U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM _______________ TO _______________.

 

Commission file number 0-24269

 

 

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

 

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

 

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

 

Issuer’s telephone number: (800) 284-3898

 

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 [X] 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 [X] 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	[X]

 

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

 

As of May 15, 2015, the Registrant had 16,464,673 shares of common stock issued and outstanding.

 

 

 

TABLE OF CONTENTS

 

			Page No
Part I - Financial Information
Item 1.	Financial Statements (Unaudited)		3
		Consolidated Balance Sheets	F-1
		Consolidated Statements of Operations and Comprehensive Income (Loss)	F-2
		Consolidated Statements of Cash Flows	F-3
		Notes to Consolidated Financial Statements	F-4 to F-11
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.		Controls and Procedures	10
Part II - Other Information
Item 1.		Legal Proceedings	11
Item 1A.		Risk Factors	11
Item 2.		Unregistered Sales Of Equity Securities And Use Of Proceeds	11
Item 3.		Defaults Upon Senior Securities	12
Item 4.		Mining Safety Disclosures	12
Item 5.		Other Information	12
Item 6.		Exhibits	12

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

		Page No
Consolidated Balance Sheets at March 31, 2015 (unaudited) and December 31, 2014		F-1
Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss) for the Quarters Ended March 31, 2015 and March 31, 2014		F-2
Unaudited Consolidated Condensed Statements of Cash Flows for the quarters ended March 31, 2015 and 2014		F-3
Notes to Unaudited Consolidated Condensed Financial Statements		F-4 - F-11

 

 

SURGE GLOBAL ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2015				December 31, 2014
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	45,491			$	25,159
Prepaid expenses			33,585				12,638
Total current assets			79,076				37,797
Property and equipment, net of accumulated depreciation of $43,274 and $42,189, respectively			6,094				7,179
Oil & Gas Property			275,000				-
Investment in Andora Energy (Note 2)			1,141,308				1,490,923
Security Deposit			5,000				5,000
Total assets		$	1,506,478			$	1,540,899
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	94,833			$	49,932
Total current liabilities			94,833				49,932
Total liabilities			94,833				49,932
Commitments and contingencies			-				-
Stockholders’ equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized:			-				-
Series A - none issued and outstanding			-				-
Series B - none issued and outstanding			-				-
Special Voting Preferred - 0 shares issued and outstanding, respectively			-				-
Common stock, par value $0.001 per share; 400,000,000 shares authorized; 16,464,673 and 14,764,673 shares issued and outstanding, respectively			16,465				14,765
Additional paid-in capital			57,265,064				56,846,764
Accumulated other comprehensive income			(592,324	)			(242,709	)
Retained earnings			(55,277,560	)			(55,127,853	)
Total stockholders’ equity			1,411,645				1,490,967
Total liabilities and stockholders’ equity		$	1,506,478			$	1,540,899

 

See accompanying footnotes to these unaudited condensed consolidated financial statements.

 

 

SURGE GLOBAL ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

		For the three months ended March 31,
		2015				2014
		(unaudited)
Revenues:
Oil & gas revenues		$	-			$	145
Oil & gas (expenses)			-				(86	)
Gross profit			-				59
Operating expenses:
Selling, general and administrative expenses			148,051				218,977
Accretion, depreciation and amortization			1,085				1,171
Oil and gas property impairment			-				-
Total operating expenses			149,136				220,148
Loss from operations			(149,136	)			(220,089	)
Interest income (expense)			(571	)			(107	)
Loss from continuing operations, before income taxes and minority interest			(149,707	)			(220,196	)
Benefit (provision) for income taxes			-				-
Net income (loss)			(149,707	)			(220,196	)
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities			(349,615	)			-
Comprehensive income (loss)		$	(499,322	)		$	(220,196	)
Income (loss) per common share - basic and diluted		$	(0.01	)		$	(0.02	)
Weighted average shares outstanding - basic and diluted			14,945,007				13,349,117

 

See accompanying footnotes to these unaudited condensed consolidated financial statements.

 

 

SURGE GLOBAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the three months ended March 31,
		2015				2014
Cash flows from operating activities:
Net loss		$	(149,707	)		$	(220,196	)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion, depreciation and amortization			1,085				1,171
Accounts Receivable and other receivables			-				105
Warrant expense			25,000				-
Prepaid expense and other assets			(20,947	)			4,503
Security Deposit and Other assets			44,901				4,772
Net cash received in operating activities		$	(99,668	)			(209,645	)
Cash flows from investing activities:
Purchase of oil and gas properties			(275,000	)			(6,000	)
Net cash provided by (used in) investing activities			(275,000	)			(6,000	)
Cash flows from financing activities:
Proceeds from the sale of common stock and stock subscription, net of costs and fees			395,000				824,000
Proceeds from investment obligation			-				(393,000	)
Net cash (used in) provided by financing activities			395,000				431,000
Effect of exchange rates on cash and cash equivalents			-				-
Net increase (decrease) in cash and cash equivalents			20,332				215,355
Cash and cash equivalents at the beginning of the period			25,159				61,521
Cash and cash equivalents at the end of the period		$	45,491			$	276,876
		For the three months March 31,
		2015				2014
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest		$	571			$	107
Cash paid during the period for income taxes			-				-
Supplemental Disclosures of Non-Cash Transactions:
Unrealized loss (gain) on available for sale securities		$	(349,615	)		$	-

 

See accompanying notes to these unaudited consolidated financial statements.

