U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

 

OR

 

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

FORTHE TRANSITION PERIOD FROM ___________ TO ____________.

 

Commissionfile number 0-24269

 

 

	SURGE GLOBAL ENERGY, INC.
	(Exact name of registrant as specified in its charter)

 

Delaware		34-1454529
(State or jurisdiction of		(Employer Identification No.)
incorporation or organization)

 

	75-153 MERLE DRIVE, SUITE B
	PALM DESERT, CALIFORNIA 92211
	(Address of Principal Executive Offices)

 

Issuer’s telephone number: (760) 610-6758

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 S NO £

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file). YES S NO £

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer  £	Accelerated Filer                   £
Accelerated Filer            £	Smaller Reporting Company S

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES £ NO S

 

As of November 12, 2011, the Registrant had 35,887,387 shares of common stock issued and outstanding.

  

 

  

TABLE OF CONTENTS

 

Part I - Financial Information		1
Item 1.   Financial Statements (Unaudited)		1
Consolidated Balance Sheets		1
Consolidated Statements of Operations and Comprehensive Income (Loss)		2
Consolidated Statements of Cash Flows		3
Notes to Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.   Quantitative & Qualitative Disclosures About Market Risk		24
Item 4.   Controls and Procedures		24
Part II - Other Information		25
Item 1.   Legal Proceedings		25
Item 1A. Risk Factors		25
Item 2.   Unregistered Sales Of Equity Securities And Use Of Proceeds		26
Item 3.   Defaults Upon Senior Securities		26
Item 4.   (Removed and Reserved)		26
Item 5.   Other Information		26
Item 6.   Exhibits		27-32

 

  

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

  

			September 30, 2011				December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents		$	16,213			$	454
Accounts Receivable			—				10,000
Production payments receivable			140,000				215,000
Investment in marketable securities			—				102,451
Prepaid expenses			47,961				12,169
Total current assets			204,174				340,074
Property and equipment, net of accumulated depreciation of $36,344 and $34,154, respectively			1,270				2,402
Investment in Andora Energy common stock			2,385,576				3,276,739
Total Assets		$	2,591,020			$	3,619,215
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	186,157			$	131,011
Loans payable-officer			141,336				80,000
Convertible Note Payable			45,000				—
Total current liabilities			372,493				211,011
Total liabilities			372,493				211,011
Commitment and contingencies			—				—
Stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized: Series A, Series B and Special Voting Preferred - none issued and outstanding			—				—
Common stock, par value $0.001 per share; 200,000,000 shares authorized; 35,887,387shares and 33,637,387 shares issued and outstanding, respectively			35,887				33,637
Additional paid-in capital			54,602,626				54,485,149
Accumulated other comprehensive loss			(878,422	)			—
Accumulated deficit			(12,337,512	)			(12,337,512	)
Deficit from inception of exploration stage			(39,204,052	)			(38,773,070	)
Total stockholders' equity			2,218,527				3,408,204
Total liabilities and stockholders' equity		$	2,591,020			$	3,619,215

 

 See accompanying notes to unaudited consolidated financial statements.

  

   

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

RESTATED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

		For the Three Months Ending September 30,								For the Nine Months Ending September 30,								For the period from January 1, 2005 inception date of exploration stage) through September
		2011				2010				2011				2010				30, 2011
Operating expenses:
Selling general and administrative expense		$	56,747			$	179,388			$	250,945			$	538,894			$	23,969,433
Depreciation and amortization			921				985				2,657				4,627				478,060
Oil and gas impairment			—				4,379				75,000				567,404				10,085,117
Total operating expenses			57,668				184,752				328,602				1,110,925				34,532,610
Loss from operations			(57,668	)			(184,752	)			(328,602	)			(1,110,925	)			(34,532,610	)
Equity in losses from affiliates			—				—				—				—				(2,099,663	)
Impairment of marketable securities			—				—				—				—				(3,707,514	)
Loss on redemption of preferred shares			—				—				—				—				(105,376	)
Revaluation loss net of warrant liability			—				—				—				—				(431,261	)
Gain (loss) on sale of marketable securities			—				(51,188	)			(102,451	)			204,675				1,066,338
Peace Oil warrants			—				—								—				(368,000	)
Interest income (expense), net			71				(273	)			71				(2,234	)			(4,230,168	)
Gain on disposition of Peace Oil and Peace Oil Corp.			—				—				—				—				1,525,106
Loss from continuing operations, before income taxes and non-controlling interest			(57,597	)			(236,213	)			(430,982	)			(908,484	)			(42,883,148	)
Provision for income taxes			—				—								—				—
Loss before non- controlling interest			(57,597	)			(236,213	)			(430,982	)			(908,484	)			(42,883,148	)
Gain from non- controlling interest			—				—				—				—				3,679,096
Net loss		$	(57,597	)		$	(236,213	)		$	(430,982	)		$	(908,484	)		$	(39,204,052	)
Other comprehensive income:
Unrealized gain (loss) on available for sale securities			—				50,588				(878,422	)			(10,596	)			(878,422	)
Foreign currency costs			—				16,517				—				—				—
Comprehensive loss		$	(57,597	)		$	(169,108	)		$	(1,309,404	)		$	(910,862	)		$	(40,082,474	)
Net loss per common share - basic and diluted		$	(0.00	)		$	(0.01	)		$	0.01			$	(0.03	)
Weighted average common shares			35,887,387				33,311,843				35,448,968				33,311,843

  

See accompanying footnotes to unaudited financial statements

 

   

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

										For the period from January 1, 2005
										(date of inception
		For the nine months ended								of exploration
		September 30,				September 30,				stage) through
			2011				2010			September 30, 2011
Cash flows from operating activities:
Net loss		$	(430,982	)		$	(908,484	)		$	(39,204,052	)
Non-controlling interest			—				—				(3,679,096	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion, depreciation and amortization			2,657				4,627				478,060
Write-off of property and equipment			—				—				4,984
Realized loss (gain) on sale of marketable securities			102,451				(204,675	)			(1,066,338	)
Loss from redemption of preferred shares			—				—				105,376
Gain (loss) on sale of Peace Oil property and Peace Oil Corp., net of  liabilities			—				—				(1,525,106	)
Share of affiliate loss			—				—				2,099,663
Impairment of oil and gas properties			75,000				567,404				10,085,117
Amortization/write-off of debt discount-beneficial conversion feature of convertible debenture			—				—				1,022,492
Impairment of marketable securities			—				—				1,786,498
Share-based compensation			64,968				69,505				6,927,518
Gain/loss on revaluation of warrant liabilities			—				—				431,261
Warrant expense			—				—				445,352
Interest on Gemini note			—				—				230,000
Amortization of deferred compensation costs											3,039,038
Amortization of discount attributable to note receivable			—				—				(137,500	)
Amortization of discount attributable to warrants			—				—				629,192
Beneficial conversion feature in connection with issuance of convertible notes payable			—				—				1,076,575
Debt discount			—				—				1,010,679
Founders stock			—				—				4,265,640
Changes in operating assets and liabilities:
Other receivable			10,000				—				(132,384	)
Prepaid expense and other assets			(35,792	)			24,182				(67,221	)
Other assets			—				—				80,958
Accounts payable and accrued liabilities			116,482				(84,845	)			930,037
Income taxes payable			—				—				—
Net cash used in operating activities		$	(95,216	)		$	(532,286	)		$	(11,163,247	)

  

See accompanying notes to unaudited consolidated financial statements.

  

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

 

										For the period from
										January 1, 2005
										(date of inception
		For the Nine Months Ended								of exploration
		September 30,				September 30,				stage) through
		2011				2010				September 30, 2011
Cash flows from investing activities:
Proceeds from sale of marketable securities		$	—			$	359,189			$	589,506
Production payment advanced			—				—				(300,000	)
Purchase of oil and gas properties			—				(14,163	)			(13,370,529	)
Consideration paid on sale of subsidiary			—				—				(1,533,395	)
Deposits											(9,913	)
Purchases of property and equipment			(1,525	)			—				(117,425	)
Proceeds from notes receivable(net)			—				—				137,500
Proceeds from sale of oil leases			—				—				6,914,820
Payments for asset retirement obligation			—				—				61,773
Proceeds from disposition of Peace Oil property			—				—				14,071,294
Investment in Peace Oil property			—				—				(5,475,727	)
Gemini note repayment			—				—				(1,380,000	)
2006 Andora cash balance unconsolidated			—				—				(5,626,405	)
Net cash (used in) provided by investing activities			(1,525	)			345,026				(6,013,501	)
Cash flows from financing activities:
Proceeds from sale of common stock, net of costs and fees			67,500				218,500				4,411,013
Repurchase of common stock			—				—				(33,933	)
Proceeds from exercise of options			—				—				97,717
Principal payments on note payable			—				(65,357	)			(225,000	)
Net proceeds from Joint Venture Partner cash call obligations			—				—				125,000
Proceeds from convertible debentures			—				—				1,710,000
Proceeds from equity to debt conversion			—				—				250,000
Proceeds from note payable, gross			45,000				—				10,466,933
Proceeds from Andora stock, net of costs and fees			—				—				1,769,602
Deferred financing costs			—				—				(1,208,375	)
Net cash (used in) provided by financing activities			112,500				153,143				17,362,957
Effect of exchange rates on cash and cash equivalents			—				3,026				(329,922	)
Net increase (decrease) in cash and cash equivalents			15,759				(31,091	)			(143,713	)
Cash and cash equivalents at the beginning of the period			454				56,756				159,935
Cash and cash equivalents at the end of the period		$	16,213			$	25,665			$	16,213

 

See accompanying notes to unaudited consolidated financial statements.

 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(UNAUDITED)

 

										For the period from January 1, 2005 (inception of exploration
		For the Nine Months Ended September 30								stage) through September 30,
		2011				2010				2011
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest		$	2,085			$	171			$	519,012
Cash paid during the period for taxes			—				—				—
Supplemental Disclosures of Non-Cash Transactions:
Common stock issued in exchange for convertible notes payable			—				—				1,710,000
Cancellation of common shares			—				—				1,000
Unrealized (gain) loss on available for sale securities			878,422				61,284				878,422
Note payable issued for investment			—				—				225,000
Exchange of North Peace shares for common shares			—				—				35,000
Amortization of debt discount - beneficial conversion feature of convertible debenture			—				—				2,099,067
Andora shares issued on settlement of litigation			—				570,780				382,541
Andora shares issued in lieu of cash compensation			12,741				—				29,729

 

See accompanying notes to unaudited consolidated financial statements.

 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.

 

Business and Basis of Presentation

 

The consolidated financial statements include the accounts of Surge Global Energy, Inc., its wholly owned subsidiaries, Surge Energy Resources, Inc., Cold Flow Energy ULC, and 1294697 Alberta Ltd., Ltd.(collectively the “Company”).

 

The Company’s Canadian subsidiaries are carried in their Canadian dollar functional currency and are presented in U.S. dollars upon consolidation. Any gain or loss on conversion into U.S. dollars is reflected in other comprehensive income. All amounts stated in these financial statements are in $US unless otherwise noted.

