
approximately $40,000. nitrogen will be produced at the well-site using portable
nitrogen generators that extract the nitrogen from the atmosphere. Although all
four pilot wells are currently completed and production facilities are in place,
management is waiting to expand the Company’s EOR operations upon the
anticipated renewal of its lease on the Benton Field and obtaining additional
capital for EOR development operations.
Del Monte Prospect
In
October 2005, USA Superior entered into a lease agreement to drill the Del Monte
Prospect on a 331 acre tract of land in Zavalla County, Texas. Producing fields
in this area were discovered beginning in the 1960s and through the 1980's with
little development since that time. The fields were caused by the intrusion of
large masses of volcanic rock which caused structural traps or bumps where oil
and gas have been captured. The volcanic rock has much larger amounts
of iron causing a tighter permeability than the surrounding sedimentary rocks.
Airborne magnetic surveys have been flown over much of the county, the result
being the identification of over 14 anomalous "high iron masses" that have not
been drilled, one of which is the Del Monte Prospect. The proven reservoirs
buried under such volcanic structures offer large potential amounts of gas and
some reasonable amounts of oil. Due to the tighter permeability of the
formation, this project can benefit from horizontal laterals.
Recent
Developments
In early
December 2007, the Company renegotiated its “Rust Lease” in Zavalla County,
Texas lease. A geochemical survey done on the Del Monte Prospect in 2007 by
Geochemical Exploration Services, Inc., indicated a strong probability of oil,
gas and/or condensate. The Company recently has prepared its first drilling site
on the Del Monte Prospect and is seeking joint venture partners to drill the
first well in the later half of 2008. The cost of this first well is estimated
to be $350,000. Assuming successful completion of the first well, up to four
additional wells may be drilled over the 333 acres prospect. Unless a well has
been drilled and the acreage held by production or the lease renegotiated, the
Company’s lease on this acreage will expire in November 2008.
MERGER
OF JANUARY 2007
The
Company entered into an Agreement and Plan of Merger on January 16, 2007 (the
“Merger”), with the stockholders of USA Superior Energy, Inc. a Delaware Company
incorporated on October 28, 2005 ("USA Superior"), and USAS Acquisitions, Inc.
("USAS"), the wholly-owned subsidiary of the Company. USA Superior was merged
into USAS, and became the Company’s wholly-owned subsidiary. Pursuant to the
Merger, the stockholders of USA Superior were issued a total of 34,000,000
shares of the restricted common stock of the Company in exchange for 100% of the
total issued and outstanding shares of the common stock of USA Superior. Prior
to the Merger, the Company attempted to market two-way radio communication
equipment over the internet and did not operate or have any interests in the
energy industry. Comlink had no commercial or financial relationship
or shareholders, officers or directors in common with USA Superior.
Through
the Merger, the Company acquired USA Superior’s two lease agreements (188 acres
in Navarro County, Texas, and 331 acres in Zavalla County, Texas), and its 80%
interest in its joint venture with the Generon Division of Innovative Gas
Systems, Inc. ("IGS Generon"), a producer of custom designed Nitrogen and
instrument air membrane generator units. In addition, the Company acquired USA
Superior’s distribution agreement with Xiom Corporation (Xiom) to distribute
Xiom's patented coatings technology in Texas, Oklahoma and Louisiana for oil
field use.
COMPETITION
The oil
and gas exploration and production segment of the energy industry consists of
about 7,000 companies with a combined annual revenue of $260 billion. This
segment of the industry is fragmented with the largest ten percent of the
companies generating only sixty percent of industry revenues. This industry
segment does not include the transmission, refining, or retailing of petroleum
products.
There are
a large number of companies and individuals engaged specifically seeking
post-primary recovery prospects; accordingly, there is a high degree of
competition for desirable properties. This demand will continue to increase as
long as oil prices remain at their all-time highs, making secondary recovery
methods more economically beneficial. Many of the companies and individuals so
engaged have substantially greater technical and financial resources than the
Company.
The
competitive landscape of this industry segment has ebbed and flowed over the
decades as the price of energy has done likewise. Demand has always been driven
by global economic activity, population growth and energy efficiency in the
developed world. Profitability of companies in this segment is driven by the
success rate of new wells, the ability to increase production of new wells, the
price of energy and access to capital and talent. Small companies compete by
focusing on a few geographic areas and technology and continuing to develop
their expertise within those areas.
MARKETS
The
availability of a ready market for oil and gas production depends on numerous
factors beyond the control of the Company, including the proximity and capacity
of refineries and pipelines, and the effect of state regulation of production
and federal regulation of products sold in interstate commerce. The market
prices of oil and gas are volatile and beyond the control of the Company.
Although oil and gas prices have increased dramatically in the past four years,
they have done so with substantial fluctuation, seasonally and
annually.
Generally,
there are a limited number of gas transmission companies with existing pipelines
in the vicinity of a gas well or wells. In the event that producing
gas properties are not subject to purchase contracts, or when such contracts
terminate without other parties purchasing the Company's gas production, there
is no assurance the Company will be able to enter into
purchase contracts with
other transmission companies or purchasers of
natural gas. There is also no assurance regarding the price which
such purchasers would be willing to pay for the gas. Presently, there is an
oversupply of gas in certain areas of the marketplace due to pipeline capacity
that’s extent and duration is hard to forecast. Such oversupply may result in
restrictions of purchases by principal gas pipeline purchasers.
Major
products of the oil and gas exploration and production industry are crude oil
and natural gas. Each represent close to fifty per cent of industry
revenue. About eighty percent of the industry’s revenue is from large offshore
formations and twenty percent of the revenue comes from land based wells. Since
the first U.S. well was drilled in 1858, there have been hundreds of thousands
of wells drilled with about 30,000 – 50,000 wells currently being drilled per
year.
The
Company focuses on acquiring and joint venturing projects by controlling mineral
rights, leased acreage and/or owning acreage, generally with existing wells and
proven reserves in shallow fields. The wells in these fields generally require
“workovers” as it is referred to in the industry. During the workover, our
program includes pulling pumps and tubulars, analyze for holes in tubulars,
steam clean all tubing, rods, etc. for elimination of any existing paraffin,
steam clean wellhead, flow lines, etc., repair check valves, replace any worn
pumps with new brass pumps, replace worn tubing, rods, stuffing box rubbers,
tube guides, motors, and repair pump jack gear boxes as well as treat for
paraffin with diesel and nitrogen. By using these workover methods along with
current leading edge workover and EOR technologies, existing and new wells
drilled on its project acreage can achieve substantial production increases
versus and at a low capital costs.
GOVERNMENT
REGULATION AND ENVIRONMENTAL MATTERS
In the
United States, the exploration, development, production and sale of oil and
natural gas are extensively regulated at both the federal and state levels,
particularly with respect to pricing, allowable rates of production, marketing
and environmental matters. Additional regulation of the oil and gas industry
could have an adverse effect on the operations of the Company through the
potential significant increases in capital expenditures necessary to develop the
property of the Company in the future while remaining in compliance with new
statutes and regulations.
Government Regulation
Governmental
regulations in the oil and gas industry include requiring permits for drilling
wells; maintaining prevention plans; submitting notification and receiving
permits in relation to the presence, use and release of certain materials
incidental to oil and natural gas operations; and regulating the location of
wells, the method of drilling and casing wells, the use, transportation, storage
and disposal of fluids and materials used in connection with drilling and
production activities, surface plugging and abandoning of wells and the
transporting of production. Also, numerous departments and
agencies, both federal and state, have issued rules and regulations binding on
the oil and natural gas industry and its individual members, compliance with
which is often difficult and costly and some of which carry substantial
penalties for failure to comply.
State
statutes and regulations require permits for drilling operations, drilling bonds
and reports concerning wells. In addition, Texas and other states in which we
intend to conduct operations, have conservation laws that govern the number of
wells which may be drilled in a unit, pooling of oil and natural gas properties,
establish maximum rates of production from oil and natural gas wells, generally
limit the venting or flaring of natural gas, and impose certain requirements
regarding the ratable purchase of production. In general, these laws are
designed to prevent waste of oil and gas and to protect correlative rights and
opportunities to produce oil and gas as between owners of a common reservoir.
The effect of these regulations is to limit the amounts of oil and natural gas
that the Company can produce and the number of wells or the locations at which
we can drill.
Tax Laws
Our
operations, as is the case in the petroleum industry generally, are
significantly affected by federal tax laws. Federal, as well as state, tax laws
have many provisions applicable to corporations which could affect our future
tax liability. Pursuant to Executive Order Number 12287, issued January 28,
1981, President Reagan lifted all existing federal price and allocation controls
over the sale and distribution of crude oil and natural gas
liquids. Executive Order Number 12287 was made effective as of
January 28, 1981, and consequently, sales of crude oil and natural gas liquids
after January 27, 1981 are free from federal regulation. The price
for such sales and the supplier-purchaser relationship will be determined by
private contract and prevailing market conditions. As a result of
this action, oil which may be sold by
the Company will be sold at deregulated or
free market prices. At various times, certain
groups have advocated the reestablishment of regulations and control on the sale
of domestic oil and gas, and have advocated the reimposing of "windfall profits"
taxes, which have in the past negatively affected the economic viability of oil
and gas properties. The impacts of any such new regulation or taxation are
certain to be negative on the Company.
Proposed or Potential
Legislation
Legislation
affecting the oil and natural gas industry is under constant review for
amendment or expansion, frequently increasing the regulatory
burden. Inasmuch as new legislation affecting the oil and natural gas
industry is commonplace, and existing laws and regulations are frequently
amended or reinterpreted, we are unable to predict the future cost or impact of
complying with these laws and regulations. Such proposals and
executive actions involve, among
other things, the imposition of land
use controls such as prohibiting drilling activities on
certain federal and state lands in roadless wilderness areas. At
present, it is impossible to predict what proposals, if
any, will actually be enacted by Congress or the
various state legislatures and
what effect, if
any, such proposals will have. However,
President Clinton's establishment of numerous National Monuments by executive
order has had the effect of precluding drilling across vast areas.
The
Company's operations may be subject to the jurisdiction of
the Federal Energy Regulatory Commission (FERC)
with respect to the sale of natural gas for
resale in interstate and intrastate
commerce. State regulatory agencies may exercise or attempt to
exercise similar powers with respect to intrastate sales of
gas. Because of its complexity and broad scope, the price impact of
future legislation on the operation of the
Company cannot be determined at this time.
Environmental Matters
All
operations by the Company involving exploration, development, and future
production of oil and natural gas are subject to various extensive and
developing federal, state and local laws and regulations relating to
environmental quality and pollution (air, stream and fresh water sources,
odor, noise, dust) control, health and safety matters; petroleum; chemical
products and materials; and waste management as discussed below. Such laws and
regulations can substantially increase the costs of exploring, developing,
installing and operating of oil and natural gas wells, and may prevent or delay
the commencement or continuation of a given operation. We consider
the cost of environmental protection a necessary and manageable part of our
business. We have been able to plan for and comply with new environmental
initiatives without materially altering our operating strategies.
Permits,
registrations or other authorizations are required for the operation of certain
of our facilities and for our oil and natural gas exploration and future
production activities. These permits, registrations or authorizations are
subject to revocation, modification and renewal. Governmental
authorities have the power to enforce compliance with these regulatory
requirements, the provisions of required permits, registrations or other
authorizations, and lease conditions, and violators are subject to civil and
criminal penalties, including fines, injunctions or both. Failure to
obtain or maintain a required permit may also result in the imposition of civil
and criminal penalties. Third parties may have the right to sue to enforce
compliance.
Our
activities are subject to a variety of environmental laws and regulations,
including but not limited to, the Oil Pollution Act of 1990 (“OPA”), the Clean
Water Act (“CWA”), the Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (“RCRA”),
the Clean Air Act, and the Safe Drinking Water Act, as well as state regulations
promulgated under comparable state statutes. We are also subject to regulations
governing the handling, transportation, storage, and disposal of naturally
occurring radioactive materials that are found in our oil and natural gas
operations. Civil and criminal fines and penalties may be imposed for
non-compliance with these environmental laws and regulations. Additionally,
these laws and regulations require the acquisition of permits or other
governmental authorizations before undertaking certain activities, limit or
prohibit other activities because of protected areas or species, and impose
substantial liabilities for cleanup of pollution.
Under the
OPA, a release of oil into water or other areas designated by the statute could
result in us being held responsible for the costs of remediating such a release,
certain OPA specified damages, and natural resource damages. The extent of that
liability could be extensive, as set out in the statute, depending on the nature
of the release. A release of oil in harmful quantities or other materials into
water or other specified areas could also result in us being held responsible
under the CWA for the costs of remediation, and civil and criminal fines and
penalties.