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

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, Cold Flow Energy ULC, 1294697 Alberta Ltd., and Surge Holding Co., (collectively the “Company”). Neither 1294697 Alberta Ltd., nor Surge Holding Co., has any ongoing business operations at this time.

 

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.

 

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. 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 the 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 the 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.

 

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 had total cash of $45,491 in cash in an account maintained by at a U.S. bank at March 31, 2015, all of which is subject to up to $250,000 of FDIC insurance.

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

 

Cash Flow Reporting

 

The Company follows ASC 230, Statement of Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period.

 

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 the fair value because of the short-term maturity of these instruments.

 

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.

 

Going Concern

 

As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations of $149,707 and $220,196 for the quarters ending March 31, 2015 and 2014, respectively, a decreased loss of $70,489. The Company’s cash position as of March 31, 2015 was $45,491 compared with $25,159 at December 31, 2013, an increase of $20,332. The Company’s net current assets, on a consolidated basis, were a deficit of $15,757 compared with a net current asset deficit of $12,135 at December 31, 2014.

 

Management believes that with additional financing it should have sufficient capital resources to meet projected cash flow needs through the next twelve months, although no assurances can be given in this regard.

 

Other Items

 

Revenue Recognition—Oil and gas sales result from undivided interests held by the Company in oil and gas properties. Sales of oil and gas produced from oil and gas operations are recognized when the product is delivered to the purchaser and title transfers to the purchaser. The Company had no natural gas sales imbalance positions at March 31, 2015 or 2014. Charges for gathering and transportation are included in production expenses.

 

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.

 

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. Most of our tax loss carry forwards were cancelled as a result of a change of control which occurred in October, 2012.

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

 

Property and Equipment

 

Property and equipment are stated at cost. When retired or otherwise 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 were $1,085 and $1,171 for the quarters ended March 31, 2015 and 2014, respectively. Maintenance, repairs, and minor renewals are charged against earnings when incurred. Additions and major renewals are capitalized.

 

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 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 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. There was no stock-based compensation expense to employees or directors recognized for the quarters ended March 31, 2015 or 2014. In prior years, Company used 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 other market variables such as the risk free interest rate.

 

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.

 

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 these rules and releases and does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its consolidated results of operations, financial position or cash flow.

 

In August 2014, FASB issued Accounting Standards Update (ASU) No. 2014-15 Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. Under generally accepted accounting principles (GAAP), continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements—Liquidation Basis of Accounting. Even when an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it has met conditions which would subject these financial statements for additional disclosure.

 

In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as “Development Stage Entities” (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard.

 

In May 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The revenue recognition standard affects all entities that have contracts with customers, except for certain items. The new revenue recognition standard eliminates the transaction-and industry-specific revenue recognition guidance under current GAAP and replaces it with a principle-based approach for determining revenue recognition. Public entities are required to adopt the revenue recognition standard for reporting periods beginning after December 15, 2016, and interim and annual reporting periods thereafter. Early adoption is not permitted for public entities. The Company has reviewed the applicable ASU and has not, at the current time, quantified the effects of this pronouncement, however it believes that there will be no material effect on the consolidated financial statements.

 

In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12 Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation — Stock Compensation. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after 15 December 2015 and interim periods within those annual periods. Early adoption is permitted. Management has reviewed the ASU and believes that they currently account for these awards in a manner consistent with the new guidance, therefore there is no anticipation of any effect to the consolidated financial statements.

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

 

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 these rules and releases and does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its consolidated results of operations, financial position or cash flow.

 

NOTE 2 - INVESTMENT IN ANDORA ENERGY CORPORATION

 

On September 19, 2007, 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. At that time, 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 of legal fees from the Company pursuant to a judgment of a court of competent jurisdiction and after exhausting all appeals, which only allowed the escrowed shares to be released upon settlement of all claims. Pursuant to the agreement reached between the Company and Andora, all shares were released from escrow to the Company in February, 2010 after payment of 375,000 Andora shares owned by the Company to Andora.