 

In January 2005, the Company began implementing plans to establish an oil and gas development business. As a result, the Company is an exploration stage enterprise, as defined by ASC 915 (formerly Statement of Financial Accounting Standards No. 7 (“SFAS 7”)) and is now seeking to explore the acquisition and development of oil and gas properties in the United States and Canada. From its inception of exploration stage through the date of these financial statements, the Company has not generated any revenues from oil and gas operations and has incurred significant operating expenses. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.

 

For the period from January 1, 2005 (inception of exploration stage) through September 30, 2011, the Company has accumulated total comprehensive exploration stage losses of $40,082,474. The Company will cease to be an exploration stage oil and gas corporation once it commences oil and gas drilling, exploration, and production of oil and gas properties.

 

The consolidated balance sheet as of September30, 2011, the consolidated statements of operations and statements of cash flows for the respective periods presented, have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the quarter ended September 30, 2011 are not necessarily indicative of results expected for the full calendar year ending December 31, 2011.

 

In the opinion of management, all adjustments necessary to present fairly the financial position atSeptember 30, 2011, and the results of operations and changes in cash flows for all periods presented, have been made. These financial statements should be read in conjunction with our audited financial statements and notes thereto included in our annual report for the year ended December 31, 2010 on Form 10-K filed with the SEC.

 

Management Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.

 

Oil and Gas Properties

 

The Company follows the full cost accounting method to account for oil and natural gas properties, whereby costs incurred in the acquisition, exploration and development of oil and 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. The capitalized costs of oil and gas properties, excluding unevaluated and unproved properties, are amortized using the units-of-production method based on estimated proved recoverable oil and gas reserves. Amortization of unevaluated and unproved property costs begins when the properties become proved or their values become impaired.

  

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)

 

Impairment of unevaluated and unproved prospects is assessed periodically based on a variety of factors, including management’s intention with regard to future exploration and development of individually significant properties and the ability of the Company to obtain funds to finance such exploration and development.

 

Under full cost accounting rules for each cost center, capitalized costs of evaluated oil and gas properties, including asset retirement costs, less accumulated amortization and related deferred income taxes, may not exceed an amount (the “cost ceiling”) equal to the sum of (a) the present value of future net cash flows from estimated production of proved oil and gas reserves, based on current economic and operating conditions, discounted at 10%, plus (b) the cost of properties not being amortized, plus (c) the lower of cost or estimated fair value of any unproved properties included in the costs being amortized, less (d) any income tax effects related to differences between the book and tax basis of the properties involved. If capitalized costs exceed this limit, the excess is charged to earnings.

 

Given the volatility of oil and gas prices, it is reasonably possible that the estimate of discounted future net cash flows from proved oil and gas reserves could change in the near term. If oil and gas prices decline in the future, even if only for a short period of time, it is possible that additional impairments of oil and gas properties could occur. In addition, it is reasonably possible that additional impairments could occur if costs are incurred in excess of any increases in the present value of future net cash flows from proved oil and gas reserves, or if properties are sold for proceeds less than the discounted present value of the related proved oil and gas reserves.

 

Investment in unconsolidated subsidiary

 

Investee entities that the Company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Whether the Company exercises significant influence with respect to an investee depends on an evaluation of several factors, among others, representation of the Company’s board of directors and ownership level, generally 20% to 50% interest in the voting securities of the company including voting rights associated with the Company’s holdings in common, preferred and other convertible instruments in the company. Under the equity method of accounting, the Company’s share of the earnings or losses of these companies is included in the equity income (loss) section of the consolidated statements of operations. A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company had no unconsolidated subsidiaries in which it held equity interests of over 20% as of September 30, 2011.

 

Cash and Cash Equivalents

 

For purposes of the Balance Sheet and Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. The Company has $16,213 invested in cash in accounts maintained by commercial banks, all of which is subject to up to $250,000 of FDIC insurance. See subsequent events footnote.

 

Comprehensive Income

 

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s other comprehensive income includes unrecognized gains (losses) on available for sale securities and foreign currency translation adjustments.

 

Marketable securities

 

All investment securities are classified as either as available-for-sale or trading, and are carried at fair value or quoted market prices. Unrealized gains and losses on available-for-sale securities losses are reported as a separate component of stockholders’ equity. Amortization, accretion, interest and dividends, realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are recorded in other income. This evaluation depends on the specific facts and circumstances. Factors that we consider in determining whether another-than-temporary decline in value has occurred include: the market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and ability to retain the investment for a sufficient period of time to allow for possible recovery in the market value of the investment.

 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)

 

Fair Value of Financial Instruments

 

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

 

Going Concern

 

As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations before taxes of $430,982 and $908,484 for the nine months ended September 30, 2011 and 2010, respectively. The Company’s cash position as of September 30, 2011 was $16,213 compared with $454 at December 31, 2010, an increaseof $15,759. The Company's current assets, on a consolidated basis, exceeded its current liabilities by $18,017 as of September 30, 2011. In the year ended December 31, 2010 were in excess of current liabilities by $209,063. For the nine months ended September 30, 2011 and 2010, the Company used $79,778 and $532,286, respectively, of cash from operating activities. The Company continues to need additional cash to manage its business. Cash from production payments receivable and the sale of our investment in Andora are projected to be received in 2011 or 2012. The Company is also negotiating a convertible loan for working capital purposes. By continuing to reduce operating expenses in future periods and generating cash from the sale of our Andora shares, production payments receivable, and proceeds from stock or convertible note offerings management believes it should have has sufficient capital resources to meet projected cash flow needs through the next twelve months.

 

Foreign Currency Translation

 

Assets and liabilities in foreign currency are translated at the rates of exchange at the balance sheet date, and related revenue and expenses are translated at average monthly exchange rates in effect during the period. Resulting translation adjustments are recorded as a separate component in stockholders' equity. Foreign currency transaction gains and losses are included in the statements of operations.

 

Income Taxes

 

Income taxes are provided based on the liability method for financial reporting purposes. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be removed or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

Property and equipment are stated at cost

 

When retired or disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Depreciation expenses from continuing operations amounted to $2,657 and $4,627 for the nine months ended September 30, 2011 and 2010, respectively. Maintenance, repairs, and minor renewals are charged against earnings when incurred. Additions and major renewals are capitalized.

 

Reclassifications

 

Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. These reclassifications did not have any effect on comprehensive net income (loss) or shareholders' equity.

 

Stock-Based Compensation

 

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors including employee stock options based on estimated fair values. Stock-based compensation expense attributable to stock options recognized for the nine months ended September 30, 2011 and 2010 was $52,227 and $68,905,respectively. Additionally, $12,741 in executive compensation expense was incurred from the issuance of Andora shares in lieu of cash compensation.

 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)

 

Stock-based compensation expense recognized in the Company’s consolidated statement of operations for the quarters ended September 30, 2011 and 2010 included compensation expense for share-based payment awards granted prior to September 30, 2011 which vested during the corresponding quarters.

 

The Company uses the Black-Scholes option-pricing model as its method of valuation for share-based awards granted. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.

 

Recently Issued Accounting Pronouncements

 

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future consolidated financial statements.

 

Subsequent Events

 

The Company evaluated any events occurring between the end of the September 30, 2011 quarter, and the date when the financial statements were issued. Those events which do not affect the September 30,2011 financials, if any, are listed as subsequent events, see Note 15.

 

NOTE 2 – ACCOUNTS RECEIVABLE

 

In December, 2010, the Company sold its entire 35% working interest in the Qualmay 12-42 well in Wyoming. The sale provided for $10,000.00 to be paid in cash, which payment was made on March 17, 2011, and forgiveness of lease related liabilities of $29,405. As of September 30, 2011 the accounts receivable balance related to this sale was zero at September 30, 2011 and had been paid in full.

 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 3 – CONVERTIBLE NOTE RECEIVABLE

 

In September 2008, the Company paid $275,000 and issued 1,000,000 warrants at an exercise price of $0.75 per share and expiring December 31, 2009 for the purchase of 500,000 shares of common stock and a $275,000 convertible note receivable from 11 Good Energy, Inc. The convertible note receivable bore interest at a rate of 8% per annum and was scheduled to mature on June 30, 2009.

 

The Note was either redeemable at face value or convertible into 11 Good Energy common stock and an equal number of common stock purchase warrants exercisable until June 30, 2010, and was redeemable at the Company's election at the earlier of maturity date or upon notice of prepayment of the convertible note by 11 Good Energy, Inc. The conversion price was to be calculated at 85% of the cash sales price per share of common stock to be offered by 11 Good Energy, Inc. in a private placement, with no value attributable to any warrants. The number of warrants was to be equal to the number of common stock issuable upon conversion. As a result of the foregoing, the Company received warrants to purchase 107,843 shares of11 Good Energy common stock exercisable at $2.55 per share through the close of business on June 30, 2010, subsequently revised to June 30, 2012.

 

On June 11, 2009, the note receivable, accrued interest and legal fees thereon, totaling $295,057 was received in full. The discount on the convertible note was fully amortized using the effective interest method. At the same time, the 1,000,000 warrants issued at $0.75 per share were cancelled.The Company continues to own a stock purchase warrant to acquire 107,843 shares of 11Good Energy, Inc. exercisable at $2.55 per share.

 

The 11 Good Energy warrant had been scheduled to expire on June 30, 2010 but the expiration date was extended until June 30, 2012. The Company did not previously value the warrant for financial statement purposes since the Company did not exercise the warrant on or before June 30, 2010. But with the extended expiration date and the prospect that 11 Good Energy, Inc. common stock may become publicly traded in the second quarter of 2011 we revalued the warrant at $102,451 as of December 31, 2010, or $0.95 per warrant.

 

During the quarter ended June 30, 2011 the Company determined that the value of the warrants was less than had been determined previously due to market conditions and the Company’s financial condition. Therefore we recorded a realized loss of $102,451 related to the 11 Good Energy warrants reducing the value of the warrants at June 30, 2011 to zero.

 

There has been no change in the value of the warrants, which expire in June 2012, during the quarter ending September30, 2011.

 

NOTE 4– PRODUCTION PAYMENTS RECEIVABLE

 

In December 2009, the Company paid $300,000 to a service company under the terms of an equipment lease agreement with a third party operator for redevelopment of four wells located in Pawnee County, Oklahoma. This $300,000 payment has been accounted for as a production payment receivable and is due from the operator. The production payments and any net profits interest which would be earned from this investment are classified as a receivable until the amount due is paid. Under the terms of a settlement agreement with the Operator, the Company is entitled to monthly repayment amounts of 75% of net income per well up to a maximum of $10,000 per well. The repayments continue until such time as the Company has been repaid $354,000, plus legal fees. The first payment is due and payable with 10 days of receipt by the operator of oil and gas revenues and on the same date of each succeeding month thereafter. In addition, the Company may exercise additional remedies, including taking possession of any equipment or working interests owned by the Operator.

 

In September, 2010, the Company entered into a written agreement with CAVU Resources, Inc. for CAVU to pay to the Company $130,000, plus interest, of the $300,000 advanced to them by the operator of this property. The payment on the notewas due in December, 2010 and remains unpaid.

 

In December, 2010, the Company recognized a write-down of this asset of $85,000 to reflect its estimate of the property’s fair market value at December 31, 2010 after the foregoing.

 

At September 30, 2011 the estimated net realizable value of the production payments receivable was $140,000 after the foregoing write- offs. The Company is continuing its efforts to collect a portion of the amounts previously written off and expect that payment of this note, plus interest from November 25 to September 30, 2011, of $13,883 will also be collected. The interest due on the note has been reserved against on the books and will be recognized as interest income upon receipt.