CERCLA
and comparable state statutes, also known as “Superfund” laws, can impose joint
and several and retroactive liability, without regard to fault or the legality
of the original conduct, on certain classes of persons for the release of a
“hazardous substance” into the environment. In practice, cleanup costs are
usually allocated among various responsible parties. Potentially liable parties
include site owners or operators, past owners or operators under certain
conditions, and entities that arrange for the disposal or treatment of, or
transport hazardous substances found at the site. Although CERCLA, as amended,
currently exempts petroleum, including but not limited to, crude oil, natural
gas and natural gas liquids from the definition of hazardous substance, our
operations may involve the use or handling of other materials that may be
classified as hazardous substances under CERCLA. Furthermore, there can be no
assurance that the exemption will be preserved in future amendments of the act,
if any.
RCRA and
comparable state and local requirements impose standards for the management,
including treatment, storage, and disposal of both hazardous and non-hazardous
solid wastes. We generate hazardous and non-hazardous solid waste in connection
with our routine operations. From time to time, proposals have been made that
would reclassify certain oil and natural gas wastes, including wastes generated
during drilling, production and pipeline operations, as “hazardous wastes” under
RCRA which would make such solid wastes subject to much more stringent handling,
transportation, storage, disposal, and clean-up requirements. This development
could have a significant impact on our operating costs. While state laws vary on
this issue, state initiatives to further regulate oil and natural gas wastes
could have a similar impact.
Proposed or Potential
Legislation
Future
state and federal legislation may significantly emphasize the protection of the
environment, which will more closely regulated the Company’s activities. Such
legislation, as well as future interpretation of existing laws, may necessitate
significant capital outlays materially affecting our earnings potential; result
in extended delays, interruptions, or a termination of operations; or changes in
our current and planned business to an extent to which cannot now be
predicted.
KEY
COMPANY EMPLOYEES
As of May
15, 2008 filing, the Company has five full time employees, and one part time
consultant. Other Officers and Directors work on an as needed part-time
basis.
G.
ROWLAND CAREY, is a Director and the Chief Executive Officer of the Company. Mr.
Carey graduated from the University of North Carolina-Chapel Hill with a
Bachelor of Arts in History in 1964. Prior to becoming Chief Executive Officer
of the Company he was the Managing Member of USA Superior, LLC and
President/Director (2006) of USA Superior Energy, Inc., a Delaware corporation.
From May 1990 to 2001 he was the President and CEO of Coast Capital, LLC., which
provided equipment financing to oil and gas companies. From June 1983 to August
1985 he was the Co-founder and President of Gardner-Carey, Inc. specializing in
the development of rural land into subdivisions.
JERRY D.
WITTE, is a Director and the Vice President of the Company. Mr. Witte
graduated from the University of Southern Florida. Prior to becoming Secretary
of the Company, he was the Secretary and Director (2006) of USA Superior Energy,
Inc., a Delaware corporation. Mr. Witte was President and technical scientist
for TriLucent Technologies, a public company that utilized remote sensing and
radar based hydrocarbon identification for resource development. From 1985 to
1998, Mr. Witte was a senior project manager for SONAT Exploration where he was
involved in numerous projects. From 1979 to present, Mr. Witte has
consulted in areas including but not limited to geophysics, geochemistry,
petrophysics and the development of enhancement technologies in the oil and gas
industry.
RANDY
HOLIFIELD, is a Field Operations Supervisor of the Company. Mr. Holifield has 30
years of oilfield operations experience involving drilling, completing and
maintaining projects including extensive experience in water flooding, heavy oil
production and horizontal drilling.
AVAILABLE
INFORMATION
The
Company’s Auditors are Malone and Bailey, PC. and the Company’s legal counsel is
Pagel, Davis & Hill, P.C. Additionally, the Company utilizes various
financial and petroleum engineering advisors as necessary. The Company’s annual
reports on Form 10-KSB, quarterly reports on 10-QSB and current reports on Fork
8-K, as well as any amendments or exhibits to those reports, are available free
of charge by a written request to the Company at their office. All materials
filed with the Commission may be read and copied at the SEC’s Public Reference
Room at 100 F Street, NE., Washington DC 20549, on official business days during
the hours of 10 a.m. to 3 p.m. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330.
Additionally, the Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission at http://www.sec.gov. The Company’s
Internet site is http://www.usa-superior.com.
RISK
FACTORS RELATING TO THE COMPANY AND ITS BUSINESS
Additional
Capital Necessary to Continue Operations
The
Company’s anticipated losses raise doubts about the Company’s ability to
continue as a going concern unless the Company can raise capital. Although the
Company has proven significant oil and gas reserves on its projects, substantial
additional financing is needed to continue and expand the recent reworking of
wells and other development work. Furthermore, once
the development work is
successful, substantial additional funds will be necessary for continued
maintenance and production at each of the projects. Currently, the
Company does not have sufficient proceeds to conduct such reworking and
production work at all the projects, and is aggressively seeking the necessary
funds through debt, equity, or cost-sharing with partners financing, or the sale
of all or part of the property. There is no assurance that the
Company will be successful in obtaining any financing. While vital to
the Company’s ability to exploit its economic opportunities at the projects, the
various financing alternatives may also dilute the interest of the Company's
shareholders and/or reduce the Company's interest in the
properties.
The
Company’s long-term viability, as well as its ability to meet its existing and
future debt and other obligations and future capital commitments, depends on its
financial and operating performance, which is subject to, among other things,
prevailing economic conditions and to certain other financial, business and
other factors beyond the Company’s control.
Lack
of Revenue & Past Losses Raise Doubts About Company’s Ability to Operate
Profitably
The
Company did not achieve any revenues in the five years prior to Merger, and has
just begun recognizing revenues from oil recovery operations. The Company’s
future revenue potential is currently tied to success in raising capital to
implement the Company’s operational plans for utilizing their current projects.
The Company is not profitable and the business effort is considered to be in an
early stage of development. The Company must be regarded as a new or
development venture with all of the unforeseen costs, expenses, problems, risks
and difficulties to which such ventures are subject.
The
Company has experienced substantial operating losses and expects to incur
significant operating losses until sales from production increase, which will
not occur but for a raise of sufficient capital. However, even if capital is
raised, the Company may be unable to achieve or sustain profitability, thus
indicating substantial doubt about the Company’s ability to continue as a going
concern.
There is
no assurance that the Company will ever operate profitably. There is no
assurance that it will generate revenues or profits, or that the market price of
the Company's Common Stock will be increased thereby.
High
Risks of the Oil and Gas Business
The
search for oil and gas reserves frequently results in unprofitable efforts, not
only from dry holes, but also from wells which, though productive, will not
produce oil or gas in sufficient quantities to return a profit on the costs
incurred. There is no assurance that any production or profit will be
obtained from any of the prospects owned or to be acquired by the Company, nor
are there any assurances that if such production is obtained it will be
profitable. When drilling offset wells to abandoned energy wells,
there is a very high risk of encountering non-commercial shows of oil and gas
due to pressure depletion of the reservoir.
Competition
The
Company is and will continue to be an insignificant participant in the oil and
gas business. Many of the Company’s competitors have significantly
greater financial and marketing resources, technical expertise and managerial
capabilities, which consequently places the Company at a competitive
disadvantage in identifying suitable prospects. The current scope of the
Company’ operations are limited to three potential oil and gas reserve fields.
If larger competitors aggressively entered the shallow well marketplace, prices
for such projects and the company’s ability to finance them may become
difficult.
Markets
The
marketing of oil and natural gas which may be produced by the Company's
prospects will be affected by a number of factors beyond the control of the
Company. These factors include the extent of the supply of oil or gas in the
market, the availability of competitive fuels, crude oil imports, the world-wide
political situation, price regulation, and other factors. Recently, there have
been dramatic fluctuations in oil prices. Any significant decrease in the market
prices of oil and gas could materially affect the profitability of our oil and
gas activities.
There
generally are only a limited number of gas transmission companies with existing
pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
is no assurance that the Company will be able to enter into purchase contracts
with any transmission companies or other purchasers of natural gas and there can
be no assurance regarding the price which such purchasers would be willing to
pay for such gas. There presently exists an oversupply of gas in the
marketplace, the extent and duration of which is not known. Such
oversupply may result in reductions of purchases by principal gas pipeline
purchasers.
The
Market Price for the Company’s Common Stock is Volatile
The
market price for the Company’s common stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
announcements of technological innovations or new products by the Company or its
competitors.
The stock
market has experienced extreme price and volume fluctuations and volatility that
have affected the market price of many emerging growth and development stage
companies. Such fluctuations and volatility have often been unrelated or
disproportionate to the operating performance of such companies.
The
company’s common Stock is subject to “Penny Stock” regulations and restrictions
on initial and secondary broker-dealer sales
The
Securities and Exchange Commission (“SEC”) has adopted regulations which
generally define “penny stock” to be any listed, trading equity security that
has a market price less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exemptions. Penny stocks are subject to
certain additional oversight and regulatory requirements. These requirements may
restrict the ability of broker-dealers to sell the Company’s common stock and
may affect the ability of purchasers in this Offering to sell securities in the
secondary market.
Regulation
of Penny Stocks
The
Company's securities will be subject to a Securities and Exchange Commission
rule that imposes special sales practice requirements upon broker-dealers who
sell such securities to persons other than established customers or accredited
investors. For purposes of the rule, the phrase "accredited investors" means, in
general terms, institutions with assets in excess of $5,000,000, or
individuals having a net worth in excess
of $1,000,000 or having an
annual income that
exceeds $200,000 (or
that, when combined with
a spouse's income, exceeds
$300,000). For transactions covered by the rule, the broker-dealer
must make a special suitability determination for the purchaser and receive the
purchaser's written agreement to the transaction prior to the
sale. Consequently, the rule may affect the ability of
broker-dealers to sell the Company's securities and also
may affect the ability of investors to sell their securities in any
market that might develop therefore.
In
addition, the Securities and Exchange Commission has adopted a number of rules
to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the
Securities and Exchange Act of 1934, as amended. Because the
securities of the Company may constitute "penny stocks" within the meaning of
the rules, the rules would apply to the Company and to its
securities. The rules may further affect the ability of owners of
securities to sell the securities of the Company in any market that might
develop for them.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for
penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include
(i) control of the market for the security by one or a
few broker-dealers that
are often related to the promoter or issuer;
(ii) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales
persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v)
the wholesale dumping of the same securities by promoters
and broker-dealers after prices have
been manipulated to a
desired consequent investor losses. The
Company's management is aware of the abuses that have occurred historically in
the penny stock market. Although the Company does not expect to be in a position
to dictate the behavior of the market or
of broker-dealers who participate in the
market, management will strive within the confines of practical
limitations to prevent the described patterns from
being established with respect to the Company's
securities.
The
Transfer of the Securities, the Warrants and Shares of Common Stock is
Restricted
Neither
the Common Stock, the warrants nor the shares of common stock underlying the
warrant upon exercise of the warrants have been registered under the Securities
Act or any state securities laws and unless registered may not be offered or
sold except pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act and other applicable
laws. Although the Company is required to make reasonable efforts to
register the resale by the holders of the shares of common stock or the common
stock issued upon exercise of the warrants, such registration may not be
available to holders at all times and selling holders may, under current law,
have a limited number of methods available for reselling any of the
Securities.
Lack
of Diversification
Because
of the limited financial resources that the Company has, it is unlikely that the
Company will be able to diversify its operations. The Company's probable
inability to diversify its activities into more that one area will subject the
Company to economic fluctuations within a particular business or industry and
therefore increase the risks associated with the Company's
operations.
Indemnification
of Officers and Directors
While the
Company intends to reorganize under the laws of Delaware, the Nevada Revised
Statutes, our Articles of Incorporation, and our By-Laws provide for the
indemnification of the Company’s directors, officers, employees, and agents,
under certain circumstances, against losses or liabilities which arise in their
corporate capacity. This means the Company will likely be responsible for
attorney's fees and other expenses incurred by them in any litigation to which
they become a party arising from their association with or activities on behalf
of the Company. The Company will also bear the expenses of such
litigation for any of its directors, officers, employees, or
agents, upon such person's promise to repay the Company therefore if
it is ultimately determined that any such person shall not have been entitled
to indemnification. This indemnification policy could result in
substantial expenditures by the Company that it will be unable to
recoup.
Director’s
Liability Limited
Nevada
Revised Statutes exclude personal liability of its directors to the Company and
its stockholders for monetary damages for breach of fiduciary duty except in
certain specified circumstances. Accordingly, the Company will have a
much more limited right of action against its directors that otherwise would be
the case. This provision does not affect the liability of any
director under federal or applicable state securities laws.
Risks
Related to the Company’s Corporate Governance
While the
Company intends to use any successful capital raise to purchase annual directors
and officers insurance, it does not now have such and as a result has been
unable to attract outside directors with substantial financial and industry
expertise. Thus, the company has not established an audit, nominating,
compensating or corporate governance committee.
