SAXON CAPITAL GROUP INC - Quarter Report: 2008 June (Form 10-Q)

form10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

333-117114

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Commission File number

USA SUPERIOR ENERGY HOLDINGS, INC.

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(Exact name of registrant as specified in its charter)

NEVADA		30-0220588
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(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

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 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 T

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 T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £ No T

PART I- FINANCIAL INFORMATION

Item 1. Financial Statements

IMPORTANT DISCLOSURE

Contrary to the rules of the SEC, the Company's consolidated financial statements included in this filing have not been reviewed by an independent public accountant in accordance with professional standards for conducting such reviews.

Table of Contents for Item 1:

Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007

Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007

Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2008

Consolidated Statements of Cash Flows for six months ended June 30, 2008 and 2007

Notes to the Consolidated Financial Statements – June 30, 2008

USA SUPERIOR ENERGY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

As of June 30, 2008 and December 31, 2007

ASSETS	June 30, 2008			December 31, 2007
Current assets	(unaudited)			(audited)
Cash and cash equivalents	$	23,779		$	256,943
Restricted cash		50,000			50,000
Accounts receivable		2,500			-
Prepaid expenses and other current assets		153,270			24,699
Total current assets		229,549			331,642

Oil and gas properties, including $348,086 of unproved properties, net of accumulated depletion, depreciation and amortization of $76,311 and $36,991, respectively – using full cost method of accounting		1,528,969			1,568,289
Office equipment, net of depreciation of $17,059 and $9,391, respectively		26,704			34,372
Other assets		750			750

Total assets	$	1,785,972		$	1,935,053

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	651,848		$	326,730
Convertible demand note, net of unamortized discount of $ 240,260 and $244,154, respectively		46,961			27,000
Current portion of notes payable		344,097			347,762
Advances payable – related party		272,784			114,259
Total current liabilities		1,315,690			815,751

Convertible debenture, net of unamortized discount of $238,852 and $257,316, respectively		257,764			215,947
Notes payable		171,522			363,957
Asset retirement obligations		118,251			115,520
Total liabilities		1,863,227			1,511,175

STOCKHOLDERS’ EQUITY
Common shares, $0.001 par value, 150,000,000 shares authorized, 56,160,000 and 55,760,000 shares issued and outstanding, respectively		56,160			55,760
Additional paid-in capital		8,377,720			7,924,850
Stock subscription receivable		(130,000	)		-
Accumulated deficit		(8,381,135	)		(7,556,732	)
Total stockholders’ equity		(77,255	)		423,878

Total liabilities and stockholders’ equity	$	1,785,972		$	1,935,053

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

USA SUPERIOR ENERGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the six and three months ended June 30, 2008 and 2007

(Unaudited)

	Three months to June 30						Six months to June 30
	2008			2007			2008			2007

Revenue	$	124,522		$	140,917		$	240,085		$	194,335

Operating expenses
Lease operating expenses		15,358			93,434			119,612			126,423
General and administrative, including stock based compensation of $207,436 and $3,020,000, respectively		320,833			446,807			784,584			3,772,662
Depreciation, depletion and amortization		28,476						49,712
Total operating expenses		364,667			540,241			953,908			3,899,085
Operating loss		(240,145	)		(399,324	)		(713,823	)		(3,704,750	)

Other income (expense)		(23,244	)		3,516			(23,244	)		3,516
Interest expense		(44,274	)		-			(87,329	)		-
Total other expense		(67,518	)		3,516			(110,573	)		3,516

Net loss		(307,663	)		(395,808	)		(824,403	)		(3,701,234	)


Net loss per share:
Basic and diluted	$	(0.01	)	$	(0.09	)	$	(0.01	)	$	(0.10	)

Weighted average shares outstanding:
Basic and diluted		56,067,692			35,666,630			56,067,692			35,666,630

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

USA SUPERIOR ENERGY HOLDINGS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the six months ended June 30, 2008

(Unaudited)

	Common Shares		Par Amount		Additional Paid-In Capital		Stock Subscription Receivable			Accumulated Deficit			Total

Balance, December 31, 2007		55,760,000	$	55,760	$	7,924,850	$	-		$	(7,556,732	)	$	423,878

