Surge Global Energy, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Surge Global Energy, Inc.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - Surge Global Energy, Inc.	ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Surge Global Energy, Inc.	ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - Surge Global Energy, Inc.	ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - Surge Global Energy, Inc.	ex31-1.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 JUNE 30, 2014

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

FOR THE TRANSITION PERIOD FROM ___________ TO ___________

Commission file number 0-24269

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

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

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

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

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

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

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

	Large Accelerated Filer	[ ]	Accelerated Filer	[ ]
	Accelerated Filer	[ ]	Smaller Reporting Company	[X]

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

As of August 14, 2014, the Registrant had 14,234,673 shares of common stock issued and outstanding.

TABLE OF CONTENTS

		Page No
	Part I - Financial Information

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets	F-1

	Consolidated Statements of Operations and Comprehensive Income (Loss)	F-2

	Consolidated Statements of Cash Flows	F-3 - F-4

	Notes to Consolidated Financial Statements	F-5 to F-15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11

Item 4.	Controls and Procedures	11

	Part II - Other Information

Item 1.	Legal Proceedings	13

Item 1A.	Risk Factors	13

Item 2.	Unregistered Sales Of Equity Securities And Use Of Proceeds	13

Item 3.	Defaults Upon Senior Securities	14

Item 4.	Mining Safety Disclosures	14

Item 5.	Other Information	14

Item 6.	Exhibits	14

Part I - Financial Information

SURGE GLOBAL ENERGY, INC.

INDEX TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Item 1. Financial Statements (Unaudited)

		Page No

Consolidated Balance Sheets at June 30, 2014 (unaudited) and December 31, 2013		F-1

Unaudited Consolidated Condensed Statements of Operations and Comprehensive Income (Loss) for the three months and six months ended June 30, 2014 and June 30, 2013		F-2

Unaudited Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2014 and June 30, 2013		F-3 - F-4

Notes to Unaudited Consolidated Condensed Financial Statements		F-5 - F-15

SURGE GLOBAL ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	156,310		$	61,521
Accounts Receivable		-			105
Prepaid expenses		24,697			18,026
Total current assets		181,007			79,652

Property and equipment, net of accumulated depreciation of $39,963 and $37,792, respectively		9,405			11,576

Oil & Gas Properties, net of accumulated amortization of $210,374 and $200,586, respectively		40,096			41,884

Investment in Andora Energy		1,624,413			1,629,614

Security Deposit		5,000			5,000

Total assets	$	1,859,921		$	1,767,726

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	100,010		$	144,255
Investment obligation		-			393,000
Total current liabilities		100,010			537,255

Total liabilities		100,010			537,255

Commitments and contingencies		-			-

Stockholders’ equity :
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized:
Series A - none issued and outstanding		-			-
Series B - none issued and outstanding		-			-
Special Voting Preferred - 0 shares issued and outstanding, respectively		-			-
Common stock, par value $0.001 per share; 400,000,000 shares authorized; 14,234,673 and 12,919,673 shares issued and outstanding, respectively		14,235			12,920
Additional paid-in capital		56,578,494			55,588,209
Accumulated other comprehensive income		(109,219	)		(104,018	)
Accumulated deficit		(12,337,512	)		(12,337,512	)
Deficit from inception of exploration stage		(42,386,087	)		(41,929,128	)
Total stockholders’ equity		1,759,911			1,230,471

Total liabilities and stockholders’ equity	$	1,859,921		$	1,767,726

See accompanying footnotes to these unaudited condensed consolidated financial statements

F-1

SURGE GLOBAL ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

	For the three months ended June 30						For the six months ended June 30
	2014			2013			2014			2013

Revenues:
Oil & gas revenues		-		$	-		$	145		$	-
Oil & gas (expenses)		-			-			(86	)		-
Gross profit		-			-			59			-

Operating expenses:
Selling, general and administrative expenses		225,843			87,442			444,906			225,273
Accretion, depreciation and amortization		1,086			-			2,171			-
Oil and gas property impairment		9,702			-			9,702			-
Total operating expenses		236,631			87,442			456,779			225,273

Loss from operations		(236,631	)		(87,442	)		(456,720	)		(225,673	)

Other income (expense):
Interest income (expense)		(132	)		(123	)		(239	)		(337	)
Loss from continuing operations, before income taxes and minority interest		(236,763	)		(87,565	)		(456,959	)		(225,610	)
Benefit (provision) for income taxes		-			-			-			-
Income (loss) before non-controlling interest		(236,763	)		(87,565	)		(456,959	)		(225,610	)