The
Company currently has three individuals who are serving as its officers and
directors on a part time basis. We will be heavily dependent upon
their skills, talents, and abilities, as well as consultants to the
Company, to implement its business plan, and
may, from time to time, find that
the inability of the officers, directors
and consultants to devote their full time attention to the business
of the Company results in a delay in progress
toward implementing its business plan. See "Officers and
Directors."
Weather
Interruptions
Activities
of the Company may be subject to periodic interruptions due to weather
conditions. Weather-imposed restrictions during
certain times of the year on roads
accessing properties could adversely affect
the ability of the Company to benefit from production on
such properties or could increase the costs of
drilling new wells because of delays.
Operating
Hazards and Uninsured Risk
The
Company's operations are subject to all of the operating hazards and risks
normally incident to drilling for and producing oil and gas, such as
encountering unusual or unexpected formations, insufficient pressures for gas or
oil flows, blowouts, environmental pollution, fire, saline infiltrations, high
paraffin content of oil or other adverse situations limiting or preventing
production, or proving to be a physical hazard to the Company and its employees.
The Company will maintain general liability insurance but it has not obtained
insurance against such things as blowouts and pollution risks because of the
prohibitive expense. Should the Company sustain an uninsured loss or
liability, or a loss in excess of policy limits, its ability to operate may be
materially adversely affected.
Federal
Income Taxation
Federal
income tax laws are of particular significance to the oil and gas
industry. Legislation has eroded various benefits of oil and gas
producers and subsequent legislation could continue this
trend. Congress is continually considering proposals with respect to
Federal income taxation which could have a materially adverse effect on our
future operations and on its ability to obtain risk capital which the industry
has traditionally attracted from taxpayers in high tax brackets.
Government
Regulation
The
production and sale of oil and gas are subject to regulation by state and
federal authorities, the spacing of wells and the prevention of waste. There are
both federal and state laws regarding environmental controls which may necessitate
significant capital outlays, resulting in extended delays, that may
materially affect
our earnings potential and
cause material changes in our
proposed business. It cannot be predicted what
legislation, if any, may be passed by Congress or
state legislatures in the future, or the effect
of such legislation, if any, on the Company. Such regulation may have
a significant affect on the operating results of the Company.
Proposed
Operations- Negative Considerations
Expansion
Expenditures: we may expend substantial funds acquiring and exploring
properties which are later determined not to be productive. All funds
so expended will be a total loss to the Company.
Technical
Assistance: It may be necessary or desirable to employ technical
assistance in the operation of our business. As of this date, the
Company has not contracted for any technical assistance. When needed,
such assistance is likely to be available at compensation levels the Company
would be able to pay.
Uncertainty
of Title: The Company will attempt to acquire property or interest in
property by option, lease, and by purchase. The validity of title to oil and gas
property depends upon numerous circumstances and factual matters
(many of which are not discoverable of record or by
other readily available means) and
is subject to
many uncertainties of existing law
and its application. The Company will obtain an oil and
gas attorney's opinion of valid title before any significant expenditure upon a
lease.
Government
Regulations: The area of exploration of natural resources has become
significantly regulated by state and
federal governmental agencies, and such
regulation could have
an adverse effect on
the operations of the Company.
Compliance with statutes
and regulations governing the oil and gas
industry could significantly increase the
capital expenditures necessary to develop
property of the Company.
Nature of Proposed Business: The Company's proposed business is highly
speculative, involves the commitment of
high-risk capital, and exposes us to
potentially substantial losses. In addition, the Company
will be in direct competition with
other organizations which
are significantly better financed and staffed than the
Company is.
General
Economic and Other Conditions: The Company's business may
be adversely affected from time to time by such matters
as changes in general economic,
industrial
and international conditions; changes in taxes;
oil and gas prices and costs; excess supplies and other factors of a general
nature.
Competition
for Supplies
The
Company will be required to compete with a large number of entities which are
larger, have greater resources and more extensive operating histories than the
Company has. Shortages may result from this competition and may lead
to increased costs and delays in operations which may have a material adverse
effect on the results of the Company.
Factors
Beyond Control of Company
The
acquisition, exploration, development, production and sale of oil and gas are
subject to many factors which are outside of our control. These
factors include general economic conditions, proximities to pipelines, oil
import quotas, supply and price of other fuels and the regulation of
transportation by federal and state governmental authorities.
The
Company anticipates substantial competition in its effort to acquire oil and gas
properties and may have difficulty in obtaining drilling rigs and equipment and
experienced personnel to operate them. Established companies have an
advantage over the
Company because of substantially greater resources to
devote to property acquisition and to
obtain drilling rigs, equipment
and personnel. If The Company is unable to compete for
properties and drilling rigs, equipment and personnel, its business would be
adversely affected.
Conflicts
of Interest
Certain
conflicts of interest may exist between the Company and its officers and
directors. Officers and directors have
other business interests to
which they devote their
attention, and may be expected to continue to do so
although management time should be devoted to
the business of the Company. As a result,
conflicts of interest may arise that can be resolved only through exercise of
such judgment as is consistent with fiduciary duties to the
Company.
Dividends
The
Company has paid no dividends and proposes for the foreseeable future to utilize
all available funds for the development of its business.
Shortage
of Drilling Rigs and Related Equipment
The oil
and gas industry is presently facing
a shortage of drilling rigs,
equipment, materials, supplies and services which has
delayed current drilling activities in many instances by independent oil and gas
operators. The inability to drill on acreage blocks may delay development of
properties in which the Company acquires an interest and certain leases could
expire as a result.
Price
Volatility
Oil and
gas prices are volatile and an extended decline in prices could hurt our
business
prospects. The future profitability and rate of growth and
the anticipated carrying value of the Company's oil and gas
properties will depend heavily on then prevailing market
prices for oil and gas. We expect the markets for oil and gas to continue to be
volatile. If we are successful in establishing production, any substantial or
extended decline in the price of oil or gas could.
-
have a material adverse effect on its results of operations;
- limit its ability to attract
capital;
- make the formation it is targeting
significantly less economically attractive;
-
reduce its cash flow and borrowing capacity; and - reduce the value and the
amount of any future reserves.
Various
factors beyond our control will affect prices of oil and gas,
including:
- worldwide
and domestic supplies of oil and gas;
- the
ability of the members of the Organization of Petroleum Exporting
Countries to agreeto and maintain oil price and production
controls;
- political
instability or armed conflict in
oil or gas producing regions;
- the
price and level of foreign imports; - worldwide
economic conditions;
- marketability
of production; - the level of consumer demand;
- the
price, availability and acceptance of alternative fuels;
- the
availability of processing and pipeline capacity, weather
conditions; and
- actions
of federal, state, local and foreign authorities.
These
external factors and the volatile nature of the energy markets make it difficult
to estimate future prices of oil and gas. In addition, sales of oil and gas are
seasonal in nature, leading to substantial differences in cash flow at various
times throughout the year.
State
Regulations
The
Company's production of oil and gas if any will be subject to
regulation by state regulatory authorities in the states in which the
Company may produce oil and gas. In
general, these regulatory authorities are empowered
to make and enforce regulations to prevent waste of oil and gas and
to protect correlative rights
and opportunities to produce oil and gas as
between owners of a common reservoir. Some regulatory
authorities may also regulate the amount of oil and gas produced by assigning
allowable rates of production.
Proposed
Legislation
A number
of legislative proposals have been and probably will continue to be introduced
in Congress and in the legislatures of various states, which, if enacted, would
significantly affect the petroleum industries. Such proposals and
executive actions involve, among
other things, the imposition of land
use controls such as prohibiting drilling activities on
certain federal and state lands in roadless wilderness areas. At
present, it is impossible to predict what proposals, if
any, will actually be enacted by Congress or the
various state legislatures and
what effect, if
any, such proposals will have.
Environmental
Laws
Oil and
gas exploration and development are specifically subject
to existing federal and state laws
and regulations governing
environmental quality and
pollution control. Such laws and regulations
may substantially increase the costs of exploring for,
developing, or producing oil and gas and may prevent or delay the
commencement or continuation of a given operation.
All
operations by the Company involving the exploration for or the production of
any minerals are subject to existing laws and regulations relating to
exploration procedures, safety precautions, employee
health and safety, air
quality standards, pollution of stream and fresh water
sources, odor, noise, dust, and other
environmental protection controls adopted by federal, state and
local governmental authorities as well as
the right of adjoining property
owners. We
may be required to prepare and present to
federal, state or local
authorities data pertaining to the effect or impact that any proposed
exploration for or production of minerals may have upon
the environment. All requirements imposed by any such
authorities may be costly, time consuming, and may delay commencement
or continuation of exploration or production operations.
It may be
anticipated that future legislation will significantly emphasize the protection
of the environment, and that, as a consequence, our activities may be more
closely regulated to further the cause of environmental
protection. Such legislation, as well as
future interpretation of
existing laws, may require
substantial increases in equipment and operating costs
to the Company and delays, interruptions, or
a termination of operations, the
extent to which cannot now be predicted.
Title
to Properties
The
Company is not the record owner of its interest in its properties and relies
instead on contracts with the owner or operator of the property, pursuant to
which, among other things, we have the right to have
its interest placed of record. As is customary
in the oil and gas industry, a preliminary title examination will be conducted
at the time unproved properties or interests are acquired by the Company. Prior
to commencement of drilling operations on such acreage and prior to the
acquisition of proved properties, a title examination will
usually be conducted and significant defects remedied before proceeding with
operations or the acquisition of proved properties, as appropriate.
The
properties are subject to royalty, overriding royalty and other interests
customary in the industry, liens incident to agreements, current taxes and other
burdens, minor encumbrances, easements and restrictions. Although we
are not aware of any material title defects or disputes with respect to our
undeveloped acreage, to the extent such defects or disputes exist, we would
suffer title failures.
Company
Sponsored Research and Development
No
research is being conducted.
ITEM
2 – DESCRIPTION OF PROPERTIES
A
detailed description of our significant properties and associated 2007
developments can be found in Item 1 of this annual report, which is incorporated
by reference.
ITEM
3 – LEGAL PROCEEDINGS
On March 6, 2007, the Company entered
into an Agreement of Sale and Purchase with Orbis Operating, LLC (“Orbis”), in
which it agreed to purchase a substantial portion of the property Orbis acquired
under a previous R&S Sale Agreement. Part of the purchase price included a
Promissory Note in the amount of $350,000.00. After alleged numerous defaults by
the Company, Orbis filed suit on March 10, 2008 in United States District Court
in Bastrop County, Texas (Cause No. 26,952). The parties then entered into
negotiations and reached agreement through a Loan Workout and Security Agreement
on April 11, 2008. Orbis filed a Rule 11 Agreement with the Bastrop County court
whereby it shall dismiss the suit with prejudice upon the full performance of
USA Superior.
The terms
of the settlement included:
|
·
|
The
Company paying $50,000 cash, in which all was allocated towards Orbis’
legal fees
|
|
·
|
Principal
Balance = $310,000
|
|
·
|
The
Company is to make monthly payments on the 15th
day in the amount of $15,000 plus accrued interest, (6 payments for
May-Oct)
|
|
·
|
The
Company is to make a final payment of entire Principal ($202,000) on
October 15, 2008
|
|
·
|
Once
the Company fulfills obligation to plug the Gabriel wells it assumed (must
be done by July 31, 2008), it will be given a $60,000 credit towards final
Principal payment
|
Outside
of the Orbis settlement disclosures above, the Company knows of no material,
active or pending legal proceedings against the Company nor are we involved as a
plaintiff in any material proceeding or pending litigation. There are no
proceedings in which any directors, officers, or affiliates, or any registered
or beneficial shareholder, is an adverse party or has material interest adverse
to the Company’s interest.
ITEM
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART
II
ITEM
5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET
PRICE FOR COMMMON STOCK
The Company’s common stock has traded
on the Over The Counter Bulletin Board (“OTCBB”) under the symbol “USSU.OB”
since the merger, and is also currently traded on the Frankfurt Stock Exchange
under the ticker “F2S“. The following table sets forth the range of the high and
low closing prices, as reported by the OTCBB, for the Company’s common stock for
the periods indicated. The quotations represent inter-dealer prices, without
retail mark up or commission and may not represent actual
transactions.
Sales
Price .
High Low .
Quarter ended March 31,
2007 $1.25 $0.80
Quarter ended June 30,
2007 $1.37 $0.54
Quarter ended September 30,
2007 $0.63 $0.24
Quarter ended December 31,
2007 $1.05 $0.28
Quarter ended March 31,
2008 $1.05 $0.17
Our
authorized capital stock consists of 150,000,000 shares of common stock. As of
May 15, 2008, 56,160,000 shares of common stock were issued and outstanding. As
of such date, there were approximately 8 holders of record of the Company’s
common stock.