 

In October 2012, the Company agreed it would take steps to contribute as promptly as possible 2,889,386 shares of common stock of Andora held by it to its wholly-owned subsidiary, Cold Flow Energy ULC, an Alberta corporation (“Cold Flow”), or a newly-formed wholly-owned subsidiary, Surge Holding Co., a Delaware corporation (either or both, the “Holding Company”). The Buyers and the Company have agreed that the Holding Company and the Andora Shares will not be disposed of by the Company for any purpose until the later of (i) April 30, 2013 or (ii) 180 days after the subsequent closing date (the “Distribution Date”). This restriction on the time period for the disposition of the Andora Shares or of the Holding Company may be waived in the event that the value of the total non-cash assets of the Company exceeds the value of the Andora Shares.

 

Three of the Company’s previous directors, Charles V. Sage, Edwin J. Korhonen and E. Jamie Schloss, were appointed directors of the Holding Company and Messrs. Sage and Schloss were appointed officers of the Holding Company. The Buyers and the Company have agreed that such persons shall remain in such roles through the Distribution Date.

 

On the Distribution Date, the Company will distribute the shares of the Holding Company (or the Andora Shares) or a liquidating dividend to the shareholders of the Company other than the Buyers and their affiliates and transferees and any other holders of the Common Stock issued subsequent to the closing dates (including any purchaser of Common Stock of the Company in any private placement subsequent to the closing dates but excluding holders who have obtained shares in the public markets); provided, however, that such a dividend can be paid pursuant to applicable corporate laws and in compliance with all securities laws. The mechanism for such distribution shall be agreed upon between the Company and the majority of the directors of the Holding Company.

 

The distribution will occur as soon as practical after a pending determination of the tax consequences, if any, and the determination of the method of distribution, upon approval of FINRA.

 

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. Andora may obtain equity financing in the future to finance its drilling operations and, in that event, the Company may sustain additional dilution to its equity interest in Andora.

 

At March 31, 2015 the Company owned 2,889,386 Andora shares valued at $1,141,308 (valued at $0.395 per share), which shares are approximately 3% of Andora’s total outstanding common shares on a fully diluted basis.

 

NOTE 3 - OIL AND GAS PROPERTIES

 

During the quarter ended March, 2015, the Company acquired a 10% interest in Nikoil Energy Limited for $150,000 in cash and 1,250,000 common shares valued at $125,000 for a total investment of $275,000.

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

NOTE 4 - 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 Quarter ended,
		March 31, 2015				March 31, 2014
Net Taxable Loss		$	(150,000	)		$	(220,000	)
Income tax computed at combined U.S. and state rates (30%)			(45,000	)			(66,000	)
Permanent differences
Changes in valuation allowance			45,000				66,000
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 March 31,
		2015				2014
Deferred tax assets:
Net operating loss carryforwards		$	1,350,000			$	600,000
Other tax attributes			-
Less valuation allowance			(1,350,000	)			(600,000	)
Total		$	-			$	-

 

At December 31, 2014, Surge had net operating loss carryforwards of approximately $1,200,000 for federal and approximately $1,224,000 for state income tax purposes, which will begin to expire, if unused, beginning in 2021. The valuation allowance increased by approximately $45,000 and $66,000 in the quarters ended March 31, 2015 and 2014. 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 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. Tax years from 2010 to 2014 are still open for tax audit.

 

NOTE 5 - INVESTMENT OBLIGATION

 

The Company received investments in common stock which in turn reduced the investment obligation by $393,000 in the quarter ended March 31, 2014 thereby reducing the investment obligation to zero as of March 31, 2014 and at March 31, 2015.

 

NOTE 6 - CAPITAL STOCK

 

Common Stock

 

On February 22, 2013, the Company approved an increase to the Company’s authorized shares of capital stock to an aggregate of 410,000,000 shares, consisting of 400,000,000 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.

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

NOTE 6 - CAPITAL STOCK (continued)

 

In February, 2013 the Company completed a reverse 1 for 20 reverse common stock split and increased the authorized common shares to 400,000,000 from 200,000,000.

 

In March, 2013 the Company issued 3,216,715 common shares for total proceeds of $100,000.

 

In June, 2013, the Company issued 200,000 shares of common stock plus warrants for total proceeds of $100,000.

 

In September, 2013, the Company issued 500,000 shares of common stock plus warrants for total proceeds of $251,100.

 

In October, 2013, the Company issued 200,000 shares of common stock plus warrants for total proceeds of $100,000.

 

In June, September and October 2013, the Company issued a total of 900,000 common shares for total proceeds of $452,000.

 

From January 1, 2014 to March 31, 2014, the Company sold 1,800,000 common shares to three accredited investors for total proceeds of $837,500, and converted equity obligations, received in a prior year, in the amount of $393,000.

 

During the period from January 1, 2015 to March 31, 2015, the Company sold 450,000 common shares to three accredited investors for total proceeds of $270,000.

 

During the quarter ended March, 2015, the Company acquired a 10% interest in Nikoil Energy Limited for $150,000 in cash and 1,250,000 common shares valued at $125,000 for a total investment of $275,000.

 

NOTE 7 - WARRANTS AND STOCK OPTIONS

 

Class A Warrants.

 

Class A Warrants. The following table summarizes the stock purchase warrants outstanding at March 31, 2015.