  

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 5- OIL & GAS PROPERTIES

 

All of the Company’s oil and gas properties were located in the United States. Costs excluded from amortization as of June 30,2011 are as follows:

 

Year Incurred		Acquisition Costs				Exploration Costs				Development Costs				Total
2008		$	553,241			$	-			$	-			$	553,241
2010			(22,500	)			-				-				(22,500	)
Total		$	530,741			$	-			$	-			$	530,741
Writedown-2010			(530,741	)											(530,741	)
Balance- September 30, 2011		$	0			$	0			$	0			$	0

  

In 2008, the Company acquired drilling and exploration rights in three properties: White Pine County, Nevada; Park County, Wyoming and Crane County, Texas. The Company commenced drilling an exploration well on the Wyoming lease in 2008 and after completion of the well determined that the well did not produce commercial quantities of oil and/or gas and took an impairment charge for all of the costs incurred of $525,741 in 2010 $571,948 in 2009.

 

In December, 2010, the Company sold its 35% working interest in the Wyoming property for $39,405, which amount was comprised of $10,000 in cash due in March, 2011, $18,405 in accrued lease operating expenses and a plugging liability of $10,500 both of which were forgiven in the sale.

 

In June, 29010 and December, 2010, the Company reserved a total of $160,000 against its production payment receivable account to reflect its estimate of recoverable costs. This receivable is related to its investment in its Oklahoma property, which was classified as a production payment receivable and is not reflected in the above table.

 

NOTE 6 - INVESTMENT IN ANDORA ENERGY CORPORATION

 

On September 19, 2007, the Company’s subsidiary, Signet, completed the proposed business combination of Signet and Andora Energy Corporation ("Andora"). As part of the combination, each of the issued and outstanding shares of Signet common stock was exchanged for 0.296895028 shares of Andora common stock. The Company exchanged its 11,550,000 shares of Signet common stock for approximately 3,429,140 shares of common stock of Andora representing approximately 5.78% of the fully diluted shares of Andora. 2,349,321 shares of Andora common stock received by the Company were placed in an escrow account pursuant to an agreement with Valiant Trust Company, Andora and Signet. In connection with the Dynamo litigation claim, Andora was entitled to recover a claim from the Company pursuant to a judgment of a court of competent jurisdiction and after exhausting all appeals.

 

The Company’s valuation of Andora is based on reserve reports furnished to the Company by Andora which the Company has relied upon in assessing the value of its investment in Andora. Virtually all of these reserves will require alternative methods of production to enable them to be realized as income. Such methods require substantial investment in plant and equipment to be effective. Should Andora obtain equity financing in the future to finance drilling operations, the Company may sustain additional dilution to its equity interest in Andora.

 

During the quarter ended March 31, 2011 the Company issued 12,500 shares of Andora common stock to its Chief Executive Officer in lieu of $7,500 in cash compensation due under his employment agreement.

 

During the quarter ended June 30, 2011 the Company issued 4,166 shares of Andora common stock to its Chief Executive Officer in lieu of $2,500 in cash compensation due under his employment agreement.

 

At June 30, 2011 the Company recorded a temporarywrite-down of $878,422 to reflect the temporary reduction in value from $3,259,752 to $2,385,576 (approximately $0.27 per share).

 

At September 30, 2011 the Company owned 3,198,166 Andora shares valued at $2,385,576 (Cdn$ $0.72 per share), approximately 5% of Andora’s common shares on a fully diluted basis.

 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 7 – INCOME TAXES

 

Reconciliation between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate and state income tax rate to income from continuing operations before income taxes is as follows:

 

		For the nine months ended September 30,
			2011				2010
Net Income/(Loss)		$	(430,0010	)		$	(908,000	)
Income tax computed at combined U.S. and state statutory rates (40%)			(100,000	)			(306,000	)
Permanent differences			—				—
Changes in valuation allowance			150,000				306,000
Total		$	—			$	—

 

Tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred liabilities are presented below:

 

		As of September,
		2011				2010
Deferred tax assets:
Net operating loss carryforwards		$	14,430,000			$	13,200,000
Less valuation allowance			(14,430,000	)			(13,200,000	)
Total		$	—			$	—

 

At December 31, 2010, Surge had net operating loss carryforwards of approximately $14,000,000 for federal and approximately $10,000,000 for state income tax purposes, which will begin to expire, if unused, beginning in 2021. The valuation allowance increased by approximately $420,000 and $930,000 in the years ended December 31, 2010 and 2009 respectively. Internal Revenue Code Section 382 rules may place annual limitations on the Company’s net operating loss carryforward on a change in ownership.

 

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. Deferred taxes are provided on a liability method for taxable temporary differences resulting from the reported amounts of assets and liabilities and their tax basis. Deferred tax assets have resulted from the Company's net operating loss carry-forward, which has been reduced by an equal valuation allowance. Valuation allowance has been established based on the opinion of management that it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

NOTE 8 - LOANS PAYABLE-OFFICER

 

During the three months ended September 30, 2011, the Company’s Chief Executive Officer, Mr. E. Jamie Schloss, deferred a total of $27,000 in salary and also made advances to the Company of $1,583 (net) which increased the balances of loans payable-officer to $141,336 at September 30, 2011. The balance of this loan payable was $80,000 at December 31, 2010. The increase during the nine month period arose primarily from unpaid compensation.

 

Initially the loans and advances were made without interest until June 30, 2011. On July 22, 2011 the Company agreed to extend and amend his employment agreement reducing his salary from $10,500 per month to $9,000 per month and the Company agreed to pay interest on the advances at 8% per annum. These loans and advances are secured by Andora shares convertible at $0.60 per Andora share, and the loans and advances are repayable without penalty at the time of a liquidity event, such as the sale of stock or collection of receivables, which generates sufficient cash to repay this obligation. A total of $1,583 of interest under this agreement was accrued during the quarter ending September 30, 2011.

 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 9 - CAPITAL STOCK

 

Preferred Stock

 

On March 2, 2007, the Company issued one share of Special Voting Preferred Stock to Olympia Trust Company as trustee pursuant to the Voting and Exchange Trust Agreement. The preferred stock was issued in connection with the acquisition of Peace Oil Corp. The issuance of the preferred stock is exempt from registration pursuant to Regulation S promulgated under the Securities Act of 1933, as amended. The Special Voting Preferred Stock is not convertible into shares of any other series or class of our capital stock. The one share of Special Voting Preferred Stock referred to herein was cancelled in June 2008.

 

Common Stock

 

On February 22, 2007, the Company approved an increase to the Company's authorized shares of capital stock to an aggregate of 210,000,000 shares, consisting of 200,000,000 shares of common stock with a par value of $0.001 per share and 10,000,000 shares of preferred stock, pursuant to an amendment to our Certificate of Incorporation.

 

The Company is not currently subject to any contractual arrangements which restrict its ability to pay cash dividends. The Company's Certificate of Incorporation prohibits the payment of cash dividends on the Company's Common Stock in excess of $0.05 per share per year so long as any one preferred stock remains outstanding unless all accrued and unpaid dividends on one preferred stock has been set apart and there are no arrearages with respect to the redemption of any preferred stock.

 

In November 2006, the Company issued an aggregate of 3 million shares of common stock to third party investors, Gemini Financial, in exchange for net proceeds of $1,350,000. In connection with this private placement, the Company issued to the investors an aggregate of six million warrants of the Company that are subject to registration rights and penalties amounting to 2% of the proceeds on a monthly basis if the registration was not effective by March 28, 2007. To address SEC comments, the Company was obligated to provide and disclose Peace Oil Corp. financial statements as well as a pro forma financial statement of the combined companies. The Company accounted for the warrants issued in accordance with ASC 815 (formerly EITF 00-19) “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. In December 2006, the FASB approved ASC 825 (formerly FSP EITF 00-19-2) “Accounting for Registration Payment Arrangements”, which establishes the standard that contingent obligations to make future payments under a registration rights arrangement shall be recognized and measured separately in accordance with Statement 5 and ASC 450 (formerly FASB Interpretation No. 14), “Reasonable Estimation of the Amount of a Loss”. The Company has evaluated the effect of how ASC 825 (formerly FSP EITF 00-19-2) and ASC 480 (formerly EITF Topic D-98) affected these accompanying financial statements. In adopting ASC 825 (formerly FSP EITF 00-19-2) accounting pronouncement on January 1, 2007, the Company reclassified the remainder of the warrant liability of $2,309,400 to permanent equity.

 

In January 2007, the Company issued 383,333 shares of Common Stock to two of the Company’s directors in connection with stock options exercised at an average of $0.24 per share for net proceeds of $91,867. In April 2007, the Company redeemed 2,000,000 shares of Common Stock for a note payable with Gemini, which 2,000,000 shares were cancelled. In November 2007, Cold Flow shareholders exchanged 3,749,953.5 preferred shares into 7,499,907 common shares of the Company.

 

In March 2008, the Company received and cancelled 1,000,000 common shares in conjunction with its sale of the Cynthia Holdings, Ltd stock which entity owned the Santa Rosa property. In May 2008, the Company issued 100,000 common shares in conjunction with the exercise of options and simultaneously purchased 433,333 common shares from the same party at the same time. These purchased shares were cancelled immediately. In June and July 2008, the Company redeemed an aggregate of 3,689,617 shares of common stock in connection with buyback of shares previously issued in conjunction with the purchase of Peace Oil Corp.

 

In September 2008, the Company issued 50,000 common shares in conjunction with stock options exercised at $0.115 per share for total proceeds of $5,750. In December 2008, the Company purchased and cancelled 60,000 shares for $3,600 or $0.06 per share.

 

There were no capital stock transactions during the twelve months ending December 31, 2009. In the year ending December 31, 2010, the Company sold a total of 2,200,000 common shares with 1,900,000 warrants for total proceeds of $218,000, net of fees, to various accredited investors and directors of the company at prices from $0.05 to $0.11 per share.

 

During the three months ended March 31, 2011 the Company sold a total of 2,250,000 common shares and one year warrants exercisable at $0.05 per share to three accredited investors for total proceeds of $67,500.

 

There were no capital stock transactions during the quarter ended and September 30, 2011.

 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 10 - WARRANTS AND STOCK OPTIONS

 

Class AWarrants. The following table summarizes the balances of stock purchase warrants outstanding at June 30, 2011.

 

Warrants Outstanding														Warrants Exercisable
Exercise Prices		Number Outstanding				Weighted Average Remaining Contractual Life (Years)				Weighted Average Exercise Price				Number Exercisable				Weighted Average Exercise Price
$0.05			2,250,000				0.38				0.05				2,250,000			$	0.05
0.08			500,000				1.28			$	0.08				500,000				0.08
0.25			1,750,000				0.25				0.25				1,750,000				0.25
0.60			3,000,000				1.66				0.60				3,000,000				0.60
Totals or average			7,650,000				1.07			$	0.94				7,650,000			$	0.30

 

Transactions involving the Company's warrant issuance or expiration are summarized as follows:

 

		Number of Shares				Weighted Average Price Per Share
Outstanding at December 31, 2009			7,700,000			$	0.94
Granted			1,900,000				0.25
Exercised			—				—
Canceled or expired			(3,000,000	)			0.75
Outstanding at December 31, 2010			6,600,000				0.71
Granted			2,250,000				0.05
Exercised			—				—
Canceled or expired			(1,000,000	)			—
Outstanding at June 30, 2011			7,650,000			$	0.30

 

No warrants were issued during the quarter ended September 30, 2011. During this quarter no warrants were exercised or cancelled. During the quarter ended March 31, 2011 the Company issued a total of 2,250,000 warrants which were fully vested at March 31, 2011.The warrants issued in 2011 were in conjunction with a common stock offering and no warrant expense was recorded in the nine months ending September 30, 2011 for these warrants.