Income (loss) applicable to non-controlling interest		-			-			-			-
Net income (loss)		(236,763	)		(87,565	)		(456,959	)		(225,610	)
Other comprehensive income (loss):

Unrealized gain (loss) on available for sale securities		55,129			-			(5,201	)		-
Foreign currency translation adjustment					-			-			-
Comprehensive income (loss)		(181,634	)	$	(87,565	)	$	(462,160	)	$	(225,610	)

Income (loss) per common share - basic and diluted	$	(0.02	)	$	(0.01	)	$	(0.04	)	$	(0.02	)

Weighted average shares outstanding		14,151,902			12,024,069			12,919,673			10,511,245

See accompanying footnotes to these unaudited condensed consolidated financial statements.

F-2

SURGE GLOBAL ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the six months ended
	June 30, 2014			June 30, 2013
Cash flows from operating activities:
Net loss	$	(456,959	)	$	(225,610	)
Non-controlling interest					-
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion, depreciation and amortization		2,257			-
Impairment of oil and gas properties		9,702			-
Warrant expense		12,450			-
Changes in operating assets and liabilities:
Accounts Receivable and other receivables		105			-
Prepaid expense and other assets		(6,671	)		2,364
Accounts payable and accrued liabilities		(44,245	)		(11,782	)

Net cash received (used) from operating activities	$	(483,361	)	$	(235,028	)

	For the six months ended June 30,
	2014			2013
Cash flows from investing activities:
Purchase of oil and gas properties		(8,000	)		-
Net cash provided by (used in) investing activities		(8,000	)		-

Cash flows from financing activities:
Proceeds from the sale of common stock and stock subscription, net of costs and fees		979,150			200,000
Common stock subscribed		-			(100,000	)
Proceeds from (apportionment of) investment obligation		(393,000	)		240,000
Net cash (used in) provided by financing activities		586,150			340,000
Effect of exchange rates on cash and cash equivalents		-			-

Net increase (decrease) in cash and cash equivalents		94,789			104,972

Cash and cash equivalents at the beginning of the period		61,521			90,541
Cash and cash equivalents at the end of the period	$	156,310		$	195,513

F-3

SURGE GLOBAL ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	For the six months ended June 30,
	2014			2013
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest	$	132		$	214
Cash paid during the period for income taxes		-			-

Supplemental Disclosures of Non-Cash Transactions:
Unrealized loss (gain) on available for sale securities	$	(5,201	)		-
Issuance of Warrants to third parties	$	12,450			-

See accompanying notes to these unaudited consolidated financial statements.

F-4

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

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

Business and Basis of Presentation

The consolidated financial statements include the accounts of Surge Global Energy, Inc., its wholly owned subsidiaries, Cold Flow Energy ULC, and Surge Holding Co., (collectively the “Company“).

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

In January 2005, the Company began implementing plans to establish an oil and gas development business. As a result, the Company is an exploration stage enterprise, as defined by ASC 915 (formerly Statement of Financial Accounting Standards No. 7 (“SFAS 7“)) and is now seeking to explore the acquisition and development of oil and gas properties in the United States and Canada. From its inception of exploration stage through the date of these financial statements, the Company has not generated any significant 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 June 30, 2014 the Company has accumulated exploration stage losses of $42,386,087. The Company will cease to be an exploration stage oil and gas company once it commences oil and gas drilling, exploration, and production of oil and gas properties.

Management Estimates

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

Oil and Gas Properties

The Company follows the full cost accounting method to account for oil and natural gas properties, whereby costs incurred in the acquisition, exploration and development of oil and gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.

The capitalized costs of oil and gas properties, excluding unevaluated and unproved properties, are amortized using the units-of-production method based on estimated proved recoverable oil and gas reserves. Amortization of unevaluated and unproved property costs begins when the properties become proved or their values become impaired. Impairment of unevaluated and unproved prospects is assessed periodically based on a variety of factors, including management’s intention with regard to future exploration and development of individually significant properties and the ability of the Company to obtain funds to finance such exploration and development.

F-5

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

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 the 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 the estimated fair value of any unproved properties included in the costs being amortized, less (d) any income tax effects related to differences between the book and tax basis of the properties involved. If capitalized costs exceed this limit, the excess is charged to earnings.

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

Cash and Cash Equivalents

For purposes of the Balance Sheet and Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. The Company has total cash of $156,310 in cash in accounts maintained by U.S. banks, all of which is subject to up to $250,000 of FDIC insurance.