 

				Warrants Outstanding											Warrants Exercisable
Exercise Prices				Number Outstanding				Weighted Average Remaining Life (Years)				Weighted Average Exercise Price				Number Exercisable				Weighted Average Exercise Price
$	0.40				152,500				1.55			$	0.40				152,500			$	0.40
	0.50				300,000				1.75				0.50				300,000				0.50
	0.55				500,000				1.40				0.55				500,000				0.55
	0.65				200,000				0.96				0.65				200,000				0.65
	0.75				200,000				1.89				0.75				200,000				0.75
	1.00				2,000,000				1.55				1.00				1,800,000				1.00
	1.25				175,000				0.81				1.25				175,000				1.25
	Totals or average				3,527,500				1.50			$	1.00				3,527,500			$	0.85

 

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, 2013			1,052,500			$	0.91
Granted			1,225,000				0.85
Exercised			-				-
Canceled or Expired			(200,000	)			(1.00	)
Outstanding at December 31, 2014			2,077,500			$	0.91
Granted			1,450,000				0.76
Exercised			-				-
Canceled or expired			-				-
Outstanding at March 31, 2015			3,527,500			$	0.85

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

For the quarter ended March 31, 2015 the Company issued 1,450,000 warrants which were fully vested at March 31, 2015. The warrants were issued in conjunction with a common stock offerings and no warrant expense was recorded in 2015 or 2014 for these warrants.

 

There were warrants issued during the quarter in conjunction with the acquisition of a 10% interest in Nikoil Energy Limited and an expense of $25,000 for these warrants was record during the quarter ended March 31, 2015 based on the Black Scholes formula.

 

Stock options.

 

No stock options were issued or exercised during the quarters ended March 31, 2015 or 2014.

 

All stock options and warrants issued previously were valued using the Black-Scholes option-pricing model. Variables used in the Black-Scholes pricing model for options issued during the year ended December 31, 2011 include (1) discount rate range of 2.21% to 3.03%, (2) option life of 5 years, (3) expected volatility of 63% to 108% and (4) zero expected dividends.

 

Stock options.

 

The following table summarizes the balances of stock options issued to officers and directors outstanding at March 31, 2014.

 

Exercise Prices				Number of options Outstanding				Weighted Average Remaining Contractual Life (Years)				Weighted Average Exercise Price				Actual Number Exercisable				Weighted Average Exercise Price
	0.40				115,000				1.55				0.40				115,000				0.40
					115,000				1.55			$	0.40				115,000			$	0.40

 

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

 

		Number of Shares				Weighted Average Price Per Share
Outstanding at December 31, 2011			332,500			$	1.40
Granted			267,500				0.80
Exercised			-				-
Canceled or expired			(332,500	)			-
Outstanding at December 31, 2012			267,500			$	0.40
Granted			-				-
Cancelled or expired			(152,500	)			(0.40	)
Outstanding at March 31, 2015			115,000			$	0.40

 

NOTE 8 - 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 litigation:

 

There were no current litigation matters outstanding as of March 31, 2015.

 

 

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 AND 2014

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

In November, 2014 the Company leased space on a month-to-month basis at 75-153 Merle Drive, Suite B, Palm Desert, California at a monthly rental of $250 per month.

 

In July, 2013 the Company leased space located at 1110 Brickell Avenue, Suite 317, Miami FL. The terms of the lease are a monthly rental of $2,675 per month for a two year term. The following is our lease commitment for future periods:

 

As of March 31, 2015
2015		$	8,025
2016 and thereafter			-
			-
Total		$	8,025

 

Employment Agreements

 

All employees are currently employed on a month to month basis.

 

Consulting Agreements

 

The Company had no outstanding consulting agreements as of March 31, 2015.

 

NOTE 10 - 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, including exhibits thereto, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are typically identified by the words “anticipates,” “believes,” “expects,” “intends,” forecasts,” estimates,” “plans,” “future,” “strategy,” or words of similar meaning. In particular, the following types of statements are forward-looking:

 

	●	statements regarding our potential growth opportunities;
	●	statements regarding our ability to generate revenues from our operations;
	●	statements regarding our anticipated exploration work;
	●	statements regarding our ability to extract, refine, sell oil or sell oil properties;
	●	statements regarding our estimated future costs and expenses; and
	●	statements regarding ability to comply or continue to comply with governmental regulations.

 

Various factors could cause actual results to differ materially from those expressed in the forward-looking statements, including those described in “Risk Factors” in this Form 10-K. The Company assumes no obligations to update these forward-looking statements to reflect actual results, costs changes in assumptions, or changes in other factors, except as required by law.

 

General Overview

 

Surge Global Energy, Inc. (“Surge”) is a Delaware corporation traded on the OTCQB Markets and on the OTCBB Bulletin Board under the symbol “SRGG.” Our principal executive offices are located at 75-153 Merle Drive, Suite B, Palm Desert, CA 92211 and our international sales office is located at 1110 Brickell Avenue, Suite 317, Miami FL 33131.

