PINX:SRGG Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

PINX:SRGG (): Fair Value Estimate
Premium
PINX:SRGG (): Consider Buying
Premium
PINX:SRGG (): Consider Selling
Premium
PINX:SRGG (): Fair Value Uncertainty
Premium
PINX:SRGG (): Economic Moat
Premium
PINX:SRGG (): Stewardship
Premium
 

 

 

 

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, 2012

 

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 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 [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 12, 2012, the Registrant had 36,057,387 shares of common stock issued and outstanding.

 

 

 

 
 

  

TABLE OF CONTENTS

 

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-6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   4
     
Item 3. Quantitative & Qualitative Disclosures About Market Risk   11
     
Item 4. Controls and Procedures   11
     
Part II - Other Information    
     
Item 1. Legal Proceedings   12
     
Item 1A. Risk Factors   12
     
Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds   20
     
Item 3. Defaults Upon Senior Securities   20
     
Item 4. Mining Safety Disclosures   20
     
Item 5. Other Information   20
     
Item 6. Exhibits   20

 

2
 

   

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

    Page No
     
Consolidated Balance Sheets at March 31, 2012(unaudited) and December 31, 2011   F-1
     
Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Quarters Ended March 31, 2012and March 31, 2011, and for the period from January 1, 2005 (inception of exploration stage) through March 31, 2012   F-2
     
Unaudited Consolidated Statements of Cash Flows for the quarters ended March 31, 2012 and 2011, and for the period from January 1, 2005 (inception of exploration stage) through March 31, 2012   F-3
     
Notes to Unaudited Consolidated Financial Statements   F-6

 

3
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

 

    March 31,
2012
    December 31, 2011  
    (unaudited)        
ASSETS                
Current assets:                
Cash and cash equivalents   $ 37,134     $ 14,659  
Production payments receivable     -       140,000  
Prepaid expenses     13,031       15,997  
Total current assets     50,165       170,656  
                 
Property and equipment, net of accumulated depreciation of  $35,51  and $35,329, respectively     826       1,016  
Investment in Andora Energy     2,878,350       2,878,350  
                 
Total assets   $ 2,929,341     $ 3,050,022  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued liabilities   $ 177,802     $ 183,797  
Loans Payable-Officer     170,433       167,000  
Convertible Note payable     -       61,726  
Total current liabilities     348,235       412,523  
                 
Total liabilities     348,235       412,523  
                 
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; 200,000,000 shares authorized; 36,057,387 and  35,887,387 shares issued and outstanding, respectively     36,057       35,887  
Additional paid-in capital     54,651,281       54,629,402  
Accumulated other comprehensive income     (381,402 )     (381,402 )
Accumulated deficit     (12,337,512 )     (12,337,512 )
Deficit from inception of exploration stage     (39,387,318 )     (39,308,876 )
Total stockholders’ equity     2,581,106       2,637,499  
                 
Total liabilities and stockholders’ equity   $ 2,929,341     $ 3,050,022  

 

See accompanying footnotes to these unaudited condensed consolidated financial statements

 

F-1
 

 

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

    For the Quarter Ended
March 31,
    For the period from
January 1, 2005
(inception
of exploration
stage) through
December 31,
 
    2012     2011     2012  
    (unaudited)              
Operating expenses:                        
Selling, general and administrative expenses   $ 79,049     $ 108,576     $ 24,150,560  
Accretion, depreciation and amortization     190       1,024       478,504  
Oil and gas property impairment     -       -       10,085,117  
Total operating expenses     79,239       109,600       34,714,181  
                         
Loss from operations     (79,239 )     (109,600 )     (34,714,181 )
Equity in losses from affiliates     -       -       (2,099,663 )
Loss on redemption of preferred shares     -       -       (105,376 )
Gain (loss) on sale of marketable securities     -       -       1,067,865  
Impairment of marketable securities     -       -       (3,707,513 )
Warrants issued from Peace Oil acquisition     -       -       (368,000 )
Revaluation loss net of warrant liability     -       -       (431,261 )
Interest income (expense)     797       -       (4,233,390 )
Gain (loss) on disposition of Peace Oil property and Peace Oil Corp.     -       -       1,525,105  
Loss from continuing operations, before income taxes and minority interest     (78,442 )     (109,600 )     (43,066,414 )
Benefit (provision) for income taxes     -               -  
Income (loss) before non-controlling interest     (78,442 )     (109,600 )     (43,066,414 )
Income (loss) applicable to non-controlling interest     -               3,679,096  
Net income (loss)     (78,442 )     (109,600 )     (39,387,318 )
Other comprehensive income (loss):                        
Unrealized gain (loss) on available for sale securities     -       -       (381,402 )
Foreign currency translation adjustment     -       -       -  
Comprehensive income (loss)   $ (78,442 )   $ (109,600 )   $ (39,768,720 )
                         
Income (loss) per common share - basic and diluted   $ (0.00 )   $ (0.00 )        
                         
Weighted average shares outstanding -  basic and diluted     36,034,969       34,562,387          

 

See accompanying footnotes to these unaudited condensed consolidated financial statements.

 

F-2
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the Three Months Ended     For the period from
January 1, 2005
(date of inception
of exploration
stage) through
 
    March 31,     March 31,     March 31,  
    2012     2011     2012  
Cash flows from operating activities:                        
Net loss   $ (78,442 )   $ (109,600 )   $ (39,387,318 )
Non-controlling interest     -       -       (3,679,096 )
Adjustments to reconcile net loss to net cash used in operating activities:                        
Accretion, depreciation and amortization     190       1,024       478,504  
Write-off of property and equipment     -       -       4,984  
Realized loss (gain) on sale of marketable securities     -       -       (1,066,328 )
Loss from redemption of preferred shares     -       -       105,376  
Gain (loss) on sale of Peace Oil property and Peace Oil Corp., net of liabilities     -       -       (1,525,105 )
Share of affiliate loss     -       -       2,099,663  
Impairment of oil and gas properties     -       -       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     16,949       29,069       6,975,489  
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:                        
Production payment and other  receivables     140,000       10,000       -  
Prepaid expense and other assets     2,966       5,782       (32,291 )
Other assets     -       -       80,958  
Accounts payable and accrued liabilities     (19,288 )     4,644       935,341  
Income taxes payable     -       -       -  
Net cash received in operating activities   $ 62,375     $ (59,081 )   $ (11,125,479 )

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

F-3
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the three Months Ended
March 31,
    For the period from
January 1, 2005
(inception
of exploration
stage) through
March 31,
 