DIVIDEND
POLICY
We have
not paid dividends on our common stock and do not anticipate paying cash
dividends in the immediate future as we contemplate that our cash flows will be
used for continued growth of our operations. The payment of future
dividends, if any, will be determined by the Board in light of conditions then
existing, including our earnings, financial condition, capital requirements, and
restrictions in financing agreements, business conditions and other
factors. However, the Nevada Revised Statutes do prohibit us from
declaring dividends where, after giving effect to the distribution of the
dividend we would not be able to pay our debts as they become due in the usual
course of business; or our total assets would be less than the sum of our total
liabilities, plus the amount that would be needed to satisfy the rights of
shareholders who have preferential rights superior to those receiving the
distribution.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
As of
date of filing, the Company does not currently have in place any type of equity
compensation plan.
ITEM
6 – SELECTED FINANCIAL DATA
The
Company is a smaller reporting company, as defined by Rule 229.10(f)(1), and as
such is not required to provide the information required by this
Item.
ITEM
7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion will assist you in understanding our financial position,
liquidity, and results of operations. The information below should be
read in conjunction with the consolidated financial statements, and the
related notes to consolidated financial statements. Our discussion contains both
historical and forward-looking information. We assess the risks and
uncertainties about our business, long-term strategy, and financial condition
before we make any forward-looking statements, but we cannot guarantee that
our assessment is accurate or that our goals and projections can or will be met.
Statements concerning results of future exploration, exploitation,
development, and acquisition expenditures as well as expense and reserve levels
are forward-looking statements. We make assumptions about commodity prices,
drilling results, production costs, administrative expenses, and interest costs
that we believe are reasonable based on currently available
information.
Critical Estimates and Accounting
Policies
We
prepare our consolidated financial statements in this report using accounting
principles that are generally accepted in the United States (“GAAP”). GAAP
represents a comprehensive set of accounting and disclosure rules and
requirements. We must make judgments, estimates, and in certain
circumstances, choices between acceptable GAAP alternatives as we apply
these rules and requirements, which may 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 amount of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The most
critical estimate we use is the engineering estimate of proved oil and gas
reserves. This estimate affects the application of the full cost method of
accounting, the calculation of depreciation and depletion of oil and gas
properties and the estimate of the impairment of our oil and gas properties.
It also affects the estimated lives of our assets used to determine asset
retirement obligations.
Full Cost Method
Accounting
We use
the full cost method of accounting for oil and gas producing activities. Our
costs incurred in connection with the acquisition, exploration for and
development of petroleum and natural gas reserves are capitalized. Such
costs include lease acquisition, geological and geophysical activities, rentals
on non-producing leases, drilling, completing and equipping of oil and gas wells
and administrative costs directly attributable to those activities and asset
retirement costs.
Sales of Oil and Gas
Properties
Proceeds
from the sale of properties are applied against capitalized costs, without any
gain or loss being recognized, unless such a sale would significantly alter the
rate of depletion and depreciation.
Depreciation and Depletion of Oil and
Gas Properties
Depletion
of exploration and development costs and depreciation of production equipment is
provided using the unit-of-production method based upon estimated proven oil and
gas reserves. The costs of significant unevaluated properties are excluded from
costs subject to depletion. For depletion and depreciation purposes, relative
volumes of oil and gas production and reserves are converted at the equivalent
conversion based upon relative energy content.
Ceiling Test
In
applying the full cost method, we perform a ceiling test whereby the carrying
value of oil and gas properties and production equipment, net of recorded future
income taxes and the accumulated provision for site restoration and abandonment
costs, is compared annually to an estimate of future net cash flow from the
production of proven reserves. Costs related to undeveloped oil and gas
properties are excluded from the ceiling tests. Discounted net cash flow,
utilizing a 10% discount rate, is estimated using year end prices, less
estimated future general and administrative expenses, financing costs and income
taxes. Should this comparison indicate an excess carrying value, the excess is
charged against earnings. For the years ended December 31, 2007 and 2006, no
impairment of oil and gas properties was indicated.
Asset Retirement
Obligations
We record
a liability for legal obligations associated with the retirement of tangible
long-lived assets in the period in which they are incurred in
accordance with Statement of Financial Accounting Standards (“SFAS”) No.
143 “Accounting for Asset Retirement Obligations.” Under this method, when
liabilities for dismantlement and abandonment costs (ARO) are initially
recorded, the carrying amount of the related oil and natural gas properties are
increased. Accretion of the liability is recognized each period using the
interest method of allocation, and the capitalized cost is depleted over the
useful life of the related asset. Revisions to such estimates are recorded
as adjustments to the ARO, capitalized asset retirement costs and charges to
operations during the periods in which they become known. At the time the
abandonment cost is incurred, we will be required to recognize a gain or loss if
the actual costs do not equal the estimated costs included in
ARO.
Concentrations of Credit
Risk
We sold
all of our oil and natural gas production to two customers in
2007.
We
maintain our cash in bank deposit accounts which, at times, may exceed federally
insured limits. Accounts are guaranteed by the Federal Deposit Insurance
Corporation (“FDIC”) up to $100,000. At December 31, 2007, we had approximately
$157,000, in excess of FDIC insured limits. We have not experienced any
losses in such accounts.
Revenue
and Cost Recognition
We use
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 we are
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. We had no imbalances as
of December 31, 2007and December 31, 2006. Costs associated with
production are expensed in the period incurred.
Cash and cash
equivalents
Cash and
cash equivalents include cash in banks and liquid deposit with maturities of
three months or less.
Fair Value of Financial
Instruments
The
carrying value of cash and cash equivalents, accounts payable and accrued
expenses and other liabilities approximates fair value due to the short term
maturity of these instruments. The carrying value of the notes payable,
convertible notes and convertible debentures approximate their fair value as
December 31, 2007 and 2006.
Property and
Equipment
Property
and equipment are stated at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of three to five years.
Stock-based
compensation
On
January 1, 2006, we adopted SFAS No. 123(R), “Share-Based Payment”. SFAS 123(R)
replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R)
requires all stock-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their
fair values.
Loss per share
Basic net
loss per common share is computed by dividing net loss by the weighted-average
number of common shares outstanding during the period. Diluted net loss per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents. In periods when losses are reported, the weighted-average number of
common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive.
Standardized
measure of discounted future net cash flows
The
standardized measure of discounted future net cash flows relies on these
estimates of oil and gas reserves using commodity prices and costs
which existed at year-end. In our 2007 year-end reserve report, we used the
December 31, 2007 WTI Cushing spot price of $96.01 per Bbl and Henry Hub spot
natural gas price of $7.465 per MMbtu, adjusted by property for energy
content, quality, transportation fees, and regional price differentials. The
weighted average price over the lives of the properties was $88.45 per Bbl
for oil and $6.00 per Mcf for gas. While we believe that future operating costs
can be reasonably estimated, future prices are difficult to estimate since
market prices are influenced by events beyond our control. Future global
economic and political events will most likely result in significant
fluctuations in future oil prices, while future U.S. natural gas prices will
continue to be influenced by primarily domestic market factors, including supply
and demand, weather patterns and public policy.
Income taxes
Income
taxes are accounted for using the asset/liability method of income tax
allocation. Future income taxes are recognized for the future income tax
consequences attributable to differences between the carrying values of assets
and liabilities and their respective income tax bases. Future income tax assets
and liabilities are measured using income tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered
or settled. The effect on future income tax assets and liabilities of a change
in income tax rates is included in earnings in the period that such change in
income tax rates is enacted. Future income tax assets are recorded in the
financial statements if realization is considered more likely than
not.
Business
Strategy
USA
Superior Energy Holdings, Inc. (the “Company”) operates in the energy industry,
focusing on acquiring, owning, operating and applying enhanced oil recovery
(“EOR”) techniques to existing shallow fields of oil and gas. The
Company performs complete workover and stimulation services in these existing
fields to restart or substantially increase production. It utilizes
state-of-the-art workover and shallow-well drilling techniques in these fields
including new and innovative technologies under development by the
Company. These new technologies include specialized shallow-well
cased hole horizontal drilling (“CHHD”) and nitrogen (“N2”) injection which will
be utilized to increase production volumes and reserve recoverability from the
Company’s projects. Currently, the Company is involved in developing, owning and
operating energy projects and prospects in East, Central and South Texas and
currently has active projects and prospects in Bastrop, Caldwell, Navarro and
Zavalla counties. These fields are known as the Bateman Project in Bastrop and
Caldwell Counties (comprised of the Bateman Field and part of the adjacent Dale
McBride Field), the Benton Field in Navarro County and the Del Monte Prospect in
Zavalla County.
Going
Concern
The
report of our independent registered public accounting firm on the financial
statements for the year ended December 31, 2007, includes an explanatory
paragraph indicating substantial doubt as to our ability to continue as a going
concern. We incurred a net loss $7,146,000 for the year ended December 31, 2007
and have a working capital deficit of $484,000 at December 31,
2007. We require significant additional funding to sustain our
operations and satisfy our contractual obligations for our planned oil and gas
exploration and development operations. Our ability to establish the Company as
a going concern is dependent upon our ability to obtain additional financing, in
order to fund our planned operations and ultimately, to achieve profitable
operations.
Liquidity
and Capital Resources
Our main
sources of liquidity and capital resources for 2008 were proceeds from issuance
of debt and sales of common stock and warrants in a private placement. The
principal source of such funds, in the amount of $1.0 million as of December 31,
2007, represents the proceeds from the sale of units in a private placement
during the first and second quarter of 2007. The bulk of the
proceeds realized from the unit offering were used to fund the purchase of
proved oil and gas properties in Bastrop and Caldwell Counties, Texas and to
fund the operations of these properties. We also received proceeds of
$465,000 from the issuance of debt during the year ended December 31,
2007. These proceeds were used to fund our working capital
requirements and to repay debt incurred in the purchase of the Bastrop and
Caldwell County leases.
During
2007, net cash flow used by operating activities increased by $541,000 to
$687,000, as compared to $146,000 for our 2006 fiscal year, primarily
because of our increased operating and general and administrative expenses only
partially offset by increased revenues received during the year. We
expect our cash flow provided by operations to increase during 2008, mainly due
to increased oil and natural production resulting from our existing
properties. The Bastrop and Caldwell County properties were
acquired in 2007 and were shut in for a portion of that year. We
expect to receive a full year of revenue from these wells in 2008.
Excluding
the effects of significant unforeseen expenses or other income, our cash flow
from operations fluctuates primarily because of variations in oil and gas
production rates and in commodity prices. In addition, our oil and gas
production from either of our properties may be curtailed due
to weather-related factors beyond our control. In addition, maintenance
activities on, or damage to, major pipelines or processing facilities can also
cause us to shut-in production for undetermined lengths of
time.
Our
realized oil and gas prices vary significantly due to world political events,
supply and demand for products, product storage levels, and
weather patterns, among other factors. We sell 100% of our production at
spot market prices. Accordingly, product price volatility will affect our cash
flow from operations.
We
incurred capital expenditures totaling approximately $442,000 during 2007. The
capital expenditures primarily related to the expenditure of $400,000 for the
purchase of the Bastrop and Caldwell County properties. We
anticipate making additional capital expenditures of approximately $4,000,000
over the next several years to drill additional wells on our existing
properties. The 2008 capital budget will be funded from a
combination of our cash flow from operations, our cash and cash equivalents and
the proceeds from offerings of debt and/or equity securities.
The
required principal payments on our notes and debentures are as follows as of
December 31, 2007:
|
2008
|
$ 618,000
|
|
2009
|
$ 237,000
|
|
2010
|
$ 558,000
|
|
2011
|
$ 37,000
|
|
$ 1,450,000
|
Changes
in our working capital accounts from 2006 to 2007 include an increase in our
cash and cash equivalents of $257,000, reflecting the borrowings under various
debt agreements and the sale of stock. Accounts payable and accrued
liabilities increased by $169,000 to $327,000 at December 31, 2007 due to the
increase in operating activities. Current notes payable increased to
$348,000 from a zero balance at December 31, 2006 due to the borrowings to
finance the purchase of the Bastrop and Caldwell County properties and our
working capital needs.
On
December 31, 2007, our current liabilities exceeded our current assets by
$484,000. While we expect to achieve positive cash flow from operations
during 2008, we will require additional funding in order to complete our plans
to develop additional wells on existing properties.
Results
of Operations
Revenue
We
produced 3,854 barrels of oil and recognized revenue of $230,000 during the year
ended December 31, 2007. Because we only acquired our operating
assets during fiscal year 2007, we had no comparable revenue figures for our
fiscal year 2006.
Lease
operating expense and production taxes
Our
production costs totaled $171,000 during 2007. Because we only
acquired our operating assets during fiscal year 2007, we had no comparable cost
figures for 2006.
Accretion
of asset retirement obligation
Accretion
expense for fiscal year 2007 was $8,000, as compared to $1,000 for fiscal year
2006. This reflects our acquisition of the Bastrop and Caldwell County
properties during 2007.