 

Stock options.

 

The following table summarizes the balances of stock options issued to officers and directors outstanding at September 30, 2011:

 

Options Outstanding															Options Exercisable
Exercise Prices				Number Outstanding				Weighted Average Remaining Contractual Life (Years)				Weighted Average Exercise Price				Actual Number Exercisable				Weighted Average Exercise Price
$	0.039			1,000,000				2.60			$	0.04				41,667			$	0.04
0.055				1,200,000				2.91				0.06				1,200,000			$	0.06
0.07				1,600,000				3.42				0.07				1,333,333				0.07
0.08				2,200,000				1.66				0.08				2,200,000				0.08
0.10				400,000				1.66				0.10				250,000				0.10
0.12				250,000				2.03				0.12				250,000				0.12
				6,650,000				2.56			$	0.06				6,416,667			$	0.06

 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 10 - WARRANTS AND STOCK OPTIONS (Continued)

 

Transactions involving the Company's options issuance are summarized as follows:

 

		Number of Shares				Weighted Average Price Per Share
Outstanding at December 31, 2009			11,550,000			$	0.07
Granted			800,000				0.10
Exercised			-				-
Canceled or expired			(6,700,000	)			0.07
Outstanding at December 31, 2010			5,650,000			$	0.07
Granted			1,000,000				0.05
Cancelled or expired			-				-
Outstanding at September 30, 2011			6,650,000			$	0.06

 

In June 30, 2011, a total of 1,000,000 options were granted at an average price of $0.039.

 

All stock options and warrants issued were valued using the Black-Scholes option-pricing model. Variables used in the Black-Scholes pricing model for options issued during the quarter ended June 30, 2011 include (1) discount rate range of 2.00% (2) option life of 3 years, (3) expected volatility of 63% to 108% and (4) zero expected dividends.

 

Non-cash compensation expense for stock option expense of $50,227 and $69-505 was charged to operations for expenses arising from the issuance of options during the nine months ended September 30, 2011and 2010, respectively, arising from options that were granted in 2009,2010 and 2011.

 

NOTE 11 – GAIN (LOSS) ON SALE OF INVESTMENTS

 

In February, 2010, the Company sold its remaining 50,000 shares of 11 Good Energy stock for proceeds of $122,500 resulting in a gain on sale of $108,750.

 

In February, 2010, The Company sold 375,000 shares of Andora Energy at $1.60 per share in consideration of the cancellation of approximately $560,000 in accrued legal fees and other expenses and recognized a non-cash gain of $183,459.

 

In December, 2010, the Company recognized a gain on 11 Good Energy warrants which were had been valued at zero and recognized a non-cash gain of $102,451 based on the Black-Scholes value of the warrants.

 

During 2010, the Company sold a total of 336,628 North Peace Energy shares at a loss of $89,522.

 

In total, the gains on sale of marketable securities in 2010 were $305,128 and $206,013 in 2009.

 

During the quarter ended March 31, 2011 the Company recorded an unrealized loss of $17,076 on its 11 Good Energy warrants.

 

During the quarter ended June 30, 2011, the Company reversed its unrealized loss of $17,076 related to its 11 Good energy warrants and recognized a realized loss on these warrants of $102,451.

 

NOTE 12 - RELATED PARTY TRANSACTIONS

 

In April, 2010, the Company extended Mr. Schloss’ employment agreement on the same financial terms as were in effect previously until December 31, 2010, and then subsequently extended his employment agreement until April 30, 2011. On September 1, 2010, the agreement was amended to provide that commencing September 1, 2010 $2,500 per month in salary would be paid to Mr. Schloss in Andora Energy common stock in lieu of cash. See "Notes 8, 14 and 15."

 

As of December 31, 2010, a total of 16,667 Andora shares were paid to him pursuant to this agreement and $10,000 in salary was converted into shares. Also, in fourth quarter of 2010 Mr. Schloss advanced funds to the Company without interest.

 

The total loans and deferred salary due Mr. Schloss at September 30, 2011 totaled $141,336. $80,124 of this balance bears interest at 8% per annum. The loans are secured by Andora stock based on a value of $0.60 per Andora share. See Note 8 for further details.

   

   

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

(Note 12 – Related Party Transactions continued)

 

On September 27, 2011, the Company extended the amended employment agreement of its Chief Executive Officer and Chief Financial Officer, E. Jamie Schloss, for six months from October, 1 2011 to March 31, 2012 at a salary of $9,000 per month. The complete terms of this extension are attached hereto.

 

On September 27, 2011, the Company agreed to amend the consulting agreement with Steve Vanechanos, a Director. The agreement will now expire on September 30, 2011 instead of December 31, 2011. The Company will accrue $5,000.00 per month in consulting fees from May 1, 2011 through September 30, 2011, totaling $25,000.00, which amounts are payable only upon a liquidity event. In consideration thereof, the Company agreed to reduce the exercise price of Mr. Vanechanos’ 500,000 stock options from $.064 per share to $.039 per share. The Asher Enterprises financing is not a “liquidity event” as contemplated by this agreement.

 

NOTE 13 – LITIGATION MATTERS

 

The Company’s business and operations may subject the Company to claims, litigation and other proceedings brought by private parties and governmental authorities. Currently we are not a party to any pending litigation matters. Litigation can involve complex factual and legal questions and its outcome is uncertain. Any claim that is successfully asserted against us could result in significant damage claims and other losses. Even if the Company were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations, which adversely affect our financial condition, results of operations or cash flows. The following is a description of our recent prior litigation:

 

2009 Default Judgment against subsidiary:

 

On September 30, 2009, the Company’s wholly owned Nevada subsidiary, namely, Surge Energy Resources, Inc., was sued by Three Span Oil & Gas, Inc., in Midland Texas (Case #CC15386) for nonpayment of $60,125. The action arises out of an operating agreement between the Plaintiff and the Defendant pursuant to which Surge Energy Resources is alleged to have agreed to make certain payments of $20,000 on August 14, 2009, September 1, 2009 and October 1, 2009 until a $56,239 deficiency was paid, which payments were not made. The action against Surge Energy Resources was for breach of contract, plus attorneys’ fees and interest.

 

A default judgment was entered into against Surge Energy Resources, Inc. for $60,125 plus fees in December, 2009.

 

The entire amount of this claim was accrued by Surge Energy Resources, Inc. as of September 30, 2011. Surge Energy Resources, Inc. has no material assets or operations.

 

NOTE 14 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

On May 5, 2011 the Company leased space on a month-to-month basis at 74-133 Highway #111, Suite 101, Palm Desert, CA 92260 at a rental of $350 per month.

 

Employment Agreements

 

The company had an employment agreement with its Chief Executive Officer until September 30, 2011. On October 22, 2011 the Company extended this agreement for six months or from October 1, 2010 until March 31, 2012. See Note8 for further details.

 

Consulting Agreements

 

The Company had no consulting agreements outstanding as of September 30, 2011.

  

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND 2010

 

NOTE 15 – CONVERTIBLE NOTE PAYABLE

 

On August 17, 2011, Surge Global Energy, Inc. (the “Company”) entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $45,000 (the "Note") which agreement was effective upon funding. The funding closed on September 23, 2011.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on or before June 21, 2012. Any unpaid portions of the Note are convertible commencing on or after March 23, 2012 into common stock, at Asher’s option, at a 40% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 130% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 135% if prepaid 91 days following the closing through 120 days following the closing, (iii) 140% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. At any time after the expiration of 181 days following the date of the Note and 270 days, the Company has the right of prepayment in an amount equal to 200% of any principal or interest outstanding.

 

Asher has agreed to restrict its ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering were $42,500.

 

NOTE 16 – SUBSEQUENT EVENTS

 

None.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q/A contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this prospectus. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Such statements address future events and conditions, including, but not limited to, a discussion of such matters as the amount and nature of future capital, development and exploration expenditures, the timing of exploration activities; business strategies and development of our business plan and drilling programs, and potential estimates as to the volume and nature of petroleum deposits that are expected to be found present when lands are developed in a project. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, volatility and level of oil and natural gas prices, currency exchange rate fluctuations, uncertainties in cash flow, expected acquisition benefits, exploration drilling and operating risks, competition, litigation, environmental matters, legislative, regulatory and competitive developments in markets in which we and our subsidiaries operate, and other circumstances affecting anticipated revenues and costs, as more fully disclosed in our discussion of risk factors in this prospectus.

 

We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Additional factors that could cause such results to differ materially from those described in the forward-looking statements are set forth in connection with the forward-looking statements.

 

This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assumption from our management.

 

Company Overview

 

The following discussion of our financial condition, changes in financial condition and results of operations for the ninemonthperiod ending September 30, 2011 and the comparable period ending September 30, 2010, should be read in conjunction with the accompanying financial statements and related notes thereto, as well as the Company’s consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in the Company’s Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on April 15, 2011.

 

In January 2005, as a result of the Company disposing of its tobacco wholesale business in December 2004, and restructuring its management and ownership, the Company began implementing plans to establish an oil and gas development business. The Company has not yet generated any revenues from oil and gas operations and has incurred significant operating expenses. Our consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (GAAP).

 

We are a Delaware corporation traded on the OTC Electronic Bulletin Board® under the symbol SRGG.OB. Our principal executive offices are located at 75-153 Merle Drive, Suite B, Palm Desert, CA 92211. Our telephone number is (760) 610-6758. Our fax number is (760)766-2990. We maintain a website at www.SurgeGlobalEnergy.com.

 

Corporate History

 

We were incorporated as The Havana Group, Inc. on November 25, 1997 under the laws of the state of Delaware. Our initial business was the sale of pipes and tobacco products, and we completed our initial public offering in May 1998.

 

In July 2002, we acquired 100% of the common stock of Bible Resources, Inc. (“Bible”) in exchange for 10,900,000 shares of our restricted common stock. Bible, at the time, was a newly formed Nevada corporation organized for the purpose of exploring, developing and/or investing in oil and gas resources on a worldwide basis. As of December 31, 2003, our pipe and tobacco inventory was liquidated and the tangible and intangible assets related to that business were sold off. In December 2004, we completed the restructuring of our balance sheet and the cancellation of our outstanding shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock and indebtedness related to the discontinued tobacco and pipe business.