Fair Value of Financial Instruments

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

ASC 820, “Fair Value Measurements and Disclosures,“ defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

	●	Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities

	●	Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

	●	Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

F-6

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

	As of June 30, 2014 Fair Value Measuring Using
	Carrying Value		Level 1		Level 2		Level 3		Total
Investment in Andora, available for sale or for distribution	$	1,624,413		-		-		1,624,413	$	1,624,413

Total	$	1,624,413		-		-		1,624,413	$	1,624,413

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. See Note 2 for further details on the Andora investment.

Foreign Currency Translation

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

Going Concern

As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations of $456,949 and $225,610 for the six months ending June 30, 2014 and 2013, respectively. The Company’s cash position as of June 30, 2014 was $156,310 compared with $61,521 at December 31, 2013, an increase of $94,789. The Company’s net current assets, on a consolidated basis, were a surplus of $80,997 compared with a net current deficit of $457,603 at December 31, 2013, an increase in net working capital of $538,600 primarily as a result of common stock sales. Management believes it should have sufficient capital resources to meet projected cash flow needs through the next twelve months, although no assurances can be given in this regard.

Other Items

The Company concluded negotiations with a private investor on January 21, 2014 for $500,000 in equity financing, which amount was received in the quarter ended March 31, 2014.

The Company concluded negotiations with a private investor on March 15, 2014 for $650,000 in equity financing, which amount was received in the quarter ended March 31, 2014.

The Company concluded negotiations with a private investor on March 31, 2014 for $250,000 in equity financing, which amount was received in the quarter ended March 31, 2014.

The Company concluded negotiations with a private investor on April 22, 2014 for $250,000 in equity financing, which amount was received in the quarter ended June 30, 2014.

In June, 2014, the Company issued 15,000 common shares as a partial payment of the salary of a new employee.

F-7

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

Revenue Recognition—Oil and gas sales result from undivided interests held by the Company in oil and gas properties. Sales of oil and gas produced from oil and gas operations are recognized when the product is delivered to the purchaser and title transfers to the purchaser. The Company had no natural gas sales imbalance positions at June 30, 2014 or 2013.

Income Taxes

Income taxes are provided based on the liability method for financial reporting purposes. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be removed or settled. Most of our tax loss carry forwards were cancelled as a result of a change of control which occurred in October, 2012.

Property and Equipment

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets. Depreciation expenses were $2,171 and none for the quarters ended June 30, 2014 and 2013, respectively. Maintenance, repairs, and minor renewals are charged against earnings when incurred. Additions and major renewals are capitalized.

Marketable securities

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

Stock-Based Compensation

The Company measures and recognizes compensation expense for all share-based payment awards made to employees, consultants and directors including employee stock options based on estimated fair values. There was no stock-based compensation expense recognized for the quarters ended June 30, 2014 or 2013. In prior years, Company used the Black-Scholes option-pricing model as its method of valuation for share-based awards granted. The Company’s determination of fair value of share-based payment awards on the grant date using an option-pricing model is affected by the Company’s stock price as well as other assumptions of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.

Comprehensive Income

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

F-8

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (continued)

Recently Issued Accounting Pronouncements

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC“) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. Management has reviewed these rules and releases and does not expect the adoption of any other recently issued accounting pronouncements to have a significant impact on its consolidated results of operations, financial position or cash flow.

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

NOTE 2 - INVESTMENT IN ANDORA ENERGY CORPORATION

On September 19, 2007, Signet completed the proposed business combination of Signet and Andora Energy Corporation (“Andora“). As part of the combination, each of the issued and outstanding shares of Signet common stock was exchanged for 0.296895028 shares of Andora common stock. The Company exchanged its 11,550,000 shares of Signet common stock for approximately 3,429,140 shares of common stock of Andora representing approximately 5.78% of the fully diluted shares of Andora. At that time, 2,349,321 shares of Andora common stock received by the Company were placed in an escrow account pursuant to an agreement with Valiant Trust Company, Andora and Signet. In connection with the Dynamo litigation claim, Andora was entitled to recover a claim of legal fees from the Company pursuant to a judgment of a court of competent jurisdiction and after exhausting all appeals, which only allowed the escrowed shares to be released upon settlement of all claims. Pursuant to the agreement reached between the Company and Andora, all shares were released from escrow to the Company in February, 2010 after payment of 375,000 Andora shares owned by the Company to Andora.

During the years ended December 31, 2010 and 2011 the Company issued 16,667 and 16,666 shares of Andora common stock to its Chief Executive Officer in lieu of $20,000 in cash compensation due under his employment agreement.