    2012     2011     2012  
Cash flows from investing activities:                        
Purchases of property and equipment     -       -       (117,425 )
Production payment advanced     -       -       -  
Proceeds from sale of marketable securities     -       -       589,506  
Proceeds from sale of investment     -       -       600,000  
Payment for note receivable     -       -       (137,500 )
Proceeds from note receivable     -       -       (275,000 )
Purchase of oil and gas properties     -       -       (13,370,529 )
Deposits     -       -       (9,913 )
Proceeds from sale of oil leases     -       -       6,314,820  
Consideration paid on sale of subsidiary     -       -       (1,533,395 )
Asset Retirement Obligation     -       -       51,273  
Proceeds from disposition of Peace Oil property     -       -       14,071,294  
Purchase of marketable securities     -       -       (5,475,727 )
Gemini note repayment     -       -       (1,380,000 )
Deduct June 2006 Signet cash balance     -       -       (5,626,405 )
Net cash provided by (used in) investing activities     -       -       (6,299,001 )
Cash flows from financing activities:                        
Proceeds from sale of common stock, net of costs     5,100       67,500       4,348,613  
Repurchase of common stock     -       -       (33,933 )
Principal payments on note payable     -       -       (225,000 )
Proceeds from exercise of options     -       -       197,717  
Proceeds from equity to debt conversion     -       -       250,000  
Net (payments for) proceeds from Joint Venture Partner cash call obligations     -       -       125,000  
Proceeds from convertible debentures     -       -       1,710,000  
Proceeds from note payable, gross     (45,000 )     -       10,421,933  
Proceeds from Signet stock, net of costs and fees     -       -       1,769,602  
Deferred financing costs     -       -       (1,208,375 )
Net cash (used in) provided by financing activities     (39,900 )     67,500       17,355,557  
Effect of exchange rates on cash and cash equivalents     -       -       (53,878 )
                         
Net  increase (decrease) in cash and cash equivalents     22,475       8,419       (122,801 )
                         
Cash and cash equivalents at the beginning of the period     14,659       454       159,935  
Cash and cash equivalents at the end of the period   $ 37,134     $ 8,873     $ 37,134  

 

See accompanying footnotes to these unaudited condensed consolidated financial statements

 

F-4
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

          For the period from
January 1, 2005 (inception
of exploration
 
    For the Three Months Ended
March 31
    stage) through
March 31,
 
    2012     2011     2012  
                   
Supplemental Disclosures of Cash Flow Information:                        
Cash paid during the period for interest   $ 5,547     $ 171     $ 524,559  
Cash paid during the period for income 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   $ -     $ 17,076     $ 381,402  
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   $ -     $ -     $ 645,780  
Andora shares issued in lieu of cash compensation   $ -     $ 12,741     $ 23,975  

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

F-5
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

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., (collectively the “Company”). 1294697 Alberta Ltd. does not have 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.

 

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 March 31, 2012, the Company has accumulated exploration stage losses of $39,768,720. 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.

 

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.

 

F-6
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)

 

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 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 March 31, 2012 or 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 total cash of $37,134, of which $32,134 is in cash in an account maintained by a U.S. bank, all of which is subject to up to $250,000 of FDIC insurance, and $5,000 in a money market fund.

 

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.

 

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.

 

F-7
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)

 

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.

 

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 before taxes of $78,442 and $109,600 for the quarters ended March 31, 2012 and 2011, respectively. The Company’s cash position as of March 31, 2012 was $37,134 compared with $14,659 at December 31, 2011, an increase of $22,475. The Company’s current liabilities, on a consolidated basis, exceeded its current assets by $298,070 as of March 31, 2012 compared with current liabilities in excess of current assets by $241,867 at December 31, 2011. For quarter ended March 31, 2012 the Company received $62,375 from operating activities versus cash used in operating activities of $59,081 the corresponding period ended March 31, 2011. The Company continues to need additional cash to manage its business. The sale of our investment in Andora, common stock financing and other similar financing transactions are projected to be received in 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 and proceeds from stock or convertible note offerings 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.

 

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 $190 and $1,024 for the quarters ended March 31, 2012 and 2011, respectively. Maintenance, repairs, and minor renewals are charged against earnings when incurred. Additions and major renewals are capitalized.

 

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. Stock-based compensation expense recognized for the quarters ended March 31, 2012 and 2011 was $16,949 and $29,069, respectively. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that vest during the period.

 

F-8
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)

 

Stock-based compensation expense recognized in the Company’s Consolidated statement of operations for the quarters ended March 31, 2012 and 2011 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2011 and 2010, respectively

 

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

 

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.

 

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.

 

Subsequent Events

 

The Company evaluated events occurring between the end of the quarter ended March 31, 2012, and the date when the financial statements were issued. Those events which do not affect the 2012 financial statements are listed as subsequent events, Note 15 for further details on subsequent events.

 

Recently Issued Accounting Pronouncements

  

In January 2010, the FASB issued ASU No. 2010-03, “Extractive activities — Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures”. The main provisions of ASU No. 2010-03 are the following: (1) expanding the definition of oil- and gas- producing activities to include the extraction of saleable hydrocarbons, in solid, liquid, or gaseous state, from oil sands, shale, coalbeds, or other nonrenewable resources that are intended to be upgraded into synthetic oil or gas, and activities undertaken with a view to such extraction; (2) entities should use first-day-of-the-month price during the 12-month period (the 12-months average price) in calculating proved oil and gas reserves and estimating related standardized measure of discounted net cash flows; (3) requiring entities to disclose separately information about reserves quantities and financial statement amounts for geographic areas that represent 15 percent or more of proved reserves; (4) separate disclosure for consolidated entities and equity method investments. ASU No. 2010-03 is effective for annual reporting periods ending on or after December 31, 2009. The Company adopted ASU No. 2010-03 for the 2009 annual financial statements. This adoption did not have a material impact on the Group’s reported reserves evaluation, results of operations, financial position or cash flows.

 

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is intended to improve comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally accepted accounting principles and International Financial Reporting Standards. This standard clarifies the application of existing fair value measurement requirements including (1) the application of the highest and best use valuation premise, (2) the methodology to measure the fair value of an instrument classified in a reporting entity’s shareholders’ equity, (3) disclosure requirements for quantitative information on Level 3 fair value measurements and (4) guidance on measuring the fair value of financial instruments managed within a portfolio. In addition, the standard requires additional disclosures of the sensitivity of fair value to changes in unobservable inputs for Level 3 securities. This standard is effective for interim and annual reporting periods ending on or after December 15, 2011. The adoption of this guidance did not have a significant impact on the Company’s financial statements.

 

F-9
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)

 

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”, which requires that comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The standard also requires entities to disclose on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net earnings. This standard no longer allows companies to present components of other comprehensive income only in the statement of equity. This standard is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance did not have a significant impact on the Company’s financial statements other than the prescribed change in presentation.

 

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 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– 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 the agreement, 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. 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. As of December 31, 2009, no sales had occurred. If the third party operator fails to pay amount due and payable or perform any provisions under the equipment lease agreement, the Company may be assigned a75% working interest in the wells.

 

In September, 2010, the Company entered into a written agreement with CAVU Resources, Inc. for CAVU to pay to the Company $130,000 of the $300,000 advanced to them by the operator of this property.

 

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 and also recorded a write-down of $75,000 in 2011 to a value of $140,000.

 

During the quarter ended March 31, 2012 a total of $146,344 was paid to redeem the note, of which $140,000 was allocated to the principal balance and $6,344 was credited to interest income.

 

The Company has a written agreement in place to recover approximately $200,000 from the former operator of this property but no value has been assigned to this agreement for financial statement purposes due to the uncertainty of its collectability. We can provide no assurances that we will be able to collect said $200,000.

 

F-10
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 3 - 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. During the years ended December 31, 2010 and 2011 the Company issued 16,667 and 16,666 shares of Andora common stock to its Chief Executive Officer in lieu of $20,0000 in cash compensation due under his employment agreement.

 

At March 31, 2012 the Company owned 3,198,166 Andora shares valued at $2,878,350 ($0.90 per share), which shares are approximately 5% of Andora’s total outstanding common shares on a fully diluted basis.