 

 

In February 2005, we formed a wholly owned Canadian subsidiary Surge Global Energy (Canada) Ltd. On November 15, 2005, we changed its name to Signet Energy, Inc. On November 14, 2005, Signet issued CDN$8,550,000 of 7% convertible debentures. As a result of the initial financing and related transactions, our ownership interest in Signet was initially reduced to approximately 47.3%. Subsequent financings reduced our ownership percentage to approximately 44.3% of Signet on an undiluted basis and approximately 27.3% on a fully diluted basis if all convertible notes issued in connection with prior financings converted into shares of Signet and all employee stock options are exercised. Based upon this reduction in ownership, we determined that we no longer had the legal power to control the operating policies and procedures of Signet and deconsolidated Signet from our consolidated financial statements during the fiscal quarter ending September 30, 2006 and treated Signet operations as an equity investment effective September 30, 2006.

 

On September 19, 2007, Signet completed the proposed business combination of Signet and Andora Energy Corporation ("Andora") (the “Combination”). As part of the Combination, each of the issued and outstanding shares of common stock of Signet was exchanged for 0.296895028 shares of common stock of Andora. The Company held 11,550,000 shares of common stock of Signet which were exchanged for approximately 3,429,138 shares of common stock of Andora representing approximately 5.78% of the fully diluted shares of Andora. At that time, 2,127,616 shares of common stock of Andora received by Surge were placed in an escrow account pursuant to an agreement with Valiant Trust Company, Andora and Signet.

 

On February 2, 2010, the Company sold 375,000 of its Andora shares in full settlement of any outstanding legal fees owed to Andora and 2,009,961 shares remaining in escrow shares were released to the Company.

 

Oil and Gas Business Operations and Investments

 

Sawn Lake Project, Alberta, Canada

 

On September 19, 2007, the proposed business combination of Signet and Andora took place and the Company received a total of 3,429,138 common shares of Andora to hold a 5.87% fully diluted interest in Andora. Andora is an oil and gas company owned 53% by Pan Orient Energy Corp., a Canadian energy company listed on the TSX Venture Exchange. At that time, a total of 2,127,616 shares of common stock of Andora received by Surge were placed in an escrow account pursuant to an agreement with Valiant Trust Company, Andora and Signet and are being held in conjunction with the Dynamo litigation. See Legal Proceedings.

 

According to Andora’s publicly available information, Andora’s assets include various fractional interests in 84 sections of oil sands permits and a gross overriding royalty on various interests held by Deep Well Oil and Gas Inc. (“Deep Well”), all located in the Sawn Lake heavy oil project area of Alberta, Canada, as well as an effective 2.4 net gross overriding royalty (3% of an 80% working interest) on interests in the thickest net oil pay sections of the pool, which is payable by Deep Well.

 

In March 2009, the Company’s investment in Andora was increased by 252,361 shares valued at $225,000 pursuant to a legal settlement agreement and in July, 2009 we transferred 75,000 Andora shares to a former director in full settlement of his legal claims.

 

In February, 2010, we transferred 375,000 Andora shares in full settlement of all outstanding legal and related fees owed to Andora in conjunction with the Dynamo lawsuit. The legal fees owed prior to settlement were $565,680 and the Company recognized a gain on the settlement of $183,459.

 

As of September 30, 2011, the Company owned 3,198,166 Andora shares (approximately 5% of Andora) which are recorded at cost of $2,385,576 (approximately $0.75 per share).

 

Plan of Operations

 

Oil and Gas

 

The Company is engaged in the search for commercial oil and gas prospects, leases and working interest ownership in oil and gas properties. Once prospects are identified and evaluated, leases are acquired from landowners or prior lease owners and the Company usually has from one to three years to drill a well or wells on those leases. The cost of oil & gas leases vary from property to property and leasing costs can average from $100 per acre to $500 per acre. After acreage is leased, the Company evaluates those properties further to determine the best plan of development and creates a budget called an Authorization For Expenditures (“AFE”) which reflects current drilling and completion costs for a specific well. On a 5,500 foot vertical well in Texas or New Mexico drilling costs could be as much as $500,000 and in Nevada over $1,200,000. Once drilling logs confirm indications of commercially producible oil & gas, completion of the well occurs. Completion costs can range from $250,000 to $500,000 per well drilled depending on the specific requirements of each well. Our drilling priority plans may change based on many factors including market prices for oil and gas, successes or failures of drilled wells, and our limited funds. As the Company drills more wells it intends to seek additional financing (debt or equity) to finance future drilling operations.

  

 

In June 2008, we began acquiring oil and gas properties for drilling and exploration. Three properties were acquired in 2008, the first was Green Springs Prospect in White Pine County, Nevada which consists of two leases aggregating approximately 2,500 acres which has not yet been drilled, the second was an oil and gas prospect in Crane County, Texas which was drilled, logged and found non-productive, and the third a deep gas well named the Qualmay #12-42 well, a 7,200 foot deep well oil and gas well drilled on 40 acres of land in Park County, Wyoming. In view of limited production, this property was sold in December, 2010.

 

The Company was unable to raise additional capital to drill an initial test well on its Green Springs, Nevada property and decided to record an impairment on this property in the quarter ended June 30, 2010 in the amount of $560,943. The lease on this property was extended until September 1, 2010 and now has been cancelled.The Company has a right to a refund of $250,000.00 if drilling is commenced by the current leaseholder. We do not have any obligations under existing contracts or agreements calling for the provision of fixed and determinable quantities of oil and gas over the next three years, and have therefore not filed any information or reports with any federal authority or agency, containing estimates of total, proved developed or undeveloped net oil or gas reserves.

 

The Company plans on maximizing the value of its investment in Andora common stock by seeking opportunities to sell or trade these securities for cash or other oil & gas properties. The Company’s investment in Andora stock is the major asset, current oil and gas investments, plus cash and cash equivalents on hand, are the major assets of the Company at the present time. We are actively seeking ways to reduce corporate overhead, legal fees and public reporting costs to lower levels than were incurred in past periods. The Company is currently seeking other oil & gas drilling prospects for exploration and development subject to the conditions described above as well as additional financing. We can provide no assurances that additional financing will be available to us on terms satisfactory to us, if at all.

 

Acquisition or Disposition of Plant and Equipment

 

In addition to the assets described above, while we anticipate acquisitions of oil & gas properties, we do not anticipate the sale of any significant plant or equipment during the next twelve months other than computer equipment and peripherals used in our day-to-day operations.

 

Competition

 

The oil and gas business is highly competitive. We will compete with private, public and state-owned companies in all facets of the oil business, including suppliers of energy and fuel to industrial, commercial and individual customers. Numerous independent oil and gas companies, oil and gas syndicates and major oil and gas companies actively seek out and bid for oil and gas prospects and properties as well as for the services of third-party providers, such as drilling companies, upon which we rely. Many of these companies not only explore for, produce and market oil and natural gas, but also carry out refining operations and market the resultant products on a worldwide basis. A substantial number of our competitors have longer operating histories and substantially greater financial and personnel resources than we do. Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States and other countries, as well as factors that we cannot control, including international political conditions, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.

 

The competition in the various individual services described hereinabove is intense. Factors in this competition include not only the speed and accuracy with which the Company can meet customer needs, but also the price of the services, quality of the product, historical experience with the client and complementary services. In the oil and gas business we compete with many large and experienced enterprises which have been in business for an extended period of time, have greater financial and other resources than we do at the present time. We can provide no assurances that we will be able to successfully compete in this highly competitive marketplace.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate significant estimates used in preparing our financial statements including those related to revenue recognition, guarantees and product warranties, stock based compensation and business combinations. We base our estimates on historical experience, underlying run rates and various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates. The following are critical judgments, assumptions, and estimates used in the preparation of the consolidated financial statements.

 

Disposition of Assets

 

There were no sales or dispositions of assets during the nine months ended September 30, 2011.

 

 

Investments in Unconsolidated Subsidiaries

 

Investee entities that the Company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Whether the Company exercises significant influence with respect to an investee depends on an evaluation of several factors, among others, representation of the company’s board of directors and ownership level, generally 20% to 50% interest in the voting securities of the company including voting rights associated with the Company’s holdings in common, preferred and other convertible instruments in the company. Under the equity method of accounting, the Company’s share of the earnings or losses of these companies is included in the equity income (loss) section of the consolidated statements of operations. A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

 

Impairment of Long-Lived Assets

 

We have adopted ASC 360 Property, Plant and Equipment. ASC 360 requires that long-lived assets and certain identifiable intangibles held and used by us be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. We evaluate the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should an impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

 

Inflation

 

Our opinion is that inflation has not had a material effect on our operations. Inflation will increase operating expenses but since the Company’s Andora investment has significant oil reserves, such reserves should increase as oil prices increase due to inflation and market forces, which will in turn increase the value of our Andora shares.

 

Off Balance Sheet Arrangements

 

The Company does not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.

 

Number of Employees

 

From our inception through September 30, 2011, we have relied on the services of outside consultants and currently have one (1) full time employee and one (1) consultant. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. As we continue to expand, we will incur additional cost for personnel. This projected increase in personnel is dependent upon our generating revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees.

 

Product Research and Development

 

We do not anticipate performing research and development for any products during the next twelve months.

   

Recent Developments

 

During the last two years several of our directors and officers have been involved in transactions with us and have had contractual relationships with us. These are described in the Consolidated Financial Statements “Related Party Transactions.”

 

Working Capital Activities

 

In March, 2011 the Company sold common stock Units in a private placement. Each full Unit’s cost was $30,000 and consisted of 1,000,000 shares of common stock and 1,000,000 stock purchase warrants. The warrants are exercisable over a period of one year from their issue date at a price of $0.05 per share. The Company sold a total of 2.25 units totaling 2,250,000 shares and issued 2,250,000 warrants for net proceeds of $67,500 to three accredited investors.

 

In September, 2011 the Company sold a convertible promissory note to Asher Enterprises, Inc. for $45,000.00. The note bears interest at 8% per annum and is repayable with a 30% penalty within 3 months and is convertible after 6 months into the Company’s common stock at a 40% discount to the average 10 day bid price prior to conversion.

 

For more detailed information on the foregoing transactions see the notes to the consolidated financial statements. 

 

  

Marketable Securities

 

All investment securities are classified as either as available-for-sale or trading, and are carried at fair value or quoted market prices. Unrealized gains and on available-for-sale securities losses are reported as a separate component of stockholders’ equity. Amortization, accretion, interest and dividends, realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are recorded in other income. ASC 320 - Investments - Debt and Equity, Accounting for Certain Investments in Debt and Equity Securities and, Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 59, Accounting for Noncurrent Marketable Equity Securities, provide guidance on determining when an investment is other-than-temporarily impaired. This evaluation depends on the specific facts and circumstances. Factors that we consider in determining whether an other-than-temporary decline in value has occurred include: the market value of the security in relation to its cost basis; the financial condition of the investee; and the intent and ability to retain the investment for a sufficient period of time to allow for possible recovery in the market value of the investment.

 

Stock-Based Compensation

 

The Company uses the Black-Scholes option-pricing model as its method of valuation for share-based awards granted. The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables.

 

These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate. The Company measures and recognizes compensation expense for all share-based payment awards made to employees, consultants and directors including employee stock options based on estimated fair values.

 

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s Consolidated statement of operations for the quarters ended September 30, 2011 and 2010 included compensation expense for share-based payment awards granted prior to September 30, 2010, but which vested in the quarter ending September 30, 2011 and 2010 respectively.