Shares issued in exchange for subscription receivable		400,000		400		299,600		(130,000	)		-			170,000
Warrants issued for services		-		-		153,270		-			-			153,270
Net loss		-		-		-		-			(824,403	)		(824,403	)

Balance, June 30, 2008		56,160,000	$	56,160	$	8,377,720	$	(130,000	)	$	(8,381,135	)	$	(77,255	)

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

USA SUPERIOR ENERGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2007 and 2008

(Unaudited)

	2008			2007

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(824,403	)	$	(3,701,234	)
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation, depletion and amortization		49,719			153
Amortization of debt discount		22,358			248,048
Stock based compensation		207,436			3,020,000
Net change in operating assets and liabilities		413,826			(229,926	)
NET CASH USED BY OPERATING ACTIVITIES		(131,064	)		(662,959	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		-			(37,945	)
Investment in oil and gas properties		-			(400,000	)
Increase in restricted cash		-			-
CASH FLOWS USED IN INVESTING ACTIVITIES		-			(437,945	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of short-term debt		100,000			27,740
Proceeds from sale of units		-			1,000,000
Capital contributions from shareholder		-			72,212
Repayments of notes payable		(202,100	)		-
CASH FLOWS USED BY FINANCING ACTIVITIES		(102,100	)		1,099,952

NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS		(233,164	)		(952	)
Cash and cash equivalents, beginning of period		256,943			6,657
Cash and cash equivalents, end of period	$	23,779		$	5,705


Cash paid for:
Interest	$	1,001		$	-
Income taxes	$	-		$	-

Supplemental Schedule of Non-cash Investing and Financing Activities:
Purchase oil and gas properties through issuance of notes payable	$	-		$	750,097
Recapitalization		-			18,360
Asset retirement obligation incurred		-			88,066

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

USA SUPERIOR ENERGY HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2008

Note 1 – Organization and Business Operations

USA Superior Energy Holdings, Inc. (the “Company” or “USA Superior”), a Nevada corporation, was originally formed on November 12, 2003 as Comlink Communications Company (“Comlink”). In fiscal the fiscal year ended 2006, Comlink was essentially dormant with no operating business, having discontinued all prior operations in the first quarter of 2006. Prior operations consisted of an attempt to market two-way radio communication equipment over the internet. The Company had no capital and no prospects to raise capital to carry out the prior business plan.

The current business of the Company is to develop, own and operate prospects and energy projects in East and Southwest Texas. The Company primarily focuses on properties with a potential for enhanced secondary or tertiary recovery using modern state-of-the-art workover and stimulation techniques.

On January 16, 2007, USA Superior and Comlink Communications Company (“Comlink”) consummated a merger that was effected through a reverse merger in which the shareholders of USA Superior agreed to receive 34,000,000 shares of common stock of Comlink in exchange for 100% of the issued and outstanding shares of USA Superior. Concurrent with the merger, USA Superior’s executive management and directors assumed control and responsibility for Comlink’s activities and its strategic direction. The merger effected a change in control of Comlink and immediately following the merger, USA Superior’s former stockholders held approximately 59% of Comlink’s issued and outstanding common shares. After the merger, Comlink’s name was changed to USA Superior Energy Holdings, Inc., and the stock symbol was changed to OTCBB: USSU.

For Securities and Exchange Commission (“SEC”) reporting purposes, the merger between USA Superior and Comlink was treated as a reverse merger with USA Superior being the “accounting acquirer” and, accordingly, it assumed Comlink’s reporting obligations with the SEC. In accordance with SEC requirements, the historical financial statements and related disclosures presented herein for the period prior to the date of merger (i.e., January 16, 2007) are those of USA Superior. The assets and liabilities of Comlink were recorded, as of completion of the merger, at fair value, which is considered to approximate historical cost, and added to those of USA Superior.

In accordance with the terms of the merger agreement, each outstanding share of USA Superior prior to the reverse merger was converted into 309.8 common shares in USA Superior (post reverse merger) with a total of 30,980,000 common shares issued to the former USA Superior stockholders. Of the 63,360,000 shares of Comlink outstanding at the time of the merger, 45,000,000 shares were cancelled concurrent with the closing of the merger.