 

Our telephone number is 800-284-3898 and our fax number is 786-923-0963. We maintain a website at www.SurgeGlobalEnergy.com. The contents of this website are not made a part of this filing.

 

We are an oil and gas exploration and development company. The Company is primarily engaged in negotiations concerning the feasibility and development of a production partnership for the purposes of developing oil & gas assets located in the Gulf of Guinea and surrounding offshore area of West Africa on the Atlantic Ocean, IN East and West Texas in the United States and in South America. It is the Company’s present intent to acquire interests in existing production sites or historical production sites with proved reserves. We intend to actively participate in drilling for oil and gas for our own account and to participate with others in drilling opportunities. We will be competing with a number of other potential purchasers of prospects and producing properties, most of which will have greater financial resources than us or our co-interest holders. In the oil and gas industry, the bidding for prospects has become particularly intense with different bidders evaluating potential acquisitions with different product pricing parameters and other criteria that result in widely divergent bid prices. In the current oil and gas lease environment, there can be no assurance that there will be a sufficient number of suitable prospects available for acquisition by us or that we can sell prospects or obtain financing for, or participate with others to join in the development of, prospects.

 

In March, 2015, the Company acquired a 10% interest in Nikoil Energy Limited which has rights to an oil & gas property located in West Africa.

 

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. On December 31, 2003, our pipe and tobacco inventory was liquidated and the tangible and intangible assets related to that business were sold. On October 13, 2004, our name was changed from The Havana Group, Inc. to Surge Global Energy, Inc.

 

In December 2004, we completed the restructuring of our balance sheet and the cancellation of outstanding Preferred A and Preferred B shares and indebtedness related to the discontinued tobacco and pipe business.

 

From 2005 through 2012, we engaged in a series of acquisition, divestiture and capital transactions in an effort to expand our business and provide the basis for long-term shareholder returns from oil and gas exploration and development. Because our operations from 2005 forward have not generated any revenue, we have used our equity and the value of interests in other entities that we have controlled from time to time, to attempt to develop business opportunities we believed would be advantageous. Our management has also undergone a number of changes during this period.

 

 

In October 2012, the Company agreed to sell 7,000,000 post reverse split shares to William E. Fitzgerald and Clark Morton and agreed to sell and issue 3,216,715 additional post reverse shares which shares were issued on March 27 2013.

 

In March 2013, the Company issued 3,216,715 additional shares issued to Mr. Fitzgerald and Mr. Morton in consideration of an investment of $100,000. After this issuance, the total outstanding shares were 12,019,673 as at June 30, 2013 which are owned by Mr. Morton and Mr. Fitzgerald equally and which, in the aggregate, represented an ownership of 85% of the outstanding common shares at that time.

 

In June 2013, the Company sold 200,000 common shares at a price of $0.50 per share to an accredited investor for proceeds of $100,000 and in conjunction with this purchase, also issued 200,000 warrants at an exercise price of $1.00 per share exercisable until December 31, 2014.

 

In September 2013, the Company sold 500,000 common shares at a price of $0.50 per share to an accredited investor for cash proceeds of $100,000 and a reduction in the investment obligation due the Fitzgerald Group, and in conjunction with this purchase also issued 500,000 warrants at an exercise price of $1.00 per share exercisable until December 31, 2014.

 

In 2014, the Company sold a total of 1,800,000 common shares to four accredited investors for total proceeds of $837,500 plus $9,300 reimbursement of administrative expenses, and issued 45,000 common shares as employee compensation.

 

Through March 31, 2015, the Company sold a total of 450,000 common shares to three accredited investors for total proceeds of $270,000.

 

In March, 2015, the company issued 1,250,000 common shares in conjunction with its purchase of a 10% interest in Nikoil Energy Limited.

 

Because we are an oil and gas exploration company, the inability to develop oil and gas prospects has reduced our working capital and created the need for additional strategic transactions to raise capital and liquidate assets.

 

Recent Developments

 

None.

 

Oil and Gas Drilling Activities

 

The Company’s ability to invest in future oil and gas transactions is dependent upon our ability to obtain additional financing on terms satisfactory to us, if at all. See “Risk Factors.”

 

See our December 31, 2014 Form 10-K for a complete history of prior oil and gas activities.

 

During 2014 and in the first quarter of 2015, the Company reviewed several opportunities in new oil and gas properties and is currently working to obtain the financing to either acquire or develop these opportunities.

 

Andora Energy Corporation (formerly Signet Energy)

 

Andora is a privately owned oil and gas company which is 71.80% owned and controlled by Pan Orient Energy Corp., a Canadian energy company listed on the TSX Venture Exchange.