 

Use of Estimates

 

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities, if any, at the date of the financial statements. The Company analyzes its estimates, including those related to future oil and gas revenues and oil and gas properties, contingencies and litigation. The Company bases its estimates on assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

  

Results of Operations

 

For The Three Month Period Ending September 30, 2011 and September 30, 2010

 

The Company had no operating revenues in the three months ended September 30, 2011 or 2010.

 

For the three months ended September 30, 2011, the Company incurred a net loss of $57,600 versus a loss of $236,200 for the comparable period in 2010, a decreased loss of $107,300 from the prior period. The detailed reasons for this change are set forth below:

 

Total operating expenses for the three months ended September 30, 2011 were $57,700 versus $184,800 in the comparable three months ended September 30, 2010, a decrease of $125,100 from the prior comparable period. Selling, general and administrative expenses declined in the quarter ended September 30, 2011 to $56,700 compared with $179,400 in the comparable period in 2010, a decrease of $122,700. The decrease in SG&A was attributable to a reduction of $19,000 in director stock option expense, a decrease in legal and accounting fees of $38,000, decreases in consultation fees of $48,700 and a reduction of other operating expenses of $36,000 which included a tax refund of $32,000. Depreciation expense declined to $2,700 in 2011 from $4,600 in 2010 and the oil and gas impairment in 2010 was $4,400 with no comparable charge in 2011.

 

The total comprehensive loss for the three months ending September 30, 2011 was $57,600 versus a loss of $169,100 in the corresponding period in 2010, a decrease of $111,500.

 

 

For The Nine Month Period Ending September 30, 2011 and September 30, 2010

 

The Company had no operating revenues in the nine months ended September 30, 2011 or 2010.

 

For the nine months ended September 30, 2011, the Company incurred a net loss of $431,000 versus a loss of $908,500 for the comparable period in 2010, an decreased loss of $477,500 from the prior period. The detailed reasons for this change are set forth below:

 

Total operating expenses for the nine months ended September 30, 2011 were $330,600 versus $1,110,900 in the comparable three months ended September 30, 2010, a decrease of $780,300 from the prior comparable period. Included in operating expenses in 2011 was an impairment of an oil and gas property of $75,00 compared with an impairment in 2010 of $567,400. Selling, general and administrative expenses declined in the nine months ended September 30, 2011 to $250,900 compared with $538,900 in the comparable period in 2010, a decrease of $288,000. The decrease was attributable to a reduction of $12,000 in director stock option expense, a decrease in accounting fees of $48,000, a tax refund of $30,800, and decreases in consultation fees of $60,800 a decrease in legal fees of $112,400 and a reduction of other operating expenses of $36,000.

 

During the nine months ended September 30, 2011 there were no gains or losses on the sale of investments versus a gain of $205,000 in the comparable period in 2010. The unrealized loss on available for sale securities in the nine months ended September 30, 2011 was $878,400 versus $10,600 in the comparable period in 2010 arising from a reduction in the value of our Andora shares to their estimated net realizable value.

 

The total comprehensive loss for the nine months ending September 30, 2011 was $1,309,400 versus a loss of $910900 in the corresponding period in 2010, an increased loss of $398,500, all of which was attributable to the unrealized loss on available for sale securities.

 

Future Operating Trends

 

Our future operations depend on available cash resources, collection of our note receivable, additional financing and/or the possible sale of all or portions of our investments of our 3,198,166 Andora shares or our 107,843 Eleven Good Energy, Inc. warrants. We are continuing to seek a liquidity event for our Andora shares to maximize their value.

 

We can provide no assurances that any additional financing will be satisfactory to us, if at all, or that we will be able to liquidate a portion of our investments should the need arise.

 

Liquidity and Capital Resources

 

Current Position

 

As of September 30, 2011 our current assets consisted of unrestricted cash and cash equivalents on hand of $16,200, production payments receivable of $140,000 and prepaid expenses of $48,000 totaling $204,200 versus current liabilities of $372,500, thereby creating a working capital deficit of $168,300. Our total net current assets at September 30, 2011 were a deficit of $168,300 versus a working capital surplus of $109,900 as of December 31, 2010. For the three months ended September 30, 2011 our net working capital declined by $39,700. At December 31, 2010, the Company had cash on hand of $500 and other investments, production payments receivable and prepaid expenses of $12, 200 for total current assets of $340,000 and at that time, the Company had current liabilities of $230,200, which resulted in a working capital surplus of $109,900.

 

By reducing our operating expenses and planning acquisitions or dispositions of assets as necessary to manage the business properly and raising additional equity, the Company has in the past had sufficient capital resources to meet our continued cash flow deficits. However, if we are not successful in generating sufficient liquidity from operations and in raising capital through the sale of common stock on terms acceptable to us, this could have a material adverse effect on our business, results of operations and financial position.

 

We have a history of net losses and expect that our operating expenses will continue to deplete our cash reserves as we have no revenues. Our business model contemplates expansion of our business by identifying and acquiring additional oil and gas properties. To make these acquisitions, our capital needs will increase substantially. We have limited working capital and cash resources to fund our oil and gas exploration. We plan to attempt to obtain our future funding that we will need to drill wells on leases owned, to lease additional properties and to otherwise finance our oil and gas operations through debt and equity markets or joint venture agreements with third parties; however, we can provide no assurances that we will be able to obtain additional funding (and/or joint venture partners willing to fund specific exploration projects) when it is required or that it will be available to us on commercially acceptable terms, if at all. If we fail to obtain the financing that we need when it is required, we may have to forego or delay potentially valuable opportunities to acquire new oil and gas properties or default on existing funding commitments to third parties and forfeit or dilute our rights in existing oil property interests.In the event additional financing is not available to us on commercially acceptable terms, if and when needed to finance our oil and gas operations and to meet our cash needs as they come due, this may seriously harm our business, financial condition and results of operations.

 

  

Liquidity and Capital Resources (continued)

 

The Company is seeking possible merger or acquisition candidates which can be obtained through the issuance of common or preferred shares.

 

Recent Financing

 

The Company issued a Convertible Note payable for $45,000 to Asher Enterprises, Inc. on September 23, 2011. The terms of the Note provide for interest at 8% per annum which accrued on the face of the Note. The Note is payable within 90 days at a penalty of 30% of the face value of the Note. If the Note is not paid within the first 90 days additional penalties accrue. The Note, plus interest, is convertible into Surge common shares based on a 10 day weighted average of the bid price prior to exercise. The Note is not convertible during the 6 month period commencing from September 23, 2011 and in lieu thereof can be paid by the Company in full or in increments. In the event that the Note is converted, there will be substantial additional common shares issued which will create substantial dilution of outstanding common shares. It is the Company’s intent to pay the balance of the Note before any conversions occur, but there are no assurances that the Company will have sufficient funds to do so.

 

ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, stock and commodity prices. The Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative financial instruments, interest rate swaps or other investments that alter interest rate exposure, except that we own equity securities in a private company held for long term investment and we hold equity securities in a publicly traded company whose value is marked to market on a quarterly basis. Our primary exposure to market risk is interest rate risk associated with our short term money market investments and the market price risk of our publicly traded investment. The Company does not have any credit facilities with variable interest rates.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, E. Jamie Schloss our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of, E. Jamie Schloss our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were ineffective and there was a material weakness due to insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements and ineffective controls over period end financial disclosure and reporting processes.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the management is responsible for establishing and maintaining preparation of financial statements for external purposes consistent with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

Our chief executive officer and chief financial officer, namely, E. Jamie Schloss, evaluated the effectiveness of our internal control over financial reporting as of September 30, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, Mr. Schloss concluded that, as of December 31, 2010, our internal control over financial reporting was not effective due to material weaknesses in the system of internal control. A material weakness is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner.

  

The material weakness assessed by our management was that (1) we have not properly segregated duties as our chief executive officer/chief financial officer who are one in the same person initiate, authorize, and complete all transactions, and (2) we have not implemented measures that would prevent the chief executive officer/chief financial officer from overriding the internal control system. We do not believe that these control weaknesses have resulted in deficient financial reporting because the chief executive officer/chief financial officer is aware of his responsibilities under the SEC’s reporting requirements and personally certify our financial reports.

 

Accordingly, while we have identified certain material weaknesses in our system of internal control over financial reporting, we believe we have taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Our management has determined that current resources would be appropriately applied elsewhere and when resources permit, it will address and remediate material weaknesses through implementing various controls or changes to controls. At such time as we have additional financial resources available to us, we intend to enhance our controls and procedures. We will not be able to assess whether the steps we intend to take will fully remedy the material weakness in our internal control over financial reporting until we have fully implemented them and sufficient time passes in order to evaluate their effectiveness.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting, known to the chief executive officer and chief financial officer that occurred during the quarter ended September 30, 2011that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

The Company’s business and operations may subject the Company to claims, litigation and other proceedings brought by private parties and governmental authorities. The Company has in the past been involved in contract and indemnity disputes in several litigation matters. Currently there is one open matter involving a contract dispute, Litigation can involve complex factual and legal questions and its outcome is uncertain. Any claim that is successfully asserted against us could result in significant damage claims and other losses and could adversely affect our financial condition. Even if the Company were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations, which adversely affect our financial condition, results of operations or cash flows.

 

There are no pending open litigation matters affecting the Company.

 

In a prior legal matter, the Company’s wholly owned subsidiary, Surge Energy Resources, Inc., incurred a default judgment against it in a litigation matter with Three Span Oil & Gas Litigation, the details of which are as follows:

 

On September 30, 2009, the Company’s wholly owned Nevada subsidiary, namely, Surge Energy Resources, Inc., was sued by Three Span Oil & Gas, Inc., in Midland Texas (Case #CC15386) for nonpayment of $60,125. The action arises out of an operating agreement between the Plaintiff and the Defendant pursuant to which Surge Energy Resources is alleged to have agreed to make certain payments of $20,000 on August 14, 2009, September 1, 2009 and October 1, 2009 until a $56,239 deficiency was paid. The action against Surge Energy Resources was for breach of contract, plus attorneys’ fees.

 

A default judgment was entered into against Surge Energy Resources, Inc. for $60,125 plus fees in December, 2009. Surge Energy Resources, Inc. has no material assets or operationshowever the entire amount of this claim was accrued by Surge Energy Resources, Inc. as of September 30, 2011.

 

ITEM 1A. RISK FACTORS

 

Risk Factors:

 

Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock are described in more detail under “Risk Factors” in Item 1A of our 2010 Form 10-K. This information should be considered carefully, together with other information in this report and other reports and materials we file with the SEC.

 

Loss of Investment Company Act Exclusion Would AdverselyAffect Our Business

 

Surge Global Energy (“Surge”) currently relies on section 3(c)(9) of the Investment Company Act of 1940 (“1940 Act”) to avoid federal registration and regulation as an investment company. Section 3(c)(9) excludes from the 1940 act’s definition on investment company “[a]ny person substantially all of whose business consists of owning or holding oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts related to such mineral royalties or leases, or fractional interests therein relative to such royalties, leases, or fractional interests.”

 

 

Risk Factors (continued):

 

Any future failure by Surge to qualify for the section 3(c)(9) exclusion, or any other exemption or exclusion from the 1940 Act or the rules thereunder, could cause Surge to be required to register with the U.S. Securities and Exchange Commission as an investment company under the 1940 Act or to reorganize its business so as to avoid such registration and regulation. Regulation and registration as an investment company under the 1940 Act and the rules thereunder would, among other things, prevent Surge from conducting its business as described herein.