 

A portion of the Andora shares are secured to repay the amount of Officer loans payable totaling $170,433 at March 31, 2012. In the event that the Company cannot repay these loans the Officer has the right to convert all or part, at his election, into Andora shares at a conversion rate of $0.60 per share. If all loans are converted into Andora shares it would result in a conversion into 284,055 Andora shares which would, in turn, result in a loss for accounting purposes of $85,217.

 

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.

 

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 Year Ended Quarter ended,  
    March 31,
2012
    March 31,
2011
 
Net Loss   $ (78,000 )   $ (110,000 )
Income tax computed at combined U.S. and state rates (40%)     (30,000 )     (40,000 )
Permanent differences     -       -  
Changes in valuation allowance     30,000       40,000  
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,  
    2012     2011  
Deferred tax assets:                
Net operating loss carryforwards   $ 5,810,000     $ 5,780,000  
Less valuation allowance     (5,810,000 )     (5,780,000 )
Total   $ -     $ -  

 

F-11
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 4 – INCOME TAXES (continued)

 

At December 31, 2011, Surge had net operating loss carryforwards of approximately $14,800,000 for federal and approximately $14,400,000 at December 31, 2010 for state income tax purposes, which will begin to expire, if unused, beginning in 2021. The valuation allowance increased by approximately $140,000 and $400,000 in the years ended December 31, 2011 and 2010 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.

 

NOTE 5 - LOANS PAYABLE-OFFICER

 

During the year ended December 31, 2011, the Company’s Chief Executive and Chief Financial officer, E. Jamie Schloss, advanced the Company a net total of$78,000 at 8% interest. Including interest the unpaid balance at December 31, 2011 was $81,181.30. Also during 2011 the Company accrued unpaid salary and out-of pocket expenses totaling $85,818.70. In total, at December 31, 2011 the Company owed Mr. Schloss $167,000. This balance is secured by our Andora common shares and can be converted into Andora shares in whole or in part at Mr. Schloss’ election at a conversion price $0.60 per share. This loan is repayable without penalty at the time a liquidity event, such as sale of stock or collection of receivables, occurs.

 

During the quarter ended March 31, 2012, the loan balanced increased by $27,000 for salary earned, $1,290 in interest, and $5,890 in accrued expenses. Payments of $21,683 were made toward the unpaid advances, $5,000.00 was paid toward unpaid salary and $4,074 was paid toward expenses. In summary, the loan balanced increased by $3,433 net and totaled $170,433 at March 31, 2012.

 

NOTE 6 - 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.

 

F-12
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 6 - CAPITAL STOCK(continued)

 

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 Surge common shares.

 

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 2010, the Company sold a total of 2,200,000 common shares with a total of 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.

 

In 2011, the Company sold a total of 2,250,000 common shares for total proceeds of $67,500 at $0.03 per share.

 

In January, 2012, the Company issued 170,000 shares of common shares and 170,000 warrants for total proceeds of $5,100.00 at $0.03 per share. The warrants are exercisable for two years at a price of $0.05.

 

NOTE 7 - WARRANTS AND STOCK OPTIONS

 

Class A Warrants.

 

Class A Warrants. The following table summarizes the stock purchase warrants outstanding at March 31, 2012:

  

F-13
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 7 - WARRANTS AND STOCK OPTIONS (continued)

 

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       170,000       0.95     $ 0.05       170,000     $ 0.05  
  0.08       500,000       0.53       0.08       500,000       0.08  
  0.25       1,400,000       0.10       0.25       1,400,000       0.25  
  Totals or average       2,070,000       0.20     $ 0.11       2,070,000     $ 0.11  

 

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, 2010     6,600,000       0.71  
Granted     2,250,000       0.05  
Exercised     -       -  
Canceled or expired     (4,200,000 )     1.45  
Outstanding at December 31, 2011     4,650,000     $ 0.13  
Granted     170,000       0.05  
Exercised     -       -  
Canceled or Expired     (2,750,000 )     -  
Outstanding at March 31, 2012     2,070,000     $ 0.11  

 

For the years ended December 31, 2011 and 2010 the Company issued 2,250,000 and 1,900,000 warrants respectively which were fully vested at December 31, 2011. The warrants were issued in conjunction with a common stock offerings and no warrant expense was recorded in 2011 or 2010 for these warrants.

 

During the year ended December 31, 2011, a total of 4,200,000 warrants expired unexercised.

 

The fair value of the warrant expense during the year were valued using the Black-Scholes option pricing model. Variables used in the Black-Scholes pricing model: (1) discount rate of 1.90%, (2) warrant life of 1.5 years, (3) expected volatility of 108% and (4) zero expected dividends. The warrants had $0 intrinsic value at December 31, 2011. 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.

 

During the year ended December 31, 2011 the Company issued a total of 2,250,000 warrants of which 1,400,000 were fully vested at March 31,2012.

 

During the quarter ended March 31, 2012 the Company issued a total of 170,000 warrants which were fully vested at March 31,2012.

 

F-14
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 7 - WARRANTS AND STOCK OPTIONS (continued)

 

The warrants issued in 2012 were in conjunction with a common stock offering and no warrant expense was recorded in the year quarter ended March 31, 2012 for these warrants.

 

Stock options.

 

No stock options were issued during the quarter ended March 31, 2012. No stock options were exercised in prior operating periods. 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.

 

Fair value expense of $16,949 and $29,069 was recorded in the quarters ending March 31, 2012 and 2011 respectively 2011 and 2010 using the Black-Scholes method of option-pricing model for vested options. Variables used in the Black-Scholes pricing model for options issued during the year ended December 31, 2010 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 December 31, 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       2.35     $ 0.04       291,667     $ 0.04  
  0.055       1,200,000       2.66       0.06       1,200,000       0.06  
  0.07       1,600,000       3.17       0.07       1,600,000       0.07  
  0.08       2,200,000       0.70       0.08       2,200,000       0.08  
  0.10       400,000       1.41       0.10       400,000       0.10  
  0.12       250,000       1.78       0.12       250,000       0.12  
          6,650,000       2.30     $ 0.06       5,941,667     $ 0.06  

 

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

 

    Number of
Shares
    Weighted
Average Price
Per Share
 
Outstanding at December 31, 2010     5,650,000     $ 0.07  
Granted     1,000,00       0.04  
Exercised     -       -  
Canceled or expired     -       -  
Outstanding at December 31, 2011     6,650,000     $ 0.05  
Granted     -       -  
Cancelled or expired     -       -  
Outstanding at March 31, 2012     6,650,000     $ 0.05  

 

F-15
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

On May 1, 2008, the Company entered into an Employment Agreement with Mr. E. Jamie Schloss as CEO which provided for initial salary for the period from June 17, 2008 through December 31, 2008 at the rate of $9,500 per month. Thereafter, a salary increase to $10,500 per month until June 30, 2009, then $11,500 per month until April 30, 2010. Mr. Schloss received payment for services rendered prior to the execution of the agreement for the periods May 1, 2008 through June 16, 2008 and February 11, 2008 through April 30, 2008 at the rate of $9,500 per month.