In conjunction with the merger, USA Superior issued 3,020,000 shares of common stock. In accordance with EITF 95-8, USA Superior determined that these were shares issued for services and not additional transaction costs due to the fact that Comlink’s cash balance was minimal prior to the merger. These shares had a market value of $3,020,000 on the date of the reverse merger. Of the total shares issued for services, 2,720,000 shares were issued to employees of USA Superior. Immediately following the merger, a total of 52,360,000 shares of common stock were issued and outstanding.

Since its inception, USA Superior has funded its oil and gas activities through a combination of equity and debt securities and the contribution of funds and services by its principal shareholders and management.

Note 2 – Summary of Significant Accounting Policies

Interim Financial Statements

The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission (“SEC”). The financial statements included herein as of June 30, 2008, and for the six and three month periods ended June 30, 2008 and 2007, are unaudited, and in the opinion of management, the information furnished reflects all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and of the results for the interim periods presented. Certain minor reclassifications of prior period financial statements have been made to conform to current reporting practices. The results of operations for interim periods are not necessarily indicative of results to be expected for a full year

Basis of presentation

USA Superior’s unaudited consolidated balance sheets as of June 30, 2008 and December 31, 2007 and related consolidated statements of operations, stockholders’ equity and cash flow for the six and three months ended June 30, 2008 and 2007 are presented in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.

Management believes that it is reasonably possible the following material estimates affecting the financial statements could significantly change in the coming year: (1) estimates of proved oil and gas reserves, and (2) forecast forward price curves for natural gas and crude oil. The oil and gas industry in the United States has historically experienced substantial commodity price volatility, and such volatility is expected to continue in the future. Commodity prices affect the level of reserves that are considered commercially recoverable; significantly influence USA Superior’s current and future expected cash flows; and impact the PV10 derivation of proved reserves presented in USA Superior’s supplemental oil and gas reserve disclosures made herein.

Principles of consolidation

The financial statements include the accounts of its 100% owned subsidiaries USA Superior Energy, Inc. and Superior Energy, LLC and its 80% interest in the subsidiary Skyrider Energy, LLC.

Revenue and cost recognition

USA Superior uses the sales method to account for sales of crude oil and natural gas. Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers. The volumes sold may differ from the volumes to which USA Superior is entitled based on our interest in the properties. These differences create imbalances which are recognized as a liability only when the imbalance exceeds the estimate of remaining reserves. USA Superior had no imbalances as of June 30, 2008 and December 31, 2007. Costs associated with production are expensed in the period incurred.

New Accounting Pronouncements

USA Superior does not expect the adoption of recently issued accounting pronouncements to have a significant impact on their results of operations, financial position or cash flows

Note 3 – Going Concern

USA Superior has raised limited financing and has incurred operating losses since its inception in October 2005. These factors raise substantial doubt about USA Superior’s ability to continue as a going concern. USA Superior’s ability to achieve and maintain profitability and positive cash flow is dependent on its ability to secure sufficient financing to fund the acquisition, drilling and development of profitable oil and gas properties. Management is seeking financing that it believes would allow USA Superior to establish and sustain commercial production. There are no assurances that USA Superior will be able to obtain additional financing from investors or private lenders and, if available, such financing may not be on commercial terms acceptable to USA Superior or its stockholders. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Note 4 – Notes Payable and Convertible Debentures

Notes Payable – Bastrop and Caldwell County, Texas Leases

As a portion of the consideration for the purchase of the Bastrop and Caldwell County, Texas leases, USA Superior issued a $350,000 note payable to the seller. The note bears interest at 5% and requires monthly payments of $15,000 plus interest. As of December 31, 2007, USA Superior was in default on the payments of the note. On April 11, 2008, USA Superior paid the lender $50,000 for attorney fees and a partial payment on the note and entered into a Renewal and Extension Promissory Note which settled the default. Under the terms of the new note, USA Superior must make monthly payments of $15,000 plus 8% interest beginning May 15, 2008. All unpaid principal and interest is due October 15, 2008. This note is secured by 500,000 shares of USA Superior’s common stock which were pledged by the Company’s CEO and USA Superior’s interest in the Bastrop County leases.