Depletion, depreciation and
amortization (DD&A) For our fiscal year 2007, we recorded
DD&A expense of $53,000, after having recorded no DD&A expense during
2006. Virtually all of this expense was attributable to depletion of our
oil and gas properties, which were acquired during 2007.
General
and administrative expense (G&A expense)
General
and administrative expense for fiscal year 2007 increased $6,442,000 from the
comparable 2006 period to $6,699,000. The largest portion of the 2007 total
was comprised of stock based compensation of $5,680,000 related to the reverse
merger and compensation of employees and consultants. The other major
component of 2007 general and administrative costs included salaries of
$361,000. During 2006, the primary components of our general and administrative
expenses were salaries, contract labor and legal and professional
expenses.
Other
income (expense)
Other
income (expense) for fiscal year 2007 totaled an expense of $481,000 primarily
related to the loss on extinguishment of debt of $404,000. We also incurred
interest expense of $92,000 during 2007.
Net
loss
For the
fiscal year 2007, our net loss increased to $7,146,000, compared to our 2006 net
loss of $260,000. The major components of the 2007 loss were general and
administrative expenses of $6,699,000 including stock based compensation of
$5,680,000.
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
ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -
ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
TO FINANCIAL STATEMENTS
|
Report
of Independent Registered Public Accounting Firm
|
45
|
|
Consolidated
Balance Sheets as of December 31, 2007 and 2006
|
46
|
|
Consolidated
Statements of Operations for the years ended December 31, 2007 and
2006
|
47
|
|
Consolidated
Statement of Stockholders’ Equity (Deficit) for the years ended December
31, 2007 and 2006
|
48
|
|
Consolidated
Statements of Cash Flows for years ended December 31, 2007 and
2006
|
49
|
|
Notes
to the Consolidated Financial Statements – December 31,
2007
|
51
|
- -
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board Directors
USA
Superior Energy Holdings, Inc.
(Formerly
Comlink Communications Company)
Houston,
Texas
We have
audited the accompanying consolidated balance sheets of USA Superior Energy
Holdings, Inc. (“USA Superior”) as of December 31, 2007 and 2006 and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of USA Superior's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. USA
Superior is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of USA Superior’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of USA Superior as
of December 31, 2007 and 2006 and the consolidated results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
USA Superior will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, USA Superior has raised limited capital and
incurred losses from operations since inception, which raise substantial doubt
about their ability to continue as a going concern. Management’s plans regarding
those matters also are described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
Malone & Bailey, PC
www.malone-bailey.com
Houston,
TX
May 16,
2008
USA
SUPERIOR ENERGY HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
As
of December 31, 2007 and 2006
|
ASSETS
|
2007
|
2006
|
||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$
|
256,943
|
$
|
297
|
||||
|
Restricted
cash
|
50,000
|
-
|
||||||
|
Accounts
receivable
|
-
|
2,897
|
||||||
|
Prepaid
expenses
|
24,699
|
-
|
||||||
|
Total
current assets
|
331,642
|
3,194
|
||||||
|
Oil
and gas properties, including $348,086 of unproved properties, net of
accumulated depletion, depreciation and amortization of $36,991 in 2007 –
using full cost method of accounting
|
1,568,289
|
367,117
|
||||||
|
Office
equipment, net of depreciation of $9,391 and $932,
respectively
|
34,372
|
1,304
|
||||||
|
Other
assets
|
750
|
750
|
||||||
|
Total
assets
|
$
|
1,935,053
|
$
|
372,365
|
||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable and accrued liabilities
|
$
|
326,730
|
$
|
157,440
|
||||
|
Convertible
demand note, net of unamortized discount of $244,154 in
2007
|
27,000
|
-
|
||||||
|
Current
portion of notes payable
|
347,762
|
-
|
||||||
|
Advances
payable – related party
|
114,259
|
35,100
|
||||||
|
Total
current liabilities
|
815,751
|
192,540
|
||||||
|
Convertible
debenture, net of unamortized discount of $257,316 in 2007
|
215,947
|
-
|
||||||
|
Notes
payable
|
363,957
|
-
|
||||||
|
Asset
retirement obligations
|
115,520
|
19,589
|
||||||
|
Total
liabilities
|
1,511,175
|
212,129
|
||||||
|
STOCKHOLDERS’
EQUITY
|
||||||||
|
Common
shares, $0.001 par value, 150,000,000 shares authorized, 55,760,000 and
30,980,000 shares issued and outstanding, respectively
|
55,760
|
30,980
|
||||||
|
Additional
paid-in capital
|
7,924,850
|
539,630
|
||||||
|
Accumulated
deficit
|
(7,556,732
|
)
|
(410,374
|
)
|
||||
|
Total
stockholders’ equity
|
423,878
|
160,236
|
||||||
|
Total
liabilities and stockholders’ equity
|
$
|
1,935,053
|
$
|
372,365
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements.
USA
SUPERIOR ENERGY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Years Ended December 31, 2007 and 2006
|
2007
|
2006
|
|||||||
|
Revenue
|
$
|
257,560
|
$
|
-
|
||||
|
Operating
expenses
|
||||||||
|
Lease
operating expenses
|
170,529
|
-
|
||||||
|
General
and administrative, includes stock-based compensation of $5,680,301 in
2007
|
6,699,343
|
258,627
|
||||||
|
Depreciation,
depletion and amortization
|
53,315
|
1,303
|
||||||
|
Total
operating expenses
|
6,923,187
|
259,930
|
||||||
|
Operating
loss
|
(6,665,627
|
)
|
(259,930
|
)
|
||||
|
Other
income (expense)
|
||||||||
|
Loss
on extinguishment of debt
|
(403,759
|
)
|
-
|
|||||
|
Interest
expense
|
(92,035
|
)
|
(335
|
)
|
||||
|
Interest
income
|
15,063
|
-
|
||||||
|
Total
other expense
|
(480,731
|
)
|
(335
|
)
|
||||
|
Net
loss
|
(7,146,358
|
)
|
(260,265
|
)
|
||||
|
Net
loss per share:
|
||||||||
|
Basic
and diluted
|
$
|
(0.13
|
)
|
$
|
(0.01
|
)
|
||
|
Weighted
average shares outstanding:
|
||||||||
|
Basic
and diluted
|
54,147,945
|
30,980,000
|
||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
USA
SUPERIOR ENERGY HOLDINGS, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
For
the years ended December 31, 2007 and 2006
|
Common
Shares
|
Par
Amount
|
Additional
Paid-In
Capital
|
Accumulated
Deficit
|
Total
|
||||||||||||||||
|
Balance,
December 31, 2005
|
30,980,000
|
$
|
30,980
|
$
|
377,654
|
$
|
(150,109
|
)
|
$
|
258,525
|
||||||||||
|
Capital
contribution by sole shareholder
|
-
|
-
|
161,976
|
-
|
161,976
|
|||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(260,265
|
)
|
(260,265
|
)
|
|||||||||||||
|
Balance,
December 31, 2006
|
30,980,000
|
$
|
30,980
|
$
|
539,630
|
$
|
(410,374
|
)
|
$
|
160,236
|
||||||||||
|
Common
shares issued in reverse merger
|
18,360,000
|
18,360
|
(18,360
|
)
|
-
|
-
|
||||||||||||||
|
Shares
issued for services
|
3,520,000
|
3,520
|
5,701,480
|
-
|
5,705,000
|
|||||||||||||||
|
Issuance
of units for cash
|
2,500,000
|
2,500
|
997,500
|
-
|
1,000,000
|
|||||||||||||||
|
Shares
issued for cash
|
400,000
|
400
|
279,600
|
-
|
280,000
|
|||||||||||||||
|
Beneficial
conversion feature of convertible debentures
|
-
|
-
|
200,000
|
-
|
200,000
|
|||||||||||||||
|
Beneficial
conversion feature of convertible debt
|
-
|
-
|
225,000
|
-
|
225,000
|
|||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
(7,146,358
|
)
|
(7,146,358
|
)
|
|||||||||||||
|
Balance,
December 31, 2007
|
55,760,000
|
$
|
55,760
|
$
|
7,924,850
|
$
|
(7,556,732
|
)
|
$
|
423,878
|
||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
USA
SUPERIOR ENERGY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2007 and 2006
|
2007
|
2006
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net
loss
|
$
|
(7,146,358
|
)
|
$
|
(260,265
|
)
|
||
|
Adjustments
to reconcile net loss to cash used by operating
activities:
|
||||||||
|
Depreciation,
depletion and amortization
|
53,315
|
1,303
|
||||||
|
Loss
on extinguishment of debt
|
403,759
|
-
|
||||||
|
Amortization
of debt discount
|
92,035
|
-
|
||||||
|
Stock
based compensation
|
5,680,301
|
-
|
||||||
|
Net
change in:
|
||||||||
|
Accounts
receivable
|
2,898
|
-
|
||||||
|
Accrued
interest receivable
|
(14,384
|
)
|
-
|
|||||
|
Prepaid
expenses and other current assets
|
-
|
12,422
|
||||||
|
Accounts
payable and accrued liabilities
|
162,449
|
65,289
|
||||||
|
Advances
payable – related party
|
79,159
|
35,100
|
||||||
|
NET
CASH USED BY OPERATING ACTIVITIES
|
(686,826
|
)
|
(146,151
|
)
|
||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Increase
in restricted cash
|
(50,000
|
)
|
-
|
|||||
|
Purchase
of property and equipment
|
(41,528
|
)
|
(26,388
|
)
|
||||
|
Investment
in oil and gas properties
|
(400,000
|
)
|
-
|
|||||
|
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
(491,528
|
)
|
(26,388
|
)
|
||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Proceeds
from issuance of short-term debt
|
40,000
|
-
|
||||||
|
Proceeds
from issuance of convertible notes
|
425,000
|
-
|
||||||
|
Proceeds
from sale of units
|
1,000,000
|
-
|
||||||
|
Proceeds
from sale of stock
|
280,000
|
-
|
||||||
|
Capital
contributions from shareholder
|
-
|
161,976
|
||||||
|
Repayments
of notes payable
|
(95,000
|
)
|
-
|
|||||
|
Repayment
of convertible notes payable
|
(215,000
|
)
|
-
|
|||||
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES
|
1,435,000
|
161,976
|
||||||
|
NET
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
|
256,646
|
(10,563
|
)
|
|||||
|
Cash
and cash equivalents, beginning of period
|
297
|
10,860
|
||||||
|
Cash
and cash equivalents, end of period
|
$
|
256,943
|
$
|
297
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements
USA
SUPERIOR ENERGY HOLDINGS, INC.
SUPPLEMENTAL
CASH FLOW INFORMATION
For
the Years Ended December 31, 2007 and 2006
|
2007
|
2006
|
|||||||
|
Cash
paid for:
|
||||||||
|
Interest
|
$
|
31,622
|
$
|
-
|
||||
|
Income
taxes
|
$
|
-
|
$
|
-
|
||||
|
Supplemental
Schedule of Non-cash Investing and Financing Activities:
|
||||||||
|
Purchase
oil and gas properties through issuance of notes payable
|
$
|
750,097
|
$
|
-
|
||||
|
Discount
on convertible note payable
|
225,000
|
-
|
||||||
|
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 CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
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. Comlink 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 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
Basis
of presentation
USA
Superior’s consolidated balance sheets and related consolidated statements of
operations, stockholders’ equity and cash flow for the years ended December 31,
2007 and 2006 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.
Cash
and cash equivalents
Cash and
cash equivalents include cash in banks and certificates of deposit which mature
within three months of the date of purchase. USA Superior may, in the
normal course of operations, maintain cash balances in excess of federally
insured limits.
Restricted
cash
At
December 31, 2007, USA Superior has $50,000 of restricted cash. The restricted
cash serves as collateral for a bond with the State of Texas that provides
financial assurance that USA Superior will fulfill its obligations plug any
abandoned wells on its oil and gas properties. The cash is held in
custody by a bank, is restricted as to withdrawal or use, and is currently
invested in money market funds. Income from these investments is paid to the
Company.
Accounts
receivable
USA
Superior routinely assesses the recoverability of all material trade, joint
interest and other receivables. USA Superior accrues a reserve on a receivable
when, based on the judgment of management, it is probable that a receivable will
not be collected and the amount of any reserve may be reasonably
estimated. Actual write-offs may exceed the recorded
allowance. No allowance for doubtful accounts was considered
necessary at December 31, 2007 and 2006, as there were no significant accounts
receivable as of these dates.
Oil
and gas properties
USA
Superior follows the full cost method of accounting for its oil and natural gas
properties, whereby all costs incurred in connection with the acquisition,
exploration for and development of petroleum and natural gas reserves are
capitalized. Such costs include lease acquisition, geological and geophysical
activities, rentals on non-producing leases, drilling, completing and equipping
of oil and gas wells and administrative costs directly attributable to those
activities and asset retirement costs. Disposition of oil and gas properties are
accounted for as a reduction of capitalized costs, with no gain or loss
recognized unless such adjustment would significantly alter the relationship
between capital costs and proved reserves of oil and gas, in which case the gain
or loss is recognized to income.