 

In 2005, we formed a Canadian subsidiary that entered into an agreement to drill wells in the Sawn Lake Property located in Northern Alberta, Canada with Deep Well Oil & Gas, Inc. (“Deep Well”) and Northern Alberta Oil, Ltd. (“NAOL”). In November 2005, that subsidiary renamed Signet Energy, Inc. (“Signet”) was reorganized. Surge issued 5.1 million of common stock in its Canadian subsidiary to former Signet officers, directors and certain shareholders, and transferred shares of Signet to Deep Well and NAOL and Surge.

 

Surge retained 10,500,000 shares of Signet after the foregoing transaction (approximately 49%) of Signet on a non-diluted basis. As a result, we became a minority shareholder in Signet, and obtained leases of oil and gas properties from Deep Well and NAOL. In July 2006, our interest in Signet was further diluted by the issuance of additional equity by Signet. On September 17, 2007, Signet combined with Andora Energy Corporation (“Andora”), resulting in further dilution of our interest in the combined entity to approximately 5.6% of the fully diluted shares of Andora. In exchange for our Signet shares we received 3,429,138 shares of Andora.

 

In 2009, as a result of the dismissal of lawsuits and settlement agreements, we received 252,361 Andora shares from a settlement with our former Chief Executive Officer. We also paid out 75,000 shares in settlement with a former director.

 

In another settlement with Andora dated February 2, 2010, 375,000 Andora shares were paid to Andora in full payment of all outstanding claims of approximately $560,000 owed Andora for legal fees in conjunction with a lawsuit.

 

 

In 2010 and 2011, we transferred a total of 33,333 Andora shares to our former Chief Executive Officer in lieu of $20,000 in salary.

 

In October 2012, the Company agreed to issue a total of 308,780 Andora shares in settlement of amounts owed to its current Chief Financial Officer (and formerly its Chief Executive Officer) and another creditor. In October 2012, the Company agreed it would take steps to contribute as promptly as possible approximately 2,886,000 shares of common stock of Andora held by it to its wholly-owned subsidiary, Cold Flow Energy ULC, an Alberta corporation (“Cold Flow”), or a newly-formed wholly-owned subsidiary, Surge Holding Co., a Delaware corporation (either or both, the “Holding Company”). The Buyers and the Company have agreed that the Holding Company and the Andora Shares will not be disposed of by the Company for any purpose until the later of (i) April 30, 2013 or (ii) 180 days after the subsequent closing date (the “Distribution Date”). This restriction on the time period for the disposition of the Andora Shares or of the Holding Company may be waived in the event that the value of the total non-cash assets of the Company exceeds the value of the Andora Shares. Three of the Company’s current directors, Charles V. Sage, Edwin J. Korhonen and E. Jamie Schloss, were appointed directors of the Holding Company and Messrs. Sage and Schloss were appointed officers of the Holding Company. The Buyers and the Company have agreed that such persons shall remain in such roles through the Distribution Date.

 

On the Distribution Date, the Company will distribute the shares of the Holding Company (or the Andora Shares) or a liquidating dividend to the shareholders of the Company other than the Buyers and their affiliates and transferees and any other holders of the Common Stock issued subsequent to the closing dates (including any purchaser of Common Stock of the Company in any private placement subsequent to the closing dates but excluding holders who have obtained shares in the public markets); provided, however, that such a dividend can be paid pursuant to applicable corporate laws and in compliance with all securities laws. The mechanism for such distribution shall be agreed upon between the Company and the majority of the directors of the Holding Company.

 

The distribution will occur as soon as practical after a pending determination of the tax consequences, if any, and the determination of the method of distribution, upon approval of FINRA.

 

Other

 

In 2010, the Company sold the remaining 50,000 Good Energy shares for $122,500.

 

In 2010, the Company issued a total of 2,200,000 pre reverse split common shares for net total proceeds of $218,000.

 

In December 2010, the Company sold its interest in the Qualmay #12-42 well in Wyoming for $10,000.00 in cash due in March, 2011, plus forgiveness of lease operating expenses on the well totaling $19,405, and release of any plugging liability (estimated previously at $10,500), for a total recovery of $39,405.

 

During 2011, the Company sold a total of 2,250,000 common shares for $67,500.

 

In September 2011, the Company issued a Convertible Note to Asher Enterprises for $45,000 and repaid the Note in full in February, 2012. See Notes to Consolidated Financial Statements for complete details.

 

In January 2012, the Company issued 170,000 pre reverse split common shares at $0.03 per common share.

 

In October 2012, the Company issued a total of 7,000,000 post reverse split common shares for total proceeds of $350,000.

 

In November 2012, the Company received $100,000 in cash for the purchase an additional 3,216,715 post reverse split common shares, which shares were subscribed for but were unissued at December 31, 2012 pending an increase in authorized shares and the completion of the proposed reverse 1 for 20 stock split which occurred on February 22, 2013.

 

In March 2013, the Company issued 1,608,357 and 1,608,358 post reverse split common shares referred to above to Clark Morton, its Chief Executive Officer and William Fitzgerald, its President, respectively.