 

Convertible Note Payable:

 

The Company issued a Convertible Note payable for $45,000 to Asher Enterprises, Inc. on September 23, 2011. The terms of the Note provide for interest at 8% per annum which accrued on the face of the Note. The Note is payable within 90 days at a penalty of 30% of the face value of the Note. If the Note is not paid within the first 90 days additional penalties accrue. The Note, plus interest and any penalties, is convertible into Surge common shares based on a 10 day weighted average of the bid price prior to exercise. The Note is not convertible during the 6 month period commencing from September 23, 2011 and in lieu thereof can be paid by the Company in full or in increments. In the event that the Note is converted, there will be substantial additional common shares issued which will create substantial dilution of outstanding common shares. It is the Company’s intent to pay the balance of the Note before any conversions occur, but there are no assurances that the Company will have sufficient funds to do so.

 

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

 

(a) During the nine months ended September 30, 2011, there were no sales of securities by the Company, except as follows:

 

Date of Sale		Title of Security		Number Sold		Consideration Received, Commissions		Purchasers		Exemption from Registration Claimed
January and March, 2011		Common Stock and Warrants (1)		2,250,000 shares and 2,250,000 warrants		$67,500 received from three Investors; no commissions were paid.		Accredited Investors		Rule 506; Section 4(2)
September 2011		Convertible Promissory Note (2)		$45,000 Principal Amount		$45,000 gross proceeds from one investor; no commissions were paid.		Accredited Investor		Section 4(2)

1)

The Company sold in a private placement a Unit at a cost of $30,000 per Unit. Each Unit consisted of 1,000,000 shares of Common Stock and Warrants to purchase 1,000,000 shares, exercisable at any time during the period of one year from the date of subscription at an exercise price of $0.05 per share.

2)

See Note 15 in the Notes to Consolidated Financial Statements for a description of the terms of the Convertible Promissory Note.

3)        

(b) Rule 463 of the Securities Act is not applicable to the Company.

 

(c) In the nine months ended September 30, 2011, there were no repurchases by the Company of its Common Stock.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. (REMOVED AND RESERVED)

 

ITEM 5. OTHER INFORMATION

 

On September 27, 2011, the Company extended the amended employment agreement of its Chief Executive Officer and Chief Financial Officer, E. Jamie Schloss, for six months from October, 1 2011 to March 31, 2012 at a salary of $9,000 per month. The complete terms of this extension are attached hereto.

 

On September 27, 2011, the Company agreed to amend the consulting agreement with Steve Vanechanos, a Director. The agreement will now expire on September 30, 2011 instead of December 31, 2011. The Company will accrue $5,000.00 per month in consulting fees from May 1, 2011 through September 30, 2011, totaling $25,000.00, which amounts are payable only upon a liquidity event. In consideration thereof, the Company agreed to reduce the exercise price of Mr. Vanechanos’ 500,000 stock options from $.064 per share to $.039 per share. The Asher Enterprises financing is not a “liquidity event” as contemplated by this agreement.

 

 

ITEM 6. EXHIBITS

 

3.1	Certificate of Incorporation filed with the State of Delaware on November 25, 1997, as amended (including Certificate of Merger, filed November 25, 1997, Certificate of Designation, filed February 2, 1998, Certificate of Amendment, filed May 12, 1998, Certificate of Renewal, filed August 20, 2003, Certificate of Amendment, dated August 20, 2003 and Certificate of Amendment, filed September 30, 2004) (incorporated herein by reference to  Exhibit 3.1 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
3.2	Certificate of Amendment to Certificate of Incorporation filed with the State of Delaware on February 22, 2007 (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed February 22, 2007)
3.3	Amended and Restated Certificate of Designations, Preferences, Rights and Limitations of Special Voting Preferred Stock filed with the State of Delaware on March 7, 2007 (incorporated herein by reference to Exhibit 3(i).1 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
3.4	Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3(ii).1 to the Company’s Current Report on Form 8-K, filed October 25, 2006)
9.1	Voting Trust Agreement by and among the Company, Northern Alberta Oil Ltd. and Deep Well Oil and Gas (Alberta) Ltd. dated November 15, 2005 (incorporated herein by reference to Exhibit 10.20 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.01	Employment Agreement by and between the Company and David Perez dated November 30, 2004 (incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.02	Sublease by and between the Company and Granite Financial Group dated November 22, 2004 (incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.03	Farmout Agreement by and among the Company, Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.), Northern Alberta Oil Ltd. and Deep Well Oil & Gas, Inc. dated February 25, 2005 (incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.04	Farmout Amending Agreement by and among the Company, Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.), Northern Alberta Oil Ltd. and Deep Well Oil & Gas, Inc. dated November 15, 2005 (1) (incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.05	Form of Note and Warrant Purchase Agreement by and between the Company and each of Mark C. Fritz, Victor G. Mellul and Irving L. Plaksin dated March 17, 2005 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed March 24, 2005)
10.06	Form of Convertible Note by and between the Company and each of Mark C. Fritz, Victor G. Mellul and Irving L. Plaksin dated March 17, 2005 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed March 24, 2005)
10.07	Form of Warrant by and between the Company and each of Mark C. Fritz, Victor G. Mellul and Irving L. Plaksin dated March 17, 2005 (incorporated by reference to Exhibit 4.3 to the Company’s Report on Form 8-K, filed March 24, 2005)
10.08	Letter Agreements by and between the Company and each of Mark C. Fritz, Victor G. Mellul and Irving L. Plaksin dated July 17, 2005 (incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.09	Form of Securities Purchase Agreement by and among the Company, Mark Fritz, Chet Idziszek, Gary Vandergrift, Burton Gersh and Irving Plaksin effective as of August 19, 2005, relating to the private placement offering of common stock and warrants for an aggregate purchase price of $300,000 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 25, 2005)
10.10	Form of Warrant by and among the Company, Mark Fritz, Chet Idziszek, Gary Vandergrift, Burton Gersh and Irving Plaksin effective as of August 19, 2005 (incorporated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.11	Form of Registration Rights Agreement by and among the Company, Mark Fritz, Chet Idziszek, Gary Vandergrift, Burton Gersh and Irving Plaksin effective as of August 19, 2005 (incorporated herein by reference to Exhibit 10.13 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.12	Securities Purchase Agreement by and between the Company and Pawnee Holding Corporation dated October 24, 2005 (incorporated herein by reference to Exhibit 10.14 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)

 

  

10.13	Warrant by and between the Company and Pawnee Holding Corporation dated October 24, 2005 (incorporated herein by reference to Exhibit 10.15 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.14	Registration Rights Agreement by and between the Company and Pawnee Holding Corporation dated October 24, 2005 (incorporated herein by reference to Exhibit 10.16 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.15	Form of Subscription Agreement for 7% Convertible Debentures, by and between Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd) and certain purchasers dated November 15, 2005 (incorporated herein by reference to Exhibit 10.17 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.16	Agency Agreement by and among the Company, Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.), and MGI Securities Inc. dated November 15, 2005 (incorporated herein by reference to Exhibit 10.18 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.17	Shareholders Agreement by and among the Company, Leigh Cassidy, Fred Kelly and Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) dated November 15, 2005 (incorporated herein by reference to Exhibit 10.19 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.18	Trust Indenture by and among the Company, Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and Valiant Trust Company dated November 15, 2005 (incorporated herein by reference to Exhibit 10.21 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.19	Registration Rights Agreement by and among the Company and MGI Securities, Inc., as agent to the purchasers of the debentures dated  November 15, 2005 (incorporated herein by reference to Exhibit 10.22 to the Company’s Registration Statement on  Form SB-2, filed December 30, 2005)
10.20	Release and Indemnification Agreement by and between the Company and Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.), dated November 15, 2005 (incorporated herein by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-KSB, filed April 17, 2006)
10.21	Escrow Agreement by and among the Company, Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and Valiant Trust Company, dated November 15, 2005 (incorporated herein by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-KSB, filed April 17, 2006)
10.22	Securities Purchase Agreement by and between the Company and the Zemer Family Trust dated November 16, 2005 (incorporated herein by reference to Exhibit 10.23 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.23	Warrant by and between the Company and the Zemer Family Trust dated November 16, 2005 (incorporated herein by reference to Exhibit 10.24 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.24	Registration Rights Agreement by and between the Company and the Zemer Family Trust dated November 16, 2005 (incorporated herein by reference to Exhibit 10.25 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.25	Securities Purchase Agreement by and between the Company and Benjamin Financial Limited Partnership dated November 30, 2005 (incorporated herein by reference to Exhibit 10.26 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.26	Warrant by and between the Company and Benjamin Financial Limited Partnership dated November 30, 2005 (incorporated herein by reference to Exhibit 10.27 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.27	Registration Rights Agreement by and between the Company and Benjamin Financial Limited Partnership dated November 30, 2005 (incorporated herein by reference to Exhibit 10.28 to the Company’s Registration Statement on Form SB-2, filed December 30, 2005)
10.28	Indenture by and between Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and Valiant Trust Company dated December 20, 2005 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed December 28, 2005)
10.29	Form of 7% Secured Convertible Debentures Certificate dated December 20, 2005 (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed December 28, 2005)
10.30	Form of Subscription Agreement for Flow-Through Shares by and between Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and certain purchasers dated December 20, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 28, 2005)
10.31	Form of Subscription Agreement for 7% Secured Convertible Debentures by and between Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and certain purchasers dated December 20, 2005 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed December 28, 2005)

 

 

10.32	Agency Agreement by and between Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and MGI Securities, Inc. dated December 20, 2005 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed December 28, 2005)
10.33	Form of Securities Purchase Agreement effective as of March 14, 2006, relating to the private placement offering of common stock and warrants for an aggregate purchase price of $1,800,000 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed  March 23, 2006)
10.34	Form of Warrant, effective as of March 14, 2006, relating to the private placement offering of common stock and warrants for an aggregate purchase price of $1,800,000 (incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed March 23, 2006)
10.35	Form of Registration Rights Agreement, effective as of March 14, 2006, relating to the private placement offering of common stock and warrants for an aggregate purchase price of $1,800,000 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed March 23, 2006)
10.36	Form of Non-Employee Director Agreement (incorporated herein by reference to Exhibit 10.37 to the Company’s Registration Statement on Form SB-2, filed December 20, 2006)
10.37	Form of Nonstatutory Stock Option Agreement (incorporated herein by reference to Exhibit 10.38 to the Company’s Registration Statement on  Form SB-2, filed December 20, 2006)
10.38	Consulting Agreement by and between the Company and Richard Collato dated October 6, 2006 (incorporated herein by reference to Exhibit 10.39 to the Company’s Registration Statement on Form SB-2, filed December 20, 2006)
10.39	Securities Purchase Agreement by and between the Company and each of Gemini master Fund Limited and Mark C. Fritz dated  November 28, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December 4,2006)
10.40	Registration Rights Agreement by and between the Company and each of Gemini Master Fund Limited and Mark C. Fritz dated November 28, 2006 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed December 4, 2006)
10.41	Common Stock Purchase Warrants dated November 28, 2006 issued by the Company to each of Gemini Master Fund Limited and Mark C. Fritz (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed December 4, 2006)
10.42	“Greenshoe” Common Stock Purchase Warrants dated November 28, 2006 issued by the Company to each of Gemini Master Fund Limited and  Mark C. Fritz (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed December 4, 2006)
10.43	Stock Purchase Agreement among Cold Flow Energy ULC, the Company, Peace Oil Corp., and Shareholders of Peace Oil Corp. dated  November 30, 2006 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed  December 4, 2006)
10.44	Employment Agreement between the Company and William Greene dated December 14, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, filed with the Securities and Exchange Commission on December 18, 2006)
10.45	First Amendment to Stock Purchase Agreement by and among Cold Flow Energy ULC, the Company, Peace Oil Corp., and the shareholders of  Peace Oil dated March 2, 2007 (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed  March 8, 2007)
10.46	Voting and Exchange Trust Agreement by and among the Company, Cold Flow Energy ULC, and Olympia Trust Company dated March 2, 2007 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.47	Support Agreement by and among the Company, Cold Flow Energy ULC, and 1294697 Alberta Ltd. dated March 2, 2007 (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.48	Promissory Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal amount of CDN$1,500,000 with a maturity date of June 30, 2007 (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.49	Promissory Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal amount of CDN$1,000,000 with a maturity date of July 30, 2007 (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.50	Promissory Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal amount of CDN$1,500,000 with a maturity date of  August 30, 2007 (incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed March 8, 2007)