In October, 2012 the Company agreed to issue a total of 308,780 Andora shares and $120,919 in cash to two creditors, one of which was its former Chief Executive Officer and current Chief Financial Officer, E. Jamie Schloss, who received 243,156 shares and $85,668 in cash, in settlement of $234,431 in claims. In October 2012, the Company agreed to issue a total of 308,780 Andora shares in settlement of amounts owed to its current Chief Financial Officer (and formerly its Chief Executive Officer) and another creditor.

F-9

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 2 - INVESTMENT IN ANDORA ENERGY CORPORATION (continued)

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

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

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

At June 30, 2014, the Company owned a total of 2,889,386 shares in Andora valued at $1,624,413 for financial statement purposes ($0.5622 per share) after taking a permanent writedown of $1,340,852 in fiscal 2012 due to market conditions and temporary write-downs of $5,201 for the six months ending June 30, 2014 to reflect the decline in the current market value of this property after conversion into US dollars. Some of these shares will be used to finance the distribution of the Andora shares as discussed above.

Andora is a privately owned oil and gas company which is 71.80% owned and controlled by Pan Orient Energy Corp., a Canadian energy company listed on the TSX Venture Exchange. The Company owns approximately 3% of the total outstanding shares of Andora.

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

NOTE 3 - OIL AND GAS PROPERTIES

The Company acquired an oil & gas property in Muhlenberg County, Kentucky in July, 2013. The property is located on a 170 acre lease and consisted of two completed wells and subsequently two additional wells were drilled and completed on the property. Due to mechanical problems with the wells and a reduction in reserve estimates, the Company recorded a $200,000 oil and gas impairment in the year ended December 31, 2013 and we are continuing to evaluate this property.

F-10

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

The Company also owns partnership interest in three oil & gas partnerships located in Texas and acquired $2,000 of these interests during the quarter ended June 30, 2014 increasing the total gross value of these properties to $10,000. After reviewing the value of these partnerships the Company recorded an impairment of $9,702 to completely write-offs these interests at June 30, 2014.

NOTE 4 - INCOME TAXES

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

	For the six months ended,
	June 30, 2014			June 30, 2013
Net Taxable Loss	$	(430,000	)	$	(225,000	)
Income tax computed at combined U.S. and state rates (30%)		(129,000	)		(67,500	)
Permanent differences		-			-
Changes in valuation allowance		129,000			67,500
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 June 30,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	362,000		$	362,000
Other tax attributes		129,000			-
Less valuation allowance		(491,000	)		(362,000	)
Total	$	0		$	-

Deferred taxes are provided on a liability method for taxable temporary differences resulting from reported amounts of assets and liabilities and their tax basis. Deferred tax assets have resulted from the Company’s net operating loss carry-forward, which has been reduced by an equal valuation allowance. Valuation allowance has been established based on the opinion of management that it is more likely than not that some portion or all of the deferred tax assets will not be realized. A substantial portion of the tax loss carry-forward was cancelled as a result of the change of control, which occurred in October 2012. For federal income tax purposes, the years from 2011 to 2013 are still open.

NOTE 5 - INVESTMENT OBLIGATION

The Company received investments in common stock which in turn reduced the investment obligation by $393,000 in the six months ended June 30, 2014 thereby reducing the investment obligation to zero as of June 30, 2014.

NOTE 6 - CAPITAL STOCK

Preferred Stock

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

F-11

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

Common Stock

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

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

In November 2006, the Company issued an aggregate of 3 million shares of common stock to third party investors, Gemini Financial, in exchange for net proceeds of $1,350,000. In connection with this private placement, the Company issued to the investors an aggregate of six million warrants of the Company that are subject to registration rights and penalties amounting to 2% of the proceeds on a monthly basis if the registration was not effective by March 28, 2007. To address SEC comments, the Company was obligated to provide and disclose Peace Oil Corp. financial statements as well as a pro forma financial statement of the combined companies. The Company accounted for the warrants issued in accordance with ASC 815 (formerly EITF 00-19) “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock“.

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

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

In September 2008, the Company issued 50,000 common shares in conjunction with stock options exercised at a price of $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.

In 2010, the Company sold a total of 2,200,000 common shares with a total of 1,900,000 warrants for total proceeds of $218,000, net of fees, to various accredited investors and directors of the company at prices from $0.05 to $0.11 per share.

All figures shown hereafter reflect the reverse 1 for 20 common stock split:

In 2011, the Company sold a total of 112,500 common shares for total proceeds of $67,500 at $0.60 per share on a past reverse split basis.

In January, 2012, the Company issued 8,500 shares of common shares and 8,500 warrants for total proceeds of $5,100. The warrants are exercisable for one year at a price of $1.00 per share.