 

In June 2013, the Company issued 200,000 common shares and 200,000 stock purchase warrants to an accredited investor for total proceeds of $100,000.

 

In September 2013, the Company issued 500,000 common shares and 500,000 stock purchase warrants to an accredited investor.

 

In the year ended December 31,2014 the Company issued a total of 1,800,000 common shares and 1,225,000 stock purchase warrants for total proceeds of $837,500.

 

In the quarter ended March 31, 2015, the Company issued a total of 450,000 common shares and 950,000 stock purchase warrants for total proceeds of $270,000.

 

In the quarter ended March 31, 2015, the Company issued 1,250,000 common shares plus $150,000 in cash consideration for the purchase for a 10% interest in Nikoil Energy Limited, a Nigerian corporation.

 

  

Competition

 

The oil and gas business is highly competitive. Subject to additional financing, of which we can provide no assurances, we will try to 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 and major oil and gas companies and oil and gas syndicates actively seek out and bid for both oil and gas prospects with substantially greater financial and personnel resources and operating histories 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 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.

 

Government and Environmental Regulation

 

Our operations will be subject to extensive and developing federal, state and local laws and regulations in the United States relating to environmental, health and safety matters; laws affecting petroleum, chemical products and materials; and waste management. Permits, registrations or other authorizations are required for the operation of certain of our facilities and for our oil and gas exploration and production activities. These permits, registrations or authorizations are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with these regulatory requirements, the provisions of required permits, registrations or other authorizations, lease conditions, and violators are subject to civil and criminal penalties, including fines, injunctions or both. Failure to obtain or maintain a required permit may also result in the imposition of civil and criminal penalties. Third parties may have the right to sue to enforce compliance. Foreign and domestic development, production and sale of oil are extensively regulated in Canada at both the federal and state levels. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, in Canada and at federal and state levels, have issued rules and regulations binding on the oil and gas industry and its individual members, compliance with which is often difficult and costly and some of which carry substantial penalties for failure to comply. Canada and multiple state statutes and regulations where we intend to conduct operations require permits for drilling operations, drilling bonds and reports concerning wells. Such jurisdictions also have statutes and regulations governing conservation matters, including the unitization or pooling of oil and gas properties and establishment of maximum rates of production from oil and gas wells.

 

Some risk of costs and liabilities related to environmental, health and safety matters is inherent in our operations, as it is with other companies engaged in similar businesses, and there can be no assurance that material costs or liabilities will not be incurred. In addition, it is possible that future developments, such as stricter requirements of environmental or health and safety laws and regulations affecting our business or more stringent interpretations of, or enforcement policies with respect to, such laws and regulations, could adversely affect us. To meet changing permitting and operational standards, we may be required, over time, to make site or operational modifications at our facilities, some of which might be significant and could involve substantial expenditures. There can be no assurance that material costs or liabilities will not arise from these or additional environmental matters that may be discovered or otherwise may arise from future requirements of laws in the United States and Canada.

 

Related party transactions

 

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 under “Related Party Transactions.”

 

In October 2012, the Company issued 7,000,000 post reverse split common shares and in March 2013, the Company subsequently issued an additional 3,216,715 common shares in 2013 to its CEO, Clark Morton, and its President, William Fitzgerald. (See “Corporate History” above and Note 7 of the financial statements.)

 

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.

 

 

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.

 

Impairment of Long-Lived Assets

 

We have adopted U.S. GAAP Accounting Standards for Property, Plant and Equipment (ASC 360) 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 under counted 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 the 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.

 

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 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.

 

Number of Total Employees and Number of Full-time Employees

 

At March 31, 2015, the Company had four (4) full time employees. From our inception through the period ended March 31, 2015, we have relied on the services of outside consultants for services in addition to from one (1) to five (5) full-time employees. 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, or complete a major oil & gas property acquisition we will incur additional costs for personnel and consultants. 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. None of our employees are covered by collective bargaining agreements, and we believe our relations with our employees are favorable.

 

Results of Operations

 

For the Three Month Period Ending March 31, 2015 and March 31, 2014

 

The Company had no operating revenues in the three months ended March 31, 2015, compared with $145 in the three months ended March 31, 2014.

 

For the three months ended March 31, 2015, the Company incurred a net loss of $149,707 compared to a loss of $220,196 for the comparable period in 2013, a decreased loss of $70,489 (32%) from the prior period. The principal reasons for this increased loss are set forth below:

 

Total operating expenses for the three months ended March 31, 2015 were $149,136 versus $220,148 in the comparable three months ended March 31, 2014, a decrease of $71,012 (32%) from the prior period. The decrease in operating expenses was primarily due to a decrease in officers’ salaries to $50,100 in the three months ending March 31, 2015 from $103,400 in the comparable period in 2014, a decrease of $53,300; a decrease in legal fees to $26,100 in 2015 compared to $39,300 in 2014, a decrease of $13,200; a decrease of travel and entertainment expenses of $20,200, an increase in warrant expense of 25,000, and an increase in all other expenses (net) of $9,312.

 

Net interest expenses for the three months ended March 31, 2015 was $571 versus net interest expense of $107 for the prior comparable three month period.

 

  

Future Operating Trends

 

Our future operations depend on available cash resources, additional financing, and/or the sale of additional common stock.

 

We can provide no assurances that any additional financing will be satisfactory to us, if at all.

 

Liquidity and Capital Resources

 

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 funding 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.

 

Continuing Loss

 

As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations of $149,707 of March 31, 2015 compared with $220,196 at March 31, 2014, a decreased loss of $70,489. The Company’s cash position at March 31, 2015 was $45,491 compared with $25,159 at December 31, 2014. The Company’s current liabilities were $94,833 at March 31, 2015 compared with $49,932 at December 31, 2014, an increase of $44,901.

 

The Company’s net working capital at March 31, 2014 was a deficit of $15,757 compared with a working capital deficit of $12,135 at December 31, 2014.

 

Management believes it should have sufficient capital resources to meet projected cash flow needs through the next twelve months, although no assurances can be given in this regard.

 

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.

 

ITEM 3. 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, and stock and/or 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 Clark Morton, our principal executive officer and E. Jamie Schloss, our principal 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 principal 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 principal executive officer and principal 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 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.

 

Management is responsible for establishing and maintaining policies and procedures for the 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 principal executive officer, Clark Morton, and our principal financial officer, E. Jamie Schloss, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2015. 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. Morton and Mr. Schloss concluded that, as of September 30, 2013, 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 principal financial officer can initiate, authorize, and complete all transactions, and (2) we have not implemented measures that would prevent the principal financial officer from overriding the internal control system. We do not believe that these control weaknesses have resulted in deficient financial reporting because the principal financial officer is aware of his responsibilities under the SEC’s reporting requirements and personally certifies 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 should 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 principal financial officer that occurred during the quarter ended March 31, 2015 that have materially affected, or are 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. 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 would adversely affect our financial condition, results of operations or cash flows.

 

There are no pending open litigation matters affecting the Company.

 

ITEM 1A. 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 below and under “Risk Factors” in Item 1A of our 2012 Form 10-K filed with the Securities and Exchange Commission on April 9, 2014. This information should be considered carefully, together with other information in this report and other reports and materials we file with the Securities and Exchange Commission.

 

Loss of Investment Company Act Exclusion Would Adversely Affect 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.”

 

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 and would create additional expenses and divert management time.

 

During the three months ended March 31, 2015, there were no material changes to the information in our 2014 Form 10-K under “Risk Factors.”

 

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

 

(a) During the three months ended March 31 2015, there were no sales of securities by the Company except as set forth below:

 

Date of Sale

Title of Security

Number of Shares Sold

Consideration Received, Commissions

Purchasers

Exemption from Registration Claimed

February 13, 2015

Common stock

200,000

$100,000, no commissions paid

Accredited Investor

Rule 506; Section 4(2)

February 18,2015

Common stock

20,000

$10,000, no commissions paid

Accredited Investors

Rule 506; Section 4(2)

February 23, 2015

Common stock

100,000

$50,000, no commissions paid

Accredited Investors

Rule 506; Section 4(2)

March 4, 2015

Common stock

30,000

$10,000, no commissions paid

Accredited Investors

Rule 506; Section 4(2)

March 13, 2015

Common stock

100,000

$100,000, no commissions paid

Accredited Investors

Rule 506; Section 4(2)

March 31, 2015

Common stock

1,250,000

10% of Nikoil Energy Limited, no commissions paid

Accredited Investor

Rule 506; Section 4(2)

 

During the three months ended March 31, 2015, there were no repurchases by the Company of its Common Stock.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

31.1		Certification by Principal Executive 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.*
31.2		Certification by Principal 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.*
32.1		Certification by Principal Executive Officer, pursuant to 18 USC Section 1350.*
32.2		Certification by Principal Financial Officer, pursuant to 18 USC Section 1350.*
101		Interactive data files pursuant to Rule 405 of Regulation S-T:**
		(i) Consolidated Balance Sheets at March 31, 2014 (unaudited) and December 31, 2013.
		(ii) the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the periods ending March 31, 2014 and 2013
		(iii) the unaudited Consolidated Statements of Cash Flows for the periods ending March 31, 2014 and March 31, 2013, and inception of development stage to March 31, 2014, and
		(iv) the notes to unaudited financial statements.*
		**This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
		* Filed herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SURGE GLOBAL ENERGY, INC.
DATED: May 20, 2015	By:	/s/ Clark Morton
		Clark Morton
		(PRINCIPAL EXECUTIVE OFFICER)

 

	SURGE GLOBAL ENERGY, INC.
DATED: May 20, 2015	By:	/s/ E. Jamie Schloss
		E. Jamie Schloss
		(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)