Depletion
and depreciation of proved oil and gas properties is calculated on the
units-of-production method based upon estimates of proved reserves. Such
calculations include the estimated future costs to develop proved reserves. Oil
and gas reserves are converted to a common unit of measure based on the energy
content of 6,000 cubic feet of gas to one barrel of oil. Costs of undeveloped
properties are not included in the costs subject to depletion. These costs are
assessed periodically for impairment.
Ceiling
test
In
applying the full cost method, USA Superior performs an impairment test (ceiling
test) at each reporting date, whereby the carrying value of property and
equipment is limited to the “estimated present value,” of its proved reserves
discounted at a 10-percent interest rate of future net revenues, based on
current economic and operating conditions, plus the cost of properties not being
amortized, plus the lower of cost or fair market value of unproved properties
included in costs being amortized, less the income tax effects related to book
and tax basis differences of the properties. As of December 31, 2007 and 2006,
no impairment of oil and gas properties was recorded.
Oil
and gas properties, not subject to amortization
USA
Superior holds oil and gas interests in Texas pursuant to lease
agreements. Upon completion of drilling and initial well production
from these leases, USA Superior will commence amortization (on a
unit-of-production basis) of the acquisition, geological and geophysical,
drilling and development costs incurred and included in oil and gas
properties.
The
amortization of the oil and gas properties not classified as proved begins when
the oil and gas properties become proved, or their values become impaired. USA
Superior assesses the realizability of its properties not characterized as
proved on at least an annual basis or when there is or has been an indication
that an impairment in value may have occurred. The impairment of properties not
classified as proved is assessed based on management’s intention with regard to
future exploration and development of individually significant properties, and
USA Superior’s ability to secure capital funding to finance such exploration and
development. If the result of an assessment indicates that a property is
impaired, the amount of the impairment is added to the capitalized costs in its
full cost pool and they are amortized over production from proved
reserves
Property
and equipment
Property
and equipment is stated at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of three to five years.
Debt
USA
Superior accounts for debt at the face amount of the debt offset by applicable
discounts and recognizes interest expense for accrued interest payable under the
terms of the debt. Principal and interest payments due within one year are
classified as current, whereas principal and interest payments for periods
beyond one year are classified as long term. Beneficial conversion features of
debt are valued and the related amounts recorded as discounts on the
debt. Discounts are amortized to interest expense using the effective
interest method over the term of the debt. Any unamortized discount
upon settlement or conversion of debt is recognized immediately as interest
expense.
Asset
retirement obligations
In
accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations” USA
Superior records the fair value of a liability for asset retirement obligations
(“ARO”) in the period in which an obligation is incurred and a corresponding
increase in the carrying amount of the related long-lived asset. For
USA Superior, asset retirement obligations primarily relate to the abandonment
of oil and gas properties. The present value of the estimated asset
retirement cost is capitalized as part of the carrying amount of oil and gas
properties and is depleted over the useful life of the asset. The
settlement date fair value is discounted at USA Superior’s credit adjusted
risk-free rate in determining the abandonment liability. The
abandonment liability is accreted with the passage of time to its expected
settlement fair value. Revisions to such estimates are recorded as adjustments
to ARO and capitalized asset retirement costs and are charged to operations in
the period in which they become known. At the time the abandonment
cost is incurred, USA Superior is required to recognize a gain or loss if the
actual costs do not equal the estimated costs included in ARO.
Environmental
The
Company is subject to environmental laws and regulations of various U.S.
jurisdictions. These laws, which are constantly changing, regulate the discharge
of materials into the environment and may require the Company to remove or
mitigate the environmental effects of the disposal or release of petroleum or
chemical substances at various sites.
Environmental
costs that relate to current operations are expensed or capitalized as
appropriate. Costs are expensed when they relate to an existing condition caused
by past operations and will not contribute to current or future revenue
generation. Liabilities related to environmental assessments and/or remedial
efforts are accrued when property or services are provided or can be reasonably
estimated.
Future
income taxes
Income
taxes are accounted for using the asset/liability method of income tax
allocation. Future income taxes are recognized for the future income tax
consequences attributable to differences between the carrying values of assets
and liabilities and their respective income tax bases. Future income tax assets
and liabilities are measured using income tax rates expected to apply to taxable
income in the years in which temporary differences are expected to be recovered
or settled. The effect on future income tax assets and liabilities of a change
in income tax rates is included in earnings in the period that such change in
income tax rates is enacted. Future income tax assets are recorded in the
financial statements if realization is considered more likely than
not.
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 December 31, 2007and
December 31, 2006. Costs associated with production are expensed in
the period incurred.
Stock-based
compensation
The
Financial Accounting Standards Board issued SFAS No. 123(R), “Share-Based
Payment” which establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or
services. USA Superior utilizes SFAS No. 123R and related
Interpretations for fair value determination and recognition for share based
compensation granted to directors, officers, and
employees. Under SFAS 123R, compensation cost for all share
based payments granted are based on the grant date fair value estimated in
accordance with the provisions of SFAS No. 123R.
Compensation
cost is recognized on a straight line basis over the requisite service period
for the entire award in accordance with the provisions of SFAS
123R. If at any date the portion of the grant-date fair value of the
award that is vested is greater than that amount recognized on a straight line
basis, the amount of the vested grant date fair value is
recognized. USA Superior also accounts for transactions in which we
issue equity instruments to acquire goods or services from non-employees in
accordance with the provisions of SFAS No. 123 and EITF Issue No. 96–18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. These transactions are accounted
for based on the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably
measurable.
Loss
per share
Basic net
loss per common share is computed by dividing net loss by the weighted-average
number of common shares outstanding during the period. Diluted net loss per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents. In periods when losses are reported, the weighted-average number of
common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive.
The
dilutive effect of outstanding stock options and warrants is reflected in
diluted earnings per share by application of the treasury stock method. The
dilutive effect of outstanding convertible securities is reflected in diluted
earnings per share by application of the if-converted method. For the
years ended December 31, 2007 and 2006, fully diluted earnings per share
excludes common stock equivalents, because their inclusion would be
anti-dilutive.
Fair
value of financial instruments
The
carrying value of cash and cash equivalents, accounts payable and accrued
expenses and other liabilities approximates fair value due to the short term
maturity of these instruments. The carrying value of the notes payable,
convertible notes and convertible debentures approximate their fair value as
December 31, 2007 and 2006.
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 - RELATED PARTY TRANSACTIONS
During
USA Superior’s formation and development to date, it has had transactions with
the current directors, executive officers and shareholders holding interests in
excess of 10.0%. These transactions are as follows:
Advances
from Stockholder
During
2006, the Company’s sole shareholder at the time and current CEO made capital
contributions of $161,976 for general working capital
requirements. No additional shares of common stock were issued in
exchange for these contributions.
During
2007 and 2006, the Company’s CEO made cash advances for general working capital
requirements to USA Superior in the amount of $79,159 and $35,100,
respectively. The advances were due on demand, did not bear interest
and were outstanding at December 31, 2007.
Transfer
of Common Stock
In
November 2007, the Company’s CEO transferred 2.5 million shares of common stock
valued at $2,175,000 to a consultant. The value of these shares has
been included in general and administrative expense with a corresponding
increase in additional paid-in capital.
NOTE
5 – OIL AND GAS PROPERTIES
All of
the USA Superior’s oil and gas properties are located in the United
States.
Oil and
gas properties are made up of the following at December 31, 2007 and
2006:
|
2007
|
2006
|
|||||||
|
Properties
subject to amortization
|
$
|
1,257,194
|
$
|
19,031
|
||||
|
Properties
not subject to amortization
|
348,086
|
348,086
|
||||||
|
Less:
accumulated depreciation, depletion and amortization
|
(36,991
|
)
|
-
|
|||||
|
Oil
and gas properties, net
|
$
|
1,568,289
|
$
|
367,117
|
||||
On March
20, 2007, USA Superior purchased oil and gas leases in Bastrop and Caldwell
Counties, Texas. The purchase price for the properties consisted of
(a) $400,000 in cash; (b) a note payable of $350,000 requiring monthly payments
of $15,000 plus interest; and (c) the assumption of the seller’s note payable to
a third party with a book value of $400,097. The total consideration
paid for the properties was $1,150,097. These properties are proved
and are included in properties subject to amortization.
Costs
excluded from amortization at December 31, 2007 are as follows:
|
Fiscal
Year
Incurred
|
Acquisition
Costs
|
Exploration
Costs
|
Total
|
|||||||||
|
2006
|
$
|
348,086
|
$
|
-
|
$
|
348,086
|
||||||
|
2007
|
-
|
-
|
-
|
|||||||||
|
Total
|
$
|
348,086
|
$
|
-
|
$
|
348,086
|
||||||
USA
Superior holds oil and gas lease interests in Texas. USA Superior
expects that the costs included in “Properties not subject to amortization” will
be included in oil and gas properties subject to amortization upon evaluation of
proved reserves in future years.
NOTE
6 – ASSET RETIREMENT OBLIGATIONS
Asset
retirement obligations activity for the years ended December 31, 2007 and 2006
is as follows:
|
2007
|
2006
|
|||||||
|
Asset
retirement obligations, beginning of year
|
$
|
19,589
|
$
|
19,031
|
||||
|
Fair
value of liabilities assumed in acquisitions
|
88,066
|
-
|
||||||
|
Accretion
expense
|
7,865
|
558
|
||||||
|
Asset
retirement obligations, end of year
|
$
|
115,520
|
$
|
19,589
|
||||
NOTE
7 – INCOME TAXES
From the
Company’s inception in October 2005to January 2007, USA Superior was not subject
to federal and state income taxes since it was operating as a Limited Liability
Company (LLC). On January 16, 2007, the Company converted from an LLC to a C
corporation and, as a result, became subject to corporate federal and state
income taxes. The Company’s accumulated deficit at that date was reclassified to
additional paid-in capital.
Deferred
income taxes are recorded at the expected tax rate of 35%. SFAS No.
109 “Accounting for Income Taxes” requires that deferred tax assets be reduced
by a valuation allowance if it is more or likely than not that some portion or
all of the deferred tax asset will not be realized.
Reconciliation
between actual tax expense (benefit) and income taxes computed by applying the
combined U.S. federal income tax rate and state income tax rate to net loss is
as follows:
|
2007
|
||||
|
Computed
at U.S. and State statutory rates
|
$
|
(2,501,225
|
)
|
|
|
Permanent
differences
|
754,950
|
|||
|
Changes
in valuation allowance
|
1,746,275
|
|||
|
Total
|
$
|
-
|
||
|
December
31,
|
||||
|
2007
|
||||
|
Deferred
tax asset attributable to:
|
||||
|
Net
operating loss
|
$
|
2,551,275
|
||
|
Less:
valuation allowance
|
(2,551,275
|
)
|
||
|
Total
|
$
|
-
|
||
The
components giving rise to the deferred tax assets described above have been
included in the accompanying consolidated balance sheet as noncurrent
assets. As of December 31, 2007, the deferred tax assets are net of a full
valuation allowance of $2,551,275 based on the amount that management believes
will ultimately be realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income. At December 31, 2007, USA Superior had loss
carryforwards of approximately $7.3 million for tax purposes which will begin to
expire in 2027. The valuation allowance increased by $2,551,275 for the year
ended December, 31, 2007.
The
income tax provision differs from the amount of income determined by applying
the U.S. federal income tax rate to pretax income for the years ended December
31, 2007 primarily due to the valuation allowance. The above
estimates are based upon management’s decisions concerning certain elections
which could change the relationship between net income and taxable
income. Management decisions are made annually and could cause
the estimates to vary significantly.
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes
payable are made up of the following at December 31, 2007:
|
2007
|
||||
|
Three-month
noninterest bearing note
|
$
|
25,000
|
||
|
Note
payable to seller of Bastrop and Caldwell County leases
|
317,697
|
|||
|
Noninterest
bearing liability related to Bastrop and Caldwell County
leases
|
369,022
|
|||
|
Total
notes payable
|
$
|
711,719
|
||
|
Less:
current portion of notes payable
|
(347,762
|
)
|
||
|
Noncurrent
notes payable
|
$
|
363,957
|
||
There
were no notes payable as of December 31, 2006.
Notes
Payable
On
January 30, 2007, USA Superior borrowed $25,000 under a three-month noninterest
bearing note from a private investor with a maturity date of March 31,
2007. The note remains unpaid and is in default. Interest
has been accruing at the default interest rate of 18 percent per
annum.
On
November 21, 2007, USA Superior borrowed $15,000 under a three-month note with a
maturity date of January 21, 2008 and bearing interest at 10%. The
note was repaid with the proceeds of the sale of common stock in November
2007.