As additional consideration for the purchase of the Bastrop County, Texas leases, USA Superior agreed to assume the seller’s noninterest bearing liability to a third party in the total amount of $440,000. This note requires payments of 25 percent of the net revenue from the production of the leases, with minimum payments of $7,500 per month and $120,000 per year. This note was recorded at the present value of the future cash payments of $400,097. Management used an interest rate of 5% to discount this rate, because it was the same as the rate on the note payable to the seller described above. USA Superior is currently in default on the note due to the fact that all required payments have not been made on the note.

Convertible Note Payable

On January 23, 2008, USA Superior issued a convertible promissory note payable to a third party in the amount of $100,000. The proceeds of this note were placed in an escrow account to indemnify a broker for potential losses to be incurred in online trading in the company’s stock. The note bears interest at 8%, matures January 23, 2009 and is convertible in the event of a merger transaction at the lowest rate available to other convertible note holders. The note was repaid in June 2008.

Convertible Debenture

On October 30, 2007, USA Superior issued a $2.5 million secured convertible debenture to a private investor in exchange for $200,000 cash and a $2.3 million secured promissory note from the investor. The convertible debenture bore interest at 9.75% with interest payments due monthly beginning in April 2008 and matures October 30, 2011. Principal was due at maturity. The debenture could be repaid in portion or in full at any time at 125% of the then outstanding principal and accrued interest and issuing warrants to purchase 200,000 shares. The debenture provided the lender the right to convert any or all of the outstanding balance to USA Superior shares of common stock at a conversion rate of the lesser of 80 percent of the average of the lowest three trading prices of the common share during the 20 days prior to conversion or $0.50 with certain prepayment rights by USA if the price is below $0.20 on the day the conversion election is made. If the lender elects to convert all or a portion of the debenture and the conversion price is less than $0.16, USA Superior has the option to prepay the note at 150% rather than converting the note.

USA Superior evaluated the terms of the convertible debenture in accordance with EITF 98-5 and EITF 00-27 and concluded that this debenture did not result in a derivative. USA Superior evaluated the terms of the convertible debenture and concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature was valued at $200,000 at inception based on the intrinsic value of the discount. The discount was being amortized using the effective interest method over the four year term of the note. For the period this note was outstanding, $3,593 was charged to interest expense associated with the amortization of the debt discount.

The secured promissory note bore interest at 10% with interest payable to USA Superior monthly beginning in April 2008 and requires monthly payments of $250,000 to USA Superior, under certain conditions.

This debenture was refinanced on November 20, 2007 by the payment of $200,000 to the lender, the cancelation of the $2.3 million secured promissory note receivable, and the issuance of a three year noninterest bearing $625,000 convertible debenture. The new debenture requires a single payment of $625,000 on November 20, 2010 and may not be prepaid without the prior approval of the lender. USA Superior calculated the present value of the note using an interest rate of 9.75% which was the same rate as the original debenture. The new debenture is recorded at its present value of $468,136. The new debenture is convertible into common stock of USA Superior at a conversion rate of 95% of the average of the three lowest trading prices during the 20 trading days prior to conversion at the option of the holder. USA Superior may choose to prepay the new debenture at 110% of the principal amount after the lender has issued a notice of conversion. USA Superior compared the discounted present value of the cash flows under the original debenture and the new debenture and determined that the difference in the cash flows was greater than ten percent. Accordingly, the issuance of the new debenture was treated as an extinguishment of the original convertible debenture and the issuance of a new debenture and recorded a loss of $403,759 on the transaction.

USA Superior evaluated the terms of the convertible debenture in accordance with EITF 98-5 and EITF 00-27 and concluded that this note did not result in a derivative. USA Superior evaluated the terms of the convertible debenture and concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature was valued at $261,144 at inception based on the intrinsic value of the discount. For the period from January 1, 2008, through June 30, 2008, $18,464 was charged to interest expense associated with the amortization of the debt discount. At June 30, 2008, the convertible debenture was recorded on the balance sheet at $257,764, which is made up of the discounted face value of the note of $468,136 plus accrued interest of $28,480 offset by the unamortized discount of $238,852.