 

In April, 2010, the Company extended Mr. Schloss’ employment agreement on the same financial terms as were in effect previously until December 31, 2010. On September 1, 2010, the agreement was amended to provide that commencing September 1, 2010 and ending April 30, 2011, $2,500 per month in salary would be paid to Mr. Schloss in Andora Energy common stock in lieu of cash. A total of $20,000 in salary was deferred in 2010 and 20011 and in lieu thereof a total of 33,333 Andora shares were issued pursuant to this agreement. The Company entered the employment agreement to May 31, 2012 on the same terms.

 

For the years ending December 31, 2011 and 2010, a total of 33,333 Andora shares were paid to him pursuant to this agreement and $20,000 in salary was converted into Andora shares.

 

The total loans, deferred salary and expenses due Mr. Schloss at March 31, 2012 totaled $170,433. See Note 5 for further details.

 

The Company also entered into a consulting agreement with a Director for the period from May 1, 2011 to December 31, 2011 which provided that in addition to his director’s duties, a director will provide the Company with consulting services to assist the Company in mergers & acquisitions, new financings, and other business opportunities at a fee of $5,000 per month which will be deferred until a liquidity event occurs. On September 30, 2011 the Company and this Director agreed to terminate his consulting services and to settle on a total of $ 25,000 being owed to this director.

 

NOTE 9 – 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

 

Three Span Oil & Gas Litigation: 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 $60,125 deficiency was unpaid.

 

A default judgment was entered into against Surge Energy Resources, Inc. for $60,125 plus fees in December, 2009. The action against Surge Energy Resources, Inc. is for breach of contract, plus attorneys’ fees. The entire amount of this claim was accrued by Surge Energy Resources, Inc. as of December 31, 2010. Surge Energy Resources, Inc. has no material assets or operations.

 

F-16
 

  

SURGE GLOBAL ENERGY, INC.

(AN EXPLORATION STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012 AND 2011

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

In May, 2011 the Company leased space on a month-to-month basis at 75-153 Merle Drive, Suite B, at a monthly rental of $250 per month.

 

Employment Agreements

 

The company has an employment agreement with its Chief Executive Officer until May 31, 2012 at $9,000.00 per month.

 

Consulting Agreements

 

The Company had no outstanding consulting agreements as of December 31, 2011.

 

NOTE 11- CONVERTIBLE NOTES

 

On August 17, 2011, 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 financing 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.

 

The Company paid the outstanding Note in full, including interest and a 40% prepayment penalty, on February 20, 2012.

 

NOTE 12– SUBSEQUENT EVENTS

 

None.

 

F-17
 

 

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 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.

 

The following discussion of our financial condition, changes in financial condition and results of operations for the three month period ending March 31, 2012 and the comparable period ending March 31, 2011, 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, 2011 filed with the Securities and Exchange Commission on March 7, 2012.

 

General Overview

 

Surge Global Energy, Inc. is a Delaware corporation traded on the OTCQB Bulletin Board under the symbol “SRGG.” Our principal executive offices are located at 75-153 Merle Drive, Suite B, Palm Desert, CA 92211. Our telephone number is (760) 610-6758 and our fax number is (760) 766-2990. We maintain a website at www.SurgeGlobalEnergy.com and an email contact address at Surgeglobalshare@aol.com.

 

We are, and have historically been, an oil and gas exploration and development company. However, at this time because of our lack of working capital, our primary objective is to pro-actively seek to monetize our investment in Andora Energy Corporation at a reasonably acceptable price, and then to invest the proceeds into one or more attractive business opportunities, without being specifically confined to oil and gas exploration. Since we have not been able to date to sell our Andora shares, we are also trying to maximize shareholder values by seeking a merger partner and/or to acquire an oil and gas property through a leveraged buyout. In order to maximize shareholder value, the Company will consider business opportunities that are not confined to oil and gas exploration so long as the Company would be in compliance with the Investment Company Act of 1940, as amended.

 

All amounts are stated in U.S. dollars unless otherwise indicated.

 

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 October 13, 2004, Surge’s name was changed from The Havana Group, Inc. to Surge Global Energy, Inc. and the symbol was changed to “SRGG”.

 

4
 

  

On 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 outstanding Preferred A and Preferred B shares and indebtedness related to the discontinued tobacco and pipe business.

 

From 2005 through March 31,2012, 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 substantial 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.

  

Because we are an exploration stage company, the inability to develop successful oil and gas prospects has reduced our working capital and created the need for additional strategic transactions to raise capital and liquidate assets. In the quarter ended March 31, 2012 and in fiscal 2011, we were not able to find suitable new oil and gas projects which could be completely financed based on their net discounted present values using a discount rate of 10% per year (net PV10).

 

Oil and Gas Drilling Activities

 

There were no new oil and gas drilling activities in the quarter ended March 31, 2012 or in fiscal 2011.

 

For historical purposes, below is a recap of activities in prior years:

 

In June 2008, we began the process of acquiring via lease oil and gas properties for drilling and development. Three properties were leased in 2008 and one in 2009. The two of the three properties acquired in 2008 were written off due to insufficient reserves. The first was drilled in November, 2008 in Crane County, Texas and was plugged and abandoned and fully impaired in 2008. The second well (Qualmay #1) commenced drilling in November, 2008 in Park County, Wyoming. This well was completed with natural gas and oil results, but after two fracture procedures the well was deemed commercially unsuccessful and was shut in. The Qualmay #1 was fully impaired for financial statement purposes in 2009 due to the lack of commercial reserves. The Company was successful in selling our 35% working interest\this property in December, 2010 and recovered approximately $39,000 of costs expensed previously. The third lease, on 2,500 acres in Pine Valley, Nevada was acquired in July, 2008 and was the lease expired and written off in 2010. The cost of drilling this Nevada well to explore this property was greater than the Company’s financial ability to complete it and we were unable to find partners or sell the property prior to the lease exploration period.

 

In December, 2009, the Company entered into an equipment lease agreement with Mandalay Energy, Inc. (“Mandalay”) to provide funds for the workover of four (4) oil and gas wells with an option to workover six (6) additional wells on a 40 acre lease located in Pawnee County, Oklahoma at a cost to the Company of $300,000. Shortly after workover operations commenced the operations were delayed by a dispute over leasehold rights by a new owner of the lease. Litigation between the landowner, and a cross complaint by Mandalay, has stopped development of the property until each party’s legal right are determined.

 

In 2010, the Company entered into a written settlement agreement with Mandalay for the recovery of $354,000 plus legal fees, none of which has been received pending the outcome of the above mentioned litigation. To minimize our exposure in this property, the Company also entered into a written agreement with CAVU Resources, Inc. in September, 2010 which provide for the return to us $130,000 of this investment, plus interest, which amount was expected to be paid in June, 2011. When received, this payment will in turn offset a similar amount of the settlement owed to us by Mandalay.

 

The Company took an impairment of $75,000 in the years ended December 31, 2011 and $85,000 in 2010 to reflect our revised estimate of the net realizable value which will be ultimately recoverable from this property.

 

After the forgoing writedowns, in January, 2012 the Company concluded negotiations to receive a total of $146,194 during the quarter ended March 31, 2012, all of which was received in the March quarter. Additionally, the Company received a signed agreement from Mandalay to pay another $225,000 from proceeds of income they derive from other third party properties. The Company has not recognized any portion of this receivable to date due to collectability issues.