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 USA Superior’s interest in the Bastrop
and Caldwell County leases and by 500,000 shares of USA Superior’s common stock
which were pledged by the Company’s CEO.
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 made principal payments of $34,350
during the year ended December 31, 2007 and is currently in default on the note
due to the fact that all required payments have not been made on the
note.
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 November 20, 2007 through
December 31, 2007, $3,828 was charged to interest expense associated with the
amortization of the debt discount. At December 31, 2007, the
convertible debenture was recorded on the balance sheet at $215,947, which is
made up of the discounted face value of the note of $473,263 offset by the
unamortized discount of $257,316.
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 year
ended December 31, 2007, $25,846 was charged to interest expense associated with
the amortization of the debt discount. At December 31, 2007, the
convertible demand note was recorded on the balance sheet at $27,000, which is
made up of the face amount of the note of $270,000 and accrued interest of
$1,154 offset by the unamortized discount of $244,154.
Future
maturities
Future
maturities of long-term debt are as follows as of December 31,
2007:
|
2008
|
$ | 617,762 | ||
|
2009
|
237,435 | |||
|
2010
|
558,136 | |||
|
2011
|
36,522 | |||
|
2012
|
- | |||
|
Thereafter
|
- | |||
| $ | 1,449,855 |
NOTE
9 – STOCKHOLDERS’ EQUITY
Issuance
of Common Shares and Warrants in Private Placement Offerings
During
2007, USA Superior sold units in private placement offerings. Each
unit consisted of one share of common stock and one warrant. Each
warrant is exercisable at a price of $0.80 per common share for a period of two
years. The relative fair value of the common stock and warrants was
estimated through use of the Black-Scholes option pricing model. The
parameters used in the calculation of the Black-Scholes fair values for the
warrants are provided in the following table:
|
Issue
Date
|
Volatility
|
Risk-Free
Interest
Rate
|
Common
Share
Price
|
Term
(years)
|
||||||||||||
|
February
2, 2007
|
114
|
%
|
4.94
|
%
|
$
|
1.05
|
2
|
|||||||||
|
March
12, 2007
|
114
|
%
|
4.62
|
%
|
$
|
0.82
|
2
|
|||||||||
|
March
16, 2007
|
114
|
%
|
4.58
|
%
|
$
|
0.97
|
2
|
|||||||||
|
March
18, 2007
|
114
|
%
|
4.82
|
%
|
$
|
0.82
|
2
|
|||||||||
Summarized
in the following table are USA Superior’s sales of units during the year ended
December 31, 2007 and the associated estimated relative fair values of the
shares of common stock and the warrants that comprised the units
sold:
|
Date
|
Number
of
Units
|
Price
Per
Unit
|
Total
Proceeds
|
Common
Stock
|
Warrant
|
|||||||||||||||
|
February
2, 2007
|
1,250,000
|
$
|
0.40
|
$
|
500,000
|
$
|
376,676
|
$
|
123,374
|
|||||||||||
|
March
12, 2007
|
500,000
|
0.40
|
200,000
|
153,591
|
46,409
|
|||||||||||||||
|
March
16, 2007
|
625,000
|
0.40
|
250,000
|
189,525
|
60,475
|
|||||||||||||||
|
March
18, 2007
|
125,000
|
0.40
|
50,000
|
38,386
|
11,614
|
|||||||||||||||
Sales
of common stock for cash
In
November 2007, USA Superior sold 400,000 shares of common stock to a private
investor for cash proceeds of $280,000.
Shares
Issued for Services
In
conjunction with the merger, USA Superior issued 3,020,000 shares of common
stock for services provided in relation to the reverse 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.
In
January 2007, USA Superior entered into a consulting agreement with The Regency
Group, LLC for the provision of services relating to investor relations, public
relations agreement and public company website maintenance, pursuant to which
The Regency Group received 500,000 shares of common stock of USA
Superior.
In
November 2007, the Company’s CEO transferred 2.5 million shares of common stock
valued at $2,175,000 to a consultant. The value of these shares has
been included in general and administrative expense with a corresponding
increase in additional paid-in capital.
NOTE
10 - SUBSEQUENT EVENTS
In
January 2008, USA Superior sold 400,000 shares of common stock to an employee
and received a stock subscription receivable of $130,000. USA
Superior recorded compensation expense of $170,000 which represents the
difference between the price to be paid by the employee and the market value of
the stock on the date of the transaction.
On March
1, 2008, as amended 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 January 31, 2010. Under the terms of the contract USA
Superior will make monthly payments of $5,000 through the term of the
contract. 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.
SUPPLEMENTAL
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
There are
numerous uncertainties inherent in estimating quantities of proved crude oil and
natural gas reserves. Crude oil and natural gas reserve engineering is a
subjective process of estimating underground accumulations of crude oil and
natural gas that cannot be precisely measured. The accuracy of any reserve
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment.
The
Company retained Cathedral Resources, independent third-party reserve engineers,
to perform an independent evaluation of proved reserves as of December 31, 2007.
Results of drilling, testing and production subsequent to the date of the
estimates may justify revision of such estimates. Accordingly,
reserve estimates are often different from the quantities of crude oil and
natural gas that are ultimately recovered. All of the Company’s reserves are
located in the United States.
There
were no proved reserves at December 31, 2006
The
following supplemental unaudited information regarding USA Superior’s oil and
gas activities is presented pursuant to the disclosure requirements of SFAS No.
69. The standardized measure of discounted future net cash flows is
computed by applying fiscal year-end prices of oil and gas to the estimated
future production of proved oil and gas reserves, less estimated future
expenditures (based on fiscal year-end cost estimates assuming continuation of
existing economic conditions) to be incurred in developing and producing the
proved reserves, less estimated future income tax expenses (based on fiscal
year-end statutory tax rates) to be incurred on pre-tax net cash flows less tax
basis of the properties and available credits, and assuming continuation of
existing economic conditions. The estimated future net cash flows are
then discounted using a rate of 10 percent per year to reflect the estimated
timing of the future cash flows.
Capitalized
Costs Relating to Oil and Gas Producing Activities as of December 31, 2007 and
2006:
|
2007
|
2006
|
|||||||
|
Proved
properties
|
||||||||
|
Mineral
interests
|
$
|
287,524
|
$
|
-
|
||||
|
Wells,
equipment and facilities
|
969,670
|
19,031
|
||||||
|
Total
proved properties
|
1,257,194
|
19,031
|
||||||
|
Unproved
properties
|
||||||||
|
Mineral
interests
|
$
|
348,086
|
$
|
348,086
|
||||
|
Uncompleted
wells, equipment and facilities
|
-
|
-
|
||||||
|
Total
unproved properties
|
348,086
|
348,086
|
||||||
|
Less:
accumulated depreciation, depletion and amortization
|
(36,991
|
)
|
-
|
|||||
|
Net
capitalized costs
|
$
|
1,568,289
|
$
|
367,117
|
||||
Costs
Incurred in Oil and Gas Producing Activities for the Years Ended December 31,
2007 and 2006:
|
2007
|
2006
|
|||||||
|
Acquisition
of proved properties
|
$
|
1,238,163
|
$
|
-
|
||||
|
Acquisition
of unproved properties
|
-
|
-
|
||||||
|
Development
costs
|
197,775
|
19,031
|
||||||
|
Exploration
costs
|
-
|
3,330
|
||||||
|
Total
costs incurred
|
$
|
1,435,938
|
$
|
370,447
|
||||
Results
of Operations for Oil and Gas Producing Activities for the Year Ended December
31, 2007:
|
2007
|
||||
|
Revenues
|
$
|
230,050
|
||
|
Production
costs
|
(170,529
|
)
|
||
|
Exploration
expenses
|
-
|
|||
|
Depreciation,
depletion and amortization
|
(36,991
|
)
|
||
|
Accretion
expense
|
(7,865
|
)
|
||
|
Income
before income tax
|
14,665
|
|||
|
Income
tax
|
-
|
|||
|
Results
of operations from oil and gas producing activities
|
$
|
14,665
|
||
Proved
Reserves:
USA
Superior’s proved oil and natural gas reserves have been estimated by
independent petroleum engineers. Proved reserves are the estimated quantities
that geologic and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are the quantities expected to
be recovered through existing wells with existing equipment and operating
methods. Due to the inherent uncertainties and the limited nature of reservoir
data, such estimates are subject to change as additional information becomes
available. The reserves actually recovered and the timing of production of these
reserves may be substantially different from the original estimate. Revisions
result primarily from new information obtained from development drilling and
production history; acquisitions of oil and natural gas properties; and changes
in economic factors. All proved reserves are located in the United
States. Proved reserves as of December 31, 2007 are summarized in the table
below:
Proved
Natural Gas and Oil Reserves at December 31, 2007:
|
Oil
(Bbls)
|
Gas
(Mcf)
|
|||||||
|
Proved
reserves - beginning of period
|
-
|
-
|
||||||
|
Purchase
of minerals in place
|
448,877
|
32,301
|
||||||
|
Production
|
(3,854
|
)
|
-
|
|||||
|
Proved
reserves - end of period
|
445,023
|
32,301
|
||||||
|
Proved
developed reserves - end of period
|
194,372
|
-
|
||||||
Standardized
Measure of Discounted Future Net Cash Flows at December 31, 2007:
|
2007
|
||||
|
Future
cash inflows
|
$
|
39,556,773
|
||
|
Future
production costs
|
(16,569,591
|
)
|
||
|
Future
development costs
|
(4,000,000
|
)
|
||
|
Future
income taxes
|
(6,218,443
|
)
|
||
|
10%
annual discount for estimated timing of cash flows
|
(10,185,780
|
)
|
||
|
Standardized
measure of discounted future net cash flows:
|
$
|
2,582,959
|
||
Future
cash inflows are computed by applying year-end commodity prices, adjusted for
location and quality differentials on a property-by-property basis, to year-end
quantities of proved reserves, except in those instances where fixed and
determinable price changes are provided by contractual arrangements at year-end.
In its 2007 year-end reserve report, the Company used the December 31, 2007 WTI
Cushing spot price of $96.01 per Bbl and Henry Hub spot natural gas price of
$7.465 per MMbtu, adjusted by property for energy content, quality,
transportation fees, and regional price differentials. The weighted average
price over the lives of the properties was $88.45 per Bbl for oil and $6.00 per
Mcf for gas.
Future
production and development costs, which include dismantlement and restoration
expense, are computed by estimating the expenditures to be incurred in
developing and producing the Company’s proved crude oil and natural gas reserves
at the end of the year, based on the year-end costs, and assuming continuation
of existing economic conditions. While the Company believes that future
operating costs can be reasonably estimated, future prices are difficult to
estimate since market prices are influenced by events beyond its control. Future
global economic and political events will most likely result in significant
fluctuations in future oil prices, while future U.S. natural gas prices will
continue to be influenced by primarily domestic market factors, including supply
and demand, weather patterns and public policy .
Future
income tax expenses are computed by applying the appropriate year-end statutory
tax rates to the estimated future pretax net cash flows relating to the
Company’s proved crude oil and natural gas reserves, less the tax basis of the
properties involved. The future income tax expenses give effect to tax credits
and allowances, but do not reflect the impact of general and administrative
costs and exploration expenses of ongoing operations relating to the Company’s
proved crude oil and natural gas reserves.
Changes
in Standardized Measure of Discounted Future Net Cash Flows for the Year Ended
December 31, 2007:
|
2007
|
||||
|
Beginning
of period
|
$
|
-
|
||
|
Purchase
of minerals in place
|
3,852,913
|
|||
|
Sales
of oil and gas produced, net of production costs
|
(59,521
|
)
|
||
|
Net
change in income taxes
|
(1,257,914
|
)
|
||
|
Timing
and other
|
47,481
|
|||
|
End
of period
|
$
|
2,582,959
|
||
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The
Company dismissed of Kyle L. Tingle, CPA, LLC (“Tingle”) as auditor on March 16,
2007, and engaged Larry O’Donnell, CPA, P.C. (“O’Donnell”) as auditors for the
Company on March 16, 2007. The Company dismissed Larry O’Donnell, CPA, P.C. as
auditors on December 21, 2007, and engaged Malone & Bailey, P.C. on December
21, 2007 to audit the balance sheet of the Company as of December 31, 2007, and
the related statements of operations, stockholders’ equity, and cash flows for
the year then ended. No audit committee exists other than the members of the
Board of Directors.
In
connection with audit of the two most recent fiscal years and through the date
of termination of the accountants, no disagreements exist with any former
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope
of procedure, which disagreements
if not resolved to the satisfaction of the former accountant would have caused
them to make reference in connection with his report to the subject of the
disagreement(s).