Convertible Demand Note

On December 18, 2007, USA Superior received proceeds of $225,000 in exchange for a $270,000 convertible note payable. The note bears interest at 12.0% per annum; is convertible at the lesser of 50% of the lowest trading price during the 20 trading days prior to conversion or $0.79 per share of common stock; and provided for a payment on maturity or upon the occurrence of certain events; but no later than December 18, 2010.

USA Superior evaluated the terms of the convertible note in accordance with EITF 98-5 and EITF 00-27 and concluded that this note did not result in a derivative. USA Superior also concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the stock. The discount was valued at $261,144 at inception based on the intrinsic value of the discount at inception. The discount is being amortized using the effective interest method over the three year term of the note. For the period from January 1, 2008, through June 30, 2008, $3,894 was charged to interest expense associated with the amortization of the debt discount. At June 30, 2008, the convertible demand note was recorded on the balance sheet at $46,961, which is made up of the face amount of the note of $270,000 and accrued interest of $17,221 offset by the unamortized discount of $240,260.

Note 5 – Stockholders’ Equity

Issuance of Common Shares and Warrants

On March 1, 2008, as modified April 22, 2008, USA Superior entered into an agreement with a third party for financial advisory services for the period from March 1, 2008 through February 28, 2010. Under the terms of the contract USA Superior will make monthly payments of $5,000 for a total of 23 months. In addition, USA Superior has issued a warrant to purchase 1,000,000 shares of common stock for a period of five years at an exercise price of $0.17 and USA Superior’s CEO will pay the third-party 1,250,000 shares of the common stock owned by him. The warrants were valued at $153,270 using the Black-Scholes model with the following assumptions:

	Assumption
Exercise price	$	0.17
Stock price on the issuance date	$	0.18
Term (years)		5
Risk free interest rate		2.64	%
Volatility		124	%

The value of the warrants has been recorded as a prepaid asset and is being amortized over the two year term of the agreement. The 1,250,000 shares of stock have not yet been transferred by the CEO.

Issuance of Common Stock for Subscription Agreement

In January 2008, USA Superior issued 400,000 shares of stock to an employee of the company in exchange for a stock subscription receivable in the amount of $130,000. The shares were valued at $300,000 on the date of issuances. USA Superior recognized $170,000 of compensation expense related to the difference in the market value of the shares and the cash to be received from the employee.

Note 5 – Subsequent Events

On August 7, 2008, the company announced that it has executed a letter of intent to merge with Hunt Global Resources Inc. of Montgomery, Texas. The transaction will be in the form of a “reverse merger”. Under terms of the agreement, Hunt will assume a majority stock position and appoint a new board of directors. Full details of the transaction will be released upon the execution of a definitive agreement between the parties. Closing is based on the completion of required audits, satisfactory due-diligence, a fairness-opinion and shareholders approval of the transaction. Hunt is a natural resource company that plans to begin mining operations in the fourth quarter of this year on 350 acres of land containing proven sand and gravel reserves valued at an estimated $1.2 billion dollars.

Item 2. Management’s Discussion 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.

Business Strategy

USA Superior Energy Holdings, Inc. (the “Company”) is focused 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

We incurred a net loss of $824,403 for the six months ended June 30, 2008 and have a working capital deficit of $1,239,411 at June 30, 2008, excluding prepaid expenses relating primarily to services paid for with common stock. 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 the six months ended June 30, 2008 were shareholder loans and draw down of our cash balances. During the period, we entered into a financing arrangement with our oil purchasing customers which allows for immediate payment on barrels delivered. While this may reduce the price we might otherwise receive for our production, we have been able to accelerate cash flow from revenues to enhance our liquidity by receiving cash upon the delivery of our barrels.

During the six months ended June 30, 2008, net cash flow used by operating activities was $131,064. 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 maintenance and weather-related factors beyond our control.

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 anticipate making capital expenditures of approximately $4,000,000 over the next several years to drill additional wells on our existing properties. The remainder of our 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.