 

During the quarter ended March 31, 2012, the Company had opportunities to invest in new oil and gas properties. However, the Company was unable to obtain sufficient additional financing to invest in new projects. The Company’s ability to invest in future oil and gas or other business transactions is dependent upon our ability to obtain additional financing on terms satisfactory to us, if at all and/or liquidate our investment in Andora on terms satisfactory to us, if at all. See “Risk Factors.”

 

5
 

 

Andora Energy Corporation (formerly Signet Energy)

 

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 CEO. 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.

 

Andora is now a privately owned oil and gas company of which 53.4% is owned and controlled by Pan Orient Energy Corp., a Canadian energy company listed on the TSX Venture Exchange.

 

In 2010 and 2011 we issued a total of 33,333 Andora shares to our current Chief Executive Officer in lieu of $20,000 in salary. After the foregoing transactions, we currently own approximately 5.1% of Andora on a fully diluted basis. For a more detailed description of this series of transactions, see Note B to our Consolidated Financial Statements, “Investment in Andora.”

 

As of March 31, 2012, we owned a total of 3,198,166 shares in Andora valued at $2,878,350 for financial statement purposes ($0.90 per share) after taking a temporary writedown of $381,402 in fiscal 2011 due to temporary market conditions.

 

11 Good Energy, Inc. Note and Warrants

 

On September 29, 2008, we made an initial investment in the biofuels sector with 11 Good Energy, Inc., a developer of G2 Diesel, a next generation biodiesel. The Convertible Note earned interest at 8% per annum and was due and payable on June 30, 2009. The Note was also convertible at a 15% discount to 11 Good Energy’s next equity financing. We elected to accept payment in full on the note in June, 2009 and relinquished our conversion right. We retained our right to approximately 107,843 of warrants to purchase 11Good Energy common stock exercisable at $2.55 which originally was scheduled to expire on June 30, 2010.

 

Also in 2008, Frederick C. Berndt, the CEO of 11 Good Energy and a former director of Surge, transferred to Surge 500,000 shares of restricted common stock from his personal holdings of 11 Good Energy, and Surge agreed to issue to Mr. Berndt a stock purchase warrant to purchase 1,000,000 shares of restricted Surge common stock at an exercise price of seventy-five cents ($0.75) per Surge share through December 31, 2009 which warrants were cancelled upon payment of the Note in June, 2009.

 

In October, 2009, we sold 450,000 11 Good Energy shares for $1.00 per share and realized proceeds of $450,000. In February, 2010, we sold the remaining 50,000 11 Good Energy shares and realized cash proceeds of $122,500 and recorded a gain on sale of $108,750.

 

The Company continues to own a stock purchase warrant to acquire 107,843 shares of 11Good Energy, Inc. at $2.55 per share. The 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 have sufficient funds to exercise the warrant on or before June 30, 2010 but the extended expiration date and the prospect that 11 Good Energy, Inc. common stock will be publically traded this year has caused us to value the warrant at $102,451 as of December 31, 2010.

 

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 own 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 and December 31, 2011 to zero. The warrants expire June 30, 2012, subject to 11 Good Energy’s right to grant further extensions of said warrants, which extensions may occur in the future.

 

6
 

  

As of March 31, 2012 the company retained the 107,843 warrants at a zero value on our books but it is unlikely that these warrants will be exercised and will probably expire worthless.

 

Working Capital Activities

 

In 2009, the Company sold 450,000 shares of 11 Good Energy for $450,000 and we invested $300,000 in an oil and gas equipment lease on property in Pawnee County, Oklahoma.

 

In 2010, the Company sold the remaining 50,000 11 Good Energy shares for $122,500.

 

In 2010, the Company issued a total of 2,200,000 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 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 sold a total of 170,000 common shares to an accredited investor for $5,100.

 

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 US and Canada 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.

 

7
 

  

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 US and Canada.

 

Number of Total Employees and Number of Full-time Employees

 

From our inception through the period ended March 31, 2012, we have relied on the services of outside consultants for services in addition to from one (1) to three (3) 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, we may 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.

 

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 under “Related Party Transactions.”

 

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.

 

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.

 

8
 

  

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 March 31, 2012 and 2011 of $16,949 and $29,069 respectively included compensation expense for share-based payment awards granted prior to March 31, 2012, but which vested in the quarter ending March 31, 2012 and 2011 respectively.

 

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.

  

Results of Operations

 

For The Three Month Period Ending March 31, 2012 and March 31, 2011

 

The Company had no operating revenues in the three months ended March 31, 2012 or 2011.

 

For the three months ended March 31, 2012, the Company incurred a net loss of $78,400 versus a loss of $109,600 for the comparable period in 2011, a decreased loss of $31,200 (decrease of 28%) from the prior period. The detailed reasons for this change are set forth below:

 

Total operating expenses for the three months ended March 31, 2012 were $79,000 versus $108,500 in the comparable three months ended March 31, 2011, a decrease of $29,500 from the prior comparable period. The decrease was attributable to decreases in officer’s salary and other compensation of $11,900, legal of $3,900, $5,700 of audit and accounting fees, rent of $4,300 and other expenses of $700.

 

Stock-based compensation expense recognized during the quarters ended March 31, 2012 and March 31, 2011 was $16,949 and $29,069 respectively, a decrease of $12,120.

 

Net interest income for the three months ended March 31, 2011 was $800 versus no net interest expenses for the three months ended March 31, 2011.

 

Unrealized loss on available for sale securities in the three months ended March 31, 2011 was $17,000 versus none in the comparable period ending March 31, 2012.

 

The total comprehensive loss for the three months ending March 31,2012 was $78,400 versus a loss of $126,700 in the corresponding period in 2011, a decrease of $48,300.

 

9
 

  

Future Operating Trends

 

Our future operations depend on available cash resources, additional financing and/or the possible sale of all or portions of our investment in our Andora shares.

 

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 March 31, 2012 our current assets consisted of unrestricted cash and cash equivalents on hand of $37,100 and prepaid expenses of $13,000 totaling $50,100 versus current liabilities of $348,200, thereby creating a working capital surplus of $298,100. Our total net current asset deficit at March 31, 2012 of $298,100 compared with a working capital deficit of $241,900 as of December 31, 2011 an increased working capital deficit of $370,930. For the three months ended March 31, 2012 our net working capital declined by $29,000. At December 31, 2010, the Company had cash on hand of $500 and other investments, production payments receivable and prepaid expenses of $339,500 for total current assets of $340,000 and at that time, the Company had current liabilities of $211,000, which resulted in a working capital surplus of $129,000.

 

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.

 

Going Concern

 

As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations before taxes of $78,442 and $109,600 for the quarters ended March 31, 2012 and 2011, respectively. The Company’s cash position as of March 31, 2012 was $37,134 compared with $14,659 at December 31, 2011, an increase of $22,475. The Company’s current liabilities, on a consolidated basis, exceeded its current assets by $298,069 as of March 31, 2012 compared with current liabilities in excess of current assets by $241,867 at December 31, 2011. For quarter ended March 31, 2012 the Company received $62,375 from operating activities versus cash used in operating activities of $59,081 the corresponding period ended March 31, 2011. The Company continues to need additional cash to manage its business. The sale of our investment in Andora, common stock financing and other similar financing transactions are projected to be received in 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 and proceeds from stock or convertible note offerings 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.