Neither
the audit reports by Tingle nor O’Donnell contained an adverse opinion or
disclaimer of opinion, nor was qualified or modified as to
uncertainty, audit scope, or accounting principles.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and
Procedures
Disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) are controls and other
procedures that are designed to ensure that the information that we are required
to disclose in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
In
connection with the preparation of this Annual Report on Form 10-K, our
management has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2007. The disclosure
controls and procedures are not effective and during the second quarter of
fiscal 2008 management will be implementing effective disclosure controls and
procedures.
Management’s Report on Internal
Control Over Financial Reporting
Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting
as such term is defined in Rules 13a-15(f) under the Exchange Act. Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with existing policies or procedures may deteriorate.
Under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, during the second quarter of the current fiscal year, our
management will implement an assessment of our internal control over financial
reporting, based on the criteria established in Internal Control — Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). It is the opinion of our management
that our internal control over financial reporting is currently not
effective.
ITEM
9B. OTHER INFORMATION
NONE
PART
III
ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The names
of and certain biographical information of our directors, executive officers,
and key employees as of the date of this filing are as follows:
Name Age Position
G.
Rowland
Carey 66 Chairman
of the Board, Chief Executive Officer,
President
Jerry D.
Witte 55 Vice
President, Director
Tonya
Chadwick 33 Executive
Vice President, Secretary
G.
ROWLAND CAREY, is a Director and the Chief Executive Officer of the Company. Mr.
Carey graduated from the University of North Carolina-Chapel Hill with a
Bachelor of Arts in History in 1964. Prior to becoming Chief Executive Officer
of the Company he was the Managing Member of USA Superior, LLC and
President/Director (2006) of USA Superior Energy, Inc., a Delaware corporation.
From May 1990 to 2001 he was the President and CEO of Coast Capital, LLC., which
provided equipment financing to oil and gas companies. From June 1983 to August
1985 he was the Co-founder and President of Gardner-Carey, Inc. specializing in
the development of rural land into subdivisions.
JERRY D.
WITTE, is a Director and the Vice President of the Company. Mr. Witte
graduated from the University of Southern Florida. Prior to becoming Secretary
of the Company, he was the Secretary and Director (2006) of USA Superior Energy,
Inc., a Delaware corporation. Mr. Witte was President and technical scientist
for TriLucent Technologies, a public company that utilized remote sensing and
radar based hydrocarbon identification for resource development. From 1985 to
1998, Mr. Witte was a senior project manager for SONAT Exploration where he was
involved in numerous projects. From 1979 to present, Mr. Witte has
consulted in areas including but not limited to geophysics, geochemistry,
petrophysics and the development of enhancement technologies in the oil and gas
industry.
TONYA
CHADWICK, is the Secretary and the Executive Vice President of the Company. She
has been with the Company since October 2007, and has served as its Secretary of
the Board and Executive Vice President since February 28, 2008.
There are
no family relationships among our directors and executive
officers. No director, executive officer or promoter has been a
director or executive officer of any business which has filed a bankruptcy
petition or had a bankruptcy petition filed against it during the past five
years. No director, executive officer or promoter has been convicted of a
criminal offense or is the subject of a pending criminal proceeding during the
past five years. No director, executive officer or promoter has been the subject
of any order, judgment or decree of any court permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities during the past five years. No
director, executive officer or promoter has been found by a court to have
violated a federal or state securities or commodities law during the past five
years.
None of
our directors or executive officers or their respective immediate family members
or affiliates is indebted to the Company.
COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
Section 16(a)
of the Securities Exchange Act of
1934 (the "Exchange Act") requires that
the Company's officers
and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, file
reports of ownership and changes in ownership with
the Securities and Exchange
Commission. Officers, directors and greater than ten
percent stockholders are required
by regulation to furnish to the Company copies
of all Section 16(s)
forms
they file.
The
following persons failed to file forms on a timely basis during the past
twofiscal years as required under Section 16(a) as follows:
NONE.
Corporate Governance
We are
not a "listed company" under SEC rules and are, therefore, not required to have
an audit committee comprised of independent directors. Our entire Board serves
as our audit committee. No member of our Board is considered "independent"
pursuant to Section 10A(m)(3) of the Securities Act of 1934, as
amended. The Board has determined that its members are able to read
and understand fundamental financial statements and have substantial business
experience that results in their financial sophistication. Accordingly, the
Board believes that its members have the sufficient knowledge and experience
necessary to fulfill the duties and obligations of members of the audit
committee.
Additionally,
our Board does not have a standing compensation or nominating
committee. Because we do not have such committees, our full Board
performs the functions of such committees. In considering director
nominees, at a minimum,
our Board will consider: (i) whether the director nominee provides the
appropriate experience and expertise in light of the other
members currently serving on the
board and any other factors relating to
the ability and willingness of a nominee to serve on the
board, (ii) the number of other boards and committees on
which the nominee serves, and (iii) the director nominee's
business or other relationship, if any, with us, including whether the director
nominee would he subject to a disqualifying factor in determining the nominee's
"independence" as defined by the listing standards of the relevant
securities exchanges. As of the date of this filing, our Board has not adopted
procedures for the recommendation of nominees for the board of directors. Our
Board will accept nominations from our stockholders.
ITEM
11 – EXECUTIVE COMPENSATION
Executive Compensation Discussion,
Analysis, and Table
In the
fiscal year ended December 31, 2007, the only compensation issued to any
Director, Officer, or employee was salary and stock awards. The Company did not
issue any option awards, non-equity incentive plan compensation, nonqualified
deferred compensation earnings, pension benefits or any other compensation. All
disclosed Officers or Directors were compensated by the Company for the first
time in the 2007 fiscal year, and thus no prior year’s compensation data is
disclosed. There are no payments to any of our executive officers in connection
with a termination or on a change in control. The following table sets forth all
compensation paid to executives during fiscal year ended December 31,
2007.
Executives Compensation
Table
|
Executives Compensation
Table
|
|||||
|
Name and Principal
|
Year
|
Salary
|
Stock Awards
|
Total
|
|
|
Position
|
|
||||
|
G.
Rowland Carey
|
2007
|
$93,975
|
None
|
93,975 | |
|
Chairman
& CEO
|
|||||
|
Jerry
D. Witte
|
2007
|
$100,419
|
$1,190,000* |
$1,290,419
|
|
|
$1,290,419
|
|||||
|
Vice
President
|
|||||
|
Tonya
Chadwick**
|
2007
|
$6,749
|
None
|
$6,749
|
|
|
Executive
VP
|
|||||
|
Randy
Holifield
|
2007
|
$85,855
|
$340,000*
|
$429,255
|
|
|
Fields
Operations Supervisor
|
|||||
* Mr.
Witte was given 1,190,000 shares, and Mr. Holifield was given 340,000 shares
that closed at $1.00 on January 16, 2007
** Ms.
Chadwick was on contract through December 31, 2007, and has been on salary
starting January 1, 2008
Compensation of
Directors
The
following table sets forth all compensation paid to executives during fiscal
year ended December 31, 2007.
|
Name and principal
|
Year
|
Salary
|
Stock Awards
|
Total
|
||
|
G.
Rowland Carey
|
2007
|
$93,975
|
None
|
$93,975
|
||
|
Chairman
|
||||||
|
Jerry
D. Witte
|
2007
|
$100,419
|
$1,190,000
*
|
$1,290,419
|
||
|
Director
|
||||||
|
Paul
Eads
|
2007
|
$50,695
|
$1,190,000
*
|
$1,240,695
|
||
|
Director**
|
* Mr.
Witte and Mr. Eads were each given 1,190,000 shares that closed at $1.00 on
January 16, 2007
** Mr.
Eads resigned on February 27, 2007
ITEM
12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
For the
fiscal year ended December 31, 2007, and as of the date of this filing, the
Company’s Board of Directors has not authorized any equity compensation plan,
nor does the Company have any equity compensation plan.
We have
set forth in the following table certain information regarding our Common
Stock beneficially owned on the date of this
Information Statement for
each stockholder we know to be the
beneficial owner of 5% or more of our outstanding Common Stock, (ii) each of our
executive officers and directors, and (iii) all executive officers and directors
as a group. In general, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
the security, or the power to dispose or to direct the disposition of the
security. A person is also deemed to be a beneficial owner of any securities of
which the person has the right to acquire beneficial ownership within 60 days.
Except as otherwise indicated, each stockholder named in the table has sole
voting and investment power with respect to the shares beneficially owned. On
the date of this filing, there were 56,160,000 shares of common stock
outstanding.
|
Amount
& Nature
|
||||
|
Name and Position of Beneficial
Owner
|
of Beneficial Ownership
|
Percent
|
||
|
G.
Rowland Carey
|
27,952,500
|
49.77%
|
||
|
Chief
Executive Officer,
|
||||
|
Chairman
of Board
|
||||
|
Jerry
D. Witte,
|
962,794
|
1.71%
|
||
|
Vice
President, Director
|
||||
|
Tonya
Chadwick
|
0
|
0%
|
||
|
Executive
V.P., Secretary
|
ITEM
13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
For the
fiscal year ended December 31, 2007, the Company did not enter into any
transactions with related persons in which the amount involved exceeds
$120,000.
Independence of
Directors
The
Company has no independent Directors, nor does it have a separately designated
compensation, nominating or audit committee
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
General
Albeck
Financial Services Inc. is the Company’s accountants, and Malone & Bailey,
PC ("Malone") is the Company's principal auditing accountant firm. The Company's
Board of Directors has considered whether the provisions of audit services are
compatible with maintaining Malone’s independence. The Company's Board of
Directors acts as the audit committee and had no "pre-approval policies and
procedures" in effect for the engagement for the audit year 2007 and
2006.
On March
2007, O'Donnell was engaged by the Company's Board of Directors to perform the
audit of the financial statements for the year end December 31,
2006. The audit fees paid to Tingle during the year ended December
31, 2006 was for work on the audit of 2005 financial statements and review of
the filings for the quarters ended March 31, 2006, June 30, 2006, and September
30, 2006.
Audit Fees
The
following table represents aggregate fees billed to the Company for the year
ended December 31, 2007 by O’Donnell, and year ended December 31, 2006 by
Tingle.
Year
Ended December 31,
12/31/2007 12/31/2006
Audit
Fees $61,575
$28,500
All audit
work was performed by the auditors' full time employees.
Audit-Related
Fees
NONE
Tax Fees
There
were no tax fees or other fees in 2007 or 2006 paid to Auditors or Auditors'
affiliates.
All Other Fees
NONE
PART
IV
ITEM
15 – EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
Exhibit
No. Description
2.1 Agreement
& Plan of Merger Between Comlink & USA Superior
Energy,Inc.(1)
3.1 Articles
of Incorporation (2)
3.2 Articles
of Amendment (2)
3.3 Bylaws
(2)
10.1 Agreement
of Sale and Purchase, dated March 6, 2007, from Orbis
Operating,LLC*
31.1 Sarbanes
Oxley Certification (302) (President & CEO)*
31.2 Sarbanes
Oxley Certification (302) (CFO)*
32.1 Sarbanes
Oxley Certification (906) (President & CEO)*
32.2 Sarbanes
Oxley Certification (302) (CFO)*
99.1 Cathedral
Resources Report on Orbis Leases *
-------------------
* Filed
herewith.
(1)
Incorporated by reference to Form 8-K12G3, filed with the Securities and
Exchange Commission on January 16, 2007.
(2)Incorporated
by reference to Registration Statement No. 333-117114, filed with the Securities
and Exchange Commission on July 7, 2004.
SIGNATURES
Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USA Superior Energy Holdings,
Inc.
(the “Registrant”)
By: _/s/ Rowland Carey
Rowland
Carey
President,
Chief Executive Officer,
&
Chief Financial Officer
Dated:
May 16, 2008
Pursuant
to the requirements of the Securities Exchange Act of 1934, the following
persons on behalf of the registrant and in the capacities and on the dates
indicated have signed this report below.
|
Signature
|
Title
|
Date
|
|
G.
Rowland Carey
|
Chairman
of the Board,
|
May
16, 2008
|
|
President,
|
||
|
Chief
Executive Officer,
|
||
|
Chief
Financial Officer
|
||
|
Jerry
D. Witte
|
Director,
|
May
16, 2008
|
|
Vice
President
|
||
|
Tonya
Chadwick
|
Secretary,
|
May
16, 2008
|
|
Administrative
Vice President
|
EXHIBIT
INDEX
Exhibit
No.
2.1 Agreement
& Plan of Merger Between Comlink & USA Superior
Energy,Inc.(1)
3.1 Articles
of Incorporation (2)
3.2 Articles
of Amendment (2)
3.3 Bylaws
(2)
10.1 Agreement
of Sale and Purchase, dated March 6, 2007, from Orbis
Operating,LLC*
31.1 Sarbanes
Oxley Certification (302) (President & CEO)*
31.2 Sarbanes
Oxley Certification (302) (CFO)*
32.1 Sarbanes
Oxley Certification (906) (President & CEO)*
32.2 Sarbanes
Oxley Certification (302) (CFO)*
99.1 Cathedral
Resources Report on Orbis Leases *