Attached files
file | filename |
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EX-31.1 - CERTIFICATION - Surge Global Energy, Inc. | srgg_10q-ex3101.htm |
EX-32.1 - CERTIFICATION - Surge Global Energy, Inc. | srgg_10q-ex3201.htm |
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 SEPTEMBER 30, 2009
OR
o 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)
|
990
HIGHLAND DRIVE, SUITE 206
|
||
SOLANA
BEACH, CALIFORNIA 92075
|
||
(Address
of Principal Executive Offices)
|
Issuer’s
telephone number: (858) 720-9900
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Date 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 o No o
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 o
|
Accelerated
Filer o
|
Accelerated
Filer o
|
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 o NO x
As of
November 13, 2009, the Registrant had 31,437,387 shares of common stock issued
and outstanding.
TABLE
OF CONTENTS
Part I
- Financial Information
|
3
|
Item
1. Financial Statements (Unaudited)
|
3
|
Consolidated
Balance Sheets
|
3
|
Consolidated
Statements of Operations and Comprehensive Income (Loss)
|
4
|
Consolidated
Statements of Cash Flows
|
5
|
Notes
to Consolidated Financial Statements
|
9
|
Item
2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
19
|
Item
3. Quantitative & Qualitative Disclosures About
Market Risk
|
26
|
Item
4. Controls and Procedures
|
26
|
Part
II - Other Information
|
27
|
Item
1. Legal Proceedings
|
27
|
Item
1A. Risk Factors
|
27
|
Item
2. Unregistered Sales Of Equity Securities And Use Of
Proceeds
|
27
|
Item
3. Defaults Upon Senior Securities
|
28
|
Item
4. Submission of Matters to a Vote of
Securities
|
28
|
Item
5. Other Information
|
28
|
Item
6. Exhibits
|
28
|
2
Item
1. Financial Statements (Unaudited)
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED)
September
30,
2009
|
December
31,
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
37,131
|
$
|
656,843
|
||||
Convertible
note receivable, net of discount of $-0- and $137,500,
respectively
|
-
|
137,500
|
||||||
Investment
in marketable securities
|
808,579
|
577,585
|
||||||
Prepaid
expenses
|
91,506
|
242,700
|
||||||
Total
current assets
|
937,216
|
1,614,628
|
||||||
Property
and equipment, net of accumulated depreciation of $25,525 and
$20,968, respectively
|
8,450
|
13,007
|
||||||
Oil
and gas properties, using full cost accounting – unproved
|
548,905
|
1,016,199
|
||||||
Investment
in Andora Energy
|
3,675,952
|
3,540,639
|
||||||
Total
Assets
|
$
|
5,170,523
|
$
|
6,184,473
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued liabilities
|
$
|
793,085
|
$
|
912,923
|
||||
Note
payable
|
109,174
|
-
|
||||||
Total
current liabilities
|
902,259
|
912,923
|
||||||
Long-term
liabilities:
|
||||||||
Asset
retirement obligation
|
10,500
|
-
|
||||||
Total
liabilities
|
912,759
|
912,923
|
||||||
Commitment
and contingencies
|
-
|
-
|
||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, par value $0.001 per share; 10,000,000 shares
authorized:
|
||||||||
Series
A, Series B and Special Voting Preferred - none issued and
outstanding
|
-
|
-
|
||||||
Common
stock, par value $0.001 per share; 200,000,000 shares authorized;
31,437,387 shares and 31,437,387 shares issued and outstanding,
respectively
|
31,437
|
31,437
|
||||||
Additional
paid-in capital
|
54,145,668
|
53,966,622
|
||||||
Accumulated
other comprehensive loss
|
(501,342
|
)
|
(995,909
|
)
|
||||
Accumulated
deficit
|
(12,337,512
|
)
|
(12,337,512
|
)
|
||||
Deficit
from inception of exploration stage
|
(37,080,487
|
)
|
(35,393,088
|
)
|
||||
Total
stockholders' equity
|
4,257,764
|
5,271,550
|
||||||
Total
liabilities and stockholders' equity
|
$
|
5,170,523
|
$
|
6,184,473
|
See
accompanying notes to unaudited consolidated financial statements.
3
(AN
EXPLORATION STAGE COMPANY)
(UNAUDITED)
For
the Three Months Ending
September
30,
|
For
the Nine Months Ending
September
30,
|
For
the period from
January
1, 2005
(date
of inception of exploration
stage)
through
September
30,
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Selling,
general and administrative expenses
|
$
|
386,732
|
$
|
542,250
|
$
|
1,128,378
|
$
|
1,655,134
|
$
|
24,713,575
|
||||||||||
Accretion,
depreciation and amortization
|
1,602
|
1,636
|
4,557
|
5,719
|
468,650
|
|||||||||||||||
Oil
and gas impairment
|
316,530
|
-
|
564,948
|
-
|
7,466,361
|
|||||||||||||||
Total
operating expenses
|
704,864
|
543,886
|
1,697,883
|
1,660,853
|
32,648,586
|
|||||||||||||||
Loss
from operations
|
(704,864
|
)
|
(543,886
|
)
|
(1,697,883
|
)
|
(1,660,853
|
)
|
(32,648,586
|
)
|
||||||||||
Gain
(loss) on sale of marketable securities
|
(75,448
|
)
|
1,431
|
(134,171)
|
655,522
|
523,467
|
||||||||||||||
Equity
in losses from affiliates
|
-
|
-
|
-
|
-
|
(2,099,663
|
)
|
||||||||||||||
Impairment
of marketable securities
|
-
|
-
|
-
|
-
|
(2,929,136
|
)
|
||||||||||||||
Loss
on preferred shares redeemed
|
-
|
-
|
-
|
151,306
|
(105,376
|
)
|
||||||||||||||
Revaluation
loss net of warrant liability
|
-
|
-
|
-
|
-
|
(431,261
|
)
|
||||||||||||||
Gain
(loss) on disposition of Peace Oil property and Peace Oil
Corp.
|
-
|
(50,849
|
)
|
3,649,009
|
1,525,105
|
|||||||||||||||
Warrants
issued in connection with Peace Oil acquisition
|
-
|
-
|
-
|
-
|
(368,000
|
)
|
||||||||||||||
Interest
income (expense), net
|
(13,557
|
)
|
2,798
|
144,655
|
36,747
|
(4,226,133
|
)
|
|||||||||||||
Income(Loss)
from continuing operations, before income taxes and minority
interest
|
(793,869
|
)
|
(590,506
|
)
|
(1,687,399
|
)
|
2,831,731
|
(40,759,583
|
)
|
|||||||||||
Provision
for income taxes
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Income
(loss) before minority interest
|
(793,869
|
)
|
(590,506
|
)
|
(1,687,399
|
)
|
2,831,731
|
(40,759,583
|
)
|
|||||||||||
Gain
applicable to minority interest
|
-
|
-
|
-
|
-
|
3,679,096
|
|||||||||||||||
Net
income (loss)
|
$
|
(793,869
|
)
|
$
|
(590,506
|
)
|
$
|
(1,687,399
|
)
|
$
|
2,831,731
|
$
|
(37,080,487
|
)
|
||||||
Other
comprehensive income (loss):
Unrealized
gain (loss) on available
for sale securities
|
(148,409
|
)
|
(1,006,792
|
)
|
472,635
|
(391,740)
|
(507,635
|
)
|
||||||||||||
Foreign
currency translation adjustment
|
5,458
|
(79,628
|
)
|
21,932
|
135,724
|
6,293
|
||||||||||||||
Comprehensive
income (loss)
|
$
|
(936,820
|
)
|
$
|
(1,676,926
|
)
|
$
|
(1,192,832
|
)
|
$
|
2,575,715
|
$
|
(37,581,829
|
)
|
||||||
Net
income (loss) per common share - basic
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
$
|
0.08
|
|||||||||
Net
income (loss) per common share - diluted
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
$
|
0.07
|
|||||||||
Weighted
average shares outstanding – basic
|
31,437,387
|
31,515,322
|
31,437,387
|
35,762,270
|
||||||||||||||||
Weighted
average shares outstanding – diluted
|
31,437,387
|
31,515,322
|
31,437,387
|
42,157,841
|
See
accompanying notes to unaudited consolidated financial statements.
4
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For
the Nine Months Ended September 30, |
For
the period from January 1, 2005 (date of inception of exploration stage)
through
September 30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income (loss)
|
$
|
(1,687,399
|
)
|
$
|
2,831,731
|
$
|
(37,080,487
|
)
|
||||
Minority
interest
|
-
|
-
|
(3,679,096
|
)
|
||||||||
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||||||
Accretion,
depreciation and amortization
|
4,557
|
5,719
|
468,510
|
|||||||||
Write-off
of property and equipment
|
-
|
4,984
|
4,984
|
|||||||||
(Gain)
loss on sale of marketable securities
|
134,171
|
(657,637
|
)
|
(523,467
|
)
|
|||||||
(Gain)
loss from redemption of preferred shares
|
-
|
(151,306
|
)
|
105,376
|
||||||||
Loss
on sale of Peace Oil property and Peace Oil Corp., net
of liabilities
|
-
|
(3,649,009
|
)
|
(1,525,105
|
)
|
|||||||
Equity
in losses from affiliates
|
-
|
-
|
2,099,663
|
|||||||||
Impairment
of oil and gas properties
|
564,948
|
-
|
9,387,376
|
|||||||||
Amortization/write-off
of debt discount-beneficial conversion feature of convertible
debenture
|
-
|
-
|
1,022,492
|
|||||||||
Impairment
of marketable securities
|
-
|
-
|
1,008,121
|
|||||||||
Share-based
compensation
|
125,190
|
183,352
|
10,987,011
|
|||||||||
Amortization
of deferred compensation costs
|
-
|
-
|
3,039,038
|
|||||||||
Gain
on revaluation of warrant liabilities
|
-
|
-
|
431,261
|
|||||||||
Warrant
expense
|
53,856
|
13,679
|
446,362
|
|||||||||
Interest
on Gemini
|
-
|
-
|
230,000
|
|||||||||
Amortization
of discount attributable to note receivable
|
(137,500
|
)
|
-
|
(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
|
|||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Other
receivable
|
-
|
-
|
(132,384
|
)
|
||||||||
Prepaid
expense and other assets
|
149,664
|
77,518
|
(112,296
|
)
|
||||||||
Other
assets
|
-
|
-
|
80,958
|
|||||||||
Accounts
payable and accrued liabilities
|
(24,104
|
)
|
60,853
|
803,555
|
||||||||
Net
cash used in operating activities
|
(816,617
|
)
|
(1,280,126
|
)
|
(10,359,182
|
)
|
See
accompanying notes to unaudited consolidated financial statements.
5
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For
the Nine Months Ended
September
30,
|
For
the period from January 1, 2005
(date of (
inception of
exploration
stage)
through
September
30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Cash
flows from investing activities:
|
||||||||||||
Proceeds
from sale of marketable securities
|
140,231
|
189,633
|
329,864
|
|||||||||
Purchase
of marketable securities
|
-
|
(383,879
|
)
|
(5,475,727
|
)
|
|||||||
Proceeds
from repayment of note receivable
|
275,000
|
-
|
275,000
|
|||||||||
Purchase
of note receivable
|
-
|
(137,500
|
)
|
(137,500
|
)
|
|||||||
Consideration
paid on sale of subsidiary
|
-
|
(1,541,452
|
)
|
(1,533,395
|
)
|
|||||||
Proceeds
from sale of investment
|
-
|
600,000
|
600,000
|
|||||||||
Purchase
of oil and gas properties
|
(87,154
|
)
|
(568,160
|
)
|
(13,452,683
|
)
|
||||||
Deposits
|
-
|
-
|
(9,913
|
)
|
||||||||
Purchases
of property and equipment
|
-
|
(4,419
|
)
|
(115,055
|
)
|
|||||||
Proceeds
from sale of oil and gas properties
|
-
|
-
|
6,314,820
|
|||||||||
Payments
for asset retirement obligation
|
-
|
-
|
51,273
|
|||||||||
Proceeds
from disposition of Peace Oil property
|
-
|
-
|
14,071,294
|
|||||||||
Gemini
note repayment
|
-
|
-
|
(1,380,000
|
)
|
||||||||
2006
Signet cash balance unconsolidated
|
-
|
-
|
(5,626,405
|
)
|
||||||||
Net
cash (used in) provided by investing activities
|
328,077
|
(1,845,777
|
)
|
(6,088,427
|
)
|
See
accompanying notes to unaudited consolidated financial statements.
6
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For
the Nine Months Ended
September
30,
|
For
the period from
January
1, 2005
(date
of inception
of
exploration
stage)
through
|
|||||||||||
2009
|
2008
|
Sept.
30, 2009
|
||||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from the sale of common stock, net of costs and fees
|
-
|
-
|
4,250,000
|
|||||||||
Principal
payments on note payable
|
(115,826
|
)
|
-
|
(115,826
|
)
|
|||||||
Repurchase
of common stock
|
-
|
(30,333
|
)
|
(33,933
|
)
|
|||||||
Proceeds
from exercise of options
|
-
|
5,850
|
97,717
|
|||||||||
Net
proceeds from Joint Venture Partner cash call obligations
|
-
|
-
|
125,000
|
|||||||||
Proceeds
from convertible debentures
|
-
|
-
|
1,710,000
|
|||||||||
Proceeds
from equity to debt conversion
|
-
|
-
|
250,000
|
|||||||||
Proceeds
from note payable, gross
|
-
|
-
|
10,421,933
|
|||||||||
Proceeds
from Signet stock, net of costs and fees
|
-
|
-
|
1,769,602
|
|||||||||
Share
issuance costs
|
-
|
-
|
(124,987
|
)
|
||||||||
Deferred
financing costs
|
-
|
-
|
(1,208,375
|
)
|
||||||||
Net
cash (used in) provided by financing activities
|
(115,826
|
)
|
(24,483
|
)
|
17,141,131
|
|||||||
Effect
of exchange rates on cash and cash equivalents
|
(15,346
|
)
|
19,464
|
(816,326
|
)
|
|||||||
Net (decrease) increase
in cash and cash equivalents
|
(619,712
|
)
|
(3,130,922
|
)
|
(122,804
|
)
|
||||||
Cash
and cash equivalents at the beginning of the period
|
656,843
|
5,095,191
|
159,935
|
|||||||||
Cash
and cash equivalents at the end of the period
|
$
|
37,131
|
$
|
1,964,269
|
$
|
37,131
|
See
accompanying notes to unaudited consolidated financial statements.
7
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For
the Nine Months Ended
September
30
|
For
the period
from
January 1,
2005
(inception
of
exploration
stage)
through
Sept.
30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Supplemental
Disclosures of Cash Flow Information:
|
||||||||||||
Cash
paid during the period for interest
|
$
|
4,954
|
$
|
10,351
|
$
|
511,452
|
||||||
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
|
(472,635
|
)
|
391,740
|
507,635
|
||||||||
Note
payable issued on settlement of litigation
|
225,000
|
225,000
|
||||||||||
Exchange
of North Peace shares for common shares
|
-
|
-
|
35,000
|
|||||||||
Asset
retirement obligation
|
10,500
|
-
|
10,500
|
|||||||||
Amortization
of debt discount - beneficial conversion feature of convertible
debenture
|
-
|
-
|
2,099,067
|
|||||||||
Andora
shares issued on settlement of litigation
|
89,687
|
-
|
89,687
|
See
accompanying notes to unaudited consolidated financial statements.
8
SURGE GLOBAL ENERGY,
INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited interim consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
in accordance with such rules and regulations. The information furnished in the
interim consolidated financial statements includes normal recurring adjustments
and reflects all adjustments, which, in the opinion of management, are necessary
for a fair presentation of such financial statements. Although management
believes the disclosures and information presented are adequate to make the
information not misleading, it is suggested that these interim consolidated
financial statements be read in conjunction with the Company’s most recent
audited consolidated financial statements and notes thereto included in its
December 31, 2008 Annual Report on Form 10-K. Operating results for the nine
months ended September 30, 2009 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009.
Business
and Basis of Presentation
The
consolidated financial statements include the accounts of Surge Global Energy,
Inc., its wholly owned U.S. subsidiary, Surge Energy Resources, Inc. and its
Canadian owned subsidiaries, Cold Flow Energy ULC, Peace Oil Corp. and 1294697
Alberta Ltd., and its partially owned subsidiary, Andora Energy Corporation
("Andora") (formerly Signet Energy, Inc. and Surge Global Energy (Canada), Ltd.)
(collectively the “Company”). Neither of Peace Oil Corp. (sold in June 2008), or
1294697 Alberta Ltd. 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 U.S.
dollars unless otherwise noted.
In
January 2005, as a result of the Company disposing of its tobacco wholesale
business in December 2004, and restructuring its management and ownership, the
Company began implementing plans to establish an oil and gas development
business. As a result, the Company is an exploration stage enterprise and is now
seeking to explore the acquisition and development of oil and gas properties in
the United States and Canada. From its inception of exploration stage through
the date of these financial statements, the Company has not generated any
revenues from oil and gas operations and has incurred significant operating
expenses. Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise.
For the
period from January 1, 2005 (inception of exploration stage) through September
30, 2009, the Company has accumulated exploration stage losses of $37,080,487,
excluding foreign currency translation gains and unrealized losses on available
for sale securities of $501,342. The Company will cease to be an exploration
stage oil and gas corporation once it commences commercial production of oil and
gas.
Management
Estimates
The
preparation of financial statements in conformity with generally acceptable
accounting principles 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.
9
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 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 in the period an impairment occurs.
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.
Asset
Retirement Obligations
We have
obligations related to the plugging and abandonment of our oil and gas wells,
the removal of equipment and facilities, and returning the land to its original
condition. We estimate the future cost of this obligation, discount this cost to
its present value, and record a corresponding asset and liability in our
consolidated balance sheets. The values ultimately derived are based on many
significant estimates, including the ultimate expected cost of the obligation,
the expected future date of the required cash expenditures, and inflation rates.
The nature of these estimates requires us to make judgments based on historical
experience and future expectations related to timing. For the nine
months ending September 30, 2009 asset retirement obligations total $10,500. We
recognize two components on our consolidated statement of operations; accretion
of asset retirement obligations and asset retirement expense. Accretion of asset
retirement obligation reflects the periodic accretion of the present value of
future plugging and abandonment costs.
Earnings
(Loss) Per Share
Basic
earnings (loss) per share has been calculated based upon the weighted average
number of common shares outstanding. Diluted earnings per share calculations
include the impact of dilution from all contingently issuable shares, including
options, warrants and convertible securities. The common stock equivalents from
contingent shares are determined by the treasury stock method. During the nine
months ended September 30, 2009, convertible debt and securities, stock options,
and warrants were excluded as common stock equivalents in the diluted earnings
per share because they are anti-dilutive. The weighted average number of common
shares outstanding used in the computations of income (loss) per share were
31,437,387 and 35,762,270 for the nine months ended September 30, 2009 and 2008,
respectively.
Liquidity
As shown
in the accompanying consolidated financial statements, the Company incurred a
loss from operations of $1,697,883 for the nine months ended September 30, 2009.
The Company’s cash position at September 30, 2009 was $37,131 compared with
$656,843 at December 31, 2008, a decrease of $619,712. The Company's current
assets, on a consolidated basis, exceeded its current liabilities by $34,957 as
of September 30, 2009 compared with working capital of $701,705 as of December
31, 2008.
Management
intends to continue reducing operating expenses in future periods and will also
attempt to generate cash from the sale of its marketable securities, long-term
investments and the private placement of its equity and/or debt securities.
While it is management’s goal that its aforementioned activities are expected to
generate sufficient cash flow to meet the Company’s cash needs over the next
twelve months, we can provide no assurances in this regard. The Company in the
process of settling claims with Andora for legal fees incurred in the Dynamo
lawsuits, which cases have now both been dismissed. Shares of Andora held in
trust will be used to settle these claims and the Company has accrued an
estimate of the legal fees owed. But the Company may have reduced liquidity if
some of the Andora claims are paid in cash which could in turn reduce funds
available for new investments.
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.
10
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Recently
Issued Accounting Pronouncements
The
Company does not expect the adoption of any recently issued accounting
pronouncements to have a significant impact on its results of operations,
financial position or cash flow.
NOTE
2 – CONVERTIBLE NOTE RECEIVABLE
In
September 2008, the Company paid $275,000 and issued 1,000,000 warrants at an
exercise price of $0.75 per share and expiring December 31, 2009 for the
purchase of 500,000 shares of common stock and a $275,000 convertible note
receivable from 11 Good Energy, Inc. The convertible note receivable
bore interest at a rate of 8% per annum and was scheduled to mature on June 30,
2009.
The note
was either redeemable at face value or convertible into 11 Good Energy common
stock and an equal number of common stock purchase warrants exercisable until
June 30, 2010, and is redeemable at the Company's election at the earlier of the
maturity date or upon notice of prepayment of the convertible note by 11 Good
Energy, Inc. The conversion price will be calculated at 85% of the
cash sales price per share of common stock to be offered by 11 Good Energy, Inc.
in a private placement, with no value attributable to any
warrants. The number of warrants was equal to the number of common
stock issuable upon conversion or retirement of the note. The
exercise price of the warrants is equal to 85% of the cash sales price per share
of the first equity offering sold by 11 Good Energy, Inc. in a private
placement. As a result of the foregoing, Surge owns warrants to
purchase 107,843 shares of 11 Good Energy common stock exercisable at $2.55 per
share through the close of business on June 30, 2010.
The
Company allocated the purchase price to the convertible note receivable and the
marketable securities based on the relative fair values of the instruments
received and a discount of $137,500 was allocated to the convertible note
receivable and $137,500 recorded as the value of the 500,000 common
shares of 11 Good Energy.
On June
11, 2009, the note receivable, accrued interest and legal fees thereon, totaling
$295,057, was received in full. The discount on the convertible note receivable
was fully amortized using the effective interest method. At the same
time, the 1,000,000 warrants issued by the Company at $0.75 per share were
cancelled.
See Note
13, Subsequent Events.
NOTE
3 – INVESTMENTS IN MARKETABLE SECURITIES
North
Peace Energy Corp.
In June
2007, Peace Oil sold certain assets to North Peace Energy Corp., a Canadian oil
sands company listed on the TSX Venture Exchange (“North Peace”), including the
Red Earth Leases. The aggregate consideration was CDN$15,000,000
in cash and 2,270,430 restricted common shares of North Peace initially valued
at CDN$2.20 per share. After the North Peace transaction, the Company held a
4.87% fully diluted interest in North Peace prior to the new transactions
described below.
In June
and July 2008, the Company exchanged a total of 606,402 North Peace Energy
shares for all of the outstanding Cold Flow Exchangeable shares and 3,689,617
common shares of the Company. The balance of North Peace shares owned from the
North Peace transaction is approximately 2% of North Peace as of September 30,
2009. As of September 30, 2009, the closing price of the common stock
of North Peace listed on the TSX Venture Exchange was Cdn$0.50 per share. The
accumulated net unrealized loss on the investment in North Peace shares which
are held as securities available-for-sale was $507,635 for the nine months ended
September 30, 2009. This loss was recorded as a decrease in other
comprehensive income and a reduction in shareholders’ equity.
During
the nine months ended September 30, 2009, the Company sold 302,128 shares of
North Peace Energy and received $140,231 in cash and recorded a realized loss on
sale of $134,171.
As of
September 30, 2009, the Company owned 1,437,001 shares of North Peace valued at
$671,079 or approximately $0.47 per share.
11
Good Energy, Inc. Shares
As of
September 30, 2009, the Company owned 500,000 shares of 11 Good Energy Inc.
acquired in September 2008, valued at $137,500. The Company granted 11 Good
Energy, Inc. and/or its CEO, Frederick Berndt, an option to purchase these
shares at $1.00 per share. See Note 12, Subsequent
Events.
11
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – OIL & GAS PROPERTIES
All of
the Company’s oil and gas properties are located in the United
States. Costs excluded from amortization as of September 30, 2009 are
as follows:
Year
Incurred
|
Acquisition
Costs
|
Exploration
Costs
|
Development
Costs
|
Total
|
|||||||||||||
2008
|
$
|
500,000
|
$
|
516,199
|
$
|
-
|
$
|
1,016,199
|
|||||||||
2009
|
-
|
94,236
|
-
|
94,236
|
|||||||||||||
Impairment
|
-
|
(561,530
|
)
|
-
|
(561,530
|
) | |||||||||||
Totals
|
$
|
500,000
|
$
|
48,905
|
$
|
-
|
$
|
548,905
|
During
2008, the Company acquired drilling and exploration rights in White Pine County,
Nevada; Park County, Wyoming and Crane County, Texas. The Company commenced
drilling of an exploration well on the Wyoming lease in November, 2008. The
operator of the Wyoming well concluded that a second fracture stimulation is
necessary to improve production levels. This second fracture job commenced July
20, 2009 and the Company paid an additional $43,890 in July for this procedure.
In view of the additional costs to be incurred, lower natural gas prices, and
reduced net PV 10 reserves, the Company recorded an oil and gas impairment of
$245,000 in the second quarter of 2009 applicable to this property and an
additional $316,530 in the third quarter ending September 30, 2009.
In
December 2008, the drilling on the Company’s Crane County, Texas exploration
lease was unsuccessful and was deemed impaired. As a result, the
costs incurred were transferred to the full cost pool and an impairment expense
of $580,397 and $248,418 as of December 31, 2008 and September 30, 2009,
respectively, were recorded as the Company had no proved reserves as of
September 30, 2009.
The
Company’s Nevada lease expires February August 13, 2010. Drilling on this lease
will require the Company to raise additional capital for drilling and completion
or find a partner to participate in drilling costs.
NOTE
5 - 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. 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 is entitled to recover a claim from the Company
pursuant to a judgment of a court of competent jurisdiction and after exhausting
all appeals. After satisfying any judgment award, any remaining escrowed
shares will be distributed to the Company upon a joint written notice from
Andora and the Company to Valiant.
The net
investment in Andora at September 30, 2009 and December 31, 2008 was $3,675,952
and $3,540,639, respectively, representing the Company’s approximate 6.0% of the
fully diluted shares of Andora. The change in value was due to the additional
shares received and distributed in conjunction with the settlement of two
lawsuits. No charges relating to Andora were made to the Company’s financial
statements in the nine months ended September 30, 2009. The Company owns a total
of 3,606,501 common shares of Andora of which 2,384,563 shares are currently
held in an escrow account created pursuant to the plan of arrangement
between Signet Energy Inc., Andora Energy Corporation and an unaffiliated
Alberta company. During the three months ended September 30, 2009 the
Company transferred 75,000 shares to Granite Financial as part of a
settlement.
The
Company’s valuation of Andora is based on reserve reports furnished to the
Company by Andora which the Company has relied upon in valuing 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.
12
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – NOTES PAYABLE
Perez
Litigation:
Effective
March 31, 2009, the Company agreed to a total settlement and release of all
claims agreement with its former CEO, David Perez. The terms of the settlement
are that the Company issued a promissory note for $225,000, payable in 14 equal
installments and one final payment of $6,100. The note bears interest at 5% per
annum. In return, the Company received 252,361 Andora shares valued at $225,000
previously in Mr. Perez’s possession plus the elimination of all further legal
expenses or liability. The Company had previously accrued $445,952 in
conjunction with this matter, which amount was recorded in the 2008 financial
statements. If the Company realizes a net gain of $500,000 on any single
transaction or accumulates $500,000 in cash and cash equivalents, the full
amount of the Note Payable and accrued interest is due and payable within 30
days.
NOTE
7 – INCOME TAXES
Reconciliation
between actual tax expense (benefit) and income taxes computed by applying the
U.S. federal income tax rate and state income tax rate to income from continuing
operations before income taxes is as follows:
For the Nine Months Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
Net
Income(Loss)
|
$
|
(1,687,399
|
)
|
$
|
2,831,731
|
|||
Income
tax computed at combined U.S. and state statutory rates
(40%)
|
(675,000
|
)
|
817,000
|
|||||
Permanent
differences
|
-
|
-
|
||||||
Changes
in valuation allowance
|
675,000
|
817,000
|
||||||
Total
|
$
|
-
|
$
|
-
|
Tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred liabilities are presented below:
As
of
September
30,
|
As
of
December
31,
|
|||||||
Deferred
tax assets:
|
2009
|
2008
|
||||||
Net
operating loss carryforwards
|
$
|
6,000,000
|
$
|
4,720,000
|
||||
-
|
||||||||
Less
valuation allowance
|
(6,000,000
|
)
|
(4,720,000)
|
|||||
Total
|
$
|
-
|
$
|
-
|
At
September 30, 2009, Surge had a net operating loss carryforwards of
approximately $14,000,000 for federal and approximately $6,000,000 for state
income tax purposes, which will begin to expire, if unused, beginning in 2021.
The valuation allowance increased by approximately $280,000 and $600,000 for the
nine months ended September 30, 2009 and 2008, respectively. Section
382 Rule will place annual limitations on the Company’s net operating loss
carryforward. 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
8 – REDEEMABLE PREFERRED SHARES
In
connection with the Peace Oil acquisition on March 2, 2007, the Company’s
indirect wholly owned subsidiary, Cold Flow Energy ULC, issued 8,965,390
redeemable preferred shares (“Exchangeable Shares”) to the former Peace Oil
Corp. shareholders, each of which was exchangeable into two shares of the
Company’s common stock or effectively a total of 17,930,780 common shares were
issuable upon full conversion before these shares were redeemed.
13
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
8 – REDEEMABLE PREFERRED SHARES (continued)
On
November 6, 2007, three former Cold Flow shareholders exchanged 3,749,953.5
preferred shares into 7,499,907 common shares of the Company. After this
exchange Cold Flow had 5,215,436.5 Exchangeable Shares issued and outstanding
which, at that time, were convertible into 10,430,873 common shares of the
Company. Since a holder of Exchangeable Shares could cause redemption of shares
at any time, the Company classified the redemption amount outside permanent
equity. At December 31, 2007 the Company’s Exchangeable Shares had a carrying
value of $5,930,156.
On June
17, 2008, the Company redeemed the balance of all the outstanding Exchangeable
Shares in exchange for 584,929 shares of North Peace Energy valued at $1.10 per
share after foreign exchange adjustments, or a total consideration of $644,744.
After this transaction, no Exchangeable Shares were outstanding.
NOTE
9 – CAPITAL STOCK
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. See Note 3.
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 nine months ended September 30,
2009.
14
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – WARRANTS AND STOCK
OPTIONS
Warrants
The
following table summarizes the balances of warrants outstanding at September 30,
2009.
Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||||
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||||
$
|
0.08
|
500,000
|
1.67
|
0.08
|
500,000
|
$
|
0.08
|
|||||||||||||||||
0.10
|
375,000
|
1.00
|
0.10
|
375,000
|
0.10
|
|||||||||||||||||||
0.11
|
300,000
|
1.00
|
0.11
|
300,000
|
0.11
|
|||||||||||||||||||
0.12
|
120,000
|
1.00
|
0.12
|
120,000
|
0.12
|
|||||||||||||||||||
0.60
|
3,000,000
|
2.91
|
0.60
|
3,000,000
|
0.60
|
|||||||||||||||||||
1.00
|
1,000,000
|
0.99
|
1.00
|
1,000,000
|
1.00
|
|||||||||||||||||||
1.45
|
200,000
|
1.42
|
1.45
|
200,000
|
1.45
|
|||||||||||||||||||
1.60
|
1,005,000
|
0.60
|
1.60
|
1,005,000
|
1.60
|
|||||||||||||||||||
2.00
|
1,200,000
|
1.70
|
2.00
|
1,200,000
|
2.00
|
|||||||||||||||||||
7,700,000
|
1.69
|
$
|
0.96
|
7,700,000
|
$
|
0.96
|
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, 2008
|
7,925,000
|
$
|
1.00
|
|||||
Granted
|
775,000
|
0.10
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
(1,000,000
|
)
|
-
|
|||||
Outstanding
at September 30, 2009
|
7,700,000
|
$
|
0.94
|
For the
nine months ended September 30, 2009, the Company issued warrants to purchase
775,000 shares of common stock to two consultants at an average exercise price
of $0.09 per share with a two year term and vesting immediately. Of the 775,000
warrants, 400,000 warrants vested during the three months ended September 30,
2009 as a result of terminating a consulting agreement. Prior to the
termination, the 400,000 warrants were to vest annually over a remaining 4 year
term. The fair value of $53,856 was recorded as warrant expense
during the nine months ended September 30, 2009 and the warrants were
valued using the Black-Scholes option-pricing model. Variables used
in the Black-Scholes pricing model for the 775,000 warrants include: (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 September 30, 2009.
Pursuant
to an agreement with 11 Good Energy, Inc. to repay the September 11, 2008 note
receivable, during the nine months ended September 30, 2009, the Company
canceled 1,000,000 warrants with an exercise price of $0.75 per
share.
15
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – WARRANTS AND STOCK OPTIONS (Continued)
Stock
Options
The
following table summarizes the balances of options issued to officers and
directors outstanding at September 30, 2009.
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
|
||||||||||||||||
$
|
0.055
|
2,700,000
|
4.56 |
$
|
0.055
|
350,000
|
$
|
0.055
|
|||||||||||||
0.08
|
5,200,000
|
3.41 |
|
0.08
|
5,200,000
|
0.08
|
|||||||||||||||
0.09
|
500,000
|
3.98 |
0.09
|
375,000
|
0.09
|
||||||||||||||||
0.10
|
500,000
|
3.46 |
0.10
|
500,000
|
0.10
|
||||||||||||||||
0.12
|
250,000
|
3.79 |
0.12
|
225,000
|
0.12
|
||||||||||||||||
9,150,000
|
3.79 |
0.08
|
6,650,000
|
0.08
|
Transactions
involving the Company's options issuance are summarized as follows:
Number
of
Shares
|
Weighted
Average
Price
Per
Share
|
|||||||
Outstanding
at December 31, 2008
|
6,450,000
|
$
|
0.08
|
|||||
Granted
|
2,700,000
|
0.06
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding
at September 30, 2009
|
9,150,000
|
$
|
0.08
|
On April
23, 2009 options to purchase 2,700,000 shares of common stock were granted by
the Company to its officer and directors at an exercise price of $0.055 per
share. These options have a term of five years from the date of
grant. 1,500,000 vest over 12 months and 1,200,000 vest over 24
months. Non cash compensation expense of $92,573 was amortized to
operations in the nine months ended September 30, 2009. The options were valued
using the Black-Scholes option-pricing model. Variables used in the
model for the 2,700,000 options issued include: (1) discount rate of 1.89%,
(2) warrant life of 5 years, (3) expected volatility of 123.90% and
(4) zero expected dividends.
During
2008, options to purchase 6,500,000 shares of common stock were granted by the
Company to its officer and directors at exercise prices of $0.08 to $0.12 per
share. These options have a term of five years from the date of grant. 1,260,000
shares vested immediately on the date of grant and the remainder vest 1/12th per
month thereafter.
Non cash
compensation expense of $125,190 and $183,352 was charged to operations in the
nine months ending September 30, 2009 and the nine months ending September 30,
2008, respectively, using the Black-Scholes method of option-pricing
model.
NOTE
11 – GAIN (LOSS) ON SALE OF INVESTMENTS
On March
18, 2008, the Company sold its entire 17.52% interest in Cynthia Holdings, Ltd
for $600,000 in cash and 1,000,000 shares of the Company’s common
stock. A gain on the sale of $600,000 is reflected in the
consolidated financial statements for the nine months ended September 30, 2008
with no corresponding gain being recorded in the nine months ended September 30,
2009. This investment had been acquired in 2004 for $600,000 and was impaired
prior to January 1, 2007.
During
the nine month period ended September 30, 2009, the Company sold 302,128 shares
of North Peace Energy stock for a net loss of $134,171. Cash proceeds
for the period were $140,231.
16
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – 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.
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 (see “New Matter” below). 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.
Dynamo
Litigation: Dynamo Energy Corporation, a Canadian corporation
(“Dynamo”), filed a civil complaint in San Diego Superior Court in 2006 in
connection with an alleged breach of contract purportedly entered into on
October 12, 2004. The Company's Board of Directors previously determined that
the proposed agreement with Dynamo had not been authorized by the Board and made
an offer of settlement, which was not accepted. The complaint was filed against
the Company, Frederick Berndt, the Company's former V.P. and Director, E. Jamie
Schloss, the Company's current Chief Executive and Chief Financial Officer, and
Director, and Signet Energy, Inc. (“Signet”). On November 7, 2007,
the San Diego Court dismissed the 2006 case on the grounds that case filed in
San Diego, CA was not a convenient forum to try the case and on January 8, 2008,
the Court entered Dynamo’s dismissal request without prejudice.
On
February 1, 2008, Dynamo filed a Statement of Claim in Canada in the Court of
Queen’s Bench of Alberta, the Judicial District of Calgary against us, David
Perez, our former Chief Executive Officer and Director, Signet, C.W. Leigh
Cassidy, the former Chief Executive Officer of Signet, Andora Energy and three
Canadian entities.
On
September 8, 2009, the Company received final notice that the Court of Queen’s
Bench of Alberta ruled that the Dynamo Energy Corporation lawsuit against Surge
and all other defendants was dismissed in its entirety without prejudice or any
awards grants to Dynamo. In view of this dismissal, Surge is in the process of
seeking return of 2,384,563 Andora Energy Corporation (“Andora”) shares which
were previously held in trust as security for any possible awards to
Dynamo.
Approximately
$600,000 was accrued at September 30, 2009 for unpaid legal fees incurred by
third parties in this matter. The Company had previously placed 2,384,563 Andora
shares into a trust account to act as security for claims arising from the
Dynamo litigation. Some of the escrowed shares will be used to pay unpaid legal
fees.
Surge
currently owns a total of 3,606,501 Andora shares, or approximately 6% of Andora
on a fully diluted basis.
Granite
Litigation: On April 11, 2008, a lawsuit was filed against the Company by
Schwartz Semerdjian Haile Ballard & Cauley LLP in San Diego County
alleging failure to pay a dishonored check. The amount of the lawsuit is $64,947
plus other costs related to the issuance of a check for legal fees of Daniel
Schreiber, a former director, also relating to the Zemer matter, which the
Company determined should not have been paid. The Company settled this
litigation on July 13, 2009.
On July
13, 2009, the Company agreed to settle all claims with Granite Financial, Daniel
Schreiber, and Schwartz Semerdjian Haile Ballard & Cauley
LLP. The terms were that $225,000 will be released from the
restricted cash Trust account and paid to Granite. The Company will also
transfer 75,000 Andora shares to Granite. The $225,000 and 75,000 Andora shares
were to be paid by August 4, 2009, and the Company has made the
payments. In return, all outstanding liabilities accrued by the
Company totaling about $315,000 were cancelled and the remaining funds of
approximately $23,478 in the Trust account were returned to the
Company.
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. This 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 entire amount of this claim was accrued
by Surge Energy Resources, Inc. as of September 30, 2009. The action against
Surge Energy Resources is for breach of contract, plus attorneys’ fees. Surge
Energy Resources has no material assets or operations.
17
SURGE
GLOBAL ENERGY, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – SUBSEQUENT EVENTS
On
October 20, 2009, the Company concluded the sale of 450,000 shares of its
investment in 11 Good Energy, Inc. for $450,000 in cash to Frederick C. Berndt,
a former director of the Company. As a result of this sale, the
Company will recognize a gain of $346,500 in the fourth quarter of 2009. After
this sale, the Company continues to own 50,000 shares of 11 Good Energy,
Inc.
On
November 5, 2009, the Company authorized the issuance of 2,400,000 stock
options, 800,000 each to Warren Dillard, David Rapaport, and Fred Zaziski, at
$0.07 per share. The options vest ratably over 24 months and have a term of five
years, and will have 6 months to exercise after termination or
resignation.
18
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This
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.
Company
Overview
The
following discussion of our financial condition, changes in financial condition
and results of operations for the nine month period ending September 30, 2009
and the comparable period ending September 30, 2008, 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, 2008 filed with the Securities and Exchange Commission on April 15,
2009.
In
January 2005, as a result of the Company disposing of its tobacco wholesale
business in December 2004, and restructuring its management and ownership, the
Company began implementing plans to establish an oil and gas development
business. The Company has not yet generated any revenues from oil and gas
operations and has incurred significant operating expenses. Our consolidated
financial statements are stated in United States Dollars and are prepared in
accordance with United States Generally Accepted Accounting Principles
(GAAP).
We are a
Delaware corporation traded on the OTC Electronic Bulletin Board® under the
symbol SRGG. Our principal executive offices are located at 990 Highland Drive,
Suite 206, Solana Beach, CA 92075. Our telephone number is (858) 720-9900.
Our fax number is (858) 720-9902. We maintain a website at
www.SurgeGlobalEnergy.com.
Corporate
History
In July
2002, we acquired 100% of the common stock of Bible Resources, Inc. (“Bible”) in
exchange for 10,900,000 shares of our restricted common stock. Bible, at the
time, was a newly formed Nevada corporation organized for the purpose of
exploring, developing and/or investing in oil and gas resources on a worldwide
basis. As of December 31, 2003, our pipe and tobacco inventory was liquidated
and the tangible and intangible assets related to that business were sold off.
In December 2004, we completed the restructuring of our balance sheet and the
cancellation of our outstanding shares of Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock and indebtedness related to the
discontinued tobacco and pipe business.
19
In
February 2005, we formed a wholly owned Canadian subsidiary Surge Global
Energy (Canada) Ltd. On November 15, 2005, we changed its name to
Signet Energy, Inc. On November 14, 2005, Signet issued CDN$8,550,000
of 7% convertible debentures. As a result of the initial financing and related
transactions, our ownership interest in Signet was initially reduced to
approximately 47.3%. Subsequent financings reduced our ownership percentage to
approximately 44.3% of Signet on an undiluted basis and approximately 27.3% on a
fully diluted basis if all convertible notes issued in connection with prior
financings converted into shares of Signet and all employee stock options are
exercised. Based upon this reduction in ownership, we determined that we no
longer had the legal power to control the operating policies and procedures of
Signet and deconsolidated Signet from our consolidated financial statements
during the fiscal quarter ending September 30, 2006. Due to the change in
influence on Signet’s operations, we reflected our Signet operations as an
equity investment effective September 30, 2006.
On
September 19, 2007, Signet completed the proposed business combination of Signet
and Andora Energy Corporation ("Andora") (the “Combination”). As part of the
Combination, each of the issued and outstanding shares of common stock of Signet
was exchanged for 0.296895028 shares of common stock of Andora. The
Company held 11,550,000 shares of common stock of Signet which were exchanged
for 3,429,138 shares of common stock of Andora representing approximately 5.78%
of the fully diluted shares of Andora. At that time,
2,127,616 shares of common stock of Andora received by Surge were placed in an
escrow account pursuant to an agreement with Valiant Trust Company, Andora and
Signet. In connection with the Dynamo litigation claim, Andora is entitled to
recover a claim from the Company pursuant to a judgment of a court of competent
jurisdiction and after exhausting all appeals. After satisfying any
judgment award, any remaining escrowed shares will be distributed to the Company
upon a joint written notice from Andora and the Company to Valiant.
On June
28, 2007, Peace Oil Corp (“Peace Oil”) sold certain of its assets, including its
undivided 30% working interest in 135 square miles or 86,400 acres (net 40.5
sections or 25,920 acres) of oil sands leases in the Red Earth area of Alberta,
Canada (the “Red Earth Leases”) to North Peace Energy Corp. (“North
Peace”) for approximately CDN$20,000,000, consisting of
CDN$15,000,000 in cash and CDN$5,000,000 in North Peace equity (the “North Peace
Transaction”). The Company utilized the proceeds from such sale to
continue future operations in the oil and gas business.
We had
previously purchased, through Cold Flow Energy ULC (“Cold Flow”), all of the
issued and outstanding capital stock of Peace Oil in March 2007. Cold Flow is
owned entirely by 1294697 Alberta Ltd. (an entity we formed January 18,
2007), to consummate the acquisition of Peace Oil at the advice of Canadian
tax counsel), which in turn, is owned entirely by us. Cold Flow purchased the
capital stock of Peace Oil for a total purchase price of CDN$16,350,000,
consisting of CDN$6,350,000 payable in cash and promissory notes and
CDN$10,000,000 payable by the delivery of an aggregate of 8,965,390 exchangeable
shares of preferred stock of Cold Flow. In connection the acquisition, Cold Flow
also loaned Peace Oil CDN$270,000 to pay outstanding shareholder loans and legal
fees incurred with in connection with the closing. Each Cold Flow exchangeable
share is exchangeable into two shares of our common stock at any time for a
period of five years from the closing of the acquisition. As a result of the
acquisition, Peace Oil became a wholly owned subsidiary of Cold
Flow.
In
connection with the Peace Oil acquisition, we also issued to 1304146 Alberta
Ltd., a company formed by the former stockholders of Peace Oil, a warrant to
purchase up to 1,000,000 shares, in the aggregate, of our common stock at an
exercise price of $1.00 per share. The warrant is exercisable in cash or by net
issue exercise and has a term of three years from the date of issuance and
remains outstanding.
In June
2008, the Company sold 100% of its shares in Peace Oil Corp.
20
Business
Operations
Sawn Lake
Project, Alberta, Canada
On
September 19, 2007, the proposed business combination of Signet and Andora took
place and the Company received a total of 3,429,138 common shares of Andora to
hold a 5.87% fully diluted interest in Andora. Andora is an oil and gas company
owned 53% by Pan Orient Energy Corp., a Canadian energy company listed on the
TSX Venture Exchange. At that time, a total of 2,127,616 shares of common stock
of Andora received by Surge were placed in an escrow account pursuant to an
agreement with Valiant Trust Company, Andora and Signet and are being held in
conjunction with the Dynamo litigation. See Legal Proceedings.
According
to Andora’s publicly available information, Andora’s assets include various
fractional interests in 84 sections of oil sands permits and a gross overriding
royalty on various interests held by Deep Well Oil and Gas Inc. (“Deep Well”),
all located in the Sawn Lake heavy oil project area of Alberta, Canada, as well
as an effective 2.4 net gross overriding royalty (3% of an 80% working interest)
on interests in the thickest net oil pay sections of the pool, which is payable
by Deep Well.
In March
2009, the Company’s investment in Andora was increased by 252,361 shares valued
at $225,000 pursuant to a legal settlement agreement. In July, 2009 the
Company's investment has decreased by 75,000 shares as a result of a legal
settlement.
Peace Oil
Corp (Red Earth Area, Alberta, Canada)
On June
28, 2007, Peace Oil sold its interests in the Red Earth Leases and certain other
assets to North Peace Energy (NPE). As a result of this transaction, Peace Oil
held at that time 2,270,430 shares in North Peace Energy Corp. (NPE) or
approximately 4.87% on a fully diluted basis.
On June
18, 2007, the Company exchanged 584,929 of the above North Peace Energy shares
reducing the balance of North Peace shares owned at September 30, 2008 to
1,744,601 shares valued at $2,962,936 on September 30, 2008. The value of these
shares will be adjusted quarterly based on actual market
conditions.
On June
27, 2008, Cold Flow Energy ULC, parent of Peace Oil Corp, sold all of its common
and preferred shares in Peace to an unaffiliated third party. In conjunction
with that sale the Company had an after tax gain of $3,699,858 in the June 2008
quarter which reflected the reversal of Canadian income taxes accrued in prior
periods.
On July
11, 2008, in connection with Mr. Dale Fisher’s resignation from the Company’s
Board of Directors, the Company entered into agreement to repurchase 500,000
shares of its common stock (valued at $.07 per share or a total of $35,000) from
Mr. Fisher in exchange for 21,472 shares of North Peace Energy valued at $1.63
per share.
The
Company owned 1,437, 501 shares of North Peace Energy (NPE) valued at $671,079
at September 30, 2009.
Santa
Rosa Dome Project, Mendoza Province, Argentina
On March
18, 2008, the Company sold its entire investment in the Santa Rosa Dome Prospect
for $600,000 in cash and 1,000,000 shares of the Company’s common stock, and a
gain on the sale was reflected in the six months ending June 30, 2008
financial statements. This investment had been acquired in 2004 and a payment of
$600,000 had been made at that time and written off in a prior
period.
Plan
of Operations
The
Company is actively engaged in the search for commercial oil and gas prospects,
leases and working interest ownership in oil and gas properties. Once
prospects are identified and evaluated, leases are acquired from landowners or
prior lease owners and the Company usually has from one to three years to drill
a well or wells on those leases. The cost of oil and gas leases vary from
property to property and leasing costs can average from $100 per acre to $500
per acre. After acreage is leased, the Company evaluates those properties
further to determine the best plan of development and creates a budget called an
Authorization For Expenditures (“AFE”) which reflects current drilling and
completion costs for a specific well. On a 5,500 foot vertical well in Texas or
New Mexico drilling costs could be as much as $500,000 and in Nevada over
$1,200,000. Once drilling logs confirm indications of commercially producible
oil & gas, completion of the well occurs. Completion costs can range from
$250,000 to $500,000 per well drilled depending on the specific requirements of
each well. Our drilling priority plans may change based on many factors
including market prices for oil and gas, successes or failures of drilled wells,
and our limited funds. As the Company drills more wells it may seek
additional financing (debt or equity) to finance future drilling
operations.
21
In June 2008, we began acquiring oil
and gas properties for drilling and exploration. Three properties were acquired
in 2008, the first was Green Springs Prospect in White Pine County, Nevada which
consists of two leases aggregating approximately 2,500 acres which has not yet
been drilled, the second was an oil and gas prospect in Crane County, Texas
which was drilled, logged and found non productive, and the third a deep gas
well named the Qualmay #12-42 well, a 7,200 foot deep well oil and gas well
drilled on 40 acres of land in Park County, Wyoming. The well was drilled
pursuant to a participation agreement between Surge’s wholly owned subsidiary,
Surge Energy Resources, Inc. and Delaphin Energy Resources III, LLC. During the
quarter ended September 30, 2009 the Company paid for a second franc
job to stimulate production from the Qualmay #12-42 well the results of which
were below expectations. In view of low level of production, it recorded an
additional impairment of $316,530 to write off the remaining costs incurred on
this property. See Note 4.
We do not
have any obligations under existing contracts or agreements calling for the
provision of fixed and determinable quantities of oil and gas over the next
three years, and have therefore not filed any information or reports with any
federal authority or agency, containing estimates of total, proved developed or
undeveloped net oil or gas reserves.
The
Company plans on maximizing the value of its investment in Andora and North
Peace Oil common stock by seeking opportunities to sell or trade these
securities for cash or other oil and gas properties. The Company’s current oil
and gas investments, plus cash and cash equivalents on hand, are the major
assets of the Company at the present time. We are actively seeking ways to
reduce corporate overhead, legal fees and public reporting costs to lower
levels than were incurred in past periods. The Company is currently seeking
other oil & gas drilling prospects for exploration and development subject
to the conditions described above as well as additional financing. We can
provide no assurances that additional financing will be available to us on terms
satisfactory to us, if at all.
Disposition
of Assets
During
the nine month period ended September 30, 2009, the Company sold 302,128 shares
of North Peace Energy stock for a net loss of $134,171. Cash proceeds
for the period were $140,231.
On March
18, 2008, the Company sold its entire investment in the Santa Rosa property and
received in return $600,000 in cash and 1,000,000 shares of Surge common
stock.
On June
25, 2007, the Company entered into an Agreement of Purchase and Sale (the “Peace
Oil Sale Agreement”) with Peace Oil and North Peace, pursuant to which Peace Oil
sold, on June 28, 2007, certain of its assets, including its 30% working
interest in the Red Earth Leases, to North Peace (the “North Peace
Transaction”). In connection with the North Peace Transaction, North
Peace paid Peace Oil approximately CDN$20,000,000, consisting of CDN$15,000,000
in cash and CDN$5,000,000 in common shares of North Peace at an agreed price of
CDN$2.20 per share. On June 27, 2008, the Company sold its Peace Oil
Corp. subsidiary.
Acquisition
or Disposition of Plant and Equipment
In
addition to the Combination described above, while we anticipate acquisitions of
oil and gas properties, we do not anticipate the sale of any significant plant
or equipment during the next twelve months other than computer equipment and
peripherals used in our day-to-day operations.
Product
Research and Development
We do not
anticipate performing research and development for any products during the next
twelve months.
Number
of Employees
From our
inception through the period ended September 30, 2009, we have relied on the
services of outside consultants and currently have two (2) full time employee
and three (3) consultants. In order for us to attract and retain quality
personnel, we anticipate we will have to offer competitive salaries to future
employees. We anticipate an employment base of three (3)
full employees during the next twelve months. As we continue to
expand, we will incur additional cost for personnel. This projected increase in
personnel is dependent upon our generating revenues and obtaining sources of
financing. There is no guarantee that we will be successful in raising the funds
required or generating revenues sufficient to fund the projected increase in the
number of employees.
22
Working
Capital Activities
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 July
2008, the Company issued 50,000 common shares in conjunction with stock options
exercised at $0.115 per share.
For more
detailed information on the foregoing transactions see the notes to the
consolidated financial statements.
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.
Competition
The oil
and gas business is highly competitive. We will compete with private, public and
state-owned companies in all facets of the oil business, including suppliers of
energy and fuel to industrial, commercial and individual customers. Numerous
independent oil and gas companies, oil and gas syndicates and major oil and gas
companies actively seek out and bid for oil and gas prospects and properties as
well as for the services of third-party providers, such as drilling companies,
upon which we rely. Many of these companies not only explore for, produce and
market oil and natural gas, but also carry out refining operations and market
the resultant products on a worldwide basis. A substantial number of our
competitors have longer operating histories and substantially greater financial
and personnel resources than we do. Competitive conditions may be substantially
affected by various forms of energy legislation and/or regulation considered
from time to time by the government of the United States and other countries, as
well as factors that we cannot control, including international political
conditions, overall levels of supply and demand for oil and gas, and the markets
for synthetic fuels and alternative energy sources.
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.
23
Impairment
of Long-Lived Assets
Long-lived
assets and certain identifiable intangibles held and used by us are 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. Assets to be disposed of are
reported at the lower of the carrying amount or the fair value less costs to
sell
Stock-Based
Compensation
We
measure and recognize compensation expense for all share-based payment awards
made to employees and directors including employee stock options based on
estimated fair values.
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 –
Debt and Equity Securities provides 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.
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 two
investments in Peace Oil and Andora have significant oil reserves, such reserves
should increase as oil prices increase due to inflation and market
forces.
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.
24
Results
of Operations
For
The Nine Month Periods Ended September 30, 2009 and September 30,
2008
The
Company had no operating revenues in the nine months ended September 30, 2009 or
2008.
For the
nine months ended September 30, 2009, the Company had a net loss of $1,687,000
(loss of $0.05 per share) versus income of $2,832, 000 (income of $0.08 per
share) for the comparable period in 2008. The results in 2008 include a
gain on the disposition of Peace Oil Corp. which consisted primarily of a
reversal of previously accrued income taxes of $3.649 million ($0.10 per share).
The overall change in net income for the two periods was $4,519,
000. Excluding the reversal of income taxes in 2008, the net loss was
$817,000 versus a net loss before impairments of $1,133,000. The detailed
reasons for these changes are set forth below:
Total
operating expenses for the nine months ended September, 2009 were $1,698,000
versus $1,661,000 in the comparable nine months ended September 30, 2008, an
increase of $37,000 from the prior nine month period. Included in the
$1,698, 000 incurred in 2009 were $565,000 in oil and gas impairment expenses
with no comparable charge in 2008. See Note 4. Other expense items
decreased by $528,000 and were primarily attributable to a reduction of $333,000
in payroll and related expenses, a decrease in legal and audit expenses of $62,
000, and other general and administrative expenses of $144,000.
In the
nine months ending September 30, 2008, the Company recognized a gain on the sale
of its investment in Santa Rosa of $600,000 and a gain on the redemption of
preferred shares of $151,000 with no comparable gains in the nine months ended
September 30, 2009.
Net
interest income for the nine months ended September 30, 2009 was $145,000 versus
net interest income of $37,000 for the nine months ended September 30, 2008, an
increase of $108,000, consisting primarily of the interest income and the
accretion of the 11 Good Energy Note receivable.
Foreign
currency translation adjustments in the nine months ended September 30, 2009
resulted in a gain on translation of $22,000 compared to a gain of $136,000 in
the nine months ended September 30, 2008.
Unrealized
gain on available for sale securities in the nine months ended September, 2009
was $472,000 compared to an unrealized loss on available for sale securities of
$392,000 in the nine months ended September 30, 2008.
For
The Three Month Period Ended September 30, 2009 and September 30,
2008
The
Company had no operating revenues in the three months ended September 30, 2009
or 2008.
For the
three months ended September 30, 2009, the Company had a net loss of $794,000 (a
loss of $0.02 per share) versus a loss of $591,000 (loss of $0.02 per share) for
the comparable period in 2008. The detailed reasons for this change are
set forth below:
Total
operating expenses for the three months ended September 30, 2009 were $705,000
versus $544,000 in the comparable three months period, an increase of
$161,000. Included in the 2009 costs were approximately $317,000 in
oil and gas impairment expenses with no comparable charge in 2008. Excluding the
impairment expense, operating expenses declined by $158,000 from the prior
period, which decrease was primarily attributable to a reduction of $72,000 in
payroll and related expenses, a decrease in legal and audit expenses of $47,000,
a decrease in warrant and option non-cash compensation expense of $39,000 and an
decrease of other general and administrative expenses of $2,000. Net interest
expense for the three months ended September 30, 2009 was $13,600 versus net
interest income of $2,800 for the three months ended September 30,
2008, an increase of $16,400, consisting primarily of the interest income and
the accretion of the 11 Good Energy Note receivable.
Foreign
currency translation adjustments in the three months ended September 30, 2009
resulted in a gain on translation of $5,000 compared to a loss on foreign
currency exchange of $80,000 in the three months ended September 30,
2008.
Unrealized
loss on available for sale securities in the three months ended September 30,
2009 was $149,000 compared to an unrealized loss on available for sale
securities of $1,007,000 in the three months ended September 30,
2008.
Future
Operating Trends
We are
presently seeking to acquire oil and gas properties through debt financing
secured by the property’s reserves and production income. Our future operations
will depend upon available cash resources, obtaining additional financing and/or
the possible sale of portions of our investments in North Peace Energy, 11 Good
Energy, Inc. and/or Andora. We can provide no assurances that financing will be
available to us on terms satisfactory to us, if at all, or that we will be able
to liquidate a portion of our current investments should the need arise. Future
drilling costs can be expected to be substantial and the success of drilling
operations cannot be assured.
25
Liquidity
and Capital Resources
Current
Position
As of
September 30, 2009, our current assets consisted of cash and cash equivalents on
hand of $37,000, marketable securities of $809,000, prepaid expenses of $92,000
totaling $937,000 versus current liabilities of $902,000, thereby creating a
working capital surplus of $35,000. At December 31, 2008, the
Company had cash on hand of $657,000 marketable securities of $577,500, notes
receivable of $137,500 and prepaid expenses of $243,000, totaling
$1,615,000 versus current liabilities of $913,000, thereby creating a working
capital surplus of $702,000. The net decrease in current assets during the nine
month period of $677,000 was attributable mainly to cash on hand decreasing by
$620, 000, an increase in the North Peace Energy investment of $231, 000, and a
net decrease of $151, 000 in prepaid expenses. Net working capital
was $35,000 as of September 30, 2009 versus $702,000, a decrease of $667,000 due
primarily to cash operating losses of $817,000. All figures are rounded to the
nearest $1,000.
By
reducing our operating expenses and planning acquisitions or dispositions of
assets as necessary to manage the business properly, the Company will attempt 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 or debt on terms acceptable to us, this could have a
material adverse affect 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 operations. In the
past, we have been involved in various litigations, the outcome and legal
expense of which has adversely affected our results of 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 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 operations and to meet our cash needs as they
come due, this may seriously harm our business, financial condition and results
of operations.
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
We
maintain disclosure controls and procedures, which are designed to ensure that
information required to be disclosed in the reports we file or submit under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure.
Under the
supervision and with the participation of our management, including our CEO and
CFO, an evaluation was performed on the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this quarterly report. Based on that evaluation, our management,
including our CEO and CFO, concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this report.
There
were no changes in the Company’s internal controls over financial reporting
during the most recently completed fiscal nine months that have materially
affected or are reasonably likely to materially affect the Company’s internal
control over financial reporting.
26
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 (see “New Matters”), Litigation can involve complex factual and
legal questions and its outcome is uncertain. Any claim that is successfully
asserted against us could result in significant damage claims and other losses
and could adversely affect our financial condition. Even if the Company were to
prevail, any litigation could be costly and time-consuming and would divert the
attention of our management and key personnel from our business operations,
which adversely affect our financial condition, results of operations or cash
flows.
Dynamo
Litigation: Dynamo Energy Corporation, a Canadian corporation
(“Dynamo”), filed a civil complaint in San Diego Superior Court in 2006 in
connection with an alleged breach of contract purportedly entered into on
October 12, 2004. The Company's Board of Directors previously determined that
the proposed agreement with Dynamo had not been authorized by the Board and made
an offer of settlement, which was not accepted. The complaint was filed against
the Company, Frederick Berndt, the Company's former V.P. and Director, E. Jamie
Schloss, the Company's current Chief Executive and Chief Financial Officer, and
Director, and Signet Energy, Inc. (“Signet”). On November 7, 2007,
the San Diego Court dismissed the 2006 case on the grounds that case filed in
San Diego, CA was not a convenient forum to try the case and on January 8, 2008,
the Court entered Dynamo’s dismissal request without prejudice.
On
February 1, 2008, Dynamo filed a Statement of Claim in Canada in the Court of
Queen’s Bench of Alberta, the Judicial District of Calgary against us, David
Perez, our former Chief Executive Officer and Director, Signet, C.W. Leigh
Cassidy, the former Chief Executive Officer of Signet, Andora Energy and three
Canadian entities.
On
September 8, 2009, the Company received final notice that the Court of Queen’s
Bench of Alberta ruled that the Dynamo Energy Corporation lawsuit against Surge
and all other defendants was dismissed in its entirety without prejudice or any
awards grants to Dynamo. In view of this dismissal, Surge is in the process of
seeking return of 2,384,563 Andora Energy Corporation (“Andora”) shares which
were previously held in trust as security for any possible awards to
Dynamo.
Approximately
$600,000 was accrued at September 30, 2009 for unpaid legal fees incurred by
third parties in this matter. The Company had previously placed 2,384,563 Andora
shares into a trust account to act as security for claims arising from the
Dynamo litigation. Some of the escrowed shares will be used to pay unpaid legal
fees.
Surge
currently owns a total of 3,606,501 Andora shares, or approximately 6% of Andora
on a fully diluted basis.
Granite
Litigation: On April 11, 2008, a lawsuit was filed against the Company by
Schwartz Semerdjian Haile Ballard & Cauley LLP in San Diego County
alleging failure to pay a dishonored check. The amount of the lawsuit is $64,947
plus other costs related to the issuance of a check for legal fees of Daniel
Schreiber, a former director, also relating to the Zemer matter, which the
Company determined should not have been paid. The Company settled this
litigation on July 13, 2009.
Perez
Litigation: Effective March 31, 2009, the Company agreed to a total
settlement and release of all claims agreement with Mr. Perez. The terms of the
settlement are that the Company issued a promissory note for $225,000, payable
in 14 equal installments and one final payment of $6,100. The note bears
interest at 5% per annum. In return, the Company received 252,361 Andora shares
valued at $225,000 previously in Mr. Perez’s possession plus the elimination of
all further legal expenses or liability. The Company had previously accrued
$445,952 in conjunction with this matter, which amount was reversed in the 2008
financial statements. If the Company realizes a net gain of $500,000 on any
single transaction or accumulates $500,000 in cash and cash equivalents, the
full amount of the Note Payable and accrued interest is due and payable within
30 days. During the three months ended September 30, 2009, the
Company made principal and interest payments of $75,000.
On
July 13, 2009, the Company agreed to settle all claims with Granite Financial,
Daniel Schreiber, and Schwartz Semerdjian Haile Ballard & Cauley
LLP. The terms were that $225,000 will be released from the
restricted cash Trust account and paid to Granite. The Company will also
transfer 75,000 Andora shares to Granite. The $225,000 and 75,000 Andora shares
were to be paid by August 4, 2009, and the Company has made the
payments. In return, all outstanding liabilities accrued by the
Company totaling about $315,000 were cancelled and the remaining funds of
approximately $23,478 in the Trust account were returned to the Company.
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 $56,239 deficiency was paid. The entire amount of this claim
was accrued by Surge Energy Resources, Inc. as of September 30, 2009. The action
against Surge Energy Resources is for breach of contract, plus attorneys’ fees.
Surge Energy Resources has no material assets or operations.
ITEM
1A. RISK FACTORS
As
a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act
and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure
reporting obligations and therefore are not required to provide the information
requested by this Item 1A.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During
the nine months ended September 30, 2009, there were no sales of securities or
repurchases of securities by the Company.
27
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
None.
ITEM
5. OTHER INFORMATION
None.
ITEM
6. EXHIBITS
(a)
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)
|
3.5 | Amendment to Section 3.5 of the Corporation's By-Laws incorporated by reference to Form 8-K filed November 12, 2009 (date of earliest event - November 5, 2009) |
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)
|
10.1
|
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)
|
10.2
|
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)
|
10.3
|
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)
|
10.4
|
Farmout
Amending Agreement by and among the Company, Signet Energy, Inc. (f/k/a
Surge Global Energy (Canada) Ltd.), Northern Alberta Oil Ltd. and Deep
Well Oil & Gas, Inc. dated November 15, 2005 (1) (incorporated herein
by reference to Exhibit 10.6 to the Company’s Registration Statement on
Form SB-2, filed December 30, 2005)
|
10.5
|
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)
|
10.6
|
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)
|
10.7
|
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)
|
10.8
|
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)
|
10.9
|
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)
|
28
10.10
|
Form
of Warrant by and among the Company, Mark Fritz, Chet Idziszek, Gary
Vandergrift, Burton Gersh and Irving Plaksin effective as of August 19,
2005 (incorporated herein by reference to Exhibit 10.12 to the Company’s
Registration Statement on Form SB-2, filed December 30,
2005)
|
10.11
|
Form
of Registration Rights Agreement by and among the Company, Mark Fritz,
Chet Idziszek, Gary Vandergrift, Burton Gersh and Irving Plaksin effective
as of August 19, 2005 (incorporated herein by reference to Exhibit 10.13
to the Company’s Registration Statement on Form SB-2, filed December 30,
2005)
|
10.12
|
Securities
Purchase Agreement by and between the Company and Pawnee Holding
Corporation dated October 24, 2005 (incorporated herein by reference to
Exhibit 10.14 to the Company’s Registration Statement on Form SB-2, filed
December 30, 2005)
|
10.13
|
Warrant
by and between the Company and Pawnee Holding Corporation dated October
24, 2005 (incorporated herein by reference to Exhibit 10.15 to the
Company’s Registration Statement on Form SB-2, filed December 30,
2005)
|
10.14
|
Registration
Rights Agreement by and between the Company and Pawnee Holding Corporation
dated October 24, 2005 (incorporated herein by reference to Exhibit 10.16
to the Company’s Registration Statement on Form SB-2, filed December 30,
2005)
|
10.15
|
Form
of Subscription Agreement for 7% Convertible Debentures, by and between
Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd) and certain
purchasers dated November 15, 2005 (incorporated herein by reference to
Exhibit 10.17 to the Company’s Registration Statement on
Form
SB-2, filed December 30, 2005)
|
10.16
|
Agency
Agreement by and among the Company, Signet Energy, Inc. (f/k/a Surge
Global Energy (Canada) Ltd.), and MGI Securities Inc. dated November 15,
2005 (incorporated herein by reference to Exhibit 10.18 to the Company’s
Registration Statement on Form SB-2, filed December 30,
2005)
|
10.17
|
Shareholders
Agreement by and among the Company, Leigh Cassidy, Fred Kelly and Signet
Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) dated November 15,
2005 (incorporated herein by reference to Exhibit 10.19 to the Company’s
Registration Statement on Form SB-2, filed December 30,
2005)
|
10.18
|
Trust
Indenture by and among the Company, Signet Energy, Inc. (f/k/a Surge
Global Energy (Canada) Ltd.) and Valiant Trust Company dated November 15,
2005 (incorporated herein by reference to Exhibit 10.21 to the Company’s
Registration Statement on Form SB-2, filed December 30,
2005)
|
10.19
|
Registration
Rights Agreement by and among the Company and MGI Securities, Inc., as
agent to the purchasers of the debentures dated November 15, 2005
(incorporated herein by reference to Exhibit 10.22 to the Company’s
Registration Statement on Form SB-2, filed December 30,
2005)
|
10.20
|
Release
and Indemnification Agreement by and between the Company and Signet
Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.), dated November 15,
2005 (incorporated herein by reference to Exhibit 10.26 to the Company’s
Annual Report on Form 10-KSB, filed April 17, 2006)
|
10.21
|
Escrow
Agreement by and among the Company, Signet Energy, Inc. (f/k/a Surge
Global Energy (Canada) Ltd.) and Valiant Trust Company, dated November 15,
2005 (incorporated herein by reference to Exhibit 10.27 to the Company’s
Annual Report on Form 10-KSB, filed April 17, 2006)
|
10.22
|
Securities
Purchase Agreement by and between the Company and the Zemer Family Trust
dated November 16, 2005 (incorporated herein by reference to Exhibit 10.23
to the Company’s Registration Statement on Form SB-2, filed December 30,
2005)
|
10.23
|
Warrant
by and between the Company and the Zemer Family Trust dated November 16,
2005 (incorporated herein by reference to Exhibit 10.24 to the Company’s
Registration Statement on Form SB-2, filed December 30,
2005)
|
10.24
|
Registration
Rights Agreement by and between the Company and the Zemer Family Trust
dated November 16, 2005 (incorporated herein by reference to Exhibit 10.25
to the Company’s Registration Statement on Form SB-2, filed December 30,
2005)
|
10.25
|
Securities
Purchase Agreement by and between the Company and Benjamin Financial
Limited Partnership dated November 30, 2005 (incorporated herein by
reference to Exhibit 10.26 to the Company’s Registration Statement on Form
SB-2, filed December 30, 2005)
|
29
10.26
|
Warrant
by and between the Company and Benjamin Financial Limited Partnership
dated November 30, 2005 (incorporated herein by reference to Exhibit 10.27
to the Company’s Registration Statement on Form SB-2, filed December 30,
2005)
|
10.27
|
Registration
Rights Agreement by and between the Company and Benjamin Financial Limited
Partnership dated November 30, 2005 (incorporated herein by reference to
Exhibit 10.28 to the Company’s Registration Statement on Form SB-2, filed
December 30, 2005)
|
10.28
|
Indenture
by and between Signet Energy, Inc. (f/k/a Surge Global Energy (Canada)
Ltd.) and Valiant Trust Company dated December 20, 2005 (incorporated
herein by reference to Exhibit 4.1 to the Company’s Current Report on Form
8-K, filed December 28, 2005)
|
10.29
|
Form
of 7% Secured Convertible Debentures Certificate dated December 20, 2005
(incorporated herein by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K, filed December 28, 2005)
|
10.30
|
Form
of Subscription Agreement for Flow-Through Shares by and between Signet
Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and certain
purchasers dated December 20, 2005 (incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed December
28, 2005)
|
10.31
|
Form
of Subscription Agreement for 7% Secured Convertible Debentures by and
between Signet Energy, Inc. (f/k/a Surge Global Energy (Canada) Ltd.) and
certain purchasers dated December 20, 2005 (incorporated herein by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed December 28, 2005)
|
10.32
|
Agency
Agreement by and between Signet Energy, Inc. (f/k/a Surge Global Energy
(Canada) Ltd.) and MGI Securities, Inc. dated December 20, 2005
(incorporated herein by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K, filed December 28, 2005)
|
10.33
|
Form
of Securities Purchase Agreement effective as of March 14, 2006, relating
to the private placement offering of common stock and warrants for an
aggregate purchase price of $1,800,000 (incorporated herein by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
March 23, 2006)
|
10.34
|
Form
of Warrant, effective as of March 14, 2006, relating to the private
placement offering of common stock and warrants for an aggregate purchase
price of $1,800,000 (incorporated herein by reference to Exhibit 4.1 to
the Company’s Current Report on Form 8-K, filed March 23,
2006)
|
10.35
|
Form
of Registration Rights Agreement, effective as of March 14, 2006, relating
to the private placement offering of common stock and warrants for an
aggregate purchase price of $1,800,000 (incorporated herein by reference
to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed March
23, 2006)
|
10.36
|
Form
of Non-Employee Director Agreement (incorporated herein by reference to
Exhibit 10.37 to the Company’s Registration Statement on Form SB-2, filed
December 20, 2006)
|
10.37
|
Form
of Nonstatutory Stock Option Agreement (incorporated herein by reference
to Exhibit 10.38 to the Company’s Registration Statement on Form
SB-2, filed December 20, 2006)
|
10.38
|
Consulting
Agreement by and between the Company and Richard Collato dated October 6,
2006 (incorporated herein by reference to Exhibit 10.39 to the Company’s
Registration Statement on Form SB-2, filed December 20,
2006)
|
10.39
|
Securities
Purchase Agreement by and between the Company and each of Gemini master
Fund Limited and Mark C. Fritz dated November 28, 2006
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed December 4,2006)
|
10.40
|
Registration
Rights Agreement by and between the Company and each of Gemini Master Fund
Limited and Mark C. Fritz dated November 28, 2006 (incorporated herein by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed December 4, 2006)
|
10.41
|
Common
Stock Purchase Warrants dated November 28, 2006 issued by the Company to
each of Gemini Master Fund Limited and Mark C. Fritz (incorporated herein
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K,
filed December 4, 2006)
|
10.42
|
“Greenshoe”
Common Stock Purchase Warrants dated November 28, 2006 issued by the
Company to each of Gemini Master Fund Limited and Mark C. Fritz
(incorporated herein by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K, filed December 4,
2006)
|
10.43
|
Stock
Purchase Agreement among Cold Flow Energy ULC, the Company, Peace Oil
Corp., and Shareholders of Peace Oil Corp. dated November 30, 2006
(incorporated herein by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K, filed December 4, 2006)
|
10.44
|
Employment
Agreement between the Company and William Greene dated December 14, 2006
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K/A, filed with the Securities and Exchange Commission on
December 18, 2006)
|
10.45
|
First
Amendment to Stock Purchase Agreement by and among Cold Flow Energy ULC,
the Company, Peace Oil Corp., and the shareholders of Peace Oil
dated March 2, 2007 (incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed March 8,
2007)
|
10.46
|
Voting
and Exchange Trust Agreement by and among the Company, Cold Flow Energy
ULC, and Olympia Trust Company dated March 2, 2007 (incorporated herein by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed March 8, 2007)
|
10.47
|
Support
Agreement by and among the Company, Cold Flow Energy ULC, and 1294697
Alberta Ltd. dated March 2, 2007 (incorporated herein by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed March 8,
2007)
|
10.48
|
Promissory
Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal
amount of CDN$1,500,000 with a maturity date of June 30, 2007
(incorporated herein by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K, filed March 8, 2007)
|
10.49
|
Promissory
Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal
amount of CDN$1,000,000 with a maturity date of July 30, 2007
(incorporated herein by reference to Exhibit 10.5 to the Company’s Current
Report on Form 8-K, filed March 8, 2007)
|
10.50
|
Promissory
Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal
amount of CDN$1,500,000 with a maturity date of August 30, 2007
(incorporated herein by reference to Exhibit 10.6 to the Company’s Current
Report on Form 8-K, filed March 8, 2007)
|
30
10.51
|
Promissory
Note dated March 2, 2007 issued by Cold Flow Energy ULC in the principal
amount of CDN$1,600,000 with a maturity date of December 31, 2007
(incorporated herein by reference to Exhibit 10.7 to the Company’s Current
Report on Form 8-K, filed March 8, 2007)
|
10.52
|
Petroleum,
Natural Gas and General Rights Conveyance by and among 1304146 Alberta
Ltd., Peace Oil Corp., Cold Flow Energy ULC, and the Company dated March
2, 2007 (incorporated herein by reference to Exhibit 10.8 to the Company’s
Current Report on Form 8-K, filed March 8, 2007)
|
10.53
|
Escrow
Agreement by and among Burstall Winger LLP, Peace Oil Corp., the Company,
Cold Flow Energy ULC, and 1304146 Alberta Ltd. dated March 2, 2007
(incorporated herein by reference to Exhibit 10.9 to the Company’s Current
Report on Form 8-K, filed March 8, 2007)
|
10.54
|
Royalty
Agreement by and between 1304146 Alberta Ltd. and Peace Oil Corp. dated
March 2, 2007 (incorporated herein by reference to Exhibit 10.10 to the
Company’s Current Report on Form 8-K, filed March 8,
2007)
|
10.55
|
Warrant
to purchase 1,000,000 shares of Surge common stock dated March 2, 2007
(incorporated herein by reference to Exhibit 10.11 to the Company’s
Current Report on Form 8-K, filed March 8, 2007)
|
10.56
|
Second
Amendment to Stock Purchase Agreement among Cold Flow Energy ULC, the
Company, Peace Oil Corp. and the Shareholders of Peace Oil Corp.
dated April 16, 2007 (incorporated herein by reference to Exhibit 2.3 to
the Company’s Current Report on Form 8-K/A, filed May 16,
2007)
|
10.57
|
Exchange,
Purchase and Amendment Agreement dated as of April 19, 2007 by and between
the Company and Gemini Master Fund, Ltd. (incorporated herein by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April
25, 2007)
|
10.58
|
Convertible
Note Due May 1, 2008 Issued to Gemini Master Fund, Ltd. (incorporated
herein by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K, filed April 25, 2007)
|
|
10.59
|
Agreement
to Vote dated May 22, 2007 between the Company, Signet Energy, Inc.,
Andora Energy Corporation and David Perez (incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed May 29, 2007)
|
|
10.60
|
Letter
Agreement dated June 13, 2007 between the Company, Peace Oil Corp. and
North Peace Energy Corp. (incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K, filed June 15,
2007)
|
|
10.61
|
Agreement
of Purchase and Sale dated as of June 25, 2007 among Peace Oil Corp.,
North Peace Energy Corp. and the Company (incorporated herein by reference
to Exhibit 10.63 to the Company’s Registration Statement on Form SB-2,
filed July 3, 2007)
|
|
10.62
|
Addendum
to Employment Agreement between William Greene and the Company, dated as
of June 29, 2007 (incorporated herein by reference to Exhibit 10.64 to the
Company’s Registration Statement on Form SB-2, filed July 3,
2007)
|
|
10.63
|
Stock
Option Agreement dated July 17, 2007 between the Company and David
Perez (incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed July 23,
2007)
|
|
10.64
|
Stock
Option Agreement dated July 17, 2007 between the Company and William
Greene (incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed July 23, 2007)
|
|
10.65
|
Escrow
Agreement dated August 8, 2007 between the Company and Gemini
(incorporated herein by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed August 10, 2007)
|
|
10.66
|
Redemption
Agreement dated August 8, 2007 between the Company and Gemini
(incorporated herein by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated August 10, 2007)
|
|
10.67
|
Agreement
to Vote dated August 17, 2007 between Signet Energy Inc., Andora Energy
Corporation, the Company and David Perez (incorporated herein by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB/A, filed
March 25, 2008)
|
|
10.68
|
First
Supplemental Trust Indenture dated August 17, 2007 between the Company,
Signet Energy, Inc., and Valiant Trust Company (incorporated herein by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10-QSB/A, filed March 25, 2008)
|
|
10.69
|
Addendum
to Employment Agreement dated December 31, 2007 by and between the Company
and William Greene (incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed January 4,
2008)
|
|
10.70
|
Purchase
and Sale Agreement dated March 18, 2008, by and among Surge Global Energy,
Inc.; Oromin Enterprises, Ltd.; Irie Isle Limited; Cynthia Holdings Ltd.;
and Chet Idziszek (incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed March 24,
2008)
|
|
10.71
|
Stock
Option Agreement between the Company and Charles V. Sage dated February
27, 2008 and entered into on or about April 10, 2008. Incorporated by
reference to the Registrant’s Form 10-KSB filed on April 15, 2008 for its
fiscal year ended December 31, 2007.
|
|
10.72
|
Stock
Option Agreement between the Company and Barry Nussbaum dated February 27,
2008 and entered into on or about April 10, 2008. Incorporated
by reference to the Registrant’s Form 10-KSB filed on April 15, 2008 for
its fiscal year ended December 31, 2007.
|
|
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.
Incorporated by reference to the Registrant’s Form 10-KSB filed on April
15, 2008 for its fiscal year ended December 31,
2007.
|
|
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. Incorporated by
reference to the Registrant’s Form 10-KSB filed on April 15, 2008 for its
fiscal year ended December 31,
2007.
|
31
10.75
|
Stock
Option Agreement between the Company and Kenneth Polin dated March 18,
2008 and entered into on or about April 10, 2008. Incorporated by
reference to the Registrant’s Form 10-KSB filed on April 15, 2008 for its
fiscal year ended December 31, 2007.
|
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 August 15, 2009.
|
10.77
|
Memorandum
of Agreement between Surge Global Energy, Inc. and Frederick C. Berndt
dated June 11, 2009. Incorporated by reference to Form
8-K/A (June 17, 2008 – date of earliest event) filed on August 15,
2009.
|
10.78
|
Share Purchase Agreement – Purchase of 1,405,145 CFE Preferred Shares owned by Fisher Family Trust (Incorporated by reference to Form 8-K (June 11, 2008 – date of earliest event) filed on June 17, 2009.) |
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)
|
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
|
Settlement
Agreement with Daniel Schreiber and Granite Financial Group Inc. (filed
herewith)
|
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)
|
31.1
|
Certification
of the Chief Executive Officer and Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act*
|
32.1
|
Certifying
Statement of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley
Act*
|
________________
* Filed
herewith.
32
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SURGE
GLOBAL ENERGY, INC.
|
|||
DATED:
November 13, 2009
|
By:
|
/s/ E.
Jamie Schloss
|
|
E.
Jamie Schloss
|
|||
(CHIEF
EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER)
|