In October, 2012, the Company issued 7,000,000 shares of common stock for total proceeds of $350,000 at $0.05 per share.

F-12

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 6 – CAPITAL STOCK (continued)

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

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

In June, 2013, the Company issued to an accredited investor 200,000 shares of common stock at $0.50 per share and 200,000 stock purchase warrants exercisable at $1.00 per share.

In September, 2013, the Company issued to an accredited investor 500,000 shares of common stock at $1.00 per share and 500,000 stock purchase warrants exercisable at $1.00 per share.

In October, 2013, the Company issued to an accredited investor 200,000 shares of common stock at $1.00 per share and 200,000 stock purchase warrants exercisable at $1.00 per share.

From January 1, 2014 to June 30, 2014, the Company sold 1,300,000 common shares to three accredited investors at $1.00 per share and 575,000 stock purchase warrants exercisable at an average price of $1.08 per share.

In June, 2014, the Company issued 15,000 common shares as employee compensation, valued at the fair value at the date of grant, in the amount of $3,150.

NOTE 7 - WARRANTS AND STOCK OPTIONS

Class A Warrants.

Class A Warrants. The following table summarizes the stock purchase warrants outstanding at June 30, 2014.

		Warrants Outstanding						Warrants Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.40		152,500		3.29	$	0.40		152,500	$	0.40
	1.00		1,450,000		1.42		1.00		1,450,000		1.00
$	1.25		175,000		1.55		1.25		175,000	$	1.25
	Totals or average		1,777,500		1.65	$	1.13		1,777,500	$	0.97

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, 2012		152,500	$	0.40
Granted		900,000		1.00
Exercised		-		-
Canceled or Expired		-		-
Outstanding at December 31, 2013		1,052,500	$	0.91
Granted		725,000		1.069
Exercised
Canceled or expired
Outstanding at June 30, 2014		1,777,500	$	0.97

F-13

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 7 - WARRANTS AND STOCK OPTIONS (continued)

For the quarter ended June 30, 2014 the Company issued 350,000 warrants which were fully vested at June 30, 2014. Of the 350,000 warrants issued, 200,000 warrants were issued in conjunction with a common stock offering and no warrant expense was recorded in 2014 for these warrants.

The second transaction was for 150,000 warrants also issued during the June 30, 2014 quarter and an expense of $12,450 was recorded for these warrants using the Black-Scholes formula for calculating their value.

Stock options.

No stock options were issued or exercised during the quarters ended June 30, 2014 or 2013.

All stock options and warrants issued previously were valued using the Black-Scholes option-pricing model. Variables used in the Black-Scholes pricing model for options issued during the quarter ended June 30, 2014 include (1) annual risk free rate of $1.00% (2) warrant life of 15 months, (3) expected volatility of 175% and (4) zero expected dividends.

Stock options.

The following table summarizes the balances of stock options issued to officers and directors outstanding at June 30, 2014:

Exercise Prices		Number of options Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Actual Number Exercisable		Weighted Average Exercise Price
	0.40		115,000		3.30		0.40		115,000		0.40
			115,000		3.30	$	0.40		115,000	$	0.40

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

	Number of Shares		Weighted Average Price Per Share
Outstanding at December 31, 2013		115,000	$	0.40
Granted		-		-
Exercised		-		-
Canceled or expired		-		-
Outstanding at June 30, 2014		115,000	$	0.40

NOTE 8 - LITIGATION MATTERS

The Company’s business and operations may subject the Company to claims, litigation and other proceedings brought by private parties and governmental authorities. Currently we are not a party to any pending litigation matters. Litigation can involve complex factual and legal questions and its outcome is uncertain.

Any claim that is successfully asserted against us could result in significant damage claims and other losses. Even if the Company were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations, which adversely affect our financial condition, results of operations or cash flows. The following is a description of our recent litigation:

There are no litigation matters pending as of June 30, 2014.

F-14

SURGE GLOBAL ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014 AND 2013

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Operating Leases

In May, 2011 the Company leased space on a month-to-month basis at 75-153 Merle Drive, Suite B, at a monthly rental of $225 per month.

In July, 2013 the Company leased space located at 1110 Brickell Avenue, Suite 317, Miami FL. The terms of the lease are a monthly rental of $2,500 per month for a two year term. The following is our lease commitment for future periods:

As of June 30, 2014
2014	$	15,000
2015		15,000
2016 and thereafter		-
	$	30,000

Employment Agreements

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

Consulting Agreements

The Company had no outstanding consulting agreements as of June 30, 2014.

NOTE 10 - SUBSEQUENT EVENTS

None.

F-15

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

	●	statements regarding our potential growth opportunities;

	●	statements regarding our ability to generate revenues from our operations;

	●	statements regarding our anticipated exploration work;

	●	statements regarding our ability to extract, refine, sell oil or sell oil properties;

	●	statements regarding our estimated future costs and expenses; and

	●	statements regarding ability to comply or continue to comply with governmental regulations.

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

General Overview

Surge Global Energy, Inc. (“Surge”) is a Delaware corporation traded on the OTCQB Markets and on the OTCBB Bulletin Board under the symbol “SRGG.” Our principal executive offices are located at 75-153 Merle Drive, Suite B, Palm Desert, CA 92211. Our telephone number is 800-284-3898 and our fax number is 786-923-0963. We maintain a website at www.SurgeGlobalEnergy.com. The contents of this website are not made a part of this filing.

We are an oil and gas exploration and development company. The Company currently owns a 32% working interest in four oil wells located in Kentucky, partnership interests of oil wells located in Texas, and is engaged in negotiations concerning the feasibility, outline and development of a production partnership for the purposes of developing oil & gas assets located in the Gulf of Guinea and surrounding offshore area of West Africa on the Atlantic Ocean. It is the Company’s present intent to acquire interests in existing production sites or historical production sites with proved reserves. We intend to actively participate in drilling for oil and gas for our own account and to participate with others in drilling opportunities. We will be competing with a number of other potential purchasers of prospects and producing properties, most of which will have greater financial resources than us or our co-interest holders. In the oil and gas industry, the bidding for prospects has become particularly intense with different bidders evaluating potential acquisitions with different product pricing parameters and other criteria that result in widely divergent bid prices. In the current oil and gas lease environment, there can be no assurance that there will be a sufficient number of suitable prospects available for acquisition by us or that we can sell prospects or obtain financing for, or participate with others to join in the development of, prospects.

Corporate History

We were incorporated as The Havana Group, Inc. on November 25, 1997 under the laws of the state of Delaware. Our initial business was the sale of pipes and tobacco products and we completed our initial public offering in May 1998. On December 31, 2003, our pipe and tobacco inventory was liquidated and the tangible and intangible assets related to that business were sold. On October 13, 2004, our name was changed from The Havana Group, Inc. to Surge Global Energy, Inc.

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

From 2005 through 2014, we engaged in a series of acquisition, divestiture and capital transactions in an effort to expand our business and provide the basis for long-term shareholder returns from oil and gas exploration and development. Because our operations from 2005 forward have not generated any substantial revenue, we have used our equity and the value of interests in other entities that we have controlled from time to time, to attempt to develop business opportunities we believed would be advantageous. Our management has also undergone a number of changes during this period.

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

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

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

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

From January 1, 2014 to June 30, 2014 the Company sold 1,300,000 common shares to three accredited investors for total proceeds of $975,750. In conjunction with these purchases the Company also issued 375,000 warrants to purchase common shares at $1.00 per share until approximately March 31, 2016.

In June, 2014, the Company issued 150,000 warrants exercisable at a price of $1.00 per share until September 30, 2014.

In June, 2014, the Company issued 15,000 common shares as employee compensation.

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

Recent Developments

None.

Oil and Gas Drilling Activities

The Company acquired a 32% working interest in the Robison lease located in Muhlenberg County, Kentucky for $240,470. At the time of the purchase the lease consisted of two producing oil wells but subsequently during the September, 2013 quarter and subsequently the Operator of the priority drilled two additional oil wells which tested as productive. The Operator is continuing to re-enter and test the property to maximize production levels.

The Company also acquired interests in two energy joint ventures valued at $2,000 during the quarter ended June 30, 2014. Also in this quarter the Company determined that the underlying reserves applicable to these assets were not sufficient to support the valuation on the books and recorded a write-off of these assets in the amount of $9,702 in the quarter ended June 30, 2014.

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

See our December 31, 2013 Form 10-K for a complete history of prior oil and gas activities.

Andora Energy Corporation (formerly Signet Energy)

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

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

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

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

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

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

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

Other financial transactions:

In 2010, the Company sold 50,000 Good Energy shares for $122,500 and the Company issued a total of 2,200,000 pre reverse split common shares for net total proceeds of $218,000.

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

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

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

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

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

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

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

In June 2013, the Company issued to an accredited investor 200,000 common shares at $0.50 per share and 200,000 stock purchase warrants exercisable at $1.00 per share.

In September 2013, the Company issued to an accredited investor 500,000 common shares at $1.00 per share and 500,000 stock purchase warrants exercisable at $1.00 per share.

On October 21, 2013, the Company issued to an accredited investor 200,000 common shares at $1.00 per share and 200,000 stock purchase warrants exercisable at $1.00 per share.

On January 26, 2014, the Company issued to an accredited investor 400,000 common shares at $1.00 per share and 175,000 stock purchase warrants exercisable at $1.25 per share.

On March 31, 2014, the Company issued to an accredited investor 650,000 common shares at $1.00 per share and 200,000 stock purchase warrants at exercisable at $1.00 per share.

On April 25, 2014, the Company issued 250,000 common shares at $1.00 per share to an accredited investor and 200,000 stock purchase warrants exercisable at $1.00 per share.

Competition

The oil and gas business is highly competitive. Subject to additional financing, of which we can provide no assurances, we will try to compete with private, public and state-owned companies in all facets of the oil business, including suppliers of energy and fuel to industrial, commercial and individual customers. Numerous independent and major oil and gas companies and oil and gas syndicates actively seek out and bid for both oil and gas prospects with substantially greater financial and personnel resources and operating histories than we do. Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States and other countries, as well as factors that we cannot control, including international political conditions, overall levels of supply properties as well as for the services of third-party providers, such as drilling companies, upon which we rely. Many of these companies not only explore for, produce and market oil and natural gas, but also carry out refining operations and market the resultant products on a worldwide basis.

Government and Environmental Regulation

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

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

Related party transactions

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

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

Critical Accounting Policies

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

Use of Estimates

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

Impairment of Long-Lived Assets

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

Marketable Securities

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

Number of Total Employees and Number of Full-time Employees

At June 30, 2014, the Company had six (6) full time employees. From our inception through the period ended June 30, 2014, we have relied on the services of outside consultants for services in addition to from one (1) to five (5) full-time employees. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. As we continue to expand, or complete a major oil & gas property acquisition we will incur additional costs for personnel and consultants. This projected increase in personnel is dependent upon our generating revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees. None of our employees are covered by collective bargaining agreements, and we believe our relations with our employees are favorable.

Results of Operations

For the Three Month Period Ending June 30, 2014 and June 30, 2013

The Company had no operating revenues in the three months ended June 30, 2014 or in the quarter ending June 30, 2014.

For the three months ended June 30, 2014, the Company incurred a net loss of $236,763 compared to a loss of $87,565 for the comparable period in 2013, an increased loss of $149,198 from the prior period.

The principal reasons for this increased loss are set forth below:

Total operating expenses for the three months ended June 30, 2014 were $236,631 versus $87,442 in the comparable three months ended June 30, 2013, an increase of $149,989 from the prior period. The increase in operating expenses was attributable primarily to an increase in officer salaries to $104,600 in the three months ending June 30, 2014 from $51,500 in the comparable period in 2013, an increase of $53,100; an increase in legal fees to $74,242 in the three months ending June 30, 2014 compared to $17,086 in the comparable period in 2013, an increase of $57,156; $12,450 in warrant expense the June 2014 quarter compared to none in the comparable period in 2013, $13,500 in tax preparation expenses in June, 2014 with no comparable charge in the prior period, and an increase in travel, entertainment and related expenses of $13,783.

Net interest expenses for the three months ended June 30, 2014 was $132 versus net interest expense of $123 for the prior comparable three month period.

For the Six Month Period Ending June 30, 2014 and June 30, 2013

The Company had operating revenues in the six months ended June 30, 2014 of $145 compared with no revenues in the six months ended June 30, 2013.

For the six months ended June 30, 2014, the Company incurred a net loss of $446,747 compared to a loss of $225,273 for the comparable period in 2013, an increased loss of $221,137(98%) from the prior period.

The principal reasons for this increased loss are set forth below:

Total operating expenses for the six months ended June 30, 2014 were $456,720 versus $225,273 in the comparable six months ended June 30, 2013, an increase of $231,447 from the prior period. The increase in operating expenses was attributable primarily to an increase in officers’ salaries to $208,000 in the six months ending June 30, 2014 from $111,500 in the comparable period in 2013, an increase of $96,500; an increase in legal fees to $128,562 in 2014 compared to $31,413 in 2013, an increase of $97,149; $12,450 in warrant expense in the six months ended June, 2014 compared to none in the comparable period in 2013; $13,500 in tax preparation expenses in June, 2014 with no comparable charge in the prior period; an increase in rent expenses to $17,400 in the six months ended June 30,2014 compared with $6,933 in the comparable period in 2013; an increase of $10,467; an increase in travel and entertainment expenses to $41,914 in the six months ended June 30, 2014 compared with $3,351, an increase of $38,563; and a decrease in all other expenses (net) of $5,552.

Depreciation expense for the six months ended June 30, 2014 was $2,171 versus no depreciation expense in the prior comparable three month period, an increase of $2,171.

Net interest expenses for the six months ended June 30, 2014 was $239 versus net interest expense of $337 for the prior comparable three month period, a decrease of $98.

Liquidity and Capital Resources

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

A substantial portion of the increased operating expenses were incurred in conjunction with the efforts to acquire an oil and gas property in Western Africa. A portion of these expenses may be recoverable at the time that acquisition is completed.

Future operations

Our future operations depend on available cash resources, additional financing, and/or the sale of additional common stock. We can provide no assurances that any additional financing will be satisfactory to us, if at all.

Continuing Loss

As shown in the accompanying consolidated financial statements, the Company incurred losses from continuing operations for the six months ending June 30, 2014 of $456,959 compared with $225,273 for the six months ending June 30, 2014, an increase of $231,686. The Company’s cash position at June 30, 2014 was $156,310 compared with $61,521 at December 31, 2013, an increase of $101,355. The Company’s current liabilities were $100,100 at June 30, 2014 compared with $537,255 at December 31, 2013, a decrease of $437,155.

The Company’s net working capital at June 30, 2014 was $80,997 compared with a working capital deficit of $457,603 at December 31, 2013, an improvement of $538,600.

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

Inflation

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

Off Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Management’s Report on Internal Control over Financial Reporting

Our adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting.

Management is responsible for establishing and maintaining policies and procedures for the preparation of financial statements for external purposes consistent with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our principal executive officer, Clark Morton, and our principal financial officer, E. Jamie Schloss, evaluated the effectiveness of our internal control over financial reporting as of June 30, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on this evaluation, Mr. Morton and Mr. Schloss concluded that, as of June 30, 2014, our internal control over financial reporting was not effective due to material weaknesses in the system of internal control. A material weakness is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner.

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

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting, known to the Principal financial officer that occurred during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

There are no pending open litigation matters affecting the Company.

ITEM 1A. RISK FACTORS

Our business has many risks. During the six months ended June 30, 2014, there were no material changes to the information in our 2013 Form 10-K under “Risk Factors.” Those factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock are described in more detail under “Risk Factors” in Item 1A of our 2013 Form 10-K filed with the Securities and Exchange Commission on April 9, 2013. This information should be considered carefully, together with other information in this report and other reports and materials we file with the Securities and Exchange Commission.

Loss of Investment Company Act Exclusion Would Adversely Affect Our Business

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

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

During the six months ended June 30, 2014, there were no material changes to the information contained in our 2013 Form 10-K under “Risk Factors.”

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

(a) During the three months ended June 30, 2014, there were no sales of securities by the Company except as set forth below:

Date of Sale		Title of Security		Number of Shares Sold		Consideration Received, Commissions		Purchasers		Exemption from Registration Claimed
April 25, 2014		Common stock		250,000 shares plus warrants		$250,000, no commissions paid		Accredited Investor		Rule 506; Section 4(2)

During the three months ended June 30, 2014, there were no repurchases by the Company of its Common Stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

31.1	Certification by Principal Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Certification by Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1	Certification by Principal Executive Officer, pursuant to 18 USC Section 1350.*

32.2	Certification by Principal Financial Officer, pursuant to 18 USC Section 1350.*

101	Interactive data files pursuant to Rule 405 of Regulation S-T:**

	(i) Consolidated Balance Sheets at June 30, 2014(unaudited) and December 31, 2013.

	(ii) the unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three month and six month periods ending June 30, 2014 and 2013

	(iii) the unaudited Consolidated Statements of Cash Flows for the periods ending June 30, 2014 and June 30, 2013, and

	(iv) the notes to unaudited financial statements.*

	**This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

	* Filed herewith.

SIGNATURES

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

	SURGE GLOBAL ENERGY, INC.

DATED: August 14, 2014	By:	/s/ Clark Morton
		Clark Morton
		(PRINCIPAL EXECUTIVE OFFICER)

	SURGE GLOBAL ENERGY, INC.

DATED: August 14, 2014	By:	/s/ E. Jamie Schloss
		E. Jamie Schloss
		(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)

Surge Global Energy, Inc. - FORM 10-Q - August 14, 2014

Attached files

Surge Global Energy, Inc. Reports