Saxon Capital Group, Inc.

What they do

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. It performs complete workover and stimulation services to restart or substantially increase production, utilizing state-of-the-art workover and shallow-well drilling techniques. The company is involved in developing, owning and operating energy projects and prospects in East, Central and South Texas, with active projects in Bastrop, Caldwell, Navarro and Zavalla counties, known as the Bateman Project, Benton Field and Del Monte Prospect.

Revenue drivers

• Oil and Gas Production — Revenue is generated from the sale of oil and gas production from the company's working interests in the Bateman Project, Benton Field and Del Monte Prospect. All production is sold at spot market prices.
• Bateman Project — The Bateman Project, acquired on March 20, 2007, contributed to revenue growth in the first half of 2008, as the prior period did not represent a full period of production.
• EOR Services — The company applies enhanced oil recovery techniques, such as cased hole horizontal drilling (CHHD) and nitrogen (N2) injection, to increase production volumes and reserve recoverability from its projects.

Recent performance

For the three months ended June 30, 2008, revenue was $124,522, an 11.65% decrease compared to $140,917 for the same period last year, primarily due to mechanical problems. For the six months ended June 30, 2008, revenue was $240,085, a 23.5% increase compared to $194,335 for the prior year period, due to the Bateman Project acquisition. The company incurred a net loss of $824,403 for the six months ended June 30, 2008, and had a working capital deficit of $1,239,411 at June 30, 2008, excluding prepaid expenses.

Strategy

The company's strategy is to acquire, own, operate and apply enhanced oil recovery techniques to existing shallow fields of oil and gas. It performs workover and stimulation services to restart or substantially increase production and utilizes state-of-the-art workover and shallow-well drilling techniques. The company plans to use specialized shallow-well cased hole horizontal drilling (CHHD) and nitrogen (N2) injection to increase production volumes and reserve recoverability. It anticipates making capital expenditures of approximately $4,000,000 over the next several years to drill additional wells on existing properties. The remainder of its 2008 capital budget will be funded from cash flow from operations, cash and cash equivalents, and proceeds from offerings of debt and/or equity securities.

Risks

• Going Concern — The company incurred a net loss of $824,403 for the six months ended June 30, 2008, and has a working capital deficit of $1,239,411, requiring significant additional funding to sustain operations.
• Need for Additional Financing — The company requires additional external funding to fund planned operations and contractual obligations for oil and gas exploration and development.
• Commodity Price Volatility — The company sells 100% of its production at spot market prices, and product price volatility will affect cash flow from operations.
• Penny Stock Status — The company is deemed a penny stock issuer and is ineligible to rely on safe harbor provisions for forward-looking statements.

Outlook

Management states that the company's ability to continue as a going concern is dependent on obtaining additional financing to fund planned operations and ultimately achieve profitable operations. The company anticipates making capital expenditures of approximately $4,000,000 over the next several years to drill additional wells on existing properties. To achieve positive cash flow from operations during 2008, additional funding is required to complete plans to maintain, workover and begin EOR operations on existing wells and develop additional wells. The company may fund its 2008 capital budget from cash flow from operations, cash and cash equivalents, and proceeds from offerings of debt and/or equity securities.