 

  

10.51	Promissory Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal amount of CDN$1,600,000 with a maturity date of  December 31, 2007 (incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.52	Petroleum, Natural Gas and General Rights Conveyance by and among 1304146 Alberta Ltd., Peace Oil Corp., Cold Flow Energy ULC, and the Company dated March 2, 2007 (incorporated herein by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.53	Escrow Agreement by and among Burstall Winger LLP, Peace Oil Corp., the Company, Cold Flow Energy ULC, and 1304146 Alberta Ltd. dated  March 2, 2007 (incorporated herein by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.54	Royalty Agreement by and between 1304146 Alberta Ltd. and Peace Oil Corp. dated March 2, 2007 (incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.55	Warrant to purchase 1,000,000 shares of Surge common stock dated March 2, 2007 (incorporated herein by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K, filed March 8, 2007)
10.56	Second Amendment to Stock Purchase Agreement among Cold Flow Energy ULC, the Company, Peace Oil Corp. and the Shareholders of  Peace Oil Corp. dated April 16, 2007 (incorporated herein by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K/A, filed  May 16, 2007)
10.57	Exchange, Purchase and Amendment Agreement dated as of April 19, 2007 by and between the Company and Gemini Master Fund, Ltd. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 25, 2007)
10.58	Convertible Note Due May 1, 2008 Issued to Gemini Master Fund, Ltd. (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed April 25, 2007)
10.59	Agreement to Vote dated May 22, 2007 between the Company, Signet Energy, Inc., Andora Energy Corporation and David Perez (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed May 29, 2007)
10.60	Letter Agreement dated June 13, 2007 between the Company, Peace Oil Corp. and North Peace Energy Corp. (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed June 15, 2007)
10.61	Agreement of Purchase and Sale dated as of June 25, 2007 among Peace Oil Corp., North Peace Energy Corp. and the Company (incorporated herein by reference to Exhibit 10.63 to the Company’s Registration Statement on Form SB-2, filed July 3, 2007)
10.62	Addendum to Employment Agreement between William Greene and the Company, dated as of June 29, 2007 (incorporated herein by reference to Exhibit 10.64 to the Company’s Registration Statement on Form SB-2, filed July 3, 2007)
10.63	Stock Option Agreement dated July 17, 2007 between the Company and David Perez (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed July 23, 2007)
10.64	Stock Option Agreement dated July 17, 2007 between the Company and William Greene (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed July 23, 2007)
10.65	Escrow Agreement dated August 8, 2007 between the Company and Gemini (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August 10, 2007)
10.66	Redemption Agreement dated August 8, 2007 between the Company and Gemini (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated August 10, 2007)
10.67	Agreement to Vote dated August 17, 2007 between Signet Energy Inc., Andora Energy Corporation, the Company and David Perez (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB/A, filed March 25, 2008)
10.68	First Supplemental Trust Indenture dated August 17, 2007 between the Company, Signet Energy, Inc., and Valiant Trust Company (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-QSB/A, filed March 25, 2008)
10.69	Addendum to Employment Agreement dated December 31, 2007 by and between the Company and William Greene (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 4, 2008)
10.70	Purchase and Sale Agreement dated March 18, 2008, by and among Surge Global Energy, Inc.; Oromin Enterprises, Ltd.; Irie Isle Limited; Cynthia Holdings Ltd.; and Chet Idziszek (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 24, 2008)
10.71	Stock Option Agreement between the Company and Charles V. Sage dated February 27, 2008 and entered into on or about April 10, 2008
10.72	Stock Option Agreement between the Company and Barry Nussbaum dated February 27, 2008 and entered into on or about April 10, 2008
10.73	Stock Option Agreement between the Company and Jeffrey Lewis Bernstein dated February 27, 2008 and entered into on or about April 10, 2008

 

  

10.74	Stock Option Agreement between the Company and E. Jamie Schloss dated February 27, 2008 and entered into on or about April 10, 2008.
10.75	Stock Option Agreement between the Company and Kenneth Polin dated March 18, 2008 and entered into on or about April 10, 2008.
10.76	Employment Agreement for E. Jamie Schloss dated as of June 17, 2008. (Incorporated by reference to Form 8-K/A - June 17, 2008 - date of earliest event filed on April 15, 2009)
10.77	October 1, 2010 Purchase and Sale Agreement, by and between Surge Global Energy, Inc. and David McGuire. (Also included is an Engagement Agreement, Promissory Note, Security Agreement, Form of Stock Option and Non-Competition, Non-Solicitation and Confidentiality Agreement.) Incorporated by reference to Form 8-K , event date October 1, 2010.
10.78	Share Purchase Agreement – Purchase of 1,405,145 CFE Preferred Shares owned by Fisher Family Trust (Incorporated by reference to the Company’s Form 8-K filed June 23, 2008 - date of earliest event – June 17, 2008)
10.79	Share Purchase Agreement – Purchase of 1,905,145 CFE Preferred Shares owned by Stouthearted Family Trust (Incorporated by reference to the Company’s Form 8-K filed June 23, 2008  - date of earliest event – June 17, 2008)
10.80	Share Purchase Agreement – Purchase of 500,000 common shares of the Registrant from the Fisher Family Trust (Incorporated by reference to the Company’s Form 8-K filed June 23, 2008  - date of earliest event – June 17, 2008)
10.81	Share Purchase Agreement – Purchase of 1,905,145 CFE Preferred Shares owned by Cairns Family Trust. (Incorporated by reference to the Company’s Form 8-K filed June 23, 2008  - date of earliest event – June 17, 2008)
10.82	Share Purchase Agreement – Purchase of 806,886 common Shares of the Registrant from the Liu Family Trust.  (Incorporated by reference to the Company’s Form 8-K filed June 23, 2008  - date of earliest event – June 17, 2008)
10.83	Share Purchase Agreement – Purchase of 1,882,732 common Shares of the Registrant from the Ma Family Trust. (Incorporated by reference to the Company’s Form 8-K filed June 23, 2008  - date of earliest event – June 17, 2008)
10.84	Purchase and Sale Agreement dated June 27, 2008 by and among Cold Flow Energy ULC., Peace Oil Corp, and CPO Acquisition Corp.  (Incorporated by reference to the Company’s Form 8-K filed July 2, 2008,earliest event date June 27, 2008)
10.85	Complaint filed June 23, 2008 David Perez vs. Surge Global Energy, Inc. (Incorporated by reference to the Company’s Form 8-K filed July 2, 2008 - date of earliest event - June 27, 2008)
10.86	Share Purchase Agreement – Purchase of 500,000 shares owned by Fisher Family Trust. (Incorporated by reference to the Company’s Form 8-K filed July 16, 2008  - date of earliest event – July 11, 2008)
10.87	Amendment to Employment Agreement of E. Jamie Schloss dated November 30, 2010 (Incorporated by reference to this 2010 Form 10-K)
10.88	Agreement dated as of August 15, 2008 with Tetuan Resources Inc. (Incorporated by reference to the Company’s Form 8-K filed August 21, 2008  - date of earliest event – August 15, 2008)
10.89	Settlement Agreement dated February 2, 2010 by and among Surge Global Energy, Inc., 1358026 Alberta Ltd., Signet Energy and Andora Energy Corporation. (Incorporated by reference to Form 8-K dated February 2, 2010 filed with the SEC on February 8, 2010.)
10.90	Consulting Agreement of February 19, 2010 - Jeffrey Bernstein. (Incorporated by reference to Form 8-K - date of earliest event - February 19, 2010 filed with the SEC on February 23, 2010.)
10.91	Consulting Agreement of February 19, 2010 - Barry Nussbaum. (Incorporated by reference to Form 8-K - date of earliest event - February 19, 2010 filed with the SEC on February 23, 2010.)
10.92	Consulting Agreement of February 19, 2010 - Kenneth Polin. (Incorporated by reference to Form 8-K - date of earliest event - February 19, 2010 filed with the SEC on February 23, 2010.)
10.93	Purchase and Sale Agreement dated October 1, 2010, by and between Surge Global Energy, Inc. and David McGuire. (Also included is an Engagement Agreement, Promissory Note, Security Agreement, Form of Stock Option and Non-Competition, Non-Solicitation and Confidentiality Agreement (Incorporated by reference to Form 8-K –date of earliest event-October 1, 2010 filed with the SEC on October 6, 2010
10.94	Rescission Agreement by and among Surge Global Energy, Inc., David McGuire and McGuire Consulting Services, Inc. (Incorporated by reference to Form 8-K - date of earliest event – January 25, 2011 filed with the SEC on January 27, 2011).
10.95	May 5, 2011 Amendment to E. Jamie Schloss Employment Agreement.
10.96	July 22, 2011 Amendment to E. Jamie Schloss Employment Agreement. (filed herewith)
10.97	September 27, 2011 Amendment to E. Jamie Schloss Employment Agreement (Incorporated by reference to Form 8-K –  filed with the SEC on September 30, 2011
10.98	Securities Purchase Agreement between the Company and Asher Enterprises, Inc. dated August 17, 2011 but effective as of September 23, 2011 (Incorporated by reference to From 8-K –date of earliest event September 23, 2011) filed with the SEC on September 30, 2011
10.99	Convertible Promissory Note issued to Asher Enterprises, Inc. (Incorporated by reference to From 8-K date of earliest event – August 17, 2011amended to September 23, 2011, filed with the SEC on September 30, 2011

  

 

31.1	Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(filed herewith)
32.1	Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code, promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(filed herewith)
101. INS	Document, XBRL Instance
101.SCH	Document, XBRL Taxonomy Extension
101.CAL	Calculation Linkbase, XBRL Taxonomy Extension Definition
101.DEF	Linkbase,XBRL Taxonomy Extension Labels
101.LAB	Linkbase, XBRL Taxonomy Extension
101.PRE	Presentation Linkbase

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SURGE GLOBAL ENERGY, INC.
DATED: November 14, 2011	By:	/s/ E. Jamie Schloss
		E. Jamie Schloss
		(CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER)