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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.
 
 
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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.

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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.

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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.
 
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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.

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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.


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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.
 
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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.

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PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS
 
The Company’s business and operations may subject the Company to claims, litigation and other proceedings brought by private parties and governmental authorities. The Company has in the past been involved in contract and indemnity disputes in several litigation matters. Currently there is one open matter involving a contract dispute (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:


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.
 
 
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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)
   

 
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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)
 
 
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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)
 
 
 
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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.

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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.

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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)