On June 30, 2008, our current liabilities exceeded our current assets by $1,239,411, excluding prepaid expenses relating primarily to services paid for with common stock. In order to achieve positive cash flow from operations during 2008, we will require additional funding in order to complete our plans to maintain, workover and begin EOR operations on existing wells and to develop additional wells on existing properties.

Results of Operations

Comparison of the three and six months ended June 30, 2008, to the results of the corresponding prior periods:

Revenue

Revenue for the three months ended June 30, 2008, was $124,522, a decrease of $16,395 (11.65%) compared to revenue of $140,917 for the same period last year. The decline in revenue was primarily due to mechanical problems related to field operations. For the six months ended June 30, 2008, revenue was $240,085, an increase of $45,750 (23.5%) compared to revenue of $194,335 for the comparative six month period of the prior year. The Bateman Project was acquired on March 20, 2007, and thus the prior period does not represent a full period of production.

The Company’s ability to maintain and increase sales from recent levels is dependent on its ability to raise funds to correct its working capital deficit and for the investment of additional funds into the extensive maintenance, workover and planned enhancement operations to accelerate the realization of production volumes.

Lease operating expense and production taxes

Lease operating expenses totaled $15,358 for the second quarter, and $119,612 for six months ended June 30, 2008. This compares to lease operating expenses of $93,434 and $126,423 for the comparative periods of the prior year. The current year decreases are the result of reduced field operations, primarily in the second quarter, due to mechanical problems encountered with the Bateman Project.

General and administrative expense (G&A expense)

General and administrative expense for the six months ended June 30, 2008 were $784,584 compared to $3,772,662 from the comparable 2007 period. The largest portion of the reduction came from a decrease in stock based compensation of $2,812,564 from the same period in 2007 which related to the reverse merger and compensation of key employees and consultants.

Net loss

For the quarter ended June 30, 2008, our net loss was $307,663, compared to our same quarter 2007 net loss of $395,808. For the six months ended June 30, 2008, our net loss was $824,403 compared to a net loss of $3,701,234 for the first half of 2007. The major components of the loss were general and administrative expenses of $320,833 and $446,807 for the three month periods ended June 30, 2008 and 2007, respectively, and general and administrative expenses of $784,585 and $3,772,662 for the six month periods ended June 30, 2008 and 2007, respectively. Included in the six month general and administrative expenses were stock based compensation of $207,436 in 2008 and $3,020,000 in 2007.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s results of operations and operating cash flows can be significantly impacted by changes in market prices for oil and gas. The Company has not to date utilized derivative contracts, costless collars, or other similar economic hedging arrangements as a means to reduce its exposure to unfavorable changes in oil prices or that may expose the Company to risk of financial loss and limit the benefit of future increases in prices.

Item 4. 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 third 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 third 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.

PART II- OTHER INFORMATION

Item 1. 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 2. Unregistered Sales of Equity Securities and Use of Proceeds

In January 2008, the Company issued 400,000 shares of stock to an employee of the company in exchange for a stock subscription receivable in the amount of $130,000. The shares were valued at $300,000 on the date of issuances. The shares were sold pursuant to the private offering exemption under Section 4(2) of the Securities Act of 1933.

On March 1, 2008 the Company issued a warrant to Masynda Corporation in connection with advisory services to be provided by Masynda. The warrant provides Masynda the right to purchase 1,000,000 shares of Company common stock for a period of five years at an exercise price of $0.17 per share. The delivery of the warrant in exchange for services to be rendered was delivered pursuant to the private offering exemption under Section 4(2) of the Securities Act of 1933.

Item 3. Defaults Upon Senior Securities

NONE

Item 4. Submission of Matters to a Vote of Security Holders.

NONE

Item 5. Other Information

See the discussion under Part 1 – FINANCIAL INFORMATION, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding information required to be disclosed on Form 8-K during the period covered by this Form 10-Q, but not reported.

Security holders of the Company may recommend nominees to the Company’s board of directors by directing such nominations to the board of directors at the Company’s principal office.

Item 6. Exhibits

31.1	Certification of Chief Executive Officer of the Company pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer of the Company pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements 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/ G. Rowland Carey
		G. Rowland Carey
		President, Chief Executive Officer,
		& Chief Financial Officer

Dated: August 19, 2008