 

10
 

  

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, 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 Principal executive officer and 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 executive officer and 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 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 Principal executive officer and Principal financial officer, namely, E. Jamie Schloss, evaluated the effectiveness of our internal control over financial reporting as of March 31, 2012. 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, 2011, 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 executive officer/Principal 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 Principal executive officer/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 executive officer/Principal financial officer is aware of his responsibilities under the SEC’s reporting requirements and personally certify our financial reports.

 

11
 

  

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 Principal executive officer and Principal financial officer that occurred during the quarter ended March 31, 2012 that 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. The entire amount of this claim was accrued by Surge Energy Resources, Inc. as of March 31, 2012. Surge Energy Resources, Inc. has no material assets or operations.

 

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 below and under “Risk Factors” in Item 1A of our 2011 Form 10-K filed with the SEC on March 7, 2012. This information should be considered carefully, together with other information in this report and other reports and materials we file with the SEC.

 

RISKS RELATED TO OUR COMPANY

 

Risk Factors

 

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.”

 

12
 

  

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.

 

Going Concern

 

As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations before taxes of $78,442 and $109,600 for the quarters ended March 31, 2012 and 2011, respectively. The Company’s cash position as of March 31, 2012 was $37,134 compared with $14,659 at December 31, 2011, an increase of $22,475. The Company’s current liabilities, on a consolidated basis, exceeded its current assets by $298,069 as of March 31, 2012 compared with current liabilities in excess of current assets by $241,867 at December 31, 2011. For quarter ended March 31, 2012 the Company received $62,375 from operating activities versus cash used in operating activities of $59,081 the corresponding period ended March 31, 2011. The Company continues to need additional cash to manage its business. The possible sale of our investment in Andora, common stock financing and other similar financing transactions are projected to be received in 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 and proceeds from stock or convertible note offerings 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.

 

We will need additional financing to carry out our business plans and to finance our future operations.

 

We have a history of net losses and expect that our operating expenses will continue the need to raise additional financing as we have no revenues. Our business model contemplates expansion of our business by identifying and purchasing or leasing additional oil and gas properties, subject to availability of sufficient cash resources. To make these purchases or leases, our capital needs will increase substantially. In 2011 and the first quarter of 2012, we had opportunities to make investments in oil and gas properties, but we did not have sufficient resources to complete any transactions. We have limited working capital and cash resources to fund our oil and gas exploration operations. We may need to become involved in litigation to preserve our rights, the outcome and legal expense of which could adversely affect our operations and cash resources. 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 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 then existing funding commitments to third parties and forfeit or dilute our rights in any then 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 operations and to meet our cash needs as they come due, this may seriously harm our business, financial condition and results of operations and may adversely affect our ability to remain a going concern on a long term basis.

 

We may be involved in litigation and other disputes.

 

Our business and operations may subject us to claims, litigation and other proceedings brought by private parties and governmental authorities. Any claim that is successfully asserted against us could result in significant damage claims and other losses. Even if we 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.

 

We have a history of net operating losses.

 

We have a history of net operating losses and we will need to generate substantial revenues to achieve profitability. In the short term we must realize value from our existing assets in order to invest in other oil and gas or other new activities. We may not be able to liquidate our existing assets on terms satisfactory to us, if at all, to make new investments and to attempt to generate revenues. Even if we do achieve profitability, we cannot assure you that we will be able to sustain or increase profitability on a quarterly or annual basis in the future. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our operations and sell or finance existing assets. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

 

13
 

  

Our future performance is dependent upon our ability to identify, acquire and implement the strategy to develop oil properties for production or resale which may delay shareholder return on investment for years.

 

We are an exploration stage company with a history of losses and operating accumulated deficit of $39,387,318.

 

In January 2005, as a result of the disposal of our tobacco wholesale business in December 2004, and the restructuring of our management and ownership, we began implementing plans to establish an oil and gas exploration business. As a result, we are an exploration stage enterprise, as defined by Statement of Financial Accounting Standards No. 7 (“SFAS7”), with only a limited operating history upon which to base an evaluation of our current business and future prospects, and we have just begun to implement our business plan. Since our inception and the inception of our exploration stage on January 1, 2005, we have suffered recurring losses from operations and have been dependent on new investment to sustain our operations.

 

During the quarter ended March 31, 2012 we reported a comprehensive loss of $78,442. In total, our 2011 comprehensive loss was $917,028. We cannot give any assurances that we can achieve profits from operations. For the period from inception of exploration stage through March 31, 2012, the Company has accumulated losses from development stage operations of $39,387,318.

 

We do not have properties containing quantities of oil and gas in commercial quantities for production.

 

Our success will depend upon our ability to acquire working and revenue interests in properties upon which oil reserves are ultimately discovered in commercial quantities for production capability or to attract the interest of larger oil field companies. We do not have an established history of locating and developing properties that have oil and gas reserves. We do not presently have adequate working capital to invest in new properties. We can provide no assurance that oil and gas will be discovered in commercial quantities in any of the properties we currently hold interests in or properties in which we may acquire interests in the future.

 

We may not have good and marketable title to our properties.

 

It is customary in the oil and gas industry that upon acquiring an interest in a non-producing property, only a preliminary title investigation be done at that time and that a drilling title opinion be done prior to the initiation of drilling, neither of which can substitute for a complete title investigation. We have followed this custom and intend to continue to follow this custom in the future. Furthermore, title insurance is not available for mineral leases, and we will not obtain title insurance or other guaranty or warranty of good title. If the title to our prospects should prove to be defective, we could lose the costs that we have incurred in their acquisition, or incur substantial costs for curative title work.

 

We do not operate any of our drilled properties or the entities in which we hold interests and we therefore have no influence over the testing, drilling and production operations of our properties. Our lack of control could result in the following:

 

  if an operator refuses to initiate a project, we might be unable to pursue the project;
  the operator might initiate exploration or development on a faster or slower pace than we prefer;
 

the operator might obtain additional financing which may further dilute our interest in the property as

well as trigger additional asset impairment.

 

Any of these events could materially reduce the value of our properties as currently stated in our financial statements.

 

Information in this report regarding our future exploration and development projects reflects our current intent and is subject to change.

 

We do not currently have any new exploration and development plans. Whether we ultimately undertake additional exploration or development projects will depend on the following factors:

 

  availability and cost of capital both by the company and our planned majority partners;
  receipt of additional seismic data or the reprocessing of existing data;
  current and projected oil or natural gas prices;
  reserve results could be less than our anticipated recovery rate range;
  success or failure of activities in similar areas;
  changes in the estimates of the costs to complete the projects;
 

our ability to attract other industry partners to acquire a portion of the working interest to reduce

costs and exposure to risks;

  decisions of our joint working interest owners and partners; and
  market prices for our oil field assets could change and could vary when the development efforts and subsequent oil field values accrue.

 

14
 

  

We will continue to gather data about our projects and it is possible that additional information will cause us to alter our schedule or determine that a project should not be pursued at all. You should understand that our plans regarding our projects might change. Reserve estimates also require numerous assumptions relating to operating conditions and economic factors, including the price at which recovered oil and gas can be sold, the costs of recovery, assumptions concerning future operating costs, severance and excise taxes, development costs and workover and remedial costs, prevailing environmental conditions associated with drilling and production sites, availability of enhanced recovery techniques, ability to transport oil and gas to markets and governmental and other regulatory factors, such as taxes and environmental laws. A negative change in any one or more of these factors could result in quantities of oil and gas previously estimated as proved reserves becoming uneconomic. For example, a decline in the market price of oil or gas to an amount that is less than the cost of recovery of such oil or gas in a particular location could make production commercially impracticable. The risk that a decline in price could have that effect is magnified in the case of reserves requiring sophisticated or expensive production enhancement technology and equipment, such as some types of heavy oil. Each of these factors, by having an impact on the cost of recovery and the rate of production, will also affect the present value of future net cash flows from estimated reserves.

 

We may incur writedowns of our primary asset in Andora Energy in the event we need to sell all or part of it upon short notice.

 

Andora Energy is a privately held corporation, not traded on any exchange, thereby making its shares which are our primary asset relatively illiquid, and causing its market value to be subject to substantial fluctuations. Should the Company need cash at some point in the future, it may decide to sell some or all of its Andora investment at a discount to its recorded book value.

 

We rely heavily upon reserve, geological and engineering data when determining whether or not to invest in a particular oil and gas property.

 

The reserve, geological and engineering data information that we use in evaluating oil and gas prospects is based on estimates involving a great deal of uncertainty. Different engineers may make different estimates of reserves and cash flows based on the same available data. Reserve estimates depend in large part upon the reliability of available geologic and engineering data, which is inherently imprecise. Geologic and engineering data are used to determine the probability that a reservoir of oil and gas exists at a particular location, and whether oil and/or gas and natural gas are recoverable from a reservoir. Recoverability is ultimately subject to the accuracy of data including, but not limited to, geological characteristics of the reservoir, structure, reservoir fluid properties, the size and boundaries of the drainage area, reservoir pressure, and the anticipated rate of pressure depletion. The evaluation of these and other factors is based upon available seismic data, computer modeling , well tests and information obtained from production of oil and gas from adjacent or similar properties,

but the probability of the existence and recoverability of reserves is less than 100% and actual recoveries of proved reserves can differ from estimates.

 

Our ability to produce sufficient quantities of oil and gas from our properties may be adversely affected by a number of factors outside of our control.

 

The business of exploring for and producing gas involves a substantial risk of investment loss. Drilling wells involves the risk that the wells may be unproductive or that, although productive, that the wells may not produce oil in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations.

 

A productive well may become uneconomic due to pressure depletion, water encroachment, mechanical difficulties or other reasons which impair or prevent the production of oil and gas from the well.

 

There can be no assurance that oil and gas will be produced from the properties in which we have interests. In addition, the marketability of any oil and gas that we acquire or discover may be influenced by numerous factors beyond our control. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. We cannot predict how these factors may affect our business. In addition, the success of our business is dependent upon the efforts of various third parties that we do not control. We rely upon various companies to assist us in identifying desirable oil prospects to acquire and to provide us with technical assistance and services. We also rely upon the services of geologists, geophysicists, chemists, engineers and other scientists to explore and analyze oil prospects to determine a method in which the oil prospects may be developed in a cost-effective manner. In addition, we rely upon the owners and operators of oil drilling equipment to drill and develop our prospects to production or to attract the interest of larger oil field companies. Although we have developed relationships with a number of third-party service providers, we cannot assure that we will be able to continue to rely on such persons. If any of these relationships with third-party service providers are terminated or are unavailable on commercially acceptable terms, we may not be able to execute our business plan.

 

15
 

  

If we are unable to access our properties or conduct our operations due to legal or surface conditions, our business will be adversely affected.

 

Our exploration and development of oil and gas reserves depends upon access to the areas where our operations are to be conducted. We may conduct a portion of our operations in regions where we are only able to do so on a seasonal basis. Unless the surface is sufficiently frozen, we may be unable to access our properties, drill or otherwise conduct our operations as planned. In addition, if the surface thaws earlier than expected, we would have to cease our operations for the season earlier than planned. Our operations may become affected by road bans imposed from time to time during the break-up and thaw period in the spring. Road bans are also imposed due to snow, mud and rock slides and periods of high water, which can restrict access to our well sites and production facility sites. Our inability to access our properties or to conduct our operations as planned could result in a shutdown or slowdown of our operations, which will adversely affect our business.

 

Essential equipment might not be available.

 

Oil and gas exploration and development activities depend upon the availability of drilling and related equipment in the particular areas where those activities will be conducted. Demand for that equipment or access restrictions may affect the availability of that equipment to us and delay our exploration and development activities.

 

Pipeline capacity may be inadequate.

 

There may be periods of time when pipeline capacity is inadequate to meet our gas transportation needs. It is often the case that as new development comes online, pipelines are close to or at capacity. During periods when pipeline capacity is inadequate, we may be forced to reduce production or incur additional expense as existing production is compressed to fit into existing pipelines.

 

Our reliance on third parties for gathering and distribution could curtail future exploration and production activities.

 

The marketability of our oil and or gas production will depend on the proximity of our reserves to and the capacity of third party services and facilities, including oil and natural gas gathering systems, pipelines, trucking or terminal facilities, and processing facilities. The unavailability or insufficient capacity of these facilities and services could force us to shut-in producing wells, delay the commencement of production, or discontinue development plans for some of our properties, which would adversely affect our financial condition and performance.

 

Our compliance with the Sarbanes-Oxley Act and other SEC rules concerning internal controls are time consuming, difficult and costly for us.

 

It may be time consuming, difficult and costly for us to develop and implement provisions of the Sarbanes-Oxley Act applicable to us. We may need to hire additional financial reporting, internal controls and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls and other requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires publicly-traded companies to obtain.

 

The loss of key employees would materially adversely affect our ability to operate our business and implement our business plan.

 

Our business operations are presently managed by one key employee, E. Jamie Schloss, who serves in the dual capacity as our Chief Executive Officer and our Chief Financial Officer. The loss of the services of such employee could seriously impair our business operations. Mr. Schloss’ employment contract currently expires on May 31, 2012. We do not have key man life insurance on our Chief Executive Officer, any of our executives, directors or employees. We can provide no assurances that Mr. Schloss’ contract will be extended on terms satisfactory to us, if at all, or that a qualified replacement can be hired by the Company on reasonable terms.

 

Complying with environmental and other government regulations could be costly and could negatively impact production.

 

Our business is governed by numerous laws and regulations at various levels of government. These laws and regulations govern the operation and maintenance of our facilities, the discharge of materials into the environment and other environmental protection issues. The laws and regulations may, among other potential consequences, require that we acquire permits before commencing drilling, restrict the substances that can be released into the environment with drilling and production activities, limit or prohibit drilling activities on protected areas such as wetlands or wilderness areas, require that reclamation measures be taken to prevent pollution from former operations, require remedial measures to mitigate pollution from former operations, such as plugging abandoned wells and remediating contaminated soil and groundwater, and require remedial measures to be taken with respect to property designated as a contaminated site.

 

16
 

  

Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and damages, as well as administrative, civil and criminal penalties. We are currently evaluating insurance coverage for sudden and accidental environmental damages as well as environmental damage that occurs over time. However, we do not believe that insurance coverage for the full potential liability of environmental damages is available at a reasonable cost. Accordingly, we could be liable, or could be required to cease production on properties, if environmental damage occurs.

 

The costs of complying with environmental laws and regulations in the future may harm our business. Furthermore, future changes in environmental laws and regulations could occur that result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations.

 

Review of Risks Arising from Compensation Policies and Practices

 

We have reviewed our compensation policies and practices for all employees and we concluded that any risks arising from our policies and practices are not reasonably likely to have a material adverse effect on the Company, although no assurances can be given in this regard.

 

RISKS RELATED TO OUR INDUSTRY

 

The successful implementation of our business plan is subject to risks inherent in the oil and gas business.

 

Our oil and gas operations are subject to the economic risks typically associated with exploration, development production activities and locating suitable purchasers of our properties, including the necessity of significant expenditures to locate and acquire properties and to drill exploratory wells. In addition, the cost and timing of drilling, completing and operating wells is often uncertain In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, development and production activities to be unsuccessful. This could result in a total loss of our investment in a particular property. If exploration efforts are unsuccessful in establishing proved reserves and exploration activities cease, the amounts accumulated as unproved costs will be charged against earnings as impairments.

 

Oil and gas operations involve various hazardous risks.

 

The oil and gas business involves operating hazards such as well blowouts, craterings, explosions, uncontrollable flows of crude oil, natural gas or well fluids, fires, formations with abnormal pressures, pipeline ruptures or spills, pollution, releases of toxic gas and other environmental hazards and risks. Personal injuries, damage to property and equipment, reservoir damage, or loss of reserves may occur if such a catastrophe occurs, any one of which could cause us to experience substantial losses. In addition, we may be liable for environmental damage caused by previous owners of properties purchased or leased by us.

  

The oil and gas industry is highly competitive.

 

The oil and gas industry is highly competitive. We compete with oil and gas companies and other individual producers and operators, many of which have longer operating histories and substantially greater financial and other resources than we do, as well as companies in other industries supplying energy, fuel and other needs to consumers. Many of these companies not only explore for and produce crude oil and gas, but also carry on refining operations and market petroleum and other products on a worldwide basis. In addition, we compete with other oil development firms in marketing their properties to other larger oil field operators. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage in the recruitment of qualified personnel. They may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices of gas and oil more easily than we can. Our competitors may be able to pay more for productive oil and gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to acquire additional properties in the future will depend upon our availability of cash resources, ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment.

 

17
 

  

Market fluctuations in the prices of oil and gas could adversely affect our business.

 

Prices for oil and gas tend to fluctuate significantly in response to factors beyond our control. These factors include, but are not limited to, acts of terrorists, the continued threat of war in the Middle East and actions of the Organization of Petroleum Exporting Countries and its maintenance of production constraints, the U.S. economic environment, weather conditions, the availability of alternate fuel sources, transportation interruption, the impact of drilling levels on crude oil and gas supply, and the environmental and access issues that could limit future drilling activities for the industry.

 

Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil and gas prices not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in prices could result in non-cash charges to earnings due to impairment.

 

Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil and gas producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploration of projects. We expect that commodity prices will continue to fluctuate significantly in the future.

  

RISKS RELATED TO OUR STOCK

 

Insiders have substantial control over us, and they could delay or prevent a change in our corporate control even if our other stockholders wanted it to occur.

 

Our executive officers, directors, and principal stockholders who hold 5% or more of the outstanding common stock and their affiliates beneficially own a significant percentage of our Company. See “Item 12” of our 2011 Form 10-K filed with the SEC on March 7, 2012. These stockholders will be able to exercise significant control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other stockholders wanted it to occur.

 

We do not expect to pay cash dividends.

 

We have not paid cash dividends since inception on our common stock, and we do not contemplate paying dividends in the foreseeable future on our common stock in order to use all of our earnings, if any, to finance expansion of our business plans.

 

Future sales of our common stock may cause our stock price to decline.

 

Our stock price may decline by future sales of our shares or the perception that such sales may occur. If we issue additional shares of common stock in private financings under an exemption from the registration laws, then those shares will constitute “restricted shares” as defined in Rule 144 under the Securities Act. The restricted shares may only be sold if they are registered under the Securities Act, or sold under Rule 144, or another exemption from registration under the Securities Act.

 

All of our outstanding shares of common stock are either free trading or eligible for sale pursuant to Rule 144 in accordance with requirements and the limitation contained therein. We are unable to estimate the amount, timing, or nature of future sales of outstanding common stock. Sales of substantial amounts of our common stock in the public market may cause the stock’s market price to decline.

 

Our stock price can be extremely volatile.

 

Our common stock is traded dually on the OTC Bulletin Board (i.e. OTCQB) and the Pink Sheets. There can be no assurance that an active public market will continue for the common stock, or that the market price for the common stock will not decline below its current price. Such price may be influenced by many factors, including, but not limited to, investor perception of us and our industry and general economic and market conditions. The trading price of the common stock could be subject to wide fluctuations in response to announcements of our business developments or our competitors, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock.

 

18
 

  

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

 

If we fail to remain current on our reporting requirements, we could be removed from the OTCXB Bulletin Board, we could be investigated by the SEC or we could incur liability to our shareholders.

 

Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under the Securities Exchange Act of 1934, as amended, and must be current in their reports in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. Failure to remain current in our reporting obligations might also subject us to SEC investigation or private rights of action by our shareholders.

 

Our common stock is subject to the “penny stock” rules off the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

 

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

that a broker or dealer approve a person’s account for transactions in penny stocks; and

 

the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

obtain financial information and investment experience objectives of the person; and

 

make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

 

sets forth the basis on which the broker or dealer made the suitability determination; and

 

that the broker or dealer received, prior to the transaction but after a waiting period of at least two business days, a signed acknowledgement of the suitability determination from the investor and an agreement from the investor to purchase the penny stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

19
 

  

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

 

(a) During the three months ended March 31, 2012, 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, 2012  

Common Stock

and Warrants

(1)

  170,000 shares and 170,000 warrants  

$5,100 received from

three Investors; no commissions were paid.

 

 

Accredited

Investor

  Rule 506; Section 4(2)

 

1) The Company offered to sell 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. A total of 170,000 shares were issued pursuant to this offering at $0.03 per common share.

 

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

 

(c) In the three months ended March 31, 2012, 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

 

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)

 

20
 

  

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)

 

21
 

  

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)

 

22
 

  

 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)

 

23
 

  

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 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.
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 - date of earliest event - 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)

 

24
 

  

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.
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
10.100 Purchase and Assignment Agreement between the Registrant and Gel Properties LLC (Incorporated by reference to Form 8-K filed with the SEC on January 25, 2012)
31.1 Certification by Principal Executive Officer and 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 and Principal 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.*
101.INS XBRL Instance Document, XBRL Taxonomy Extension Schema *
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 *
  ____________________
   
  * Filed herewith.

 

25
 

  

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: May 15, 2012 By:  /s/ E. Jamie Schloss
    E. Jamie Schloss  
   

(PRINCIPAL EXECUTIVE OFFICER AND

PRINCIPAL FINANCIAL OFFICER)

 

 

26
 

 

PINX:SRGG Quarterly Report 10-Q Filling

PINX:SRGG Stock - Get Quarterly Report SEC Filing of PINX:SRGG stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
PINX:SRGG Quarterly Report 10-Q Filing - 3/31/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: PINX:SRGG Insider Activity 4 Filing - 10/9/2012  |  Next: PINX:SRGG Quarterly Report 10-Q Filing - 6